CBSE Class 12

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements

Detailed, Step-by-Step NCERT Solutions for 12 Accountancy Chapter 9 Analysis of Financial Statements Questions and Answers were solved by Expert Teachers as per NCERT (CBSE) Book guidelines covering each topic in chapter to ensure complete preparation.

Analysis of Financial Statements NCERT Solutions for Class 12 Accountancy Chapter 9

Analysis of Financial Statements Questions and Answers Class 12 Accountancy Chapter 9

Test Your Understanding-I (Page. No. 205)

Fill in the blanks with appropriate words :
(i) Analysis simply means data.
(ii) Interpretation means data.
(iii) Comparative analysis is also known as analysis.
(iv) Common-size analysis is also known as analysis.
(v) Tire analysis of actual movement of money inflow and outflow in an organisation of called analysis.
Answer:
(i) Simplification
(ii) Explaining
(iii) Horizontal
(iv) Vertical
(v) Cash Flow

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements

Choose the right answer:

Question 1.
The financial statements of a business enterprise include :
(a) Balance sheet
(b) Profit and loss account
(c) Cash flow statement
(d) All the above
Answer:
(d) All the above.

Question 2.
The most commonly used tools for financial analysis are :
(a) Horizontal analysis
(b) Vertical analysis
(c) atio analysis
(d) All the above
Test Your Understanding-II (Page No. 220)
Answer:
(d) All the above.

Question 3.
An Annual Report is issued by a company to its :
(a) Directors
(b) Auditors
(c) Shareholders
(d) Management
Answer:
(c) Shareholders.

Question 4.
Balance Sheet provides information about financial position of the enterprise:
(a) At a point in time
(b) Over a period of time
(c) For a period of time
(d) None of the above
Answer:
(a) At a point in time.

Question 5.
Comparative statement are also known as :
(a) Dynamic analysis
(b) Horizontal analysis
(c) Vertical analysis
(d) External analysis
Answer:
(b) Horizontal analysis.

Test Your Understanding-III (Page No. 230)

State whether each of the following is True or False :
(a) The financial statements of a business enterprise include funds flow statement.
(b) Comparative statements are the form of horizontal analysis.
(c) Common size statements and financial ratios are the two tools employed in vertical analysis.
(d) Ratio analysis establishes relationship between two financial statements.
(e) Ratio analysis is a tool for analysing the financial statements of any enterprise.
(f) Financial analysis is used only by the creditors.
(g) Profit and loss account shows the operating performance of an enterprise for a period of time.
(h) Financial analysis helps an analyst to arrive at a decision.
(i) Cash Flow Statement is a tool of financial statement analysis.
(j) In a Common size statement each item is expressed as a percentage of some common base.
Answer:
(a) True
(b) True
(c) True
(d) True
(e) True
(f) False
(g) True
(h) True
(i) True
(j) True.

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements

Do it Yourself (Page No. 212)

From the following balance sheet and income statement of Day Dreaming Co. Ltd., for the year ending 2005 and 2006, prepare the comparative statements.

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 1
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 2
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 3

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 4
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 5
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 6
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 7

Interpretation:
(i) The Comparative Income Statement reveals that there has been an increase in sales by 16.67% while the cost of goods sold has increased by 30.77%, thereby resulting in a decreases in Gross Profit by 20%. Although the operating expenses have remained constant, there has been decrease in net profit by 26.32% because of decline in Gross Profit.

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements

(ii) The Companies current Assets have increased by Rs. 140 Lakhs i.e. 16.47% whereas the current liabilities have increased by 125 Lakhs (22.73%).
(iii) Shareholders Funds have increased by 45 Lakhs i.e. 3%.
(iv) The overall financial position of the company is satisfactory.

Do it Yourself (Page No. 219)
The following are the Balance Sheets of Harsha Ltd. as on March 31, 2006 and March 31,2007
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 8
Prepare Common-Size Balance Sheet and interpret the same.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 46
Interpretation:
(i) In the year 2006, Current Assets have increased from 47.83% to 48.53%. Cash Balance increased by 4.42% from 2.18%.

(ii) Current Liabilities decreased from 27.18% to 22.06% implying that the company has paid the Current Liabilities from Current Assets. Even then, the liquidity position’s reasonably good.

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements

(iii) Fixed Assets increased from Rs. 1,20,000 in 2005 to Rs. 1,75,000 in 2006 as a result of Purchase of Fixed Assets by the additional issue of Share Capital.

(iv) The overall Financial Position of the Company is satisfactory.

Do it Yourself (Page No. 222)
The following data is available from the P & L AJc of Deepak
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 9
You are required to show Trend Percentages of different items.
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 10
Interpretation:
(i) The sale for the year 2004 and 2006 have increased but the sales for the year 2005 have decreased. It is not a good sign for the business.
(ii) The wages paid to the employees is continuously increasing and the selling expenses are also increasing
(iii) The Gross Profit for the year 2003 is 100 and for the year
2004 is 106 but it has gradually decreased for the period 2005 and 2006.
(iv) The Firm should reduce its expenses in order to increases the gross profit. The overall performance is not satisfactory.

Short Answer Type Questions

Question 1.
List the techniques of Financial Statement Analysis.
Answer:
The process of critical examination of the financial information contained in the Financial Statement in order to understand and make decision regarding the operations of firm is called the ‘Financial Statement Analysis’. Basically, it is a study of the relationship among various financial facts and figures as given in a set of Financial Statements.

“Financial Statement analysis is designed to indicate the strength and weaknesses of business undertaking through, the establishment of certain crucial relationship by regrouping and analysis of figures contained in financial statements.” —J.N. Myres

“Financial Statement analysis is largely a study of relationships among the various financial factors in a business, as disclosed by a single set of statements and a study of trends of these factors, as shown in a series of statements.’—Myer

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements

Techniques of Financial Statement Analysis:
Financial Statements indicate certain absolute information about assets, liabilities, equity, revenues, expenses and profit or loss of an enterprise. They are not readily understandable to the external users of accounts. The users of accounts need information about profitability, solvency and liquidity of the enterprise. Accordingly various techniques are employed for analysing the financial statements.

The following are the main techniques for analysis of the financial statements—
(i) Comparative Statement Analysis.
(ii) Common Size Statement Analysis.
(iii) Trend Analysis.
(iv) Ratio Analysis.
(v) Cash Flow Analysis.

(i) Comparative Statement Analysis : Comparative statements compares financial numbers at two points of time and helps in driving meaningful conclusions regarding the changes in financial positions and operating results and to enable the reader to understand the significance of such changes.

Such comparison of financial statements is accomplished by setting up Balance Sheet and Profit and Loss Account side by side and studying the changes that have occurred in the individual figure therein from year to year and over the years.

Thus, Comparative Statements are those which summarise and present relating data for a number of years incorporating therein the changes in individuals items of financial statements. This analysis is also known as Horizontal Analysis.

(ii) Common Size Statement Analysis: These Statements indicate the relationship of different items of a Financial Statements with some common item by expressing each item as a percentage of the common item. The percent thus calculated can be easily compared with the corresponding percentages of some other firms, as the number are brought to common base. This analysis is also known as ‘Vertical Analysis’.

(iii) Trend Analysis: It is a technique of studying several Financial Statements over a series of years. Using the previous years, data of a business enterprise, trend analysis can be done to observe the percentage changes over time in the selected data. Trend analysis is important because, with its long run view, it may point to basic changes in the nature of the business. By looking at a trend in a particular ratio, one may find whether the ratio is falling, rising or remaining relatively constant.

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements

(iv) Ratio Analysis: Accounting ratios measure the comparative significances of the individual items of the income and position statements. It is possible to assess the profitability, solvency and efficiency of an enterprise through the techniques of ratio analysis.

(v) Cash Flow Analysis : It refers to the analysis of actual movement of cash in to and out of an organisation. Cash Flow Statements is prepared to project the manner in which the cash received has been utilised during an accounting year. It is a statement, which shows the sources of cash receipts and also the purposes for which payments are made. Thus, it summarises the causes for the changes in cash position of a business enterprise between dates of two balance sheets.

Question 2.
Distinguish between Vertical and Horizontal Analysis of financial data;
Answer:
Horizontal Analysis : This analysis is made to review and analyse financial statements of a number of years and are, therefore based on financial data taken for those years. It is a time series analysis. It shows comparison of financial data for several years against a chosen base year. This is very useful for long term trend analysis and planning. Comparative Financial Statement is an example of this type of analysis.

Vertical Analysis : This analysis is made to review and analyse the financial statements of one particular year only. This type of analysis is also called ‘Statistics Analysis’ as it is frequently used for referring to ratio’s developed for one date or for one accounting period. Such an analysis is useful in company or the performance of several companies in the same group or divisions or departments in the same enterprise.

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements

Difference between Horizontal Analysis and Vertical Analysis

Horizontal AnalysisVertical Analysis
1. It requires comparative financial statements of two or more accounting periods.
2. It is a part of comparisons.
3. It provides information in absolute and percentage form.
4. It deals with same item of different periods.
5. It is generally used for time series analysis.
1.     It requires a statement of one period.
2.     It is a step towards comparisons.
3.     It provides information in, percentage for money.
4.     It deals with different items of same period.
5.     It is generally used for cross­section analysis.

Question 3.
Explain the meaning of Analysis and Interpretation?
Answer:
Analysis of Financial Statements is the process of identifying the financial strengths and weaknesses of the firm by properly establishing relationship between the items of the Balance Sheet and Income Statement. Whereas, Interpretation involves explaining the meaning and significance of the relationship so established by the analysis. Thus, analysis provide the basis for interpretation.

Question 4.
Bring out the importance of Financial Analysis.
Answer:
Financial Statement Analysis are very important and useful to all those who are interested in the well-being of the business in one way or the other. It is an important part of over all financial assessment. It is based on the statements which are the end product of accounting system, i.e. Balance Sheet and Profit & Loss A/c and the Statement of Source and Application of Funds. The financial analysis serves the following purposes and that brings out the importance of such analysis:

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements

1. To judge the financial soundness of the business concern : On the basis of financial statement, the solvency of the concern may be judged i.e. the long term, as well as short term solvency of a business, can be judged from the information contained in the financial statements.

Debenture holders and lenders judge the ability of the company to pay the principal and interest as most of the companies raise a portion of their capital requirements by issuing debentures and raising long term loans.

Trade creditors are mainly interested in assessing the short term solvency of the business as they want to know that the business is in a position to pay debts as and when they fall due.

2. To judge the Managerial Efficiency: The financial statement analysis helps to pinpoint the areas wherein, the managers have shown better efficiency and the areas of inefficiencies.

3. Inter firm comparison: Analysis of financial statement makes it easy to make inter-firm comparison. The inter-firm comparison helps in assessing own performance as well as that of others if mergers and acquistions are considered. This comparison can also be made for various time periods.

4. To judge the Earning Capacity or Profitability: On the basis of financial statements, the earning capacity of the business concern may be computed. In addition to this the future earning capacity of the concern may be forecasted.

5. Making Forecasts and Preparing budgets : Past financial statements analysis helps a great deal in assessing developments in the future, specially the next year. Analysis thus helps in preparing budgets.

Question 5.
What are Comparative Financial Statements?
Answer:
Comparative statements compare the financial numbers at two points of time and captures changes in the same. The change could be presented in absolute amount or in comparative terms such as percentage.

Under this method, the following informations are presented by’ the comparative financial statements :
(i) Absolute money values of different items.
(ii) Increase or decrease in absolute data in terms of money values.
(iii) Increase or decease in absolute data in terms of percentage.

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements

For the purpose of analysis, various comparative statements are prepared. Out of these, important ones are :
1. Comparative Balance Sheet
2. Comparative Profit and Loss A/c
3. Comparative Statement of Cost of Production
4. Comparative Statement of Working Capital.

1. Comparative Balance Sheet—In comparing Balance Sheet, the items of Balance Sheet for two or more periods are presented in a manner that increase or decrease in assets and liabilities between these periods can be ascertained easily. All business transactions affect assets, liabilities and capital presented in the balance sheet. Changes in the items can be known by comparing balance sheets at the beginning and end of the year. Thus, comparative balance sheet is very important to determine tendencies for business.

Significance of Comparative Balance Sheet:
(i) Comparative Balance Sheet is quite significant for an analyst, because it not only provides infonnations about various items on a particular date, but also the changes in these items between two periods can be ascertained.

(ii) With the help of Comparative Balance Sheet future trends of assets, liabilities and captial can be ascertained. It helps prepare the plans easily.

(iii) The profit and loss account of business acts as a link between the balance sheets of two dates. The quantum of profit or loss affects the items of balance sheet.

2. Comparative Profit and Loss Account—Comparative Profit and Loss Account represents net profit or net loss in a period of time. It helps to determine whether sales, cost of sales, gross profit or net profit have increased or decreased. Besides absolute increase or decrease in various items of profit and loss acount, they also be shown in percentage terms.

To analyse the items in profit and loss A/c, the analyst should compare the changes in cost of sales and operating expenses with the changes in sales. The increase or decrease in gross profit should be considered with reference to sales. Net profit can also be compared with income.

3. Comparative Statement of Cost of Production—The comparative statement of cost of production can present absolute increase or decrease, percentage increase or decrease in each item of cost of production and the proportion of that item to the cost of production. It will help in finding out what changes in each item of cost of production have occured and what are their effects on cost of production. It will help in taking proper decisions to control the cost in future.

4. Comparative Statement of Working Capital—The Comparative Statement of Working Capital helps find out changes (increase or decrease) in the working capital, each of the current assets, each of the current liabilities, total current assets and total current liabilities. By comparing the changes in current assets and current liabilities, the liquidity of business can be evaluated.

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements

Question 6.
What do you mean by Common-Size Statements?
Answer:
Common-Size Statement : Common-Size Statement also known as component percentage statement, is a financial tool for studing the key changes and trends in the Financial Position (Balance Sheet) and Financial Result (Profit and Loss A/c) of a company. In this figures reported are converted into percentages of some common base. For example, Total assets may be chosen as a measures size for Balance Sheet and Sales may act as a measure size for Profit and Loss A/c.

These statements are known as common size statements, because all the figures are converted into a common size.

Purpose: An Analysis of common size statement will help better understand the important changes which have occured in the enterprise over a period of time. This analysis constitute a vertical study within one column of the comparative statement therefore, it is also called as vertical analysis.

Importance: An analysis of commorisize statement is of immense use which comparing business enterprise which differ substantially in size as it provides an in sight into the structure of financial statements.

Common Size Balance Sheet :

In Common Size Balance Sheet, each item of assets is shown as percentage of total assets and each item of liability is shown as a percentage of total liabilities. The total of the assets and that of liabilities is taken as 100 percent and each item, appearing on the assets side as well as liabilities side is shown as proportion of the total of 100. It is also known as Percentage Balance Sheet.

Common Size Income Statement : Income Statements are reduced to common size by expressing each item as a percentage of net sales. Thus, the Common Size Income Statement captures the relationship between sales and expenses.

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements

Steps:
The following steps may be followed to prepare the common size statements:
1. Draw table with the five columns like.
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 11

2. List out absolute figures in ruppees at two different point of time.

3. Choose a common base (as 100). For example, Sales revenue total may be-taken as base (100) in case of Profit and Loss A/c and total assets or total liabilities (100) in case of Balance Sheet.

4. Convert all items of Col. 2 and Col. 4 as a percentage of that total. Column 3 and 5 portray these percentages.
The purpose of common-size analysis is to know the importance of each item in the total. Hence, this analysis can be done for one year also.

Long Answer Type Questions

Question 1.
Describe the different techniques of financial analysis and explain the limitations of financial analysis.
Answer:
Following are the main tools or techniques of financial analysis :
1. Comparative Financial Statements
2. Common-Size Statements
3. Ratio Analysis
4. Fund Flow Statement
5. Cash Flow Analysis.
6. Trend Analysis.

1. Comparative Financial Statements—By preparing comparative statement, the nature and quantum of change in different items can be calculated and it also helps in future estimates. By comparing with the data of the previous years, it can be ascertained what type of changes in different items of current year have taken place and the future trend of business can be estimated.
For the purpose of analysis, various comparative statements are prepared. Out of these, important ones are :

  • Comparative Balance Sheet
  • Comparative Profit and Loss A/c
  • Comparative Statement of Cost of Production
  • Comparative Statement of Working Capital.

While preparing comparative statements, it should be ensured that the financial statements of different years used for comparison are based on same principles and procedures so that uniformity can be attained, otherwise; data will not be comparable.

2. Common-Size Statements—Common-size statements are such statements in which items of the financial statements are converted in percentage on the basis of a common base. In common-size Income Statement, net sales may be considered as 100%. Other items can be converted as its proportion. Similarly, for the Balance Sheet items total assets or total liabilities may be taken as 100% and proportion of other items to this total can be calculated in percentages.

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements

3. Ratio Analysis—Ratio is quantitative relationship between two items for the purpose of comparison. For example, profit is related to capital invested in business, and debtors are dependent on credit sales.’Ratio helps in drawing meaningful conclusions by establishing relationship between various facts.’

4. Fund Flow Statement—Fund flow statement is a technique of analysing financial statements. The fund flow statement is a statement which is prepared to ascertain the changes in funds between two balance sheets of an institution. Fund flow statement is a statement ‘of sources and applications of funds, is a technical device designed to highlight the changes in the financial condition of business enterprise between two dates.

5. Cash Flow Statement—Cash flow statement is such a statement which expresses the reasons of changes in cash balances of business between two dates. This statement attempts to analyse the transactions of the firm in terms of cash. It shows the cash inflows and outflows.

6. Trend Analysis—Comparative and Common-size-statements signifies that meaningful conclusions could be drawn regarding the operating performance and financial position of the enterprise. Both of the analysis use percentage figures in helping an analyst to form an opinion. These percentage could be calculated for a number of successive years in order to understand trend of financial statement item and This analysis is known as ‘trend analysis’.

Limitations of Analysis of Financial Statements—Financial statements help the interested parties in assessing the profitability and financial soundness of a concern. However, these statements have certain limitations which must be kept in mind while using the information provided by them. Some of the limitations are as follows :

1. Incomplete information—These statements provide only the interim report of the business and do not give the final picture. They provide only the incomplete information because the actual profit or loss of a business can be known only when the business is closed down.

2. Based on accounting concepts and conventions—Financial statements are prepared on the basis of number of accounting concepts and conventions. Hence, the profitability and the financial position disclosed by these statements, may not be realistic.

For example, fixed assets are shown in the balance sheet according to the ‘going concern concept’. This means that the fixed assets are shown at their cost and not at their market value. The values realised on their sale may be more or less than the values stated in the balance sheet.

Similarly, on account of convention of conservation, the profit and loss account does not disclose the true profit of the business because future losses are provided whereas future incomes are ignored. There are certain assets in the balance sheet like goodwill, preliminary expenses, discount on issue of shares which will realise nothing but they are shown in Balance Sheet.

3. Omission of Qualitative Information—Financial Statements contain only those informations which can be expressed in terms of money. Qualitative aspects of business units are omitted from the books at all, as these cannot be expressed in monetary terms.

Thus, changes in management-labour relations, firm’s ability to develop new products, efficiency of management, satisfaction of firm’s customers etc. which has a vital bearing on the profitability of the firm are all ignored and omitted from being recroded because all these are qualitative in nature.

4. based on Historical Costs—Financial statements are prepared
on the basis of historical costs and as such the figures given in fianancial statements do not show the effect of price level changes. Hence, they provide only the historical costs (original costs) which are not useful for decision making. ,

5. Influenced by Personal Judgement—Financial statements are affected by the personal judgement of the accountant. Accountant has to exercise his personal judgement in respect of various claims such as the method of depreciation, method of valuation of stock (such as first in first out, or last in first out) and the period during which the deferred revenue expenditure (such as preliminary expenses) are to be written off. The soundness of such judgements depend upon the competence and integrity of the accountant.

6. Uncomparable—In many cases, the financial statements of various firms, which are in the same industry and very much similar, are uncomparable because of difference of method of depreciation, method of valuing stock and difference in adoption of different accounting procedure.

7. Affected to Window Dressing—Window Dressing refers to the practice of manipulating accounts so that the financial statements may disclose a more favourable position than the actual position. For example, the purchases made at the end of the year may not be recorded or the closing stock may be over-valued. Hence, correct decisions cannot be taken on the basis of such financial statements.

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements

8. Unsuitable for forecasting—Financial statements are only a record of past events. Continuous changes take place in the demand of the product, policies adopted by the firm, the position of competition etc. As such, the financial analysis based on past events may not be of much use for forecasting.

9. Effect of capital market regulations—The capital market regulations also impact the quality and quantity of disclosure in financial statements. Before the insertion of clause 32 and clause 49, in the Listing Agreement, companies were not disclosing about the cash flow and corporate governance matters.

10. Poor Quality of Auditing Standards and Ethics—Poor Quality of auditing standards and professional ethics of the Chartered Accountants in India affect the quality of accounting reports. The increase in accounting scandals, across the globe has compelled the Governments to tighten the code of conduct and quality standards for audit both for Government and Private Enterprises.

The setting up of the Public Oversight Board (POB) in the U.S.A. and Proposed Review Board in India in the Institute of Chartered Accountants, Cost Works Accountants and Company Secretaries is a step towards improving the compliance and quality.

Question 2.
Explain the usefulness of trend percentages in interpretation of financial performance of a company.
Answer:
Trend Analysis: The financial statements may be analysed by computing trends of series of information. Trend analysis determines the direction upwards or downwards and involves the computation of the percentage relationship that each item bears to the same item in the base year. In Trend Analysis, we would like to know the behaviour of the same item over the period, say during the last 5 years.

In other words, Comparative and Common Size Statements present the percentage of each item to the total sum. These percentages could be calculated for a number of successive years in order to understand trend of financial statement item and this analysis is called as trend analysis. Trend in general term signifies a ‘Tendency’.

The review and appraisal of tendency in accounting data are nothing but trend analysis. It discloses’ the change in the financial and operating data between specific period and make possible for the analyst to form an opinion as to whether favourable or unfavourable tendencies are reflectd by the accounting data.

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements

Purpose and Importance:

  • It helps in future forecasts of various items as the basis of data of previous year.
  • In this method, mass complex accounting data are converted into % and presented in brief, so the direction of business can be easily detected.
  • There is less chance of mistakes because changes in percentages can be compared in changes in absolute data.
  • It is very easy method to calculate that even a layman can also use this method.

Question 3.
What is the importance of comparative statements? Illustrate your answer with particular reference to comparative income statement.
Answer:
Meaning of Comparative Financial Statements— Comparative financial statement is a tool of financial analysis that depicts change in each item of the financial statement in both absolute amount and percentage term, taking the item in preceding accounting period as base.

Importance of Comparative Finacial Statement-
(1) Comparative statements give information about nature of changes influencing financial position and performance of an enterprise. From financial point of view, it is very useful.

(2) These statements point out the weakness and soundness about liquidity, profitability and solvency of an enterprise.

(3) By analysis of changes of financial data of previous years, these statements help the management in forecasting and planning.

(4) It is a guide to appreciate the movements of the key financial statistics.
Preparation of Comparative Profit and Loss Accounts – A Comparative Income Statement, like Comparative

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements

Balance Sheet, is prepared having the columns for :

  • Particulars
  • Data of previous year’s Income Statement;
  • Data of current year’s Income Statement;
  • Absolute change in the data as per columns (i) and (ii) above; and
  • Percentage change in the data as per columns (i) and (ii) above.

The following statement illustrates the Comparative Income Statements.
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 12

Question 4.
What do you understand by analysis and interpretation of financial statements? Discuss their importance.
Answer:
Meaning of Financial Statement Analysis: The process of critical examination of the financial informantion contained in the financial statements in order to understand and make decisions regarding the operations of firm is called the ‘Financial Statement Analysis’. Basically, it is a study of the relationship among various financial facts and figures as given in a set of financial statements.

“Financial statement analysis is designed to indicate the strength and weaknesses of business undertaking through the establishment of certain crucial relationship by regrouping and analysis of figures contained in financial statements.” — J.N. Myres

“Financial statement analysis is a judgemental process which aims to estimate current and past financial position and the results of the operations of an enterprises with the primary objective of checking the best possible estimates and predictions about future conditions.” — Bynstein

Thus, Analysis of Financial Statements is the process of identifying the financial strengths and weaknesses of the firm by properly establishing relationship between the items of the Balance Sheet and Income Statement.

The term ‘Financial Analysis’ includes both ‘analysis and interpretation’. The term analysis means simplification of financial data of methodical classification given in the financial statements. Interpretation means explaining the meaning and significance of the data so simplified.

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements

Financial statement analysis are very important and useful to all those who are intersted is the well being of the business in one way or the other. It is an important part of over all financial assessment.

