Taxmann's Advanced Accounting (Advanced Accounts) | CRACKER

Contents

PA GE

l Chapter-wise Marks Distribution I-7

l Previous Exams Trend Analysis (May 2018 Onwards) (New Syllabus) I-9

l Chapter-wise comparison with study material I-15

Chapter 1 u Acc o unti ng f or ES OP 1.1

Chapter 2 u Buy bac k & e q ui t y s har es w i t h di ff er e nti al ri g ht s 2.1

Chapter 3 u A mal ga mati o n 3.1

Chapter 4 u I nt er nal r ec o nst r ucti o n 4.1

Chapter 5 u Li q ui dati o n 5.1

Chapter 6 u Ba nki ng 6.1

Chapter 7 u NBF C 7.1

Chapter 8 u Co ns oli dat e d fi na nci al st at e me nt s 8.1

Chapter 9 u Acc o unti ng St a ndar ds 9.1

Chapter 10 u Part ners hi ps 10.1

Solved Paper - May 2019 ( Ne w Syll a b us) ( Gui deli ne Ans wers) P.1

Solved Paper - Nov 2019 ( Ne w Syll a b us) ( Gui deli ne Ans wers)

Solved Paper - Nov. 2020 ( Ne w Syll a b us) ( Gui deli ne Ans wers) P.27 P.41

Solved Paper - J a n. 2021 ( Ne w Syll a b us) ( Gui deli ne Ans wers)

Solved Paper - J ul y 2021 ( Ne w Syll a b us) ( Gui deli ne Ans wers) P.56 P.80

Solved Paper - Dece mber 2021 ( Ne w Syll a b us) ( Gui deli ne Ans wers) P.94

Solved Paper - May 2022 ( Ne w Syll a b us) ( Gui deli ne Ans wers) P.105

Solved Paper - Nov. 2022 ( Gui deli ne Ans wers) P.118

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

S. No. Chapter Subtopics M N M N M N M N M N M N M N N Jan. July Dec. M N

9 Accounting Standards

AS 4 4 4 5 5 5 5 5 5 5 5 AS 5 5 4 5 5 5 5 5

AS 7 5 5 5 5 5 5 5 5 5

AS 9 4 5 5 4 5 5 5 5 5 5 5 5 AS 14 5 4 4 5 5 5 5 5 AS 17 4 5 5 5 AS 18 8 5 5

AS 19 4 5 5 4 5 5 5 5 5 5

AS 20 5 5 5 5 5 5 5 5 5 5 AS 22 5 5 5 5 5 AS 24 5 5 AS 26 5 4 5 5 5 5 5 9 5 5 AS 29 5 5 5 9 4 5 5 5 5 4 5 5 10 Partnership 4 16 16 4 4 20 4 4 20 25 19 15 15 15 20 20

The wei g ht age of mar ks at s o me att e mpt s (i n cert ai n c ha pt ers) may s ee mexcee d - i ng nor mal s a nd at cert ai n att e mpt s t he t ot al mar ks may a ppear l ess t ha n or gr eat er t ha n 100. Thi s i s att ri but e d t o t he s hi ft of cert ai n c ha pt ers due t o c ha nge i n c o urs e a nno unce d by I CAI i n J une 2019. # M → May; N → Nove mber

Note:

PREVIOUS EXAMS TREND ANALYSIS (MAY 2018 ONWARDS) (NEW SYLLABUS)

Year Question No.

May 201 8

Compulsory Chapter Name Marks Category

1 Yes Acc o unti ng St a ndar ds ( AS- 7, 20, 26 a nd 19) 20 Pr acti cal 2( a ) Buy Bac k 10 Pr acti cal 2(b ) Under wri ti ng # 10 Pr acti cal 3 A mal ga mati on 20 Pr acti cal 4( a ) Ba nki ng 10 Pr acti cal 4(b ) Mut ual f und # 5 Pr acti cal 5( a ) NBF C 5 Pr acti cal 5(b ) Cons oli dat e d Fi na nci al St at e me nt s 20 Pr acti cal 6( a ) ES OP 5 Pr acti cal 6(b ) I ns ur a nce # 5 The or y 6( c ) Acc o unti ng St a ndar ds ( AS - 22) 5 The or y 6(d ) Val uati on of Good will 5 Pr acti cal 6( e ) Li q ui dati on 5 Pr acti cal