It is based on the statements which are the end product of accounting system, i.e. Balance Sheet and Profit & Loss A/c and the statement of Source and Application of Funds. The financial analysis serves the following purposes and that brings out the importance of such analysis:

1. To judge the financial soundness of the business concern : On the basis of financial statement, the solvency of the concern may be judged i.e. the long term as well as short term solvency of a business can be judged from the information contained in the financial statements.

Debenture holders and lenders judge the ability of the company to pay the principal and interest as most of the companies raise a portion of their capital requirements jury issuing debentures and raising long term loans.

Trade creditors are mainly interested in assessing the short term solvency of the business as they want to know that the business is in a position to pay debts as and when they fall due.

2. To judge the Managerial Efficiency: The financial statement analysis helps to pinpoint the areas wherein the managers have shown better efficiency and the areas of inefficiencies.

3. Inter firm comparison: Analysis of financial statement makes it easy to make inter-firm comparison. The inter-firm comparison helps in assessing own performance as well as that of others if mergers and acquisitions are considered. This comparison can also be made for various time periods.

4. To judge the Earning Capacity or Profitability: On the basis of financial statements, the earning capacity of the business concern may be computed. In addition to this the future earning capacity of the concern may be forecasted.

5. Making Forecasts and Preparing budgets : Past financial statements analysis helps a great deal in assessing developments in the future, specially the next year. Analysis thus helps in preparing budgets.

Question 5.
Explain how common size statements are prepared giving an example.
Answer:
Common-Size Statements : Common-size statements express all items of a financial statement as a percentage of some measure of size items of the enterprise. For example, Assets may be chosen as a measure of size for Balance Sheet and Sales may act as a measure of size for Profit and Loss Account.

For example, in case of Profit and Loss Account, each item is expressed as a percentage of Sales. Thus, the Common Size Profit and Loss Account captures the relationship between Sales and Expenses. One can draw conclusion regarding the behaviour of expenses over period of time by examining these percentages.

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements

Common-Size Statements are those in which individual figures are converted into percentages to some common base. In Balance Sheet, the total of assets or liabilities is assumed to be equal to 100 and all the figures are expressed as percentage of this total.

Similarly, in Profit and Loss Account, sales figures is taken as 100 and all other figures are expressed as percentage of sales. With the help of following example Common Size Balance Sheet may be understood easily.

Illustration : Prepare a common size balance sheet from the following and interpret it:
Balance Sheet as on 31st December 2005 and 2006
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 13
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 14
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 15

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements

Working Note: All percentages will be calculated on the basis of total of Balance Sheet assets and liabilities in 2005 percentages will be based on Rs. 20,00,000 and in 2006 percentages will be based on Rs. 25,00,000
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 16

Interpretation : In 2005, current assets were 40% of total assets. In 2006, these have increased to 45.75%. Current Liabilities have also increased from 21% to 24%. Because of greater increase in current assets than in current liabilities, the position of working capital has improved. The percentage of fixed assets has come down from 60% in 2005 to 54.25% in 2006. Owner’s Equity has remained constant at 64% in both the years.

Common-Size Income Statement or P & L A/c :
From the following example of income statement, prepare the Common-Size Statement:
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 17
Answer:

Interpretation : In 2006, the cost of goods sold during the year has reduced by 4.50 percent. This reduction has taken place due to reduction in the cost of raw-material. Due to this reduction, the gross profit has increased from 39.30 percent to 43.80 percent.

The operating expenses have decreased by 2.30 percent which is an indicator of operating efficiency of business. Due to the joint effect of decrease in cost of goods and operating expenses there has been an increase of 6.80 percent in the net operating income which increased from 9.30 percent to 16.10 percent in 2006. It can be concluded that in 2006, company has worked more efficiently as compared to 2005.

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements

Utility of common-size statements : These statements are very useful for comparing the profitability and financial position of two or more businesses. This is because the financial statements of different firms can be converted into uniform common-size format irrespective of the size of individual items. However, the comparison will be valid only when the accounting policies used by various firms are similar.

Numerical Questions

Question 1.
From the following information of Narsimham Company Ltd., prepare a Comparative Income Statement for the years 2004-2005.
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 19
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 20

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements

Question 2.
The following are the Balance Sheets of Mohan Ltd., at the end of 2004 and 2005.
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 25
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 22
Prepare a Comparative Balance Sheet and Study the financial position of the company.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 23
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 24

Interpretation: In 2005, the current assets has decreased by 23.54 percent due to purchase of Plant and Machinery. Equity Share Capital has raised by 50 percent by issuing shares. Debentures and Long term loans has been also increased during 2005. The position of Mohan Ltd. is satisfactory at the end of 2005.

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements

Question 3.
The following are the Balance Sheets of Devi. Co. Ltd at the end of 2002 and 2003. Prepare a Comparative Balance Sheet and study the financial position of the concern.
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 25
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 26
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 27

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 28
Interpretation : Here, in 2003, Devi Co. Ltd. show all round increase. Its current assets, fixed assets, current liabilities and fixed liabilities, all were increased significantly. But the increase in current assets is not equal or more than current liabilities, which show that its short term solvency position is not very good. But its long term solvency position is fair.

Question 4.
Convert the following income statement into Common- Size Statement and interpret the changes in 2005 in the light of the conditions in 2004.
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 29
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 30
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 31

Interpretation: In 2005, the cost of goods sold during the year has reduced by 4.45 percent. This reduction has taken place due to reduction in the cost of raw material. Due to this reduction the gross profit has increased from 39.34 percent to 43.79 percent.

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements

The operating expenses has decreased by 2.24 percent which is an indicator of operating efficiency of business. Due to the joint effect of decrease in cost of goods and operating expenses there has been an increase of 6.79 percent in the net operating income which increased from 10.33 percent to 17.12 percent in 2005. It can be conclued that in 2005, company has worked more efficiently as compared to 2004.

Question 5.
Following are the Balance Sheets of Reddy Ltd. as on 31 March 2003 and 2004.
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 32
Analyse the financial position of the company with the help of the Common-Size Balance Sheet.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 33
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 34

Interpretation:
(i) In the year 2005, Current Assests have decreased from 44.20% to 25.74%. Cash and Bank Balances decreased from 10.05% to 0.69%.

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements

(ii) Current Liabilities decreased from 22.32% to 8.84%, implying that the company has paid the current libilities from current assets. Even then, the liquidity position of firm is reasonably good.

(iii) Fixed Assets increased from Rs. 3,930 to Rs. 6,398 in 2005 as resqlt of purchase of Fixed Assets by additional issue of share capital and debentures.

(iv) The overall Financial Position of the Reddy Ltd. is statisfactory.

Question 6.
The accompanying balance sheet and profit and loss account related to SUMO Logistics Pvt. Ltd. convert these into common size statements.
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 35
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 36
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 37
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 38
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 39

Question 7.
From the following particulars extracted from P&L A/c of Prashanth Ltd., you are required to calculate trend percentages
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 40
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 41

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements

Question 8.
Calculate trend percentages from the following figures of ABC Ltd., taking 2000 as base and interpret them.
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 42
Answer:
Trend Percentages of ABC Ltd.
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 43

Question 9.
From the following data relating to the Liabilities side of balance sheet of Madhuri Ltd., as on 31st March 2006, you are required to calculate trend percentages taking 2002 as the base year.
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 44
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements 45

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements

NCERT Solutions for Class 12 Accountancy Chapter 9 Analysis of Financial Statements Read More »

NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company

Detailed, Step-by-Step NCERT Solutions for 12 Accountancy Chapter 8 Financial Statements of a Company Questions and Answers were solved by Expert Teachers as per NCERT (CBSE) Book guidelines covering each topic in chapter to ensure complete preparation.

Financial Statements of a Company NCERT Solutions for Class 12 Accountancy Chapter 8

Financial Statements of a Company Questions and Answers Class 12 Accountancy Chapter 8

Test your Understanding-I (Page No. 155)

Question 1.
State whether the following statements are True’ or ‘False’.
(a) Financial statements are the end products of accounting process.
(b) Financial statements are primarily directed towards the needs of owners.
(c) Facts and figures presented in financial statements are not at all based on personal judgements.
(d) Recorded facts are based on replacement cost.
(e) Going Concern concept assumes that the enterprise continues for a long-period of time.
Answer:
(a) True, (b) True, (c) False, (d) False, (e) True.

Question 2.
Fill in the blanks with an appropriate word (s) :
(a) Financial statement’s are the …………. of information to interested parties.
(b) The owners of a company are called ………….
(c) For income measurement basis of accounting is …………. followed.
(d) The statement which shows the assets and liabilities of a company is known as ………….
(e) Profit and loss account is also called statement.
Answer:
(a) Basic sources
(b) shareholders
(c) accrual
(d) Balance Sheet
(e) Income.

NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company

Test your Understanding-II (Page No. 163)

Question 1.
What are the items shown under the heading ‘Reserves and Surplus’?
Answer:
Capital Reserves, Capital Redemption Reserves, Balance of Securities Premium Account, General Reserve, Credit Balance of Profit and Loss Account.

Question 2.
What are the items shown under the heading ‘Miscellaneous expenditure’?
Answer:
Preliminary Expenses, Advertisement Expenditure, Discount on issue of Shares and Debentures, Share Issue expenses.

Question 3.
Match the following :
(i) Gross profit – (a) The explanatory notes to financial statements
(ii) Operating profit – (b) Amounts receivable by the company
(iii) Sundry Debtors – (c) Amounts payable by the company
(iv) Sundry Creditors – (d) Sales-Cost of goods sold
(v) Schedules – (e) Gross profit-Operating expenses
(vi) Net Profit – (f) Operating profit-interest and tax
Answer:
(i) – (d)
(ii) – (e)
(iii) – (b)
(iv) – (c)
(v) – (a)
(vi) – (f)

Short Answer Type Questions

Question 1.
What is public company?
Answer:
Public Company—According to Section 3(i) (iv) of the Companies Act 1956 “Public Company means a company
(a) which is not a private company and
(b) has a minimum paid up capital of Rs. 5 lakhs or such higher paid-up capital and
(c) is a private company which is a subsidiary of a company which is not a private company.” Companies Amendment Act 2000 states that a public company cannot be registered with a, capital of less than Rs. 5 lakhs.

A public company may be a listed company or unlisted company. A listed company is a public company which has any of its securities listed in any recognised stock exchange. An unlisted company is one whose securities are not listed on any recognised stock exchange for trading.

NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company

Question 2.
What is private limited company?
Answer:
Private Company—According to Section (3)(i), (iii), a private company means a company which has a minimum paid up capital of Rs. one lakh or such higher paid-up capital as may be prescribed by its articles—
(i) Restricts the rights of members to transfer its shares,
(ii) Limits the number of its members to 50 excluding :
(a) persons who are in employment of the company, and
(b) persons, who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased.
(iii) Prohibits any invitation to the public to subscribe to any shares in or debentrues of the company.
(iv) Prohibits any invitation or acceptance of deposits from persons other than its members, directors and relatives.

Question 3.
Define Government Company.
Answer:
Government Company—According to Section 617 of the Companies Act 1956, “a Government Company is a company in which not less than 51% of the paid-up capital is held by the Central Government, or by any State Government or Governments or partly

by the Central Government and partly by one or more State Governments and includes a company which is a subsidiary of a Government Company.”

Question 4.
What do you mean by a listed company?
Answer:
A public company may be listed or unlisted company. A listed company is that public company which has any of its securities are listed in any recognised stock exchange in India for trading. Listing of securities in any recognised stock exchange gives a guarantee and impression in the minds of potential investors about the goodwill of the company.

Question 5.
What are the uses of securities premium?
Answer:
Security Premium and its Uses—When shares of a company are issued at a price more than the face value, it is said to be an issue of shares at premium. When shares are issued at premium, the premium amount is credited to a separate account called “Securities Premium Account” because it is not a part of Share Capital.

Rather, it represents, a capital gain and being a credit balance, is shown on the liabilities side of the company’s balance sheet under the heading “Reserves and Surplus”.

According to Section 78 of the Companies Act, Securities Premium Account may be used by the company :

  • In paying up unissued capital of the company to be issued to the members of the company as fully paid bonus shares.
  • To write off preliminary expenses of the company.
  • To write off the expenses of, or commission paid, or discount allowed on any of the securities or debentures of the company.
  • To pay premium on the redemption of preference shares or debentures of the company.

NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company

Question 6.
What is buy-back of shares?
Answer:
Buy-back of shares : The term buy-back of shares denotes the purchasing of its own shares by a company either from free reserves, securities premium or proceeds of any shares or debentures. According to Section 77 A of the Companies Act 1956, a company can buy its own shares in the following forms

  • Through existing equity shareholders on a proportionate basis; or.
  • Through open market; or
  • By odd lot of shareholders; or
  • Employees of the company pursuant to a scheme of stock option or sweat equity.

Following procedural rules are to be followed :

  • The buy-back should be authorized by the Articles of Association.
  • The special resolution is to be passed in the General Meeting of the shareholders.
  • The buy-back of the shares cannot exceed 25% of paid-up capital and free reserves in a financial year.
  • The debt-equity ratio should not be more than 2 : 1 after such buy-back of shares.
  • All the shares for buy-back should be fully paidup.
  • The buy-back should be completed within 12 months from the date of passing of the special resolution.
  • The company must file solvency declaration with the Registrar and SEBI in the form of an affidavit signed by at least two directors of the company.

The affidavit must state that the board has made full inquiry into the affairs of the company is capable of meeting its liabilities and will not render insolvent within a period of one year from the date of declaration adopted by the board.

A company that buy-back of its own shares shall extinguish and physically destory such shares within seven days of completion of buy-back in the presence of merchant bankers or Registrar or statutory auditor.

No Further Issue : When a company completes the buy-back of its shares, shall not make further issue of shares within a period of 24 month except by way of bonus shares or in the discharge of some obligations like conversion of share warrants, stock option schemes, sweat equity or conversion of preference shares and debentures into equity shares.

SEBI Guidelines: SEBI has made certain regulations in 1988 with regard to buy-back of shares. Following are the important guidelines given by the SEBI:
(i) Buy-back of shares cannot be made by a private person through negotiated deals with stock exchange or through spot transactions or any other private arrangement. A company is required to make public announcement in at least in one National English Daily, and one in Hindi National Daily and one Regional Language Daily all with wide circulation where registered office of the company is situated. Public announcement should specify the following things :

NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company

(a) It should specify the date of the despatch of the offer letter. The letter should specifically stated as “specific date” and it shall not be less than earlier than 30 days but not later than 42 days.

(b) The company shall file information to the SEBI within seven working days from the date of public announcement.

(c) The offer for buy-back shall remain open to the members for a period of not less than 15 days but not exceeding 30 days. However, the opening date for the offer shall not be earlier than 7 days or later than 30 days from the specified date.

(d) The company shall complete the verification of offers within 15 days from the date of closure and shares lodged shall be deemed to have been accepted unless communication of rejection is made within 15 days from the date of closure.

Proportionate buy-back of shares.: When the number of shares tendered for buy-back are more than the number of shares to be bought back from each member of shareholder, the rule of proportionate buy-back shall be determined by using the following formula :
Acceptance tendered by a member x Number of Securities to be bought back = Total acceptance tendered

Question 7.
Write a brief note on “Minimum Subscription”.
Answer:
Minimum Subscription: It is die minimum amount which must be raised to meet the need of business operations of the company relating to the followings : ‘
(a) The price of any property purchased, or to be purchased, which has to be met wholly or partly out of the proceeds of the issue.
(b) Preliminary expenses payable by the Company and any commission payable in connection with the issue of share;
(c) The repayment of any money borrowed by the company for the above two matters;
(d) Working capital; and
(e) Any other expenditure required for the usual conduct of business operations.
It is to be noted that ‘minimum subscription’ of capital cannot be less than 90% of the issued amount according to SEBI

(Discolsure and Investor Protection) Guidelines, 2000. If the above condition is not satisfied, the company shall forthwith refund the entire subscription amount received. If a delay occurs beyond 8 days from the date of closure of subscription list, the company shall be liable to pay the amount with interest at the rate of 15%.

Long Answer Type Questions

Question 1.
Explain the nature of the financial statements?
Answer:
Financial statements are the summarized statements of accounting data produced at the end of the accounting process by an enterprise through which it communicates accounting information to the external users as well as internal users. These are the basic and formal means through which the corporate management communicates financial information to various users. External user includes-investors, tax-authorities, government, employees etc.

Nature of Financial Statements :
View points of the Professional Bodies and Researchers about the nature of Financial Statements :
According to American Institute of Certified Public Accountants “financial statements are prepared for the purpose of presenting a periodical review or report on progress made by the management and deal with the status of investment in the business and the results achieved during the period under review. They reflect a combination of recorded facts, accounting principles and personal judgements.”

In the words of American Accounting Association, “Every corporate statement should be based on accounting principles, which are sufficiently uniform, objectives and well understood to justify opinion as to the condition and progress of business enterprise. Its basic assumption was that the purpose of periodic financial statements of a corporation is to furnish information that is necessary or the formation of dependable judgements.”

NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company

According to John. N. Mayer, “Thefinancial statements are composed of data which are the result of a combination of

  • Recorded facts concerning the business transactions;
  • Conventions adopted to facilitate the accounting technique
  • Postulates, or assumptions made; and
  • Personal judgements used in the application of the conventions and postulates.”

The following points explain the nature of financial statements :
1. Recorded Facts: The basis of recording transaction in financial statements is original cost or historical cost. The assets purchased at different times and at different prices are put together and shown at cost price. The financial statements do not show current financial conditions, as they are based on original cost not on replacement costs.

2. Accounting Conventions: For preparing financial statements, certain accounting conventions are followed. For example, the convention of valuing inventory at cost or at market price, whichever is lower, is followed. Small items like pencils, pens, postage stamps etc. although assets in nature but treated as expenditure in the year in which they are purchased. The Stationery is valued at cost. The use of accounting conventions makes financial statements comperable, simple and realistic.

3. Postulates: Financial Statements are prepared on certain basic assumption known as postulates such going concern postulates, money- measurement postulate, realization postulate etc. Going concern postulates assumes that the enterprise is run for a long time. Money measurement postulate assumes that the value of money will remain the same in different periods.

4. Personal Judgements : Under more than one circumstance, facts and figures presented through financial statements are based on personal opinion, estimates and judgement. Provisions for doubtful debts are made on estimates and personal judgements.

Personal opinions, judgements and estimates are made while preparing the financial statements to avoid any possibility of over statement of assets and liabilities, income and expenditure, keeping in mind the convention of conservation.

Thus, Financial Statements are the summarized reports of recorded facts and are prepared following the accounting concepts, conventions and requirement of law.

Question 2.
Explain in detail about the significance of the financial statements.
Answer:
Significance of the Financial Statements : Financial Statements, which are prepared depicting true relevant, easily understandable, comparable, analytically represented and promptly presented financial position, help the user in their economic decisions.

The significance of the financial statements can be explained with the help of following points :
1. Provide Information to Shereholders: Financial Statements provide information about the managements performance to the shareholders.

Shareholders are the suppliers of the basic capital to run the concern and as such they are very much interested in the well being of the business. They are interested to know the profitability and prospects of future growth of the business. They come to know about the financial position and operating results of the business through these financial statement only.

2. Basis for Fiscal Policies of the Government : Financial Statement provides basis for fiscal policies of the Government. Financial Statement provides useful information to various government department like Income Tax, Sale tax, Excise duty etc to determine tax liability of the concern. So on the basis of financial statements, the Government determine tax policy, import export policy, industry policy etc.

3. Basis for Dividend Policies : The dividend policies of the corporate sector are linked with the government regulation and financial performance of the undertaking. Hence, financial statements form basis for dividend policies of companies.

4. Basis for Granting of Credit: Corporate undertaking have to borrow funds from banks and other financial insitutions for different purposes. All financial institutions which provide loan to the corporate undertaking are interested to know the profit earning capacity of the business and its long term solvency. They take decisions based on the financial performance of the undertaking. Thus financial statements form the basis for granting of credit.

5. Guide to the value of the Investment already made : Shareholders of companies are interested in knowing the status safety and return on their investment. They may also need information to take decisions about continuation or discontinuation of their investment in the business. Financial statements provide information to the shareholder in taking such important decisions.

6. Basis for Prospective Investors : In addition to the existing investor there may be people who may be interested in investing money in company. But before doing that they would be interested to know the long-term and short term solvency as well as the profitability of the concern. Financial statements provide adequate information to such potential investors to enable them to take the necessary decisions.

7. Aids Government in Policy Frame work: Financial Statements helps Government to assess the role of corporate undertaking in the economic development of the country. It also assess the economic stituation of the country from these statements in terms of industrial production, employment etc

NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company

These statements enable the government , to know whether business is’following various rules and regulations or not. These statements also form base for framing and amending various laws for the regulation of the business.

8. Aids Trade Associations in helping their Members : Trade Associations can judge, on the basis of financial statements the profitability of the business enterprises. They can compute as to how much bonus and increase in their wages are possible from the profits of the business concern. Trade unions negotiate the wages and salaries with the company, the financial statements reveal the financial soundness of the company and thus provide the basis to the trade unions to go in for negotiations.

9. Helps Stock Exchanges : Financial Statements help the stock exchanges to understand the extent of transperency in reporting on financial performance and enables them to call for required information to protect the interest of investors. The financial statements enable the stock brokers to judge the financial position of different concerns and take decisions about the price to be quoted.

10. Helps Trade Creditors Trade creditors and suppliers of goods are interested in knowing the short term solvency of the business. They are interested to know whether the business firm will be make payment on time or not. Financial Statement provide adequate information to them to take the necessary decisions.

Question 3.
Explain the limitations of financial statements.
Answer:
It is a general impression that financial statements are precise,
exact and final. But sometimes, these statement conceal some very important information. As such, they suffer from certain limitations. These are discussed below.

1. Do not reflect current situation : Financial Statements are prepared on the basis of historical cost and do not throw light on the current and present position of the business. The purchasing power of money is changing, the value of assets and liabilities shown in financial statement do not reflect current market situation. It does not indicate the current position of the business.

2. Dividends out of Capital: Net profit is ascertained on the basis of historical cost. If profits are adjusted to changing price levels, it may lead to loss and consequently dividends may be paid out of capital.

3. Incomplete Information : Financial statements donot include all of the relevant information necessary for evaluating the status, progress and future prospects of a business enterprise. Balance Sheet does not disclose information relating to loss of markets and cessation of agreements which have vital bearing on the enterprise.

4. Assets may not realize: Some of the assets may not realize the stated value, if the liquidation is forced on the company. Assets shown in the balance sheet reflect merely unexpired or unamortized cost.

5. Different accounting policies : Various concepts and conventions of accounting affect the value of assets and liabilities as shown in the Balance Sheet and profit as shown by Profit and Loss Account. For example, different firms may adopt different methods of stock valuation.

6. No Qualitative Information : The financial statements do not reflect complete information about the firm. Only that information, which can be expressed in monetary terms, is given. Qualitative information is however ignored like industrial relations, industrial climate, labour relations etc.

7. No free from Bias : Financial statement are prepared on the basis of certain established concepts and convention, yet they are greatly affected by personal bias and personal judgement of various factors.

8. Agregate Information : Financial statements show aggregate information but not specific information. Hence they may not satisfy the user in decision making unless modified suitably.

9. Interim reports: Financial statements are merely interim reports not a final reports. Profit and Loss Account discloses only interim profits but not final profits. Final profits can be known only when enterprise is liquidated, assets are sold and liabilities are paid off.

10. Affected by window-dressing : Some business firms given too much attention to decorate their financial statements in such a way that they fulfilled all the legal requirement and show sound financial position of the firm. In fact these statements may be far from the truth.
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 1

Note : If the company is a manufacturing concern, apart from above components manufacturing account is also required.
Trading Account: Trading Account is the first part of the financial statements. The trading account is designed to show the gross profit on sale of goods.

The trading account contain the transactions of the company relating to the commodities in which it deals, throughout the accounting period. All expenses either related to purchase of raw material or production are charged to the Trading A/c i.e. Debited to Trading A/c.

NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company

It is prepared to find out Gross Profit or Gross Loss. If the sales are more than purchases and expenses the result in Gross Profit and vice versa. Its main components are sales, services rendered and cost of such sales or service rendered. Trading account provides the data for comparsion, analysis and planning for future growth.NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 2

Profit and Loss Account: Profit and Loss Account is the second part of the financial statement. Company is more interested in knowing it net income or net profit, which increases its equity.

Net profit represents the excess of gross profit plus other revenue income over indirect expenses. These indirect expenses are not shown in Trading Account. In the debit side of Profit and Loss Account the indirect expenses are shown whereas in the credit side revenue incomes. If the L debit side is less than of credit side, it would be net profit and if the credit side is less than of debit side, it would be net loss.

“A Profit and Loss account is an account into which all gains and losses are collected in order to ascertain the excess of gain over the losses or vice-versa.” —Prof. Carter

Form of Profit and Loss Account
Profit and Loss Account of ………. Co. Ltd.
for the year ended ……….
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 3
Profit and Loss Appropriation Account : The account which shows the disposition of profit is called the Profit and Loss Appropriation Account. The disposition of profit means the distribution of net profits by way of dividends, transfer of profits to various reserves, adjustment of arrears of depreciation, if any, bonus to shareholders and so on.
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 4
Income statements may also be presented in vertical form with detailed data. Verticle form income statements are suitable for further analysis and providing suitable data for decision making.
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 5
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 6NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 7

NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company

NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 8
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 9
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 10
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 11
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 12
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 13

Notes:
(a) Fixed assets are shown at original cost less total depreciation to date.
(b) Investments should be divided into two parts:
(i) Quoted, and
(ii) unquoted, hi the case of quoted investments market price must be disclosed.
(c) Contingent liabilities are not included in the total of the liability side.

Following are the usual types of contingent liabilities:
(i) Claim against the company not acknowledged as debt.
(ii) Uncalled liability on shares partly paid.
(iii) Arrears of fixed cumulative dividends.

Note : Usually detail under each of the above items is given by way of a separate schedule. The number of the schedule incorporating the information is mentioned against the item in the column.

Explanation to Balance Sheet Items
Statutory Contents of Liabilities Side of Company’s Balance Sheet
1. Share Capital: It is the first item on the liabilities side of the balance sheet and shows details about following:
(i) Authorized Capital
(ii) Issued Capital
(iii) Subscribed Capital
(iv) Called up Capita)
(v) Paid-up Capital
In terms of number of shares of each kind along with nominal value. If forfeited shares are reissued then this amount is added to the paid-up capital.

NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company

2. Reserves and Surplus : As per Shedule VI to the Companies Act, 1956, ‘Reserves and Surplus’ includes the following items :
(i) Capital Reserves
(ii) Capital Redemption Reserves
(iii) Share Premium Account or Securities Premium
(iv) Other reserves
(v) Surplus
(vi) Proposed Addition to reserves
(vii) Sinking fund
These reserves may be classified broadly as revenue and capital reserves.

3. Secured Loans : If any company given security for the loan by a mortgage or charge on all or any of its property, the loan will be called as ‘Secured Loans’. It includes :
(i) Debentures
(ii) Loans and Advances from Banks ‘
(iii) Loans and Advances from Subsidiaries
(iv) Other Loans and Advances, if any .
Information regarding the nature of security given for each secured loan should be given along with the respective loans.

4. Unsecured Loans : Loans and advances for which no security is given are shown under this heading. This include
(i) Fixed deposits
(ii) Loans and Advances from Subsidiary Companies
(iii) Loans and Advances from other sources.
(iv) Short-term loans from Bank and other.

5. Current Liabilities and Provisions : Current Liabilities includes :
(i) Acceptances (or Bills Payable)
(ii) Sundry Creditors
(iii) Advance Payments
(iv) Un-expired Discounts
(v) Unclaimed dividends
(vi) Accrued Interest but not paid
(vii) Other liability (if any)

Provisions include :
(i) Provisions for taxation
(ii) Proposed Dividend
(iii) Provisions for Contingencies
(iv) Provision for provident fund
(v) Provision for pension
(vi) Provision for insurance
(vii) Similar staff benefit schemes etc.
(viii) Other provisions

Statutory contents of Assets side of Company’s Balanace Sheet 1. Fixed Assets : These are those assets which are used for long time in business to earn profit. They are acquired with an intention of using them in the main activity of the concern but not for resale. It include :
(i) Goodwill
(ii) Land and Building
(iii) Leaseholds
(iv) Plant and Machinery
(v) Furniture
(vi) Railway Lines
(vii) Patents etc.
These assets are shown at cost less depreciation till the date.

NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company

2. Investments : It includes
(i) Investment in Government Securities
(ii) Investment in Trust securities
(iii) In shares, debentures, bonds
(iv) Investment in immovable property etc.

3. Current Assets, Loans and Advances: Current Assets includes:
(i) Inventories
(ii) Sundry Debtors
(iii) Cash and Bank Balances
(iv) Loose Tools
(v) Accured Interest

Loans and Advances includes :
(i) Loans and Advances to Subsidiary Company
(ii) Bills of exchange
(iii) Balance with customs, port trust etc.

4. Miscellaneous Expenditure: Expenditure, which is not debited to Profit and Loss Account fully and deferred for some years, is shown under this heading. It includes :
(i) Preliminary Expenses
(ii) Advertisement Expenditure
(iii) Discount on issue of shares and debenture etc.

5. Profit and Loss Account: If there is any debit balance in Profit and Loss Account, it will be shown as the assets side of Balance sheet.

Question 6.
Explain how financial statement are useful to the various parties who are interested in the affairs of an undertaking?
Answer:
Meaning of Financial Statements : Financial Statements are those statements which report the profitablity and the financial position of the business at the end of accounting period. At the end of the accounting period, financial statements are prepared to determine profit or loss and to know the financial position of the business. The statements are presented to user of accounting information for decision making. The term financial statements includes at least two basic statements which are as under :

(i) Income statement (or Trading and Profit and Loss Account) which shows results of business operation during the accounting period and

(ii) Statement of Financial position (or Balance Sheet) which shows financial position of an enterprise at a specified point of time.

Preparation of financial statements is the last phase of the accounting process.
“The Finacial Statements provides a summary of accounts of a business enterprise, the balance sheet reflecting the assets, liabilities and capital as on a certain date and the income statement, shotving the results of operations during a certain period.” v —John N. Myer

When the business enterprise satisfy itself with the agreement of T rial Balance, then they proceeds to prepare the financial statements for their business. The main objective of financial statement is to communicate financial position and performance of the business entities to tine user of accounts. Financial position of a business entity is indicated through Balance Sheet and performance is indicated through Trading and Profit and Loss Account. They help to ascertain the profit and loss occur during the accounting period and the financial position of the business.

Information provided by the Financial Statement to the different users:
1. Management: The Financial Statements help the management in assessing the profitability of various activities and various depanmeiits. On their basis, the management can review the progress of the business and take decisions for controlling the non-profitable activities.

2. Investors : Shareholders or proprietors of the business are not generally involved in day-to-day working, they come to know the results of operations and financial position of the business only through the financial statements. They can assess the short term and long-term financial soundness and earning capacity of the business with the help of financial
statements.

3. Potential Investors: Financial Statements helps them to know financial position, earning capacity and its prospects for growth of the business. Financial statements help them in making an assessment about have safe theirinvestments will be.

4. A Short-term Creditors!Financial statements help them to assess whether the enterprises will be able to pay debts when they fall due and may decide to extend, maintain or restrict the credit allowed to the enterprise.

5. Long-term Creditors: Financial statements provide information to them about
(i) whether enterprise will be able to pay the interests consistently and
(ii) whether the company will be able to pay their debts when due. On this basis they may also decide to extend, maintain or restrict the loans extended to the enterprise.

6. Government—Financial statements provide information to Government to study the profit margins of various industries to announce or withdraw various concessions and to increase or decrease the excise duty. It also give information to regulate the activities of the enterprise, determine policy, compilation of national income statics.

7. Employees—Financial statements gives information about the profit earned by the enterprises so that they can judges as to how much bonus and increase in their wages.

8. Tax Authorities—Financial statements provides information to the Income Tax Authorities and Sales Tax Authorities about the income earned and sale of the enterprises respectively’ It helps them to assessment of the Income Tax and Sale Tax.

NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company

Question 7.
‘Financial statements reflect a combination of recorded facts, accounting conventions and personal judgements,’ discuss.
Answer:
Yes, it is true that Financial Statements reflect a combination of recorded facts, accounting conventions and personal judgements. In the words of John. N. Mayer, “The financial statements are composed of data which are the result of a combination of
(i) recorded facts concerning the business transactions
(ii) conventions adopted Jo facilitate the accounting technique
(iii) postualtes, or assumption made and
(iv) personal judgements used in the application of the conventions and postulates.

The above points can be discussed below:
1. Recorded Facts—The basis of recording transaction in financial statement is original cost or historical cost. The assets purchased at different times and at different prices are put together and shown at cost price. The financial statements do not show current financial conditions, as they are based on original cost not on replacement costs.

2. Accounting Conventions—For preparing financial statements certain accounting conventions are followed. For example, the convention of valuling inventory at cost or market price whichever is lower, is followed. Small items like pencils, pens, postage stamps etc., although assets in nature but treated as expenditure in the year in which they are purchased. The Stationery is valued at cost. The use of accounting convention makes financial statements comparable, simple and realistic.

3. Postulate—Financial statement are prepared on certain basic assumption known as postulate, such as going concern postulate, money measurement postulate, realization postulate etc. Going concern postulates assumes that the enterprise is run for a long time. Money measurement postulate assumes that the value of money will remain the same in different period.

4. Personal Judgements—Under more than one circumstance, facts and figures presented through financial statements are based on personal opinions, estimates and judgement. For example depreciation is calculated with written down method or at original cost.

Provisions for doubtful debts are made on estimates and personal judgements. Personal opinion, judgement and estimates are made while preparing the financial statements to avoid any possibility of over statements of assets and liabilities, income and expenditure, keeping in mind the convention of conservertion.

Thus, Financial statements are the summarized reports of recorded facts and are prepared following the accounting concepts conventions and requirements of law.

Question 8.
Explain the process of preparing income statement and balance sheet.
Answer:
Process for preparing Income Statement—
The following process is to be followed for preparation of income statement (in T form):
(i) Preparation of trial balance on the basis of balances of all the accounts available in the ledgers of the concern.
(ii) Recording all the revenue receipts appearing on the credit side of the trial balance on the credit side of income statement after making suitable adjustments for revenues received in advance or revenues realized but not received etc.
(iii) Recording all the revenue expenditure items appeared on
the debit side of trial balance on the debit side of income statement after making adjustments for outstanding, prepaid expenses, depreciation, provisions for bad debts, taxes, etc.
(iv) Recording non-operating incomes and gains on the credit side of income statement.
(v) Recording non-operating losses on the debit side of the income statement.
(vi) Finding the difference between totals of credit items and totals of debit items.
(vii) If the credit items are more than the debit items, it is known as net profit and vice versa.
(viii) In India, the accounting year for preparing financial statements for companies is 1st April to 31st March (same as that of financial year of Government).

NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company

Process for Preparing Balance Sheet—The following process is to be followed for preparation of Balance Sheet (in T form Horizontal Type)
(i) Preparation of trial balance on the basis of balances of all the accounts available in the ledgers of the concern.
(ii) Recording Debit balances of all Personal and Real Account on the Assets side of Balance Sheet after making adjustments for outstanding, Prepaid expenses, depreciation, provision for bad debts, tax etc.
(iii) Recording Credit balances all Personal and Real Account on the liabilities side of Balance Sheet after making adjustments for outstanding expenses, interest on loan etc.
(iv) Find the total of two side. The total of the two sides of the Balance Sheet must be equal.

Numerical Questions

Question 1.
The following is the trial balance on June 30, 2006 of the Modem Manufacturing Company Ltd.
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 15

Stock, on 30 th June, 2006 Rs. 8,200. You are required to make out the trading account, and profit and loss account for the year ended 30th June, 2006 and the balance sheet as on the date. You are also to make provision in respect of the following :
(i) Depreciate machinery @ 10% per annum
(ii) Reserve 5% for discount on debtors;
(iii) One month rent Rs. 45 was due on 30th June; and
(iv) Six months insurance, included in general expenses, was unexpired at Rs. 75.
(Gross Profit Rs. 6,200, Net Profit Rs. 2044.50; Balance Sheet total Rs. 16,392.50)
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 16
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 17
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 18

Question 2.
The following is the trial balance of Alfa Ltd., for the year ended 30th June, 2005.
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 19
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 20

Prepare the Profit and Loss Account and Balance Sheet of the company after taking the following particulars into consideration:
(a) The original cost of land and building, plant and machinery and furniture and fittings was Rs. 2,50,000, Rs. 6,00,000 and Rs. 60,000 respectively. Additions during the year were, : building Rs. 50,000 and plant Rs. 20,000.
(b) Depreciation is to be charged on plant and machinery and furniture and fitting at 10 percent on original cost.
(c) Of the sundry debtors, Rs. 10,000 are outstanding for a period exceeding 6 months, Rs. 5,000 are considered doubtful, while the others are considered good.
(d) The directors are entitled to a commission at 1 percent of the net profits before charging such commission.
(e) Stock on 30 th June, 2005 is Rs. 1,30,000.
(f) Provide Rs. 34,800 for income-tax.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 21
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 22

NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 23
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 24
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 25

Question 3.
The following balances appeared in the books of Parasuram Flour Mills Ltd., as on 31st December 2005 :
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 26
Prepare the company’s trading and profit and loss account for the year and balance sheet as on 31st December 2005 after taking the following adjustments into account:
(a) Stocks on 31st December 2005 were : Wheat at cost, Rs. 14,900 Flour at market price Rs. 21,700;
(b) Outstanding expenses: Manufacturing expenses Rs. 23,500 and salaries and wages, Rs. 1,200.
(c) Provide depreciation: Building at 2%; Plant and machinery at 10% : Furniture at 10%; and Vehicle 20%.
(d) Interest accrued on Government Securities, Rs. 100 :
(e) A tax provision of Rs. 8,000 is considered necessary.
(f) The directors propose a dividend of 20%.
(g) The authorised capital consists of 12,000 equity shares of Rs. 10 each of which 7,200 shares were issued and fully paid up.
(Gross Profit Rs. 47,600; Net Profit Rs. 21,310; Profit and Loss Appropriation balance Rs. 13,410; Balance Sheet total Rs. 2,92,010).
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 27
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 28

NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 29
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 30
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 31
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 32

Question 4.
An unexperienced accountant prepared the following trial balance of Bang Vikas Ltd., for the year ending31-12-2005. The cash in hand on 31-12-2005 was Rs. 750.
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 35
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 36
After locating the mistakes and making the following adjustments prepare trading and profit and loss account and balance sheet in the prescribed form.

Adjustments :
(i) Stock on 31-12-2005 Rs. 95,000 and
(ii) Write off preliminary expenses.
Note : Rectified trial balance need not be prepared.
(Gross Profit Rs. 2,36,800; Net Profit Rs. 60,475; Balance of Profit and Loss appropriation A/c Rs. 36,600; balance Sheet Rs. 9,01,100; Difference in trial balance Rs. 750)
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 37
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 38
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 39

NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 40

Question 5.
The Silver Ore Co. Ltd. was formed on April 1,2005 with an authorized capital of Rs. 6,00,000 in shares of Rs. 10 each. Of these 52,000 shares has been issued and subscribed but there were calls in arrear on 100 shares @ Rs. 2.50. From the following trial balance as on March 31,2006 prepare the trading and profit and loss account and the balance sheet :
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 41
(i) Depreciate plant and railways by 10%; furniture and building by 5%;
(ii) Write off a third of the promotion expenses;
(iii) Value of silver ore on March 31, 1969 Rs. 15,000, the directors forfeited on Dec. 20, 1968, 100 shares on which only Rs. 7.50 had been paid.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 42
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 43
NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company 44

NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company

NCERT Solutions for Class 12 Accountancy Chapter 8 Financial Statements of a Company Read More »

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Detailed, Step-by-Step NCERT Solutions for 12 Accountancy Chapter 7 Issue and Redemption of Debentures Questions and Answers were solved by Expert Teachers as per NCERT (CBSE) Book guidelines covering each topic in chapter to ensure complete preparation.

Issue and Redemption of Debentures NCERT Solutions for Class 12 Accountancy Chapter 7

Issue and Redemption of Debentures Questions and Answers Class 12 Accountancy Chapter 7

Test your Understanding-1 (Page No. 112-113)
State whether the following statements are True (T) or False (F):

1. Debenture is a written instrument acknowledging a debt under the common seal of the company.
Answer:
True

2. Debenture is a part of owned capital.
Answer:
False

3. The payment of interest on debentures is a charge on the profits of the company.
Answer:
True

4. The debentures cannot be issued at a discount of more than 10% of the face value.
Answer:
False

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

5. Redeemable debentures are those debentures, which are payable on the expiry of the specific period.
Answer:
True

6. Perpetual debentures are also known as irredeemable debentures.
Answer:
True

7. Debentures cannot be converted into shares.
Answer:
False

8. Debentures cannot be issued at a premium.
Answer:
False

9. A Collateral Security is a Subsidiary Security.
Answer:
True

10. Debentures cannot be issued at a premium and redeemable at par.
Answer:
False

11. Loss on issue of debentures-account is a revenue loss.
Answer:
False

12. Premium on redemption of debentures account is shown under the ‘Securities Premium’ in the Balance Sheet.
Answer:
False

Test your Understanding-II (Page No. -136, 137, 138)
Select the correct answer for the following multiple choice questions:

Question 1.
Debenture which are transferable by mere delivery are
(a) Registered debentures
(b) First debentures
(c) Bearer debentures
Answer:
(c) Bearer debentures

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Question 2.
The following journal entry appears in the books of X Co. Ltd.
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 146
(a) 15%
(b) 5%
(c) 10%
Answer:
(b) 5%

Question 3.
X Co. Ltd. purchased assets worth Rs. 28,80,000. It issued debentures of Rs. 100 each at a discount of 4 percent in full satisfaction of the purchase consideration. The number of debentures issued to vendor is :
(a) 30,000
(b) 28,800
(c) 32,000
Answer:
(a) 30,000

Question 4.
Convertible debentures cannot be issued at a discount if
(a) They are to be immediately converted
(b) They are not to be immediately converted
(c) None of the above.
Answer:
(a) They are to be immediately converted

Question 5.
Discount on issue of debentures is shown under the following head in the Balance Sheet :
(a) Profit & Loss Account
(b) Miscellaneous Expenditure
(c) Debentures Account
Answer:
(b) Miscellaneous Expenditure

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Question 6.
When debentures are issued at par and are redeemable at a premium, the loss on such an issue debited to :
(a) Profit & Loss Account
(b) Debentures Applications & Allotment Account
(c) Loss on Issue of Debentures Account.
Answer:
(c) Loss on Issue of Debentures Account.

Question 7.
Excess value of net assets over purchase consideration at the time of purchase of business is credited to :
(a) General reserve
(b) Capital reserve
(c) Vendor’s account
Answer:
(b) Capital reserve

Question 8.
When all the debentures are redeemed, balance in the debentures redemption fund account is transferred to :
(a) Capital reserve
(b) General reserve
(c) Profits and loss appropriation account
Answer:
(b) General reserve

Question 9.
The nominal and book values of debenture redemption fund investments account are respectively Rs. 1,00,000 and Rs. 96,000. The company sold investments of nominal value of Rs. 30,000 at a price which was just sufficient to redeem debentures of Rs.30,0 at 10% premium, the profits on sale of investment is :
(a) Rs. 4,200
(b) Rs. 3,000
(c) Rs. Nil
Answer:
(a) Rs. 4,200

Question 10.
Own debentures are those debentures of the company which :
(a) The company allots to its own promoters
(b) The company allots to its Director
(c) The company purchases from the market and keeps them as investments.
Answer:
(c) The company purchases from the market and keeps them as investments.

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Question 11.
Profit on cancellation of own debentures is transferred to :
(a) Profit and loss appropriation a/c
(b) Debenture redemption reserve
(c) Capital reserve
Answer:
(c) Capital reserve

Question 12.
When debentures are redeemed out of profits, an equal amount is transferred to :
(a) General reserve
(b) Debenture redemption reserve
(c) Capital reserve
Answer:
(b) Debenture redemption reserve

Question 13.
Profit on sale of debenture redemption fund investments in the first instance is credited to :
(a) Debenture redemption fund account
(b) Profit and Loss appropriation account
(c) General reserve account
Answer:
(a) Debenture redemption fund account

Question 14.
The balance of sinking fund investment account after the realisation of investment is transferred to :
(a) Profit and loss account
(b) Debentures account
(c) Sinking fund account
Answer:
(c) Sinking fund account

Question 15.
When debentures are issued at a discount and are redeemable at a premium, which of the following accounts is debited at the time of issue :
(a) Debenture account
(b) Premium on redemption of debentures account
(c) Loss on issue of debentures account.
Answer:
(c) Loss on issue of debentures account.

Test Your Understanding III (Page No-138)

Question 1.
Indicate in the column below, the account to be debited in case of the following transactions.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 1
1. Vendors A/c
2. Profit & Loss Appropriation A/c
3. Debentures Redemption Reserve A/c
4. Own Debentures A/c
5. Profit & Loss A/c

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

II. Indicate in the column below, the account to be credited in case of the following transactions.
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 2
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 3
Answer:
6. Debenture A/c
7. Sinking Fund A/c
8. General Reserve A/c
9. Debenture Redemption Reserve A/c
10. Loss on issue of Debenture A/c

Do it Yourself (Page No. 89-90)

Question 1.
Amrit Company Limited purchased assets of the book value of Rs. 2,20,000 from another company and agreed to make the payment of purchase consideration by issuing 2,000,10% debentures of Rs. 100 each at a premium of 10%. Record necessary journal entries.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 4

Question 2.
A company purchased assets of the value of Rs. 1,90,000 from another company and agreed to make the payment of purchase consideration by issuing 2,000,10% debentures of Rs. 100 each at a discount of 5%. Record necessary journal entries.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 5

Question 3.
Rose Bond Limited purchased a business for Rs. 22,00,000. Purchase Price was paid by 6% debentures. Debentures of Rs. 20,00,000 were issued at a premium of 10% for the purpose. Record necessary journal entries.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 6

Question 4.
Nikhil and Ashwin Limited bought business of Agarwal Limited consisting sundry assets of Rs. 3,60,000, sundry creditors Rs. 1,00,000 for a considerations of Rs. 3,07,200. It issued 14% debentures of Rs. 100 each fully paid at a discount of 4% in satisfaction of purchase consideration. Record necessary journal entries.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 7

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Do it Yourself (Page No. 101-102)

Question 1.
Nena Limited issued 50,000 10% debentures of Rs. 100 each on the basis of the following conditions :
a. Debentures issued at par and redeemable at par.
b. Debentures issued at discount @ 5% and redeemable at par.
c. Debentures issued at premium@ 10% and redeemable at par.
d. Debentures issued at par and redeemable at premium @ 10%.
e. Debentures issued at discount of 5% and redeemable at a premium of 10%.
f. Debentures issued at premium of 6% and redeemable at a premium of 4%
Record necessary journal entries in the above mentioned cases at the time of issue and redemption of debentures
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 8
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 9
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 10
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 11

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Question 2.
Record necessary journal entries in each of the following cases.
a. 27,000, 7% debentures of Rs. 100 each issued at par, redeemable at par.
b. 25,000, 7% debentures of Rs. 100 each issued at par redeemable at 4% premium.
c. 20,000,7% debentures of Rs. 100 each issued at 5% discount and redeemable at par.
d. 30,000,7% debentures of 100 each issued at 5% discount and redeemable at 2% % premium.
e. 35,000,7% debentures of Rs. 100 each issued at 4% premium and redeemable at par.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 12
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 13
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 14
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 15

Do it Yourself (Page No. 110-111)

Question 1.
X Ltd. Issued 2000,10% debentures of Rs. 100 each at a discount of 8% on 1 Jan, 1992 which are redeemable at par by annual drawings in 4 years commencing from 31st Dec. 1993 as per the following redemption plan: 1st Draw 10%, 2nd Draw, 20%, 3rd Draw 30%, and 4th Draw 40%. Calculate the amount of discount to be written off each year assuming that X Ltd. follows calender year as its accounting year.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 16

Question 2.
Z Ltd. issued 15,00,000,10% debenture of Rs. 50 each at premium of 10% payable as Rs. 20 on application and balance on allotment. Debentures are redeemable at par after 6 years. All the money due on allotment was called and duly received. Record necessary entries when premium money is included :
(i) In application money
(ii) In allotment money
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 159

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 17
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 18

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Question 4.
M Ltd. issued 10,000, 8% debentures of Rs. 100 each at a premium of 10% on 1.1.2004. It purchased sundry assets of the value of Rs. 2,50,000 and took over the liabilities of Rs. 1,90,000 and issued 8% debentures at a discount of 5% to the vendor. On the same date it took loan from the Bank for Rs. 1,00,000 and issued 8% debentures as Collateral Security. Record the relevant journal entries in the books of M. Ltd. and prepare the extract of balance sheet on 31.12.2004. Ignore interest.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 19
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 20

Question 5.
On 1.1.2005 Fast Computer Ltd. issued 20,00,000, 6% debentures of Rs. 100 each at a discount of 4%, redeemable at a premium of 5% after three years. The amount was payable as follows : On application Rs. 50 per debenture Balance on allotment. Record the necessary journal entries for “issue of debentures”. Answer: In the books of Fast Computer Ltd.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 21

Question 6.
D Ltd. Purchased machinery worth Rs. 2,00,000 from E Ltd. on 1.1.2001. Rs. 50,000 were paid immediately and the balance was paid by issue of Rs. 1,60,000,12% Debentures in D Ltd. Record the necessary journal entries for recording the transactions in the books of D Ltd.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 22

Do it Yourself (Page No. 118)

Question 1.
X Ltd. decides to redeem 8,000,10% debentures of Rs. 100 each on January 1, 2004 at a premium of 5%. The company has a balance of Rs. 9,00,000 at the credit of its profit and loss account. The company closes its books on December 31 every year. What Journal entries the company will be recorded to redeem the above debentures.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 23

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Question 2.
G Ltd. issued 5,00,000,12 % debenture of Rs. 100 each on April 1,2002 redeemable at par on July 1,2003. The company received applications for 6,00,000 debentures and the allotment was made to all the applicants on pro-rata basis. The debenture were redeemed on due date. How much amount of Debenture Redemption Reserve is to be created before the redemption is carried out? Also record necessary journal entries regarding issue and redemption of debenture. Ignore tax deducted at source.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 24

Do it Yourself (Page No. 139)

Question 1.
G Ltd. has 800 lakhs, 10% debenture of Rs. 100 each due for redemption on March 31, 2003. Assume that Debenture Redemption Reserve has a balance of Rs. 3,40,00,00,000 on that date. Record necessary entries at the time of redemption of debenture.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 25

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Question 2.
R Ltd. Issued 88,00,000, 8% debenture of Rs. 50 each at a premium of 5% on July 1, 2000 redeemable at par by conversion of debenture into shares of Rs. 20 each at a premium of Rs. 2 per share on June 30, 2003. Record necessary entries for redemption of debenture.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 26

Question 3.
C Ltd. has outstanding 11,00,000,10% debentures of Rs. 200 each, on April 1, 2003. The Board of Directors have decided to purchase 20% of own debenture for cancellation at Rs. 200 each. Record necessary entries for the same.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 27

Question 4.
Record necessary journal entries in the books of the Company in following case for redemption of 1,000,12% Debentures of Rs. 10 each issued at par :
(a) Debentures redeemed at par by conversion into 12% Pref. Shares of Rs. 100 each.
(b) Debentures redeemed at a premium of 10% by conversion into Equity Share issued at par.
(c) Debentures redeemed at a premium of 10% by conversion into Equity Shares issued at a premium of 25%.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 28
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 147

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Question 5.
On 31.1.2005 Janta Ltd. converted its Rs. 88,00,000, 6% debentures into equity shares of Rs. 20 each at a premium of Rs. 2 per share. Record necessary journal entries in the books of the company for redemption of debentures.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 29

Question 6.
Anirudh Ltd. has 4,000, 8% debentures of Rs. 100 each due for redemption on March 31,2005. The company has a debenture redemption reserve of Rs. 1,50,000 on that date. Assuming that no interest is due record the necessary journal entries at the time of redemption of debentures.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 30

Short Answer Type Questions

Question 1.
What is meant by a Debenture?
Answer: Meaning of Debenture—The term, “debenture” has been
derived from the Latin word “debre” which means “to borrow”. Thus, it is a written document acknowledging a debt under the common seal of the company and containing a contract for the repayment of the principal sum at a specified date and for the payment of interest (usually half yearly) at a fixed rate percent until the principal sum is repaid.
“Debenture includes debenture stock, Bond and any other securities , of a company whether constituting a charge on the assets of the company or not.” – Section 2 (12) of the Companies Act, 1956

“A debenture is a document given by a company as evidence of a debt to the holder usually arising out of a loan and most commonly secured by a charge” – Topham

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

“Debenture as a document under company’s seal which provides for the repayment of a principal sum and interest there on at regular intervals which is usually secured, by fixed or floating charge on the company’s property and which acknowledges loan of a company.” – E. Thomas

“Debenture means a document which either creates a debt or acknowledges it and any document which fulfills either of these conditions.” – CHitty j.

Question 2.
What does a Bearer Debenture mean?
Answer:
From the view point of Registration, Bearer debentures are the debentures which are payable to the bearer thereof. It can be transfered by way of delivery and the company does not keep any record of the debenturehblders. Interest on debenture is paid to a person who produces the interest coupon attached to such debentures.

Question 3.
State the meaning of ‘Debentures issued as a Collateral Security’.
Answer:
Collateral security means an additional security to obtain secured loan. The borrower mav issue bond/debentures by way of additional security in favour of lender known as collateral security. If borrower fails to repay the loan along with interest in time, the lender is at liberty to recover his dues from the sale of primary security in the first instance. If the realisable value of primary security is insufficient to clear the dues, the lender has the right to invoke the benefit of collateral security whereby, the debentures may either be presented for redemption or sold in the market.

Accounting Treatment: Debentures kept as security, create no immediate liability to the company, therefore no journal entry is passed, but when lender invokes his right vested in the collateral security, the liability of company arise. In such a situation the following journal entry is recorded in the books of company.

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

LoanA/c — Dr.
Outstanding Interest A/c — Dr.
To Debenture A/c

Collateral security creates a contingent liability which has to be disclosed the balance sheet of the company.
Balance Sheet as at.
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 31

Question 4.
What is meant by ‘Issue of Debentures for Consideration other than Cash’?
Answer:
Issue of Debenture for Consideration Other than Cash : Whenever a company purchases some assets or properties from the vendor or supplier, debentures or bonds may be issued in consideration of purchase price of such assets or properties. Such issue of debentures is known as issue of debentures for consideration other than cash.

When debentures are issued to the vendor or suppliers of patents, copyrights and transfer of intellectual property rights in the satisfaction of the purchase consideration. The following journal entries are to be passed in the books of company :
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 32

Question 5.
What is meant by ‘Issue of debenture at discount and redeemable at premium’?
Answer:
Debenture Issued at discount and redeemable at Premium: In this situation the issue price is less than par value but redemption value is more than par value. The difference between the redemption price and the issue price is treated as discount/loss on issue of debenture.

Suppose, a 12% debenture of Rs. 100 is issued at a discount of Rs. 10 and redeemable at a premium of Rs. 5 per debenture, the amount of loss will be equal to Rs. 90 – Rs. 105 = Rs. 15. This is to be treated as loss on issue. It is to be noted that premium on redemption of debentures is also credited by Rs. 5.
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 33
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 34

Question 6.
What is ‘Capital Reserve’?
Answer:
Meaning of Capital Reserve : Capital reserve means any amount which is not available for distribution as a dividend through profit and loss account. Capital reserves are generally created out of profit which are of extraordinary nature or capital receipts and not out of operating profits.

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Some of the sources of the capital profits in the case of a limited company are :

  • Pemium on the issue of shares or debentures.
  • Profit on reissue of forfeited shares.
  • Profit on redemption of debentures.
  •  Profit on the sale of sinking fund investments, etc.

According to the Companies Act of the expression ‘Capital
Reserve’ shall not include any amount regarded as free for distribution by way of dividend.

Question 7.
What is meant by a ‘Irredeemable Debenture’?
Answer:
Irredeemable debentures are also known as Perpetual Debentures because the company does not given any undertaking for the repayment of money borrowed by issue of such debentures. These debentures are repayable on the winding up of a company or on the expiry of a long period. In other periods, Irredeemable debentures are those that are not repayable during the life time of the company.

Question 8.
What is a ‘Convertible Debenture’?
Answer:
Convertible debentures—Convertible debentures are those the holder of which are given an option of exchanging the amount of their debenture for equity shares after a specified period. These are of two types :

  • Fully Convertible debentures (FCD) are those debentures where the whole amount is to be converted into equity shares.
  • Partly Convertible debentures (PCD) are those debentures where only a part of the amount of debenture is convertible into equity shares.

Question 9.
What is meant by ‘Mortgaged Debentures’?
Answer:
Mortgaged Debentures refers to those debentures where a charge is created on the assets of the company for the purpose of payment in case of default. The charge may be fixed or floating. A fixed charge is created on a specific assets whereas a floating charge is on the general assets of the company. They also known as secured debentures.

Question 10.
What is discount on issue of debentures?
Answer:
Issue of Debentures at a Discount—When the debentures are issued at less than the face value, it is said to be issued at discount. Discount on issue of debenture is a capital loss and is shown on the assets side of Balance Sheet under the head “Miscellaneous Expenditure” till it is written off.

Accounting Treatment:
On issue of debentures at a discount
Debenture Allotment A/c — Dr.
Discount on Issue of Debenture A/c — Dr.
To Debenture A/c

Question 11.
What is meant by ‘Premium on Redemption of Debenture’?
Answer:
Premium on Redemption of Debentures means when the debentures are redeemed at a price more than its face value. It is capital loss and is shown on the assets side of the Balance Sheet under the head ‘Miscellaneous Expenditure’.
Accounting Treatment:
If debentures are to be redeemed at premium :

(a) % Debentures A/c — Dr.
Premium on Redemption of Debentures A/c — Dr.
To Debentureholders A/c

(b) Debentureholders A/c — Dr.
To Bank A/c

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Question 12.
How debentures are different from shares? Give two points.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 35
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 36

Question 13.
Name the head under which ‘discount on issue of debentures’ appears in the Balance Sheet of a company.
Answer:
Discount on issue of debentures is a capital loss and is shown on the assets side of the Balance Sheet under the head “Miscellanceous Expenditure” till it is written-off.

Question 14.
What is meant by redemption of debentures?
Answer:
Redemption of Debenture : The term redemption means the discharge of obligation for payment of debenture or bonds. The redemption of debentures can take place either out of profits or through conversion of convertible debentures into shares or by issuing new debentures or bonds.

Redemption of non-convertible debenture out of profits :
According to Section 117C
(1) of the Companies Act, 1956, when debentures are redeemed out of profits, an adequate amount equal to 50% of issue price of debentures is required to be transferred to Debenture Redemption Reserve Account before the redemption begins. (SEBI Guideline No. 10.3.2(c) (a)). This guideline stipulates that an amount equal to 50% of the debenture issue should stand to the credit of the Debenture Redemption Reserve Account.

Debenture Redemption Reserve should be created before the redemption begins. If debentures are issued for project financing, this reserve may be created upto the date of commercial production either in equal instalments or higher amount if profits so permit. However, in case of convertible issues by new companies, the creation of such reserve shall commence from the year company earns profits for the remaining life of debentures.

Exceptions to the creation of Debenture Redemption Reserve : Following are the exception to the above rule of 50% debenture issue :

(1) For infrastructure companies engaged in developing, maintaining and operating infrastructure facilities are not required to make such reserve.

(2) A company issuing debentures with a maturity period of not more than 18 months.These guideliens issued by SEBI are not mandatory, therefore such companies can also create Debenture Redemption Reserve if they think it appropriate.

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Following accounting entries for redemption of debenture may be passed :
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 37

Question 15.
Can the company purchase its own debentures? ‘
Answer:
A company, if authorised by its Articles of Associations, can redeem its own debenture by purchasing them in the open market. If a company purchases it own debenture for the purpose of immediate cancellation, the purchase and cancellation of such debenture are called, redemption by purchase in the open market.

Question 16.
What is meant by redemption of debentures by conversion?
Answer:
Redemption by Conversion—Sometimes, at the time of issue of debentures, a company gives the convertible debenture holders a privilege that they can get their debentures converted into shares or new debentures after the expiry of a specified period. Whenever debenture are redeemed by conversion, the debenture holders have to apply for the same. The new shares or debentures may be issued at par, discount or at premium.

No DRR is required in case of convertible debentures, because no funds are required for redemption. If debentures to be converted were issued at discount, the issue price of share must be equal to the amount actually received from debentures. If this rule is not followed, it would be violation of Section 79 of Companies Act, 1956.
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 38
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 39

If the new shares/debentures are issued at a premium the Securities Premium A/c is credited or new shares/debentures are issued at a discount, the discount on issue of shares/debentures A/c is debited in the above mentioned entry (b).

Question 17.
How would you deal with ‘Premium on Redemption of Debentures’?
Answer:
‘Premium on Redemption of Debentures’ means when the debentures are redeemed at a price more than its face value. It is a capital loss and is shown on the assets side of the Balance sheet under the head ‘Miscellaneous Expenditure’.

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 40

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Question 18.
What is meant by ‘Redemption out of Capital’?
Answer:
Redemption of Debenture out of capital—In this case, profits of the company are not utilised for the redemption of debentures, so the assets of the company are reduced by the amount paid. Normally the profits are transferred to Debenture Redemption Reserve for redemption.

In case no profits have been transferred to Debenture Redemption Reserve and debentures are redeemed on the due date, it is regarded as redemption out of the capital. It is however, presumed that the company has adequate funds to redeem the debentures.
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 41

Question 19.
What is meant by redemption of debentures by ‘Purchase in the Open Market’?
Answer:
Redemption by Purchase in the Open Market— company, if authorised by its Articles of Associations, can redeem its own debenture by purchasing them in the open market. If a company purchase its own debentrue for the purpose of immediate cancellation, the purchase and cancellation of such debenture are called, redemption by purchase in the open market.

Advantages:
1. A company can redeem the debentures at its convenience whenever it has surplus funds.
2. A company can save money by purchasing own debenture, when they are available in market at discount.

Accounting Treatment:
(In case of Profits)
(a) On purchase of own debentures for immediate cancellation.

Debenture A/c — Dr.
To Bank A/c
To Profit on cancellation of Debenture A/c
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 42
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 43

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Question 20.
Under which head is the ‘Debenture Redemption Reserve’ shown on the Balance Sheet?
Answer:
The Debenture Redemption Reserve account appears on the liability side of the Balance Sheet under the head ‘Reserves and Surpluses’.

Long Answer Type Questions

Question 1.
What is meant by a debenture? Explain the different types of debentures?
Answer:
Meaning of Debenture—The term, “debenture” has been derived from the Latin word “debre” which means “to borrow”. Thus, it is a written document acknowledging a debt under the common seal of the company and containing a contract for the repayment of the principal sum at a specified date and for the payment of interest (usually half yearly) at a fixed rate percent until the principal sum is repaid.

“Debenture includes debenture stock, Bond and any other securities of a company whether constituting a charge on the assets of the company or not.” — Section 2 (12) of the Companies Act, 1956

“A debenture is a document given by a company as evidence of a debt to the holder usually arising out of a loan and most commonly secured by ” a charge” — Topham

“Debenture as a document under company’s seal which provides for the payment of a principal sum and interest there on at regular intervals which is usually secured, by fixed or floating charge on the company’s property and which acknowledges loan of a company.” —E. Thomas

“Debenture means a document which either creates a debt or acknowledges it and any document which fulfills either of these conditions.” —Chitty J.

Types of Debentures
1. Security Point of View-
(a) Secured/Mortgage Debentures—Secured Debentures are those which are secured either on a particular asset or on all the assets of the company in general.

(b) Unsecured/Naked Debentures—Unsecured Debentures do not have a Specific charge on the assets of the company.
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 44

2. Tenure Point of View—

(a) Redeemable Debentures—Redeemable debentures are those that will be repaid by the company at the end of a specified period during the existence of the company.

(b) Irredeemable Debentures—Irredeemable debentures are those that are not repayable during the life time of the company.

3. Mode of Redemption Point of View—
(a) Convertible Debentures—Convertible debentures are those the holder of which are given an option of exchanging the amount of their debenture for equity shares after a specified period. These are of two types :
(i) Fully Convertible Debentures (FCD) are those debentures where the whole amount is to be converted into equity shares.
(ii) Partly Convertible Debentures (PCD) are those debentures where only a part of the amount of debenture is convertible into equity shares.
(b) Non-Convertible Debentures—The debentures which cannot be converted into shares or in any other securities are called non-convertible debentures.

4. Coupon Rate Point of View:
(a) Zero Coupon Rate Debenture—These debentures do not carry a specific rate of interest.
(b) Specific Coupon Rate Debenture—These debentures are issued with r. specified rate of interest, which may either be fixed or floating.

5. Registration Point of View:—
(a) Registered Debentures—Registered debentures are those which are payable to the persons whose name appears in the Register of Debenture holders. These can be transferred only by executing a transfer deed.

(b) Bearer Debentures—Bearer debentures are those which are payable to the bearer thereof. These can be transferred nearly by delivery. Interest is paid to the persons who produced the interest coupon attached to such debenture.

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Question 2.
Distinguish between a debenture and a share. Why debenture is known as loan capital? Explain.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 45
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 46
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 148
Debenture is known as loan capital because, in actual practice debenture refers to long term indebtedness. A debenture holder will receive a certificate showing the number of debentures, and their distinctive numbers, held by him. It is issued under the seal of the company.

Terms of repayment of the principal sum and payment of interest are given in each debenture certificate. It is usual to “prefix debenture” with the rate of interest. The debenture certificate usually states that the sum borrowed will be repaid by the company on or before a certain date and precise details of the security are given to debenture holder.

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Question 3.
Describe the meaning of ‘Debenture Issued as Collateral Securities/ What accounting treatment is given to the issue of debentures in the books of accounts?
Answer:
Issue of Debentures as a Collateral Securities—
When a company takes a loan from a bank or any other party and gives some additional security in shape of debentures, the debentures are said to be issued as collateral security. In such a case, lender has the absolute right over the debentures unless and until the loan is repaid.

On repayment of the loan, the lender is legally bond to release the debenture fort with. In case the loan is not repaid by the company on the due date, the lender has the right to retain these debenture and realise them. The holder of such debentures is entitled to interest only on the amount of loan, but not on the debentures. Debentures issued as a collateral security can be dealt with in two ways in the books.

(i) No accounting entry is required to be shown in the books at the time of issue of such debentures, but a foot note to the fact that loan has been secured by the issue of debentures is appended.

This is done by stating the facts along with the loan, as shown below :
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 149

(ii) If it is desired that such an issue of debentures is to be recorded in the books, the following entries are recorded :

(a) On issue of Debentures as Collateral Security
Debentures Suspense A/c — Dr.
To Debentures A/c

(b) On repayment of the loan
Debentures A/c — Dr.
To Debentures Suspense A/c

The net effect of the above two entries is nil.
Debenture suspense account appears on the assets side of the Balance Sheet under the heading “Miscellaneous Expenditure” while debenture account appears on the liabilities side of the Balance Sheet before the repayment of the loan. Balance Sheet shows these items as under.
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 150

Question 4.
How is ‘Discount on Issue of Debenture’ treated in the books of accounts? How will you deal with the ‘discount on issue of debentures’ when the debentures are to be redeemed in instalments?
Answer:
When debentures are issued at a price less than its nominal (face) value and/or debentures are redeemed at a price more than its nominal value, there arises a loss/discount on issue of debenture.

It is prudent for the company to write off discount/loss on issue of debentures which is in the nature of capital loss or a fictitious assets. A company is allowed to write it off against capital profit or capital reserve or securities premium account. If there are no capital profits or capital reserves, it should be treated as deferred revenue expenditure and therefore, should be written off against the revenue profits during the life of debentures.

When it is decided by the company to write off discount/loss on issue of debentures against the revenue profits, it can be done in two ways :

(a) Fixed Instalment Method, and
(b) Fluctuating Instalment Method.

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Fixed Instalment Method—Under this method, total discount or loss is spread over the life of debentures equally. This method is to be applied when debentures are redeemed at the expiry of fixed period. This method spreads the burden of loss equally over the years. Thus, Amount of Loss or Discount to be written off annually Total Discount/Loss Life of the Debenture(in years).
\(=\frac{\text { Total Discount/Loss }}{\text { Life of the Debenture(in years) }}\)

Fluctuating Instalment Method—Under this method, the total discount is written off in the proportion of debenture debt outstanding during the year, i.e., in the proportion of benefit received out of money collected by issuing debentures. This method is used when debentures are redeemed every year by serving a notice and by drawing a lot. This method is also known as Reducing Instalment Method.

Question 5.
Explain the different terms for the issue of debentures with reference to their redemption.
Answer:
A company may issue debentures at different terms. The issue can be made at par, at a premium or at a discount, the redemption of debentures can also be made at par, at a premium or at a discount. Combining various terms of issue and redemption of debentures, there may be the following six possibilities.

Case No.Terms of IssueTerms of Redemption
1.Issued at ParRedemption at Par
2.Issued at DiscountRedemption at Par
3.Issued at PremiumRedemption at Par
4.Issued at ParRedemption at Premium
5.Issued at DiscountRedemption at Premium
6. .Issued at PremiumRedemption at Premium

Case No. 1 : Issue at Par and Redemption at Par – In this case company can issue the debentures at their face value and to redeem them at their face value. In this case, the company is neither losing nor gaining either on issue or redemption of debentures.

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 49

Case No. 2 : Issue at Discount and Redemption at Par – Debentures issued at discount and repayable at par refer to those debentures which are issued below the face value but redeemed at the face value of debentures.
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 50

Case No. 3. Issue at Premium and Redemption at Par – It refer to the debenture which are issued at more than the face value and redeemed at the face value of the debentures. In this case, the company gains at the time of issue only.
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 51

Case No. 4 : Issue at Par and Redemption at Premium – It refer to those debentures which are issued at the face value but are redeemed at the price higher than the face value. In this case, there will be no loss at the time of issue, but there will be loss on the redemption of debentures.
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 52

Case No. 5 Issue at Discount and Redemption at Premium—It refers to those debentures which are issued at below the face value and redeemed at a price higher than the face value of debentures. In this case the company loses at both the times at the time of issue and at the time of repayment.
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 53

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Question 6.
Differentiate between redemption of debentures out of capital and out of profits.
Answer:
Redemption of Debentures out of Capital – In this case, profits of the company are not utilised for the redemption of debentures, so the assets of the company are reduced by the amount paid.

It is presumed that the company has sufficient funds to redeem the debentures. Since the profits are not utilised to replace the debentures, debentures are said to redeemed out of capital. This would seriously affect the working capital of the company.

Redemption of Debentures out of Profits—It means the amount equal to that utilised for repayment to debenfure holders is transferred from Profit and Loss Appropriation A/c to a newly opened A/c called ‘Debenture Redemption Reserve A/c’.

(It is mandatory to set up ‘Debenture Redemption Reserve A/c. As per SEBI Guideline, an ” amount equal to 50% of the debenture issue should be transferred to DRR).

Thus, this reduces the balance of profits. It is called redemption out of profit because it reduces the amount of profits available for dividend.

Question 7.
Explain the guidelines of SEBI for creating Debentures Redemption Reserve.
Answer:
SEBI’s Guidelines—Securities and Exchange Board of India (SEBI) has provided some guidelines for redemption of debentures. The focal points of these guidelines are :

1. Every company shall create Debenture Redemption Reserve in case of issue of debenture redeemable after a period of more than 18 months from the date of issue.

2. The creation of Debenture Redemption Reserve is obligatory only for non convertible debenture and non convertible portion of partly convertible debentures.

3. A company shall create Debenture Redemption Reserve equivalent to at least 50% of the amount of debenture issue before starting the redemption of debenture.

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

4. Withdrawal from Debenture Redemption Reserve is permissible only after 10% of the debenture liability has already been reduced by the company.

Exemption :
SEBI guidelines would not apply under the following situations:
(a) Infrastructure company (a company wholly engaged in the business of developing, maintaining and operating infrastructure facilites)

(b) A company issuing debentures with a maturity period of not more than 18 months.

Clarification regarding Debentures Redemption Reserve – The Department of Company Affairs, Government of India, vide their circular No. 9/2002, dated 18.04.2002 has issued the following clarifications regarding creation of Debenture Redemption Reserve.

(DRR) —

a. No DRR is required for debentures issued by All India Financial Institutions, by RBI and, Banking Companies .for both public as well as privately placed debentures.

b. No DRR is required in case of privately placed debentures.

c. Section 117c will apply to debentures issued and pending to be redeemed and, therefore, DRR will also be created for debentures issued prior to 13.12.2000 and pending redemption.

d. Section 117c will apply to non-convertible portion of debentures issued whether they are fully or partly paid.

Question 8.
Describe the steps for creating Sinking Fund for redemption of debentures.
Answer:
Sinking Fund Method for Redemption of Debentures—
The following steps involved in the working of Sinking Fund Method :
1. Calculate the amount of profit to be set aside with the help of Sinking Fund Table.
2. Set aside the amount of profit at the end of each year.
3. Purchase the Investments at the end of each year (except last year)
4. Receive the interest on investments at the end of each year.
5. Repeat Step 2 including interest for each year, Repeat Step 3 for each year except last year, repeat Step 4 for each year.
6. Realise the investments in the year of redemption.
7. Transfer profit/loss on sale of Investment to Debenture Redemption Fund Account.
8. Make due the amount payable to Debenture-holders.
9. Make payment to Debenture-holders
10. Transfer the balance left in Debenture Redemption Fund Account to General Reserve if all the debentures have been redeemed.

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Or
Transfer the nominal value of the debentures redeemed to Debenture Redemption Reserve if a certain proportion of debentures is redeemed.

The amount required for the redemption of debentures is generally large and the date of redemption is known to the company. Thus, it is prudent for a company to make arrangements to ensure the availability of adequate funds for the redemption of debenture at the end of the stipulated period for which debentures are issued. Hence, it is better for the company to set aside every year a part of divisible profits and to invest the same outside the business in marketable securities.

This is done by creating a Sinking Fund. The company adopts the method of Debenture Redemption Sinking Fund. An appropriate amount calculated by referring to Sinking Fund Factors, depending upon the interest rate on investments and the number of years for which investments are made, is set aside.

Debenture Redemption Sinking Fund A/c will be created every year to provide means for the redemption of debentures. The company set aside every year a certain sum of money out of its profits and invests the same along with interest that may be earned on investment. The investment are sold when debentures fall due for redemption. The amount available from the sale of investment is utilized for redemption of debentures.

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 54

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 55

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 56
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 57

Question 9.
Can a company purchase its own debentures in the open market? Explain.
Answer:
Redemption by Purchase in the Open Market—A
company, if authorised by its Articles of Association, can redeem its own debenture by purchasing them in the open market.

If a company purchase its own debentrue for the purpose of immediate cancellation, the purchase and cancellation of such debenture are called, redemption by purchase in the open market.

Advantages:
1. A company can redeem the debentures at its convenience ‘ whenever it has surplus funds.
2. A company can save money by purchasing own debenture, when they are available in market at discount. NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 58

Question 10.
What is meant by conversion of debentures? Describe the method of such a conversion.
Answer:
Sometimes, at the time of issue of debentures, a company gives the convertible debenture holders a privilege that they can get their debentures converted into shares or new debentures after the expiry of a specified period. Whenever debenture are redeemed by conversion, the debenture holders have to apply for the same. The new shares or debentures may be issued at par, discount or at premium.

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

No DRR is required in case of convertible debentures, because no funds are required for redemption. If debentures to be converted were issued at discount, the issue price of share must be equal to the amount actually received from debentures. If this rule is not followed, it would be violation of section 79 of Companies Act, 1956.

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 59
If Redemption at premium Debentures A/c — Dr.
Securities Premium A/c — Dr.
To Debentureholder A/c

(b) For discharging obligation by issuing shares or debentures Debentureholder A/c — Dr.
To Equity Share capital Or To Debentures A/c (new)

If the new share/debentures are issued at a premium, the Securities Premium A/c is credited or new shares/debentures are issued at a discount, the Discount on Issue of Shares/Debentures A/c is debited in the above mentioned entry (b).

Numerical Exercises

Question 1.
G. Ltd. issued 75,00,000, 6% Debenture of Rs. 50 each at par payable Rs. 15 on application and Rs. 35 on allotment, redeemable at par after 7 years from the date of issue of debenture. Record necessary entries in the books of Company.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 61

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Question 2.
Y. Ltd. issued 2,000 6% Debentures of Rs. 100 each payable as follows : Rs. 25 on application; Rs. 50 on allotment and Rs. 25 on First and Final call. Application were received for all the debentures along with the application money and allotment was made. The call money was also received on the due date. Pass necessary Journal entries in the books of the company.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 62
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 63

Question 3.
A Ltd. issued 10,000,10% Debentures of Rs. 100 each at a premium of 5% payable as follows : Rs. 10 on Application; Rs. 20 along with premium on allotment and balance on First and Final Call. Record necessary Journal Entries.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 64
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 160

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures
Question 4.
A. Ltd. issued 90,00,000, 9% Debenture of Rs. 50 each at a discount of 8%, redeemable at par any time after 9 years. Record necessary entries in the books of A. Ltd.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 66

Question 5.
A. Ltd. issued 4,000, 9% Debentures of Rs. 100 each on the following terms :
Rs. 20 on Application; Rs. 20 on Allotment; Rs. 30 on First call; and Rs. 30 on Final call.
The public applied for 4,800 Debentures. Applications for 3,600 Debentures were accepted in full. Applications for 800 Debentures were allotted 400 Debentures and applications for 400 Debentures were rejected. Pass Journal entries.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 67
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 68
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 69
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 70

Question 6.
T. Ltd. offered 2,00,000,8% Debenture of Rs. 500 each on June 30,2002 at a premium of 10% payable as Rs. 200 on application (including premium) and balance on allotment, redeemable at par after 8 years. But application are received for 3,00,000 debenture and the allotment is made on pro-rata basis. All the money due on application and allotment is received. Record necessary entries regarding issue of debentures.
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 71

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 72

Question 7.
X. Ltd. invites application for the issue of 10,000, 14% debentures of Rs. 100 each payable as to Rs. 20 on application, Rs. 60 on allotment and the balance on call. The company receives applications for 13,500 debentures, out of which applications for 8,000 debentures are allotted in full, 5,000 only 40% and the remaining rejected. The surplus money on partially allotted applications is utilised towards allotment. All the sums due are duly received. Journalise the transactions.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 73
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 74

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Question 8.
R.Ltd. offered 20,00,000,10% Debenture of Rs. 200 each at a discount of 7% redeemable at premium of 8% after 9 years. Record necessary entries in the books of R. Ltd.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 75
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 76

Question 9.
M.Ltd. took over assets of Rs. 9,00,00,000 and liabilities of Rs. 70,00,000 of S. Ltd. and issued 8% Debenture of Rs. 100 each. Record necessary entries in the books of M. Ltd.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 77
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 78

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Question 10.
B.Ltd. purchased assets of the book value of Rs. 4,00,000 and took over the liability of Rs. 50,000 from Mohan Bros. It was agreed that the purchase consideration, settled at Rs. 3,80,000, be paid by issuing debentures of Rs. 100 each.
What Journal entries will be made in the following three cases, if debentures are issued :
(a) at par;
(b) at discount 10%,
(c) at premium of 10%? It was agreed that any fraction of debentures be paid in cash.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 79
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 80
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 81

Question 11.
X.Ltd. purchased a Machinery from Y for an agreed purchase consideration of Rs. 4,40,000 to be satisfied by the issue of 12% debentures of Rs. 100 each at a premium of Rs. 10 per debenture. Journalise the transactions.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 82

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Question 12.
X. Ltd issued 15,000, 10% debentures of Rs. 100 each. Give journal entries and the Balance Sheet in each of the following cases :
(i) The debentures are issued at a premium of 10%.
(ii) The debentures are issued at a discount of 5%.
(iii) The debentures are issued at a collateral security to bank against a loan of Rs. 12,00,000; and
(iv) The debentures are issued to a supplier of machinery costing Rs. 13,50,001.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 83
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 84
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 85
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 86

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 87
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 88

Question 13.
Journalise the following :
(i) A debenture issued at Rs. 95, repayable at Rs. 100;
(ii) A debenture issued at Rs. 95, repayable at Rs. 105; and
(iii) A debenture issued at Rs. 100, repayable at Rs. 105; The face value of debentrue in each of the above cases is
Rs. 100.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 89
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 90

Question 14.
A. Ltd. Issued 50,00/000, 8% Debenture of Rs. 100 at a discount of 6% on April 1, 2000 redeemable at premium of 4% by draw of lots as under :
20,0,000 Debenture on March, 2003
10,0,000 Debenture on March/ 2004
20,0,000 Debenture on March/ 2005
Compute the amount of discount to be written off in each year till debentures are paid. Also prepare discount/loss on issue of debenture account.
Answer:
Value of Debentures issued = 50,00,000 x 100
= Rs. 50,00,000 or Rs.50 crore
Discount on Issue of Debenture of 6%
= 50,00,00,000 x \(\frac{6}{100}\)
= Rs. 300,00,000 or Rs.3 crore
Loss on Issue of Debenture of 4% .
= 50,00,00,000 x \(\frac{4}{100}\)
= Rs. 2,00,00,000 or Rs.2crore
Total Discount/Loss to written off = Rs. 3 crore + Rs. 2 crore
= Rs. 5 crore
= Rs. 500 lakhs.

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 91

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 92
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 93

Question 15.
A company issues the following debentures—
(i) 10,000, 12% debentures of Rs.100 each at par but redeemable at premium of 5% after 5 years;
(ii) 10,000,12% debentures of Rs.100 each at a discount of 10% but redeemable at par after 5 years;
(iii) 5,000,12% debentures of Rs.1000 each at a premium of 5% but redeemable at par after 5 years;
(iv) 1,000,12% debentures of Rs.100 each issued to a supplier of machinery costing Rs. 95,000. The debentures are repayable after 5 years; and
(v) 300,12% debentures of Rs.100 each as a collateral security to a bank which has advanced a loan of Rs. 25,000 to the company for a period of 5 years.
Pass the journal entries to record the (a) issue of debentures; and (b) repayment of debentures after the given period.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 161
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 94

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 95
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 96

Question 16.
A company issued debentures of the face value of Rs. 5,00,000 at a discount of 6% on January 01, 2001. These’debentures are redeemable by annual drawing of Rs, 1,00,000 made on December 31 each year. The directors decided to write off discount based on the debentures outstanding each year. Calculate the amount of discount to be written off each year. Give journal entires also.
Answer:
Value of Debenture issued = Rs. 5,00,000
Discount on Issue of Debenture = 6%
= 500000 x \(\frac{6}{100}\)= Rs. 30,000
Total Discount to be written off = Rs. 30,000
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 97
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 98
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 99
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 100

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Question 17.
A company issued 10% Debentures of the face value of Rs. 1,20,000 at a discount of 6% on January 01,2001. These debentures are payable by annual drawing of Rs, 40,000 commencing from the end of third year. How will you deal with discount on debentures? Show the discount on debentures account in the company ledger for the period of duration of debentures. Assume accounts are closed on December 31.
Ans.
As the debentures are to be redeemed by annual drawings, it is equitable to adopt the fluctuating installment method of writing off the discount. In this way, the burden of discount would be distributed in proportion to the benefits derived out of the debentures money.
Value of Debenture issued=Rs. 120,000
Discount on Issue of Debenture = 6%
= 120,000 x \(\frac{6}{100}\) = Rs. 7,200
Total Discount to be written off = Rs. 7,200.
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 162
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 101
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 102

Question 18.
B. Ltd. issued debentures at 94% for Rs. 4,00,000 on April 01, 2000 repayable by five equal drawing of Rs. 80,000 each. The company prepares its final accounts on December 31 every year. Indicate the amount of discount to be written off every accounting year assuming that the company decides to write off the debentures discount during the life of debentures. (Amount to be written off : 2000 Rs. 6,000; 2001 Rs. 6,800; 2002 Rs. 5,200; 2003 Rs. 3,600; 2004 Rs. 2000; 2005 Rs. 400.)
Answer:
Value of Debenture issued = Rs. 4,00,000
Discount on Issue of Debenture = 6%
= \(\frac{6}{100}\) x 400,000
= Rs 24,000
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 103
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 104
Amount of discount to be written off in the year.
2000 = Rs. 6,000
2001 Rs. 6,800
2002 = Rs. 5,200
2003 = Rs. 3,600
2004 = Rs. 2,000
2005 = Rs. 400

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Question 19.
B. Ltd. issued 1,000,12% debentures of Rs. 100 each on January 01, 2005 at a discount of 5% redeemable at a premium of 10%. Give journal entries relating to the issue of debentures and debentures interest for the period ending December 31, 2005 assuming that interest is paid half yearly on June 30 and December 31 and tax deducted at source is 10%. B. Ltd. follows calendar year as its accounting year.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 105
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 106
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 107

Question 20.
What journal entries will be made in the following cases when company redeems debentures at the expiry of period by serving the notice: (a) when debentures were issued at par with a condition to redeem them at premium; (b) when debentures were issued at Premium with a condition to redeem that at par; and (c) when debentures were issed at discount with a condition to redeem them I at premium?
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 108

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Question 21.
On January 01,1998, X Ltd. issues 5,000,8% Debentures of Rs. 100 each repayable at par at the end of three years. It has been decided to set up a cumulative sinking fund for the purpose of their redemption. The investments are expected to realise 4% net. The Sinking Fund Table shows that Rs. 0.320348 amounts to one rupee @ 4% per annum in three years. On December 31, 2000 the balance at bank was Rs. 2,42,360 and the investments realised Rs. 3,25,000. The debentures were paid off. Give Journal entries and show ledger account. [Loss on Sale of Investments Rs. 2,246]
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 109
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 110
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 111
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 112
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 113
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 114
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 115
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 116

Question 22.
On January 01, 2003 a company issued 15% debentures of Rs. 10,00,000 at par. The debentures were redeemable at par after three years on December 31,2005. A sinking fund was set up to raise funds for redemption of debentures. The amount for the purpose was invested in 6% Government securities of Rs. 100 each available at par. The sinking fund table shows that if investments earn 6% per annum, to get Re. 1 at the end of 3 years, one has to invest Rs. 0.31411 every year together with interest that will be earned. On December 31,2005, all the Government securities were sold at a total loss of Rs. 6,000 and the debentures were redeemed at par. Prepare Debentures Account, Sinking Fund Account, Sinking Fund Investment Account and Interest on Sinking Fund Investment. Company closes its books of accounts every year on December 31.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 117

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 118
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 119

Working Notes

1. Amount Set aside for investment purpose.
= 0.31411 x 10,00,000 = Rs. 3,14,110/-

2. Sinking Fund A/c and Sinking Fund investment A/c mean Debentures Redemption Fund A/c and Debentures Redemption Fund Investment A/c.

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Question 23.
On January 01,2004 the following balances appeared in the books of Z. Ltd :
6% Debentures – 1,00,000
Debentures Redemption Reserve Fund – 80,000
D.R. Reserve Fund Investments – 80,000
On December 31, 2004, the balance at Bank was Rs. 26,000 (after receipt of interest on D.R. Reserve Fund Investment). Investments were realised at 92% and the Debentures were redeemed. The interest for the year had already been paid. Show the ledger accounts affecting redemption.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 120
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 121

Question 24.
The following balances appeared in the books of A. Ltd. on January 01, 2004
12% Debentures – 4,00,000
Debentures Redemption Fund – 3,60,000
Debentures Redemption Find Investment – 3,60,000
Securities Premium – 30,000
Bank Balance – 1,00,000
On January 01,2004, the company redeemed all the debentures at 105 percent out of funds raised by selling all the investments at Rs. 3,48,000. Prepare the necessary ledger accounts.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 122
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 123
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 124

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Question 25.
The following balances appeared in the books of Z. Ltd.
12% Debentures – 1,50,000
Debentures Redemption Fund – 1,25,000
Debentures Redemption Fund Investment – 1,25,000
(Represented by Rs. 1,47500,3% Govt. Securities) – 1,25,00012% Debentures – 1,50,000
Debentures Redemption Fund – 1,25,000
Debentures Redemption Fund Investment – 1,25,000
(Represented by Rs. 1,47500,3% Govt. Securities) – 1,25,00012% Debentures – 1,50,000
Debentures Redemption Fund – 1,25,000
Debentures Redemption Fund Investment – 1,25,000
(Represented by Rs. 1,47500,3% Govt. Securities) – 1,25,000
(Represented by Rs. 1,47,500,3% Govt. Securities) 1,25,000 The annual installment added to the fund is Rs. 20,575. On December 31,2004, the bank balance after the receipt of interest on the investment was Rs. 39,100. On that date, all the investments were sold at 83 percent and the debentures were duly redeemed. Show the necessary ledger accounts for the year 2004. [Loss on Sale Rs. 2,575]
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 125
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 126
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 127

Question 26.
What entries for the redemption of debentures will be done when (a) debentures are redeemed by annual drawings out of profits; (b) debentures are redeemed by drawing a lot out of capital; and (c) debentures are redeemed by purchasing them in the open market when sinking fund for the redemption of debentures is not maintained : (i) when out of profit, and (ii) when out of capital?
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 128
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 129

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Question 27.
A. Ltd Company issued Rs. 5,00,000 Debentures at a discount of 5% repayable at par by annual drawings of Rs. 1,00,000.
Make the necessary ledger accounts in the books of the company for the first year.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 130
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 131

Question 28.
X. Ltd. issued 5,000,15% debentures of Rs. 100 each on January 01, 2004 at a discount of 10%, redeemable at a premium of 10% in equal annual drawings in 4 years Out of capital. Give journal entries both at the time of issue and redemption of debentures. (Ignore the treatment of loss on issue of debentures and interest.)
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 132
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 133

Answer: 29.
Z. Ltd. issued 2,000,14% debentures of Rs. 100 each on January 01,2005 at a discount of 10%, redeemable at a premium of 10% in equal annual drawings in 4 years out of profits. Give journal entries both at the time of issue and redemption of debentures. (Ignore the treatment of loss on issue of debentures and interest.)
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 134
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 135
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 136
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 137

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

Question 30.
A. Ltd. purchased its own debentures of the face value of Rs. 2,00,000 from the open market for immediate cancellation at Rs. 92. Pass the journal entries.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 153

Question 31.
A.Ltd. purchased for cancellation Rs. 50,000 of its 15% debentures at Rs. 98. The expenses of purchase amounted to Rs. 50 Pass the journal entries.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 152
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 153

Question 32.
On January 01,2002, X. Ltd. issued 40,000,9% debentures of Rs. 100 each at Rs. 95. The terms of issue provided that, beginning with 1999, Rs. 2,00,000 debentures should be redeemed either by drawings at par or by purchase in the open market every year. The expenses of issue amounted to Rs. 12,000 which were written off in 2002. The company also wrote off Rs. 40,000 every year from Discount on Debentures Account.

At the end of 2004, debentures to be redeemed were repaid by drawings. During 2005, the company purchased for cancellation 2,000 debentures at the market price of Rs. 98 on December 31, the expenses being Rs. 400. Interest on debentures is payable at the end of every calendar year. Pass the journal entries in the books of the company to record these transactions.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 154
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 155

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 156
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 157

Question 33.
A. Ltd. redeemed 8,000,12% debentures of Rs. 100 each which were issued at a discount of 5%, by converting them into equity shares of Rs. 10 each at par. Journalise.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 139

Question 34.
Y . Ltd. redeemed 4,800,12% debentures of Rs, 100 each which were issued at par, at 110 percent by converting them into equity shares of Rs. 10 each issued at a discount of 4%. Journalise.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 140
Working Notes
Amount due to Debentureholders = Rs.5,28,000
Issue price of Share = Rs 1,Less 4 % = Rs.60
No. of shares to be Issued = \(\frac{5,28,000}{9.60}\) = 55,000 shares

Question 35.
Z. Ltd. redeemed 2,000,12% debentures of Rs. 100 each which were issued at a discount of 5%, by converting them into equity shares of Rs. 10 each issued at a premium of 25%. Journalise.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 142
Working Notes
Amount due to Debentureholder = Rs. 1,90,000
Issue price of Shares = Rs. 10 plus 25% = Rs. 12.50
No. of Shares to be issued = \(\frac{1,90,000}{12.50}\)
= 15,200 shares

Question 36.
X. Ltd. redeemed 1,000,12% debentures of Rs. 50 each by converting them into 15% New Debentures of Rs. 100 each. Journalise. Ans. In the books of X Ltd.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures 144
Working Notes
Amount due to Debenture holder = Rs. 50,000
Issue price of 15% debentures = Rs. 100 each
No. of Debentures to be issued = \(\frac{50000}{100}\)
= 500 Debentures.

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures

NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures Read More »

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

Detailed, Step-by-Step NCERT Solutions for 12 Accountancy Chapter 6 Accounting for Share Capital Questions and Answers were solved by Expert Teachers as per NCERT (CBSE) Book guidelines covering each topic in chapter to ensure complete preparation.

Accounting for Share Capital NCERT Solutions for Class 12 Accountancy Chapter 6

Accounting for Share Capital Questions and Answers Class 12 Accountancy Chapter 6

Test your Understanding-I (Page No. 7)

State which of the following statements are true:
(a) A Company is formed according to the provisions of Indian Companies Act-1932.
Answer:
False

(b) A company is an artificial person.
Answer:
True

(c) Shareholders of a company are liable for the acts of the company.
Answer:
False

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

(d) Every member of a company is entitled to take part in its management.
Answer:
True

(e) Company’s shares are generally transferable.
Answer:
True

(f) Share application account is a personal account.
Answer:
True

(g) The director of a company must be a shareholder.
Answer:
True

(h) Application money should not be less than 25% of the face value of shares.
Answer:
True

(i) Paid-up capital can exceed called-up capital.
Answer:
False

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

(j) Capital reserves are created from capital profits.
Answer:
True

(k) Securities premium account is shown on the assets side of the balance sheet.
Answer:
True

(l) Premium on issue of shares is a capital loss.
Answer:
True

(m) At the time of issue of shares, the maximum rate of securities premium is 10%.
Answer:
False

(n) The part of capital which is called-up only on winding up is called reserve capital.
Answer:
True

(o) Forfeited shares can not be issued at a discount.
Answer:
False

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

(p) The shares originally issued at discount may be re-issued at a premium.
Answer:
True

Test your Understanding-II (Page No. 36)

Choose the Correct Answer.
(a) Equity share holders are :
(i) creditors
(ii) owners
(iii) customers of the company.
Answer:
(ii) Owners

(b) Nominal share capital is :
(i) that Part of the authorised capital which is issued by the company.
(ii) the amount of capital which is actually applied for by the prospective shareholders.
(iii) the maximum amount of share capital which a company is authorised to issue.
(iv) the amount actually paid by the shareholders.
Answer:
(iii) the maximum amount 01 share capital which a company is authorised to issue.

(c) Interest on calls-in-arrears is charged according to “Table A” at:
(i) 5%
(ii) 6%
(iii) 8%
(iv) 11%
Answer:
(ii) 5%

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

(d) Money received in advance from shareholders before it is actually called-up by the directors is :
(i) debited to calls-in-advance account
(ii) credited to calls-in-advance account
(iii) debited to calls account.
Answer:
(ii) Credited to calls-in-advance account

(e) Shares can be forfeited :
(i) for non-payment of call money
(ii) for failure to attend meetings
(iii) for failure to repay the loan to the bank
(iv) for which shares are pledged as a security.
Answer:
(i) for non-payment of call money

(f) The balance of share forfeited account after the reissue of forfeited shares is transferred to :
(i) general reserve
(ii) capital redemption reserve
(iii) capital reserve
(iv) reveneue reserve
Answer:
(iii) capital reserve

(g) Balance of share forfeiture account is shown in the balance sheet under the item :
(i) current liabilities and provisions
(ii) reserves and surpluses
(iii) share capital account
(iv) unsecured loans
Answer:
(iii) share capital account

Test your Understanding – III (Page No. 59)

(a) If a Share of Rs. 10 on which Rs. 8 is called-up and Rs. 6 is paid is forfeited. State with what amount the Share Capital account will be debited.

(b) If a Share of Rs. 10 on which Rs. 6 has been paid is forfeited, at what minimum price it can be reissued.

(c) Allhuwalia Ltd. issued 1,000 equity shares of Rs. 100 each as fully paid-up in consideration of the purchase of plant and machinery worth Rs. 1,00,000. What entry will be recorded in company’s journal.
Answer:
(a) Rs. 8
(b) Rs. 4
(c) …….

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 1

On January 1,2006, a Limited Company was incorporated with an authorised capital of Rs. 40,000 divided into shares of Rs. 10 each.

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

It offered to the public for subscription of 3,000 shares payable as follows :

On Application – Rs. 3 per share
On Allotment – Rs. 2 per share
On First Call (One month after allotment) – Rs. 2.50 per share
On Second and Final Call – Rs. 2.50 per share

The shares were fully subscribed for by the public and application money duly received on January 15, 2006, The directors made the allotment on February 1,2006.
How will you record the share capital transactions in the books of a company if :
(i) The amount due has been duly received.
(ii) The company maintains the combined account for application and allotment.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 2
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 3
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 4
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 5

Do It Yourself (Page No. 22)

Question 1.
A company issued 20,000 equity shares of Rs. 10/- each payable at Rs. 3 on application, Rs. 3 on allotment, Rs. 2 on first call and Rs. 2 on second and the final call. The allotment money was payable on or before May 1st, 2005; first call money on or before August 1st, 2005; and the second and final call on or before October 1st, 2005; ‘X’, whom 1,000 shares were allotted, did not pay the allotment and call money; ‘Y’ on allottee of 600 shares did not pay the two calls; and ‘Z’, whom 400 shares were allotted, did not pay the final call. Pass journal entries and prepare the Balance Sheet of the company as on December 31st, 2005.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 6
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 7

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 8

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 9
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 10

Question 2.
Alfa company Ltd. issued 10,000 shares of Rs. 10 each for cash payable at Rs. 3 on application, Rs. 2 on allotment and the balance in two equal installments. The allotment money was payable on or before March 3rd, 2006; the first call money on or before 30th June, 2006; and the final call money on or before 31st August, 2006. Mr. ‘A’, whom 600 shares were allotted, paid the entire remaining face value of shares alloted to him on allotment. Record journal entries in companies’ books and also prepare their Balance Sheet on the date.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 11
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 12

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 13

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 14

Do It yourself (Page No. 46) 

Question 1.
A company forfeited 100 equity shares of Rs. 10 each issued at a premium of 20% for non-payment of final call of Rs. 5 including the premium. Show the journal entry to be passed for forfeiture of Shares.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 15

Question 2.
A company forfeited 800 equity shares of Rs. 10 each issued at a discount of 10% for non-payment of two calls of Rs. 2 each. Calculate the amount forfeited by the company. Also calculate the amount of capital profit if 300 shares were reissued out of the forfeited shares at Rs. 8 per share. Also show how to pass the journal entries.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 16
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 17

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

Do it Yourself (Page No. 59)

Excell Company Limited made an issue of 1,00,000 Equity Shares of Rs. 10 each, payable as follows:

On Application – Rs. 2.50 per share
On Allotment – Rs. 2.50 per share
On 1st and Final call – Rs. 5.00 per share

X, the holder of 400 shares did not pay the call money and his shares were forfeited. Two hundred of the forfeited shares were reissued as fully paid at Rs. 8 per share. Draft necessary journal entries and prepare Share Capital and Share Forfeited’ accounts in the books of the company.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 18
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 19

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 20

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 21
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 22

Do it Yourself (Page No. 62)

Journalise the following:
(a) The directors of a company forfeited 200 equity shares of Rs. 10 each on which Rs. 800 had been paid. The Shares were reissued upon payment of Rs. 1,500.
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 23

(b) A holds 100 shares of Rs. 10 each on which he has paid Re. 1 per share on application. B holds 200 Shares of Rs. 10 each on which he has paid Re. 1 on application Rs. 2 on allotment. C holds 300 shares of Rs. 10 each who has paid Re. 1 on applications. Rs. 2 on allotment and Rs. 3 on first call. They all failed to pay their arrears and second call of Rs. 4 per share as well. All the shares of A, B and C were forfieted and subsequently reissued at Rs. 11 per share as fully Paid- up.
Answer :
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 24

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 25NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 26

Short Answer Type Questions

Question 1.
What is Public Company?
Answer:
Public Company—According to Section 3(i) (iv) of the Companies Act 1956 “Public Company means a company
(a) which is not a private company and
(b) has a minimum paid up capital of Rs. 5 lakhs or such higher paid-up capital and
(c) is a private company which is a subsidiary of a company which is not a private company.” Companies Amendment Act 2000 states that a public company cannot be registered with a capital of less than Rs. 5 lakhs.

A public company may be a listed company or unlisted company. A listed company is a public company which has any of its securities listed in any recognised stock exchange. An unlisted company is one whose securities are not listed on any recognised stock exchange for trading.

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

Question 2.
What is Private Limited Company?
Answer:
Private Company—According to section (3)(i), (iii), a private company means a company which has a minimum paid up capital of Rs. One lakh or such higher paid-up capital as may be prescribed and by its articles—
(i) Restricts the rights of members to transfer its shares,
(ii) Limits the number of its members to 50 excluding :

  • persons who are in employment of the company, and
  • persons, who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased.

(iii) Prohibits any invitation to the public to subscribe to any shares or debentrues of the company.
(iv) Prohibits any invitation or acceptance of deposits from persons other than its members, directors and relatives.

Question 3.
Define Government Company.
Answer:
Government Company—According to section 617 of the Companies Act 1956, “a Government Company is a company in which not less than 51% of the paid-up capital is held by the Central Government, or by any State Government or Governments or partly by the Central Government and partly by one or more State Governments and includes a company which is a subsidiary of a Government Company.”

Question 4.
What do you mean by a listed company?
Answer:
A public company may be listed or unlisted company. A listed company is that public company which has any of its securities are listed in any recognised stock exchange in India for trading. Listing of securities in any recognised stock exchange gives a guarantee and impression in the minds of potential investors about the goodwill of the company.

Question 5.
What are the uses of securities premium?
Answer:
Security Premium and its Uses – When shares of a company are issued at a price more than the face value, it is said to be an issue of shares at premium. When shares are issued at premium, the premium amount is credited to a separate account called “Securities Premium

Account” because it is not a part of share capital. Rather, it represents, a capital gain and being a credit balance, is shown on the liabilities side of the company’s balance sheet under the heading “Reserves and Surplus”.

According to Section 78 of the Companies Act, Securities Premium Account may be used by the company :

  • In paying up unissued capital of the company to be issued to the members of the company as fully paid bonus shares.
  • To write off preliminary expenses of the company.
  • To write off the expenses of, or commission paid, or discount allowed on any of the securities or debentures of the company.
  • To pay premium on the redemption of preference shares or debentures of the company.

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

Question 6.
What is buy-back of shares?
Answer:
Buy-back of shares : The term buy-back of shares denotes the purchasing of its own shares by a company either from free reserves, securities premium or proceeds of any shares or debentures. According to Section 77 A of the Companies Act 1956, a company can buy its own shares in the following forms :

  • Through existing equity shareholders on a proportionate basis; or
  • Through open market; or
  • By odd lot of shareholders; or
  • Employees of the company pursuant to a scheme of stock option or sweat equity.

Following procedural rules are to be followed :

  • The buy-back should be authorized by the Articles of Association.
  • The special resolution is to be passed in the General Meeting of the shareholders.
  • The buy-back of the shares cannot exceed 25% of paid-up capital and free reserves in a financial year.
  • The debt-equity ratio should not be more than 2 :1 after such buy-back of shares.
  • All the shares for buy-back should be fully paid up.
  • The buy-back should be completed within 12 months from the date of passing of the special resolution.
  • The company must file solvency declaration with the registrar and SEBI in the form of an affidavit signed by at least two directors of the company.

The affidavit must state that the board has made full inquiry into the affairs of the company is capable of meeting its liabilities and will not render insolvent within a period of one year from the date of declaration adopted by the board.

A company that buy-back of its own shares shall extinguish and physically destroy such shares within seven days of completion of buy-back in the presence of merchant bankers or Registrar or statutory auditor.

No Further Issue : When a company completes the buy-back of its shares, shall not make further issue of shares within a period of 24 month except by way of bonus shares or in the discharge of some obligations like conversion of share warrants, stock option schemes, sweat equity or conversion of preference shares and debentures into equity shares.

SEBI Guidelines: SEBI has made certain regulations in 1988 with regard to buy-back of shares. Following are the important guidelines given by the SEBI:

(i) Buy-back of shares cannot be made by a private person through negotiated deals with stock exchange or through spot transactions or any other private arrangement. A company is required to make public announcement in at least in one

National English Daily, and one in Hindi National Daily and one Regional Language Daily all with wide circulation where registered office of the company is situated. Public announcement should specify the following things :

(a) It should specify the date of the dispatch of the offer letter. The letter should specifically stated as “specific date” and it shall not be less than earlier than 30 days but not later than 42 days.

(b) The company shall file information to the SEBI within seven working days from the date of public announcement.

(c) The offer for buy-back shall remain open to the members for a period of not less than 15 days but not exceeding 30 days. However, the opening date for the offer shall not be earlier than 7 days or later than 30 days from the specified date.

(d) The company shall complete the verification of offers within 15 days from the date of closure and shares lodged shall be deemed to have been accepted unless communication of rejection is made within 15 days from the date of closure.

Proportionate Buy-Back of Shares : When the number.of shares tendered for buy-back are more than the number of shares to be bought back from each member of shareholder, the rule of proportionate buy-back shall be determined by using the following formula: Acceptance tendered by a member x Number of Securities to be bought back = Total acceptance tendered.

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

Question 7.
Write a brief note on “Minimum Subscription”.
Answer:
Minimum Subscription: It is the minimum amount which must be raised to meet the need of business operations of the company relating to the followings :
(a) The price of’ any property purchased, or to be purchased, which has to be met wholly or partly out of the proceeds of the issue.
(b) Preliminary expenses payable by the Company and any commission payable in connection with the issue of share.
(c) The repayment of any money borrowed by the company for the above two matters;
(d) Working capital; and
(e) Any other expenditure required for the usual conduct of business operations. It is to be noted that ‘minimum subscription’ of capital cannot be less than 90% of the issued amount according to SEBI

(Discolsure and Investor Protection) Guidelines, 2000. If the above condition is not satisfied, the company shall forthwith refund the entire subscription amount received. If a delay occurs beyond 8 days from the date of closure of subscription list, the company shall be liable to pay the amount with interest at the rate of 15%.

Long Answer Type Questions

Question 1.
What is meant by a word “Company”? Describe its charactertics.
Answer:
A company is an association of persons having a separate legal existence, perpetual succession’and common seal. Its capital is generally divided into shares, which are transferable, subject to certain condition.

Major definitions
“Company is an artificial person created by law having seprate entity with a perpetual succession and common seal.” —Prof. L.H. Haney

“Company means an associations of persons united for a common object.” —Justice James

“A Company means a company formed and registered under this Act (Companies Act, 1956) or any previous Act.”
—Indian Companies Act, 1956

“Company is an association of many persons who contribute money or money’s worth to a common stock and employ it for a common purpose.” —LordLindley

“As persons, artificial, invisible, intangible and existing only in the eyes of law. Being a creation of law, it possesses only those properties which the charter of its creations confers on it either, expressly or as incidental to its very existence, among the most important of which are immortality and individulaity.” —Chief Justice Marshal

Thus, that group of people which is incorporated under the Companies Act, whose creation is due to a special purpose, the liability of the members is generally limited, whose existence is separate from its members and is continuous or perpetual and which has a common seal, is called a company.

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

Characteristics of Company –

The definitations given above reveals the following features of a Company –
1. Voluntary Association—A Company is a voluntary association of certain persons formed to carry out a particular purpose in common. Members of a company can join it and leave it at their own free will.

2. Separate Legal Entity—The existence of company is separate and free from its members. Company can keep property in its name and enter into agreements. It can file suit against anybody and it can also be sued. All the liabilities and assets belong to the company itself and not to the owners.

3. Limited Liability—As a company has a separate legal entity, its members cannot be held liable for the debts of the company. The liability of every member is limited to the nominal value of the shares bought by him or to the amount of guarantee given by him.

4. Perpetual Succession— “Members may come, members may go. But the company goes on forever.”

A company has a continuous existence and its life is not affected by the death, lunacy, insolvency or retirement of its members or director. Members may come and go, but the company continous its operations so long as it fulfills the requirements of the law under which it has been formed. Since it is a legal person (created by law), it can go out of existence only through the legal process.

5. Common Seal—Being an artificial person, a company cannot put its signature. The law has, therefore, provided for the use of a common seal, with the name of the company engraved on it and which remains in the possession of its Secretary. It acts as an official signature of the company. Any document which does not carry the common seal of the company is not binding on the company.

6. Transferability of Shares—The shares of the company are generally transferable. A shareholder is free to withdraw his membership from the company by transferring his shares. But the Articles of the company can prescribe the manner in which the transfer of shares will be made.

7. May sue or be sued—A Company dan enter into contracts and can enforce the contractual rights against other. Similarly, the company can be sued by the others if there is a breach of contract by the company.

8. Right of Access to Information—The shareholders of a company have the right to inspect the books of accounts except the books not inspected under the statute. The shareholders have a right to seek information from the directors by participating in the meeting of the company and through the periodic reports.

9. Company is not a citizen—Although company is a legally created person yet under Article 19 of the Indian Constitution it has not been recognised as a citizen. Hence, like all other citizens, the company has no right to exercise the fundamental rights.

10. Maintenance of Books—A company is required by law to keep a prescribed set of account books and any failure in this regard attracts penalties.

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

Question 2.
Explain in brief the main categories in which the share capital of a company is divided.
Answer:
Meaning of Share Capital—Every company should have capital in order to finance its activities. The company raises this capital by issue of share because it does not have capital of its own being an artificial person. Thus the total capital of the company is divided into shares, therefore, it is called share capital or the amount invested by the shareholders towards the face value of shares are collectively known as share capital

Categories of Share Capital  – The Share capital of a company may be divided into the main six categories, which are presented here with the help of diagram.
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 27

(1) Authorised Share Capital or Nominal Capital or Registered Capital – Authorised share capital is the maximum amount of Share Capital, mentioned in the memorandum of association, which the company is entitled to issue. This is the maximum limit of the company which it is authorised to raise and beyond which the company cannot raise unless the capital clause in the Memorandum is alterted in accordance with the provisions of Sec. 94 of the Companies Act, 1956.

(2) Issued Capital – It is that portion of the authorised share capital for which offers have been invited for subscription. This includes any bonus share allotted by the corporate enterprise. It also includes share allotted to vendors of assets or promoters for considerations other than cash. That portion of authorised share capital for which offer have not been invited for subscription is called Unissued share capital. The issued capital cannot exceeds its authorised capital.

(3) Subscribed Capital—It means that portion of issued capital which has been subscribed for by the public and the balance of issued capital not subscribed for by the public is called the unsubscribed capital. When the share offered for public subscription were subscribed fully by the public, in such a case the issued capital and subscribed capital would be the same.

(4) Called up Capital – It is that part of the subscribed Share Capital which the company actually demands from the shareholders. The shareholders is generally required to pay it by instalments. The balance of subscribed capital which has not been called up represents uncalled Capital.

(5) Paid-up Capital – It is that portion of the called up capital which has been actually received from the shareholders. When the shareholder have paid all the call amount, the called up capital is the same to the paid-up capital. The amount yet due from the shareholders is called call in arrears.

(6) Reserve Capital – It is that portion of the subscribed capital which has not been called up and which, the company has resolved by special resolution can be called up only in the event of and for the purpose of the company being wound-up, that is capital which has been reserved for winding up.

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

Question 3.
What do you mean by the term ‘Share’. Discuss the type of shares, which can be issued under the Companies Act, 1956 as amended to date.
Answer:
Meaning of Share : The Capital of a company is divided into a number of equal units. Each unit is called a share. The word share implies a unit of share capital having property rights. The Companies Act, 1956 defines a share as “a share in the share Capital of the Company.”

A share is proportionate part of the share capital and forms the basis of ownership interest in a company. The persons who contribute money through shares are known as Shareholders’. A share is not a sum of money but is an interest measured by a sum of money.

Share is a bundle of rights and obligation contained in the contract, i.e. Articles of Associations. The company issues a certificate to every share holder stating the number of shares he holds. The certificate is called a share certificate.

Under the current corporate law a public limited company can issue two types of shares to the public for subscription of share capital:

(i) Preference Shares
(ii) Equity Shares (formerely known as ordinary shares.) (Section 86 of the Companies Act 1956.)

(i) Preference Shares: According to Sec. 85 of the Company Act, a preference share is one which carries the following two rights.

  • a right to receives dividend at a stipulated rate or of a fixed amount before any dividend is paid on equity shares.
  • a right to receives repayment of capital on winding up of the company, before the capital of equity shareholders is returned.

(ii) Equity Shares: Under Indian Companies Act 1956, “an equity share is a share which is not a preference share “Equity Share is one which is entitled to dividend and repayment of capital after the claim of preference shares is satisfied. Usually, the equity share holders controls the affairs of the company and hence get right to all the profits after the preference shareholders.

Question 4.
Discuss the process for the allotment of shares of a company in case of over subscription.
Answer:
Over subscription – When shares are issued to the public for subscription through the prospectus by well managed and financially strong companies, it may happen that applications for more share are received than the number of share offered to the public, such situation is said to be case of oversubscription.

Alternative:
1. They can accept some application in full and totally reject the others.
2. They can make a pro-rata distribution.
3. They can adopt combination of the above two alternatives.

Accounting Treatment:
1. If the excess applicants are totally refused for allotment, the application money received on these shares is refunded. Following entry will pass:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 28

2. If the applicants are made partial allotment (or pro-rata allotment):
The directors can as well opt to make a proportionate distribution of share available for allotment among the applicants of shares. The proportion is determined by the ratio which the number of shares to be allotted bear to the number of share applied for. This is called ‘pro¬rata-allotment.’ Generally excess application money received on these shares is adjusted towards the amount due on allotment or call.
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 29

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

3. This is a combination of two alternatives described above on thus:
(a) Application for some shares are rejected and
(b) Pro-rata allotment is made to the applicants of remaining number of shares.
Thus, money on rejected application is refunded and excess application money due to pro-rata distribution is adjusted towards the amount due on the allotment of shares alloted.
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 30
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 31

Question 5.
What is a ‘Preference Share’? Describe the different types ’ of Preference Shares.
Answer:
Meaning of Preference Shares – According to Sec. 85, of the Companies Act, a preference share is one which carries the following two rights.

(a) A right to receives dividend at a stipulated rate or of a fixed amount before any dividend is paid on equity shares.

(b) A right to receives repayment of capital on winding up of the company, before the capital of equity shareholders is returned. Thus, Shares which enjoy preferential right as to dividend and repayment of capital in the event of the winding up of a company, over its equity share, are called preference shares.

Types of Preference Shares—
1. Cumulative and Non-cumulative Preference Shares
2. Participating and Non-Participating Preference Share
3. Redeemable and Irredeemable Preference Share
4. Convertible and Non-convertible Preference Share.

1. (i) Cumulative Preference Shares—The dividend on these shares is accumulated until it is paid, that is, if the profits earned in a particular years or number of years are not sufficient to pay fixed annual dividend. The arrears of such dividends are carried forward and are paid in any subsequent year before any dividend is paid to equity shareholders. All preference shares are cumulative unless expressely stated to be non-cumulative.

(ii) Non-cumulative Preference Share—Dividend is payable only out of the profits of each year and if no profits are available for the payment of dividend then the right to dividend is gone. In other words it means arrears of dividend do not accumulate.

2. (i) Participating Preference Share—In addition to basic preferential rights, it also carries the right

  • to participate in surplus profits left after payment of dividends to equity shareholder
  • in winding up a right to participate in the surplus assets left after both the preference and equity shareholders have been paid in full.

(ii) Non-Participating Preference Share is one on which only a fixed rate of dividend is paid and nothing more. Preference share are always deemed to be non-parhcipating preference shares.

3. (i) Redeemable Preference Share – means which accordance with the terms of issue, will be repaid on or after a certain date, this type of share will be called redeemable preference share. The redemption is subject to certain legal restrictions enumerated in Section 80 of the Companies Act.

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

(ii) Irredeemable Preference Share are those shares for which the amount of capital is not paid back to the shareholders before the winding up of a company. After the commence of the Companies Amendment Act, 1988 no company limited by shares can issue any preference share which is irredeemable.

4. (i) Convertible Preference Share is that share which gets right of conversion into equity share.
(ii) Non-convertible Preference Share—When a preference share cannot be converted into equity share it is said to be a non-convertible preference share. Preference share are non-convertible unless otherwise stated.

Question 6.
Describe the provisions of law relating to ‘Calls-in-Arrears’ and ‘Calls-in-Advance’.
Answer:
Calls-in-Arrears—When any shareholder fails to pay the amount due on allotment or on any of the calls, such amount is known as Calls-in-Arrears/Unpaid calls.

Calls-in-Arrears amounts shows the debit balance and the same is shown as a deduction from the paid-up capital on the liabilities side of Balance Sheet.

Accounting Treatment:
Calls-in-Arrears A/C – Dr.
To Share Allotment A/C .
To Share Call/Calls A/C
(Calls-in-Arrears brought into account)

The Articles of Association of a company usually empowers the director to charge interest at a stipulated rate on calls-in-arrears. In case the Articles are silent in this regard, the rule contained in Table A shall be applicable, which states that the interest at a rate not exceeding 5% p.a. shall have to be paid on all unpaid amounts on shares for the period intervening between the day fixed for payment and the time of actual payment there on. On receipt of the call amount together with interest, the following entry will passed

Bank A/C – Dr.
To Call-in-Arrears A/C
To Interest A/C
(For Call-in-Arrears received along with interest.)

Calls-in-Advance – Sometimes some shareholders pay a part or whole of the amount on the calls not yet made. Such amount received in advance from the shareholders is known as ‘Calls-in-Advance’. It may also happen in case of partial allotment of shares when the full amount of application money paid is not adjusted to allotment. The amount received will be adjusted towards the payment of calls as and when it becomes due.

Accounting treatment:
A separate Call-in-Advance A/c is opened for its accounting treatment and following entry will pass.

Bank A/C – Dr.
To Call-in-Advance A/c
(Amount received as Call-in-Advance)

When calls becomes actually due requiring adjustment of ‘Call-in-Advance’ A/C.
Call-in-Advance A/C – Dr.
To Particular Call A/C
(Calls-in-advance adjusted with the call money due.)

The credit balance of Calls-in-Advance A/C is shown separately on the liabilities side of balance sheet under heading ‘Share Capital’ but is not added to the amount of Paid-Up Capital.

As Calls-in-Advance is a liability to the company and it is under an obligation, if provided by the Articles of Association, to pay interest on such amount. In case the articles are silent then Table’A’ shall be applicable, according to which interest @ 6% p.a. may be paid.
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 32

Question 7.
Explain the terms ‘Over-subscription’ and ‘Under¬subscription’. How are they dealt with in accounting records?
Answer:
Meaning of Over subscription : Over subscription is a situation when applications received are for more shares than the number of shares offered to the public for subscription through the prospectus of a company.

Accounting treatment in case of over subscription : Three alternatives are available to the directors in such a situation. Firstly, on pro-rata basis and the excess amount received on application be adjusted towards allotment and subsequent calls. For example, applications received for 15,000 shares for 10,000 shares invited for subscription.

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

Directors decide to reject 2,500 applications out rightly and make a pro-rata allotment for the remaining 12,500 shares to 10,000 shares. Journal Entries in such a case will be passed as follows :
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 33

Under-Subscription : Under-subscription is the situation where applications received for number of shares are less than that have been invited for subscription. This, of course, is subject to the condition that minimum subscription has at least been received because without such subscription the procedure of share issue cannot – proceed further legally. The accounting procedure for under-subscription of shares is as usual as the issue of fresh shares.

Question 8.
Describe the purpose for which a company can use ‘Securities Premium Account’.
Answer:
Meaning – Shares are said to be issued at premium when they are issued at a price higher than the face value. The excess of issue price over the face value is called as the amount of ‘Share Premium’, at a premium of Rs. 5. The premium on issue of shares (whether received in cash or in kind) is a capital receipt and not a revenue receipt and must be credited to a separate account called ‘Securities Premium Account’.

Purposes – According to Sec. 78 of the Companies Act 1956, the Securities premium may be applied only for the following purposes –

  • To issue fully paid bonus shares to the members.
  • To write off preliminary expenses of the company.
  • To write off the expenses of or the commission paid or discount allowed on any issue of shares or debentures of the company.
  • To provide for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company.

The use of Securities Premium for purposes other than those mentioned above requires the compliance of the provisions of the Act relating to reduction of share capital.

Question 9.
State clearly the conditions under which a company can issue shares at a discount.
Answer:
Issue of shares at discount: When the shares of a company are issued at an amount less than the nominal value of share, they are known as issue of shares at discount. According to section 79, a company is permitted to issue shares at a discount in the following conditions :

(i) Such issue must be authorized by passing an ordinary resolution in general meeting of the company and sanctioned by Company Law Board.

(ii) The maximum rate of discount at which shares are issued must not exceed 10 percent of the face value of shares. In special circumstances, if board convincted, the rate of discount can be more than 10%.

(iii) In order to issue such shares at least one year must have elapsed since the company was entitled to commence the business.

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

(iv) Such shares should of a class, which has already been issued.

(v) Such shares must be issued within two months from the date of received sanction for the same from the Central Government.

From the above, it is clear that restrictions placed on shares issued at discount are stated that:

  • a new company cannot issue shares at discount and
  • a new class, of shares cannot be issued at a discount.

Accounting treatment on such shares should be done by debiting the amount of discount denotes a loss to the company shown as capital nature loss under the head Miscellaneous expenditure in the asset side of Balance Sheet. It is written off by charging from Security Premium account or by Profit and Loss Account over a period of time.

Accounting Entry may be passed as follows:
Share Allotment A/c – Dr.
Discount on issue of shares A/c – Dr.
To Share Capital A/c
(For amount due on allotment and discount on issue brought into account)

Question 10.
Explain the term ‘Forfeitue of Shares’ and give the accounting treatment on forfeitue.
Answer:
When a shareholder fails to pay calls, the company, if empowered by its articles of association, may forfeit the shares of a defaulting shareholder. But before the directors forfeit the shares, the following procedures has to be followed :

(i) A notice is required to be sent to the defaulting shareholder requesting him to pay the calls in arrears along with interest within 14 days of the receipt of the notice.

(ii) If the notice also fails to get the money, the Company secretary issues a warning letter informing the defaulting shareholder that if money is not received by the company within next 14 days of the receipt of the warning letter, the shares may be forfeited by the company.

(iii) When the final notice also fails to realise the calls in arrears, a list of defaulting shareholders is prepared and placed before the Board of Directors who forfeit such shares by passing a resolution to that effect.

(iv) After the shares have been forfeited by the Board of Directors, Company secretary sends a copy of the resolution to the defaulting shareholders with a request to send back the share certificates to the company. Public notice to this effect is also given in the national daily newspapers.

Upon forfeiture, the original shareholders cases to be a member and his name is removed from the register of members.
Accounting treatment: Entries regarding the forfeiture of shares may be passed in the following three conditions :

(i) Forfeiture of shares issued at Par: When the shares issued at par are forfeited, following journal entry required to be passed :
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 34

(ii) Forfeiture of shares issued at Premium:

(a) When premium is received: Where shares originally issued at a premium, on which premium amount has been fully realised, are later on forfeited due to non-payment of allotment/call money, the amount of premium is not to be debited at the time of forfeiture of shares. Following is the Journal Entry required to be passed :NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 35

(b) When premium is not received : If shares originally issued at a premium on which the premium amount has not been received either wholly or partially are subsequently forfeited, share premium account is debited with the amount of premium along with the share capital at the time of forfeiture of shares. The Journal Entry may be passed as follows :
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 36

(iii) Forfeiture of shares issued at Discount: When shares forfeited were originally issued at discount, the discount on such shares must be cancelled or written back. It should be credited at the time of forfeiture in order to balance on Discount on issue of Shares Account.

Following journal entry may be passed to record the forfeiture of shares issued at discount.
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 37

Numerical Questions

Question 1.
Anish Limited issued 30,000 equity shares of Rs. 100 each payable at Rs. 30 on application, Rs. 50 on allotment and Rs. 20 on 1st and final call. All money was duly received.
Record these transactions in the journal of the company.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 118
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 38

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

Question 2.
The Adersh Control Device Ltd. was registered with the authorised capital of Rs. 3,00,000 divided into 30,000 shares of Rs. 10 each, which were offered to the public. Amount payable as Rs. 3 per share on application, Rs. 4 per share on allotment and Rs. 3 per share on first and final call. These shares were fully subscribed and all money was duly received. Prepare Journal and Cash Book.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 39
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 40

Question 3.
Software Solution India Ltd. inviting application for 20,000 equity share of Rs. 100 each, payable Rs. 40 on application, Rs. 30 on allotment and Rs. 30 on call. The company received applications for 32,0 00 shares. Application for 2,000 shares were rejected and money returned to Applicants. Applications for 10,000 shares were accepted in full and applicants for 20,000 share allotted half of the number of share applied and excess application money adjusted into allotment. All money received due on allotment and call.
Prepare journal and cash book.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 41
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 42
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 43

Question 4.
Rupak Ltd. issued 10,000 shares of Rs. 100 each payable at Rs. 20 per share on application, Rs. 30 per share on allotment and balance in two calls of Rs. 25 per share. The application and allotment money were duly received. On first call all member pays their dues except one member holding 200 shares, while another member holding 500 shares paid for the balance due in full. Final call was not made. Give journal entries and prepare cash book.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 44

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 45

Question 5.
Mohit Glass Ltd. issued 20,000 shares of Rs. 100 each at Rs. 110 per share, payable Rs. 30 on application, Rs. 40 on allotment (including Premium), Rs. 20 on first call and Rs. 20 on final call. The applications were received for 24,000 shares and allotted 20,000 shares and reject 4,000 shares and amount returned thereon. The money was duly received. Give journal entries.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 46
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 47

Question 6.
A limited company offered for subscription of 1,00,000 equity shares of Rs. 10 each at a premium of Rs. 2 per share. 2,00,000. 10% Preference shares of Rs. 10 each at par.
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 48
All the shares were fully subscribed, called-up and paid. Record these transactions in the journal and cash book of the company.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 49
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 50

Question 7.
Eastern Company Limited, having an authorised capital of Rs. 10,00,000 in shares of Rs. 10 each, issued 50,000 shares at a premium of Rs. 3 per share payable as follows :
On Application – Rs. 3 per share
On Allotment (including premium) – Rs. 5 per share
On First call (due three months after – Rs. 3 per share allotment) and the balance as an when required.
Applications were received for 60,000 shares and the directors alloted the shares as follows :
(a) Applicants for 40,000 shares received shares, in full.
(b) Applications for 15,000 shares received an allotment of 8,000 shares.
(c) Applicants for 5000 shares received 2000 shares on allotment, excess money being returned.
All amounts due on allotment were received. The first call was duly made and the money was received with the exception of the call due on 100 shares. Give journal and cash book entries to record these transactions of the company. Also prepare the Balance Sheet of the company.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 51
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 52
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 53
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 54

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

Question 8.
Sumit Machine Ltd. issued 50,000 shares of Rs. 100 each at discount of 5%. The shares were payable Rs. 25 on application. Rs. 40 on allotment and Rs. 30 of first and final call. The issue were fully subscribed and money were dully received except the final call on 400 shares. The discount was adjusted on allotment. Give journal entries and prepare balance sheet.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 55
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 56

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 57

Question 9.
Kumar Ltd. purchase assets of Rs. 6,30,000 from Bhanu Oil Ltd. Kumar Ltd. issue equity share of Rs. 100 each fully paid in consideration. What journal entries will be made, if the share are issued, (a) at par, (b) at discount of 10 % and (c) at premium of 20%. [Ans : No. of shares issued (a) 6,300, (b) 7,000, (c) 5250]
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 58
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 59
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 60

Question 10.
Bansal Heavy machine Ltd. purchased machine worth Rs. 3,20,000 from Handa Trader. Payment was made as Rs. 50,000 cash and remaining amount by issue of equity share of the face value of Rs. 100 each fully paid at an issue price of Rs. 90 each. Give journal entries to record the above transaction.
(Answer:: No of shares issued 3,000 shares)
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 117
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 62

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

Question 11.
Naman Ltd. issued 20,000 shares of Rs. 100 each, payable Rs. 25 on application, Rs. 30 on allotment, Rs. 25 on first call and the balance on final call. All money dully received except Anubha, who holding 200 Shares did not pay allotment and calls money and Kumkum who holding 100 share did not pay both the calls. The directors forfeited shares of Anubha and Kumkum. Give journal entries.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 63
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 64
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 65

Question 12.
Kishna Ltd issued 15,000 shares of Rs. 100 each at a premium of Rs. 10 per share, payable as follows :
On Application – Rs. 30
On Allotment – Rs. 50 [inclding premium]
On first and final call – Rs. 30
All the shares subscribed and the company received all the money due, With the exception of the allotment and call money on 150 shares. These shares were forfeited and reissued to Neha as fully paid share of Rs. 120 each. Give Journal entries in the books of the company.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 66

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 68

Question 13.
Arushi Computers Ltd issued 10,000 equity shares of Rs. 100. each at 10% discount. The net amount payable as follows :
On Application – Rs. 20
On Allotment – Rs. 30 [Rs. 40 – discount Rs. 10]
On first call – Rs. 30
On final call – Rs. 10
A Shareholder holding 200 shares did not pay final call. His shares were forfeited. Out of these 150 shares were reissued to Ms. Sonia at Rs. 75 per shares.
Give journal entries in the books of the company.
(Answer:: Capital Reserve Rs. 9,750)
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 69
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 70
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 71

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

Question 14.
Raunak Cotton Ltd. issued a prospectus inviting application for 6,000 equity shares of Rs. 100 each at a premium of Rs. 20, per shares, payable as follows:
On Application – Rs. 20
On Allotment – Rs. 50 [including premium]
On first call – Rs. 30
On final call – Rs. 20

Application were received for 10,000 share and allotment was made Pro-rata to the application of 8,000 shares, the remaining application being refused. Money received in excess on the application was adjusted toward the amount due on allotment.

Rohit, to whom 300 shares were alloted failed to pay allotment and calls money, his shares were forfeited. Like, who applied for 600 shares, failed to pay the two calls and her share were also forfeited. All these shares were sold to Kartika as fully paid for Rs. 80 per shares. Give journal entries in the books of the company.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 72
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 73
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 74

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 75

Question 15.
Himalaya Company Limited issued for public subscription of 1,20,000 equity shares of Rs. 10 each at a premium of Rs. 2 per share payable as under :
With Application – Rs. 3 per share
On allotment (including premium) – Rs. 5 per share
On First Call – Rs. 2 per share
On Second and Final Call – Rs. 2 per share

Applications were received for 1,60,000 shares. Allotment was made on pro-rata basis. Excess money on application was adjusted against the amount due on allotment.

Rohan, whom 4,800 shares were allotted, failed to pay for the two calls. These shares were subsequently forfeited after the second call was made. All the shares forfeited were reissued to Teena as fully paid at Rs. 7 per share.
Record journal entries in the books of the company to record these transactions relating to share capital. Also show the company’s balance sheet. (Answer: Capital Reserve Rs. 14,400)
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 76
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 77

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 78

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 79
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 116

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

Question 16.
Prince Limited issued a prospectus inviting applications for 20,000 equity Shares of Rs. 10 each at a premium of Rs. 3 Per Share payable as follows:
With Application – Rs. 2
On Allotment (including premium) – Rs. 5
On First Call – Rs. 3
On Second Call – Rs. 3

Applications were received for 30,000 Shares and allotment was made on prorata basis. Money overpaid on to the amount due on allotment. applications was adjusted Mr. ‘Mohit’ whom 400 Shares were allotted, failed to pay the allotment money and the first call, and his Shares were forfeited after the first call. Mr. ‘Joly’, whom 600 Shares were allotted, failed to pay for the two calls and hence, his Shares were forfeited.

Of the Shares forfeited, 800 Shares were reissued to Supriya as fully paid for Rs. 9 per shares, the whole of Mr. Mohit’s shares being included.

Record journal entries in the books of the Company and prepare the Balance Sheet.
(Ans : Capital Reserve Rs., 2000)
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 81
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 82

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 83
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 84

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 85

Question 17.
Life machine tools Limited, issued 50,000 equity Shares of Rs. 10 each at Rs. 12 per share, payable at to Rs. 5 on application (including premium), Rs. 4 on allotment and the balance on the first and final call. Application for 70,000 Shares had been received. Of the cash received, Rs. 40,000 was returned and Rs. 60,000 was applied to the amount due on allotment, the balance of which was paid. All Shareholders paid the call due, with the exception of one Shareholder of 500 Shares. These Shares were forfeited and reissued as fully paid at Rs. 8 Per Share. Journalise the transactions. (Answer: Capital Reserve Rs. 2,500)
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 86
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 87
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 88

Question 18.
The Orient Company Limited offered for public subscription 20,000 equity shares of Rs. 10 each at a premium of 10% payable at Rs. 2 on application; Rs. 4 on allotment including premium; Rs. 3 on First Call and Rs. 2 on Second and Final Call. Applications for 26,000 shares were received. Applications for 4,000 shares were rejected. Pro-rata allotment was made to the remaining applicants. Both the calls were made and all the money were received except the final call on 500 shares which were forfeited. 300 of the forfeited shares were later on issued as fully paid at Rs. 9 per share. Give journal entries and prepare the balance sheet.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 89
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 115

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 91
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 92
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 93

Question 19.
Alfa Limited invited applications for 4,00,000 its equity shares of Rs. 10 each on the following terms:
Payable on application – Rs. 5 per share
Payable on allotment – Rs. 3 per share
Payable on first and final call – Rs. 2 per share
Applications for 5,00,000 shares were received. It was decided :
(a) to refuse allotment to the applicants for 20,000 shares;
(b) to allot in full to applicants for 80,000 shares;
(c) to allot the balance of the available shares’ pro-rata among the other applicants; and
(d) to utilise excess application money in part as payment of allotment money.
One applicant whom shares had been allotted on pro-rata basis, did not pay the amount due on allotment and on the call, and his 400 shares were forfeited. The shares were reissued @ Rs. 9 per share. Show the journal and prepare cash book to record the above.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 94
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 95
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 96
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 97

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

Question 20.
Ashoka Limited Company which had issued equity shares of Rs. 20 each at a discount of Rs. 4 per share forfeited 1,000 shares for non-payment of final call of Rs. 4 per share. 400 of the forfeited shares are reissued at Rs. 14 per share out of the remaining shares of 200 shares reissued at Rs. 20 per share. Give journal entries for the forfeiture and reissue of shares and show the amount transferred to Capital Reserve and the balance in Share Forfeiture Account.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 98
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 99

Question 21.
Amit holds 100 shares of Rs. 10 each on which he has paid Re. 1 per share as application money. Bimal holds 200 shares of Rs. 10 each on which he has paid Re. 1 and Rs. 2 per share as application and allotment money, respectively. Chetan holds 300 shares of Rs. 10 each and has paid Re. 1 on application, Rs. 2 on allotment and Rs. 3 for the first call. They all fail to pay their arrears and the second call of Rs. 2 per share and the directors, therefore, forfeited their shares. The shares are reissued subsequently for Rs. 11 per share as fully paid, Journalise the transactions.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 100

Working Notes
Total Amount paid = 100+200+400+300+600+ 900= 2,500
Total Amount not paid on Allotment = Rs. 200
Total Amount not paid on Ist call = Rs. 900
Total Amount not paid on IInd call = Rs. 1200

Forfeiture of Shares of Amit
Amit hold 100 Share of Rs. 10 each
Amount paid on Application = Rs. 100
Amount not paid on Allotment = Rs. 200
Amount not paid on Ist call = Rs. 300
Amount not paid on IInd call= Rs. 200

Forfeiture of Shares of Bimal
Bimal hold 200 Share of Rs. 10 each
Amount paid on Application = Rs. 200
Amount paid on Allotment = Rs. 400
Amount not paid on Ist call – Rs. 600
Amount not paid on IInd call= Rs. 400

Forfeiture of Shares of Chetan
Chetan hold 300 Share of Rs. 10 each
Amount paid on Application = Rs. 300
Amount paid on Allotment = Rs. 600
Amount paid on Ist call = Rs. 900
Amount not paid on IInd call = Rs. 600

Question 22.
Ajanta Company Limited having a normal capital of Rs. 3,0, 000 divided into shares of Rs. 10 each offered for public subscription of 20,000 shares payable at Rs. 2 on application; Rs. 3 on allotment and the balance in two calls of Rs. 2,50 each. Applications were received by the company for 24,000 shares. Applications for 20,000 shares were accepted in full and the shares allotted. Applications for the remaining shares were rejected and the application money was refunded.

All money due were received with the exception of the final call on 600 shares which were forfeited after legal formalities were fulfilled. 400 shares of the forfeited shares were reissued at Rs. 9 per share. Record necesary journal entries and prepare the Balance Sheet showing the amont transferred to capital reserve and the balance in Share Forfeiture Account.
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 101
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 102
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 103

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 104
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 105

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 106

Question 23.
Journalise the following transactions in the books of Bhushan Oil Ltd:
(a) 200 shares of Rs. 100 each issued at a discount of Rs. 10 were forfeited for the non-payment of allotment money of Rs. 50 per share. The first and final call of Rs. 20 per share on these were not made. The foreited share were reissued at Rs. 70 per share as fully paid-up.

(b) 150 shares of Rs. 10 each issued at a premium of Rs. 4 per share payable with allotment were foreited for non-payment of allotment money of Rs. 8 per share including premium. The first and final call of Rs. 4 per share were not made. The forfeited share were reissued at Rs. 15 per share fully paid-up.

(c) 400 share of Rs. 50 each issued at par were forfeited for non-payment of final call of Rs. 10 per share. These share were reissued at Rs. 45 per share fully paid-up.
(Answer: Capital Reserve (a) Nil, (b) Rs. 300(c) Rs. 14,000)
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 107

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 108
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 109

Question 24.
Amisha Ltd. inviting application for 40,000 shares of Rs. 100 each at a premium of Rs. 20 per share payable; on application Rs. 40; on allotment Rs. 40 (including premium): on first call Rs. 25 and Second and final call Rs. 15. –
Application were received for 50,000 shares and allotment was made on pro-rata basis. Excess money on application was adjusted on sums due on allotment.

Rohit to whom 600 shares were allotted failed to pay the allotment money and his shares were forfeited after allotment. Ashmita, who applied for 1000 shares failed to pay the, two calls and her shares were forfeited after the second call. Of the shares forfeited, 1200 shares were sold to Kapil for Rs. 85 per share as fully paid, the whole of Rohit’s shares being included. Record neccessary journal entries.
(Answer: Capital Reserve Rs. 48,000; Balance in Share forfeited A/c Rs. 12,000.)
Answer:
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 110

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 111
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 112
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 113
NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital 114

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital

NCERT Solutions for Class 12 Accountancy Chapter 6 Accounting for Share Capital Read More »

NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 10 प्रतीक्शा

Detailed, Step-by-Step NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 10 प्रतीक्शा Questions and Answers were solved by Expert Teachers as per NCERT (CBSE) Book guidelines covering each topic in chapter to ensure complete preparation.

Bhaswati Class 12 Solutions Chapter 10 प्रतीक्शा

अभ्यासः

प्रश्न 1.
एकपदेन उत्तरत

(क) का प्रतीक्षा करोति?
उत्तर
राधा।

(ख) प्रतीक्षा कीदृशी अस्ति?
उत्तर-
चांचल्यपरिपूरिता।

(ग) कः दर्शनं न ददाति?
उत्तर
श्रीकृष्णः

NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 10 प्रतीक्शा

(घ) ‘प्रतीक्षा’ पाठः कस्मात् ग्रन्थात् अनूदितः?
उत्तर
श्रीराधा।

प्रश्न 2.
पूर्ण वाक्येन उत्तरत

(क) अहं कथं प्रतीक्षे?
उत्तर
अहं दिनं दिनं रजनी रजनीं च प्रतीक्षे।

(ख) राधा पूर्णतया आत्मनः किं कुर्तं वाञ्छति?
उत्तर
राधा पूर्णतया आत्मनः एकमेव रूपं कुर्तं वाञ्छति।

(ग) एकदा कुत्र समुपस्थास्यसि?
उत्तर
एकदा मदन्तिके समुपस्थास्यसि।

(घ) एकमेव रूपं भूत्वा कथं चिह्नितम्।
उत्तर
एकमेव रूपं भूत्वा नामान्तर-चिह्नितम् ।

(ङ) छायेव सः कुत्र दृश्यते?
उत्तर
छायेव सः स्फुरज्जलवक्षसि दृश्यते।

(च) यदा वा दृश्यते तदा कथं भूत्वा तिष्ठति?
उत्तर
यदा वा दृश्यते सदा लोचनविषयातीतं भूत्वा तिष्ठति।

NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 10 प्रतीक्शा

प्रश्न 3.
रेखाङ्कितानि पदानि आधृत्य प्रश्ननिर्माणं कुरुत

(क) तथापि न भजति स्पष्टरूपताम्
उत्तर
तथापि न भजति काम्?

(ख) अथवा दृश्यते स्फुरज्जलवक्षसि
प्रश्न- अथवा दृश्यते कुत्र?

(ग) स्थाने तस्य उपजायमानं दृश्यते।
प्रश्न- स्थाने कस्य उपजायमानं दृश्यते?

(घ) निर्जनवेलायां मदन्तिके समुपस्थास्यसि।
प्रश्न- कदा मदन्तिके समुपस्थास्यसि?

(ङ) युनः कालो वर्तते शेषः।
प्रश्न- पुनः कः वर्तते शेषः?

प्रश्न 4.
विशेषण-विशेष्यपदानां समुचितं मेलनं कुरुत
उत्तर
विशेषणम् – विशेष्यम्
(क) चाञ्चलपूरितायाम् – प्रतीक्षायाम्
(ख) उपकूलवर्तिनाम् – पादपानाम्
(ग) नामान्तरचिहितम् – रूपम् कालः
(ड) बहुविधैः – दृश्याभिलाषैः

NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 10 प्रतीक्शा

प्रश्न 5.
अधोलिखितेषु सन्धिविच्छेदं कुरुत
उत्तर
(क) अर्धाधिकम् . = अर्ध + अधिकम् ।।
(ख) छायेव = छाया + इव।
(ग) तस्योपजायमानम् = तस्य + उपजायमानम्
(घ) अन्यच्चन = अन्यत्+ च + न।
(ड) कस्यचिन्नाम्नः = . कस्यचित् + नाम्नः।
(च) तद्रूपतया = तत् + रूपतया।
(छ) प्रतीक्षेऽहम् . = प्रतीक्षे + अहम् ।
(ज) तावन्मे = तावत + मे।

प्रश्न 6.
अधोलिखितानां पदानां वाक्येषु प्रयोगं कुरुत
उत्तर-
(क) भूत्वा = एकाकिनी भूत्वा त्वं जीवनं कथं यापयिष्यसि?
(ख) स्थाने = सः निर्जने स्थाने वसति ।
(ग) दृश्यते = परमेश्वरः नेत्रैः न दृश्यते।
(घ) विद्यते । = ईश्वरः सर्वत्र विद्यते।
(ड) प्रतीक्षा = राधाकृष्णस्य आगमनस्य प्रतीक्षा करोति।
(च) दर्शनम् = ईश्वरस्य दर्शनं कथं सम्भवम् ?
(छ) अन्तिके = त्वं कदा मदन्तिके समुपस्थास्यसि ?

प्रश्न 7.
अधोलिखातानां पदपरिचयो देयः
उत्तर
(क) ददासि = दा धातु, लट् लकार, मध्यम पुरुष, एकवचन। ,
(ख) भूत्वा = भू धातु + क्त्वा प्रत्यय।
(ग) दृष्टे = दृश् धातु + क्त प्रत्यय, सप्तमी विभक्ति एकवचन।
(घ) वक्षसि = वक्षस् शब्द, नपुसंकलिंग, सप्तमी विभक्ति एकवचन ।
(ड) आयुषः = आयुष शब्द, नपुसंकलिंग, षष्ठी विभक्ति एकवचन।
(च) आत्मनः = आत्मन् शब्द, पुं., सप्तमी विभक्ति एकवचन ।
(छ) कर्तुम् = कृ धातु + तुमुन् प्रत्यय।
(ज) समाच्छन्नम् = सम् + आ उपसर्ग + छद् धातु + क्त प्रत्यय

NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 10 प्रतीक्शा

Bhaswati Class 12 Solutions Chapter 10 प्रतीक्शा Summary Translation in Hindi and English

1. प्रतीक्षेऽहं तव कृते दिनं दिनम्
रजनी रजनीं च
न जातुदर्शनं ददासि मे,
किं तावन्मे सा प्रतीक्षा?
तस्यां मे चांचल्यपरिपूरितायां प्रतीक्षायाम्
कुत्र वा विद्यते स्थानम्
अवस्थानाय तव पूर्णतया?
NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 10 प्रतीक्शा 1
हिन्दी सरलार्थ-मैं तुम्हारे लिए प्रतिदिन तथा प्रति रात्रि प्रतीक्षा करती हूँ किन्तु तम मझे कभी भी दर्शन नहीं देते हो। क्या मेरी वह प्रतीक्षा व्यर्थ है? अथवा उस चंचलतापर्ण प्रतीक्षा में मेरा स्थान कहाँ है जहाँ मैं पूर्णता के साथ अर्थात परी तरह से तम्हारे पास ठहर सकँ।

Meaning in English-I wait for you through out the day and night but you are never seen by me. Is that waiting for you of no use? Or where do I stand in thatúncertain waiting where I may stay with you completely

NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 10 प्रतीक्शा

2. यदा वा दृश्यते,
रूपस्यार्धाधिकं तदा तव
लोचनविषयातीतं भूत्वा तिष्ठति।
यत् किंचिदपि दृश्यते
तथापि न भजति स्पष्टरूपताम्
यतस्तत् समाच्छन्नमेव भवति ।
अशान्ति प्रसूतैर्मे
स्मृति-दृश्याभिलाषैर्बहुविधैः,
अथवा दृश्यते स्फुरज्जलवक्षसि
छायेव पादपानामुपकूलवर्तिनाम्।
दृष्टे सति कस्यचिन्नाम्नो रूपे
स्थाने तस्योपजायमानं दृश्यते
अन्यच्चन किंचन रूपं नामान्तर-चिहितम् ।
एकमेव रूपं भूत्वा।
NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 10 प्रतीक्शा 2

हिन्दी सरलार्थ-अथवा जब तुम्हारे रूप का आधे से अधिक भाग दिखाई पड़ता – है उस समय दृष्टि विषय से परे होकर ठहर-सी जाती है और जब रूप का कुछ ही भाग दिखाई पड़ता है तब भी दृष्टि स्पष्टरूपता को प्राप्त नहीं कर पाती क्योंकि उस समय अशान्ति से उत्पन्न मेरी अनेक प्रकार की स्मृतियों तथा दृश्याभिलाषाओं से वह आच्छादित हो जाती है। उसके पश्चात् यदि दिखाई भी पड़ता है तो वह हिलते हुए जल में दिखाई पड़ने वाले नदी के किनारे स्थित वृक्षों की छाया की तरह (दिखाई देता है)। किसी स्थान पर, किसी नाम से तथा किसी रूप में देखे जाने पर उसका प्रतिबिम्ब दिखाई पड़ता है। अन्यत्र किसी भिन्न रूप और नाम से अंकित उसका एकाकार रूप दिखाई पड़ता है।

Meaning in English-Or, whern more than half protion of your structure is seen, the eye sight does not stay on the object and it does not attain clarity of form as no portion of the structure is seen beacause it is covered by my manifold rememberance and desires to see which arise from anxiety. After that, even if it is seen, it appears like the shadow of the trees in the unsteady water which are grown at ihn hank of the river. It’s shadow is seen every where when it is seen at some plaii . ith some name and some form. At some other place its similar form is seen with some different appearance and different name.

NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 10 प्रतीक्शा

3. हन्त नाहं भाजनमभवमेतावताऽपि कालेन
एकमेव रूपं कुर्तमात्मनः पूर्णतया।
कियान पुनः कालो वर्तते शेषः
यदहं चिन्तयिष्यामि
यदसि त्वं तद्रूपतयाऽऽगत्य
एकदा समुपस्थास्यसि मदन्तिके
निर्जनवेलायां मे परमायुषः?
NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 10 प्रतीक्शा 3
हिन्दी सरलार्थ-दुःख है कि इतना समय व्यतीत हो जाने पर भी मैं अपने का पूर्णता के साथ एकाकार रूप प्राप्त करने के योग्य नहीं हो पाईं जब पनः मैं सोचेंगी कि कितना समय शेष रह गया है तुम, मेरे परम आयुष के उसी रूप में आकर एक बार मेरे समीप निर्जन वेला में समुपस्थित हो जाओगे।

Meaning in English-Oh! It is very sad that after such a long time even I could not attain oneness with the complete one i.e. God. Now again I will think that how much time is left when you will come to me.. once at this lonely time in the form of that supreme one.

NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 10 प्रतीक्शा

NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 10 प्रतीक्शा Read More »

NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 9 मदालसा

Detailed, Step-by-Step NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 9 मदालसा Questions and Answers were solved by Expert Teachers as per NCERT (CBSE) Book guidelines covering each topic in chapter to ensure complete preparation.

Bhaswati Class 12 Solutions Chapter 9 मदालसा

अभ्यासः

प्रश्न 1.
एकपदेन उत्तरत

(क) उद्यानं कस्य आसीत् ?
उत्तर
गन्धर्वराजविश्वावसोः।

(ख) कः आम्रमञ्जरीणां शोभां दृष्ट्वा कूजति?
उत्तर
कोकिलः।

(ग) का विद्याध्ययने रता आसीत्?
उत्तर
मदालसा।

(घ) का विनयं ददाति?
उत्तर
विद्या।

NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 9 मदालसा

(ङ) का सर्वविद्यानिष्णाता आसीत्?
उत्तर
मदालसा।

(च) मदालसा. किं स्वीकर्तुं न इच्छति?
उत्तर
विवाहबन्धनम्।

(छ) शिशूनां चरित्रनिर्माणं कस्याः अधीनम्?
उत्तर
मातुः।

(ज) कः भार्यायां स्वाधिपत्यं स्थापयति?
उत्तर
पुरुषः।

(झ) युधिष्ठिरः कां छूते हारितवान् ?
उत्तर
द्रौपदीम्।

(ज) कः परिचर्चायां सम्मिलितः अभवत् ?
उत्तर
ऋतध्वजः।

प्रश्न 2.
पूर्णवाक्येन उत्तरं द्रदत

(क) कुलगुरुतुम्बरूः मदालसायाः विषये किं कथितवान् ?
उत्तर
कुलगुरुतुम्बरू: मदालसायाः विषये कथितवान् यत् तस्यै योग्यवरस्य अन्वेषणं कार्यम्।

(ख) मदालसा विवाहबंधनं तिरस्कृत्य किं कर्तुम् इच्छति?
उत्तर
मदालसा विवाहबंधनं तिरस्कृत्य ब्रह्मवादिनी भवितुम् इच्छति।

NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 9 मदालसा

(ग) ऋतध्वजः स्वपरिचयं कथं ददाति?
उत्तर
ऋतध्वजः आत्मानं शत्रुजितः पुत्रः ऋतध्वजः इति कथयति।

(घ) ऋतध्वजस्य नारी प्रति का धारणा आसीत्?
उत्तर
ऋतध्वंजः नारी समस्त सृष्टेः निर्मात्री इति मन्यते स्म।

(ङ) कस्याः रक्षार्थं पन्याः सहयोगः अनिवार्यः अस्ति?
उत्तर
लक्ष्म्याः रक्षार्थं पत्न्याः सहयोगः अनिवार्यः अस्ति।

(च) ऋतध्वजः लक्ष्म्याः वर्णनं कथं करोति?
उत्तर
ऋतध्वजः लक्ष्मी मदालसायाः दासी न तु सपत्नी इति कथयति स्म।

प्रश्न 3.
रेखाङ्कितपदानि आधृत्य प्रश्ननिर्माणं कुरुत
(क) यूनोः हृदयं उद्यानस्य शोभां दृष्ट्वा उत्कठितं भवति।
प्रश्न – कस्य हृदयं उद्यानस्य शोभां दृष्ट्वा उत्कठितं भवति?

(ख) मदालसा ज्ञानस्य कतिपय बिन्दून् एव प्राप्तवती।
प्रश्न – मदालसा कस्य कतिपय बिन्दून एव प्राप्तवती?

(ग) कुलगुरुतुम्बरू महाभागैः गन्धर्वराजाय सूचितम् ।
प्रश्न- कुलगुरुतुम्बरू महाभागैः कस्मै सूचितम् ?

(घ) मदालसा शिष्यानु जीवनकला पाठयितुम् इच्छति।
प्रश्न – मदालसा कान् जीवनकला पाठयितुम् इच्छति?

(ङ) मदालसा जीवने सङ्केत्तैः नर्तितुं न इच्छति स्म।
प्रश्न – मदालसा जीवने कैः नर्तितुं न इच्छति स्म?

(च) पुरुषः भर्यायां स्वाधिपत्यं स्थापयति।
प्रश्न – पुरुषः कस्यां स्वाधिपत्यं स्थापयति?

(छ) युधिष्ठिरः द्रौपदीं छूते हारितवान्।
प्रश्न – युधिष्ठिरः कां छूते हारितवान् ?

NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 9 मदालसा

(ज) हरिश्चन्द्रः पूत्रं जनसङ्घले आपणे विक्रीतवान्।
प्रश्न – हरिश्चन्द्रः कं जनसङ्कले आपणे विक्रीतवान् ?

(झ) अस्मिन् संसारे विभिन्नप्रकृतिकाः पुरुषाः वसन्ति।
प्रश्न- अस्मिन् संसारे विभिन्न प्रकृतिकाः के वसन्ति?

(ञ) लक्ष्म्याः रक्षार्थं पल्याः सहयोगः अनिवार्यः।
प्रश्न- कस्याः रक्षार्थं पल्याः सहयोगः अनिवार्यः?

प्रश्न 4.
विशेषणं विशेष्येण सह योजयत
उत्तर
विशेषणम् – विशेष्यम्
(क) गम्भीरः – ज्ञानोदधिः
(ख) सर्वविद्यानिष्णाता – मदालसा
(ग) विभिन्नप्रकृतिकाः – पुरुषाः
(घ) निर्जीवम् – वस्तु
(ड) जनसङ्कले – आपणे
(च) शत्रुजितः – कृतध्वजः
(छ) अनुव्रतौ – पति पल्यौ
(ज) प्रभूतम् – धनम्

प्रश्न 5.
प्रकृतिप्रत्ययोः विभागं कुरुत
NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 9 मदालसा 9
NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 9 मदालसा 10

प्रश्न 6.
अधोलिखितानि वाक्यानि कः कं प्रति कथयति
NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 9 मदालसा 11

प्रश्न 7.
हरिश्चन्द्रः समाजे कैः गुणैः प्रसिद्धः आसीत् ?
उत्तर
हरिश्चन्द्र एक राजा था जिसमें सत्यप्रियता, न्यायप्रियता, प्रजाप्रेम, सेवाभावना, दयाभाव आदि गुण थे जिनके कारण उसने अपनी पत्नी तारामती तथा पुत्र राहुल को भी बाजार में बेच दिया था। संस्कृत में-सत्यप्रियता, न्यायप्रियता, दयालुता, प्रजाप्रेम, सेवाभावना आदिभिः अनेकैः गुणैः हरिश्चन्द्रः एकः प्रसिद्धः राजा अभवत् । न्यायप्रियता इति गुणेन सः स्वपत्नी तारामतीं स्वपुत्रं राहुलं चापि आपणे विक्रीतवान्। .

NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 9 मदालसा

प्रश्न 8.
नारी प्रति ऋतध्वजस्य का धारणा आसीत्?
उत्तर
नारी के प्रति ऋतध्वज अत्यन्त सम्मान प्रकट करते हैं। माता को वे प्रथम गुरु कहते हैं। उनके अनुसार नारी समस्त सृष्टि का निर्माण करने वाली है। इस प्रकार ऋतध्वज . की नारी के प्रति सम्मानपूर्ण धारणा थी। उसके वचनों से आदर्श नारी का उदाहरण प्रस्तुत किया गया है।

संस्कृत में-ऋतध्वजस्य कथनैः नारी प्रति सम्मानभावना दृश्यते। सः नारीम् समस्तसृष्टेः निर्मात्री इति मन्यते। अपि च-सः मातरं प्रथमा आचार्या इति मन्यते। एवं नारी प्रति तस्य अतीव सम्मानपूर्णा धारणा आसीत् । तस्य वचनैः आदर्शनार्याः उदाहरणं प्रस्तूयते स्म। .

Bhaswati Class 12 Solutions Chapter 9 मदालसा Summary Translation in Hindi and English

संकेत – (ततः प्रविशति ………… एकाकिनी एव।) पृ. 73
NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 9 मदालसा 1
NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 9 मदालसा 2
NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 9 मदालसा 3

हिन्दी सरलार्थ – (तब प्रकृति के सौन्दर्य को देखता हुआ महाराज का शत्रुजित पुत्र ऋतध्वज प्रवेश करता है।)

ऋतध्वज – अहा! गन्धर्वराज विश्वावसु राजा का उद्यान कितना सुन्दर है। आम की मञ्जरियों की उत्कृष्ट सुन्दरता को देखकर तथा कोयों के मधुर वचनों को सुनकर किस युवक का हृदय अनायास उत्कण्ठित नहीं होगा? (बाईं ओर युवतियों का वार्तालाप सा सुनाई दे रहा है। यहीं रुककर सुनती हूँ।

NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 9 मदालसा

कुण्डला – सखि मदालसा! तुम तो केवल विध्याध्ययन में ही तत्पर हो। कितने समय तक ब्रह्मचर्यव्रत को धारणा करोगी?

मदालसा – ज्ञान का सागर असीमित तथा अत्यन्त गम्भीर है। अभी तक मैंने सागर के तट पर खड़े होकर कुछ ही. अंश प्राप्त किए हैं।

कुण्डलाहे विनयशीला! विद्या विनम्रता प्रदान करती है। इसीलिए तुम ऐसा कह रही हो । कुल गुरु तुम्बरू महाभाग ने गन्धर्वराज को कुछ और ही सूचित किया है। मदालसा क्या तुमने सुना जो आदरणीय गुरु जी ने मेरे विषय में पिताजी से कहा?

कुण्डला – हाँ अवश्य । राजकुमारी मदालसा सभी विद्याओं में निपुण हो गई है किन्तु उसे स्वयंवर प्राप्त नहीं हुआ, इसलिए उसके लिए योग्य वर की खोज करनी है-यही गुरुजी का विचार है।

मदालसा – (हँसकर) वे नहीं जानते कि मैं तो विवाह का बंधन स्वीकार करना नहीं चाहती। कुण्डला-तो क्या करोगी?

मदालसा – वेदान्त में निपुण होऊंगी। ‘आचार्य’ का पद प्राप्त करके शिष्यों को जीने की कला सिखाऊँगी।

कुण्डला – अध्ययन और अध्यापन में मैं तुम्हारी लगन जानती हूँ किन्तु जैसे यह लता आम का सहारा ले रही है उसी तरह स्त्री जीवन यात्रा में किसी साथी की आवश्यकता को अनुभव करती है जो उसका सहारा हो। मदालसा मेरे लिए सहारे की आवश्यकता नहीं है। मैं जीवनपथ पर चलने में स्वयं समर्थ हूँ और किसी के इशारों पर नाच नहीं सकती।

कुण्डला – तब तो अकेली ही नाचोगी।

Meaning in English-(Then enters Ritadhwaja, son of great king who has conquered his enemies and is watching the beauty of nature.)

Ritadhwaja-Aha! The garden of king Vishwavasu, the celestial king is very beautiful. Every young one is fascinated to see the beauty of the mango clusters and to hear the sweet chirping of cuckoos. (The conversation of the young-ladies is heard on the left side. So I stay here to listen to it.)

Kundala – Oh friend Madalasa! You are engaged in studies only. For how long will you follow the Brahmacharya-vrata or remain unmarried?

Madalsa – The ocean of knowledge is really endless and very deep. By now I have studied very few portions standing on the bank of the ocean.

Kundala – Oh polite one! ‘Knowledge provides modesty’ therefore you are saying so. But respectable Kulaguru Tumbaru has informed king of Gandharvas something else.

Madalsa – Did you hear what respectable Guruji tell father regarding me?

Kundala – Yes certainly. Princess Madalsa has become well versed in all the Vidyas but she did not obtain Svayamvara (husband of her choice.) So, a suitable match is to be found out for her this is the idea of Guruji.”

NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 9 मदालसा

Madalsa – (laughing) He does not know that I do not want to accept the relation of marriage.

Kundala – Then what will you do?

Madalsa – I will become well-versed in Vedanta. I’shall achieve the title of ‘Acharya’ and teach art of living to my students. Kundala-I know your keen attention towards studies and teaching but a woman also feels necessity of a companion in life as a support just as a creeper takes support of the mango-tree. …Madalsam do not need a support. I am capable of leading life alone and I can not do everything according to others will.

Kundala – Then you will have to dance alone.

संकेत – (विहस्य) यादि ……………. सखी विचार:  पृ .74

NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 9 मदालसा 4

NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 9 मदालसा 5

हिन्दी सरलार्थ … मदालसा-(हँसकर) यदि तुम शीघ्र ही पति के घर चली जाओगी तो मैं अकेली हो जाऊँगी. किन्तु एक उपाय भी सोच लिया है मैंने।

कुण्डला – कौन सा उपाय ?

मदालसा – मैं सङ्गीतसाहित्य के माध्यम से ब्रह्मविद्या को प्रिय सरस बनाकर बहुत सारे बच्चों को शिक्षण दूंगी।

कुण्डला – गृहस्थाश्रम में प्रवेश करके अपने बच्चों के चरित्र का निर्माण करना माता के अधीन होता है। उसमें क्या सोचना?

मदालसा – जहाँ तक मुझे लगता है पुरुष अपनी पत्नी पर अपना अधिकार स्थापित करता है। द्रौपदी को अपनी सम्पति मानते हुए युधिष्ठर उसे जुए में हार गए जैसे वह कोई निर्जीव वस्तु थी।

कुण्डला – निर्जीव वस्तु तो वह नहीं थी किन्तु युधिष्ठिर का सोचना इसी प्रकार का था-ऐसा प्रतीत होता है।

मदालसा – हरिश्चन्द्र ने अपनी पत्नी शैव्या तथा पुत्र रोहित को भीड़युक्त बाजार में बेच दिया। ऐसे पत्नी के पद को स्वीकार करने में मेरा कोई. मनोरथ नहीं है।

कुण्डला – यह तो कटु सत्य है किन्तु सखी! इस संसार में भिन्न-भिन्न स्वभाव वाले पुरुष रहते हैं। वे अपने-अपने स्वभाव के अनुसार वर भी प्राप्त कर लेते हैं। तुम तो नवनवोन्मेष शालिनी प्रतिभा से सम्पन्न नए प्रयोगों से हम सबको आश्चर्यचकित कराती रहती हो। गृहस्थाश्रम भी एक प्रयोगशाला है जिसमें तुम अपने ज्ञान-विज्ञान का प्रयोग कर सकोगी।

NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 9 मदालसा

मदालसा – हे कुण्डले । ऐसे लोग दुर्लभ होते हैं जो गृहस्थ की प्रयोगशाला में अपनी पत्नी को स्वतंत्रता देते हों।

ऋतध्वज – (अपने आप से) यह अपने को प्रकट करने का उचित अवसर है। (प्रकट रूप में) मैं शत्रुजित पुत्र ऋतध्वज उपस्थित हूँ, आज्ञा हो तो मैं इस परिचर्चा में सम्मिलित हो जाऊँ।

कुण्डला – अतिथि का स्वागत है। क्या आपने मेरी सखी के विचार सुन लिए?

Meaning in English : Madalsa – (With a smile) If you go very soon to your husband’s house, then I will remain alone but I have thought of a plan also.

Kundala – What is the plan?

Madalsa – I will make Brahmavidya (knowledge of vedanta) interesting and then teach it to many children.

Kundala – The formation of character depends on their mother after entering inte Grihasthashrama. There is nothing to think?

Madalsa: -As far as I see a man dominates his wife. Yudhishthira considered Drai padi to be his personal property and lost her in gambling as if she were an inanimate thing it appears that.

Kundala-She was not inanimate but Yudhishthira had that thinking only.

Madalsa-Harishchandra sold his wife Shaivya and his son Rohit in a crowded market. I do’nt want to accept such a post of wife.

Kundala-This is very harsh truth but my dear! men of various nature live in this world and the husband of similar nature is also achieved. You give us all a surprise by makling new experiments with your brilliant-mind. Grihasthashram is also a laboratory in which you can experiment your knowledge and scientific education

Madalsa – Kundle! Such a person is really rare who gives freedom to his wife in the household-laboratory.

Ritadhvaja – (To himself) This is the best time to present myself. (Before all) I, Ritdhwaja, a son who has conquered the enemies am present here. If you allow me then I will also join this discussion.

Kundala – Welcome to the guest. Did you hear what my friend hasil expressed?

NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 9 मदालसा

संकेत-ऋतध्वजः …………….=
आम् ! अत …………. क्षाव्याव
NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 9 मदालसा 6
NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 9 मदालसा 7
NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 9 मदालसा 8

हिन्दी सरलार्थ – ऋतध्वज-हाँ। इसीलिए मैं पूछना चाहता हूँ कि क्या आदरणीय गन्धर्वराज विश्वावसु अपनी पत्नी को युधिष्ठिर की तरह हार गए या उन्होंने उसे हरिश्चन्द्र की तरह बेच दिया? कुण्डला-मदालसा! तुम चुप क्यों हो? उत्तर दो।

ऋतध्वज – एक के अपराध से सम्पूर्ण जाति दण्डनीय होती है-यह तुम्हारी सखी का अनोखा न्याय है।

मदालसा-आप नारी-स्वाधीनता के बारे में क्या कहते हैं?

ऋतध्वज-माता ही प्रथम गुरु होती है-मेरा तो यही मानना है। नारी ही सम्पूर्ण सृष्टि का निर्माण करने वाली होती है। किन्तु कहने से क्या? आदरणीया आप परीक्षा करके ही जान पाएँगी। गृहस्थाश्रम की प्रयोगशाला में परीक्षा देने के लिए मैं तैयार हूँ।

मदालसा-तुम्हारा प्रस्ताव स्वीकार कर लिया गया है। कुण्डला-तुम दोनों उन्नति करो। हे मित्र! गन्धर्वकन्या मदालसा गन्धर्वविवाहविधि से आपका वरण करती है। (पति के रूप में चुनती है।) मैं कुलगुरू तुम्बुरू को बुलाता हूँ। वह अग्नि के सम्मुख आशीर्वचन कहेंगे।

ऋतध्वज-पहले तो हम सखी की बात सुनेंगे। तत्पश्चात् हम दोनों स्वयं कुलगुरु तथा माता जी और पिताजी को सम्मानित करने जाएँगे। … कण्डला-परस्पर प्रेम यक्त आप दोनों के उपदेश के लिए कोई अवकाश नहीं है तो भी सखी के प्रति प्रेम मुझे बोलने के लिए प्रेरित कर रहा है

पति के द्वारा सदा पत्नी का भरण-पोषण तथा रक्षा की जानी चाहिए क्योंकि धर्म, अर्थ तथा काम की सिद्धि के लिए जैसे पत्नी पति की सहायिका होती है वैसे कोई दूसरा नहीं होता। एक दूसरे के प्रति अनुकूल रहते हुए पति और पत्नी धर्म-अर्थ तथा काम की सिद्धि कर लेते हैं । यदि पति बहुत अधिक धन कमाकर घर लाता है तो वह धन पत्नी के अभाव में कुपात्रों में दिया जाता हुआ नाश को प्राप्त करता है।

ऋतध्वज-लक्ष्मी की रक्षा के लिए पत्नी का सहयोग अनिवार्य है। – मदालसा-कुण्डला ! लक्ष्मी की पूजा में मेरी कोई रुचि नहीं है। यदि मेरे अतिथि को लक्ष्मी पूज्य और प्रिय है तो अभी से मेरा उसे प्रणाम है।

NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 9 मदालसा

ऋतध्वज-हे स्वाभिमानी प्रिया! तुम्हारे सम्मुख कोई सौत कैसे ठहर सकती है? लक्ष्मी तो तुम्हारी दासी होगी सौत नहीं। मेरी गृहस्थी तुम्हारे अधीन होगी और अपनी भावी सन्तान को
मैं ज्ञान-विज्ञान की खोज करने वाली तुम्हारे हाथ में सौंपना चाहता हूँ। (आओ। गुरु जी को , तथा माता-पिता को यह समाचार सुनाते हैं।)..

Meaning in English
kitadhwaja-Yes, That is why I want to ask whether respectable Gandharvaraja Vishwavasu lost his wife like Yudhisthira or he sold her like Harish Chandra?

Kundala-Oh Madalsa! Why are youquiet? Give me answer.

Ritadhwaja-Whole of the female-race is to be punished-this is the wonderful logic of your friend. .. ,

Madalsa – What do you say sir! regarding the freedom of women?

Ritadhwaja – I consider that only mother is the first teacher. Only a woman can produce the whole creation but what is the use of saying? You can know by examining only. I am ready to be examined in the laboratory of the Grihasthashrama.

Madalsa – I have accepted your proposal…

Kundala – May you both progress. Oh friend! A celestial girl Madalsa proposes you by the mode of love-marriage. I call our family priest Tumbru. He will offer blessings before fire-god.

Ritadhwaja – First we both will listen to our friend’s words. After that we both will go to respect our family-priest and our parents.” Kundala . There is no alternative for the advice of you both who love each other so much. Even then I am saying so due to the affection towards my friend.

A husband should always nourish and protect his wife because he has no other helper except his wife for the accomplishment of righteousness, wealth and desire. Remaining favourable to each other, husband and wife can establish righteousness, wealth and desire. If a husband earns lot of wealth and brings it to home then that wealth is destroyed by spending it among undeserving persons in the absence of a wife.

Ritadhwaja -The co-operation of the wife is compulsory for protecting the wealth. Madalsa-Oh Kundala! I am not at all interested in worshipping wealth. If wealth is respectable and lovable to my guest, then my salutations are for her since now.

Ritadhwaja – Oh dear self-respected one! Which other co-wife can stay in presence of you? Wealth will be your attendant and not a co-wife. My family life will depend on you and I wish to offer my coming generation to you who are a scientific-researcher. Come, let us tell this news to our teacher and parents.

NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 9 मदालसा

NCERT Solutions for Class 12 Sanskrit Bhaswati Chapter 9 मदालसा Read More »

error: Content is protected !!