Nov 2018 1 Yes Acc o unti ng St a ndar ds ( AS- 20, 14, 18 a nd Sc he dul e III) 20 Pr acti cal 2( a ) ES OP 10 Pr acti cal 2(b ) Under wri ti ng # 10 Pr acti cal 3( a ) Li q ui dati on 10 Pr acti cal 3(b ) I nt er nal Rec onst r ucti on 10 Pr acti cal 4( a ) I ns ur a nce # 10 Pr acti cal 4(b ) NBF C 10 Pr acti cal 5( a ) Cons oli dat e d Fi na nci al St at e me nt s 10 Pr acti cal 5(b ) Good will # 10 Pr acti cal 6( a ) Di ff er e nti al Ri g ht s 5 Pr acti cal 6(b ) AS 24 5 The or y 6( c ) Mut ual Funds # 5 Pr acti cal 6(d ) Ba nki ng 5 Pr acti cal 6( e ) Mut ual Fund # 5 Pr acti cal

Year Question

No.

Compulsory Chapter Name Marks Category

May 2019 1 Yes Acc o unti ng St a ndar ds ( AS- 7, 9, 19 a nd 18) 20 Pr acti cal

2( a ) Buy bac k 10 Pr acti cal 2(b ) Under wri ti ng # 10 Pr acti cal 3( a ) A mal ga mati on 10 Pr acti cal 3(b ) Li q ui dati on 10 Pr acti cal 4( a ) Ba nki ng 10 Pr acti cal 4(b ) NBF C 5 Pr acti cal 4( c ) I ns ur a nce 5 Pr acti cal 5( a ) Cons oli dat e d Fi na nci al St at e me nt s 10 Pr acti cal 5(b ) Good will # 10 Pr acti cal 6( a ) A mal ga mati on 5 The or y 6(b ) ES OP 5 The or y 6( c ) Good will # 5 Pr acti cal 6(d ) Mut ual Fund # 5 Pr acti cal 6( e ) AS 1 5 The or y Nov. 2019 1 Yes Acc o unti ng St a ndar ds ( AS- 29, 26, 9 a nd 20) 20 Pr acti cal

2( a ) Buy bac k 15 Pr acti cal 2(b ) ES OP 5 Pr acti cal 3( a ) I nt er nal Rec onst r ucti on 15 Pr acti cal 3(b ) Li q ui dati on 5 Pr acti cal 4( a ) Ba nki ng 10 Pr acti cal 4(b ) Mut ual Fund # 5 Pr acti cal 4( c ) Ba nki ng 5 Pr acti cal 5( a ) Cons oli dat e d Fi na nci al St at e me nt s 10 Pr acti cal 5(b ) Good will # 10 Pr acti cal 6( a ) Sc he dul e III 5 The or y 6(b ) Under wri ti ng # 5 The or y 6( c ) Cons oli dat e d Fi na nci al St at e me nt s 5 Pr acti cal 6(d ) NBF C 5 Pr acti cal 6( e ) AS 19 5 The or y Nov 2020 1 Yes Acc o unti ng St a ndar ds ( AS7, 26, 17, 22) 20 Pr acti cal 2( a ) Cons oli dat e d Fi na nci al St at e me nt s 15 Pr acti cal 2(b ) NBF C 5 Pr acti cal 3( a ) A mal ga mati on 15 Pr acti cal 3(b ) Li q ui dati on 5 Pr acti cal

Year Question

No.

Compulsory Chapter Name Marks Category

Part ners hi p 15 Pr acti cal 4(b ) NBF C 5 Pr acti cal 5( a ) Acc o unti ng f or ES OP 10 Pr acti cal 5(b ) Ba nki ng 10 Pr acti cal 6( a ) Part ners hi p 4 The or y 6(b ) Li q ui dati on 4 Pr acti cal 6( c ) Acc o unti ng St a ndar ds ( AS- 26) 4 Pr acti cal 6(d ) Buy Bac k & Eq ui t y Shar es w i t h Di ff er e nti al Ri g ht s 4 Pr acti cal 6( e )

4( a )

Acc o unti ng St a ndar ds ( AS- 29) 4 Pr acti cal J a n 2021 1 Yes Acc o unti ng St a ndar ds ( AS- 26, 5, 17, 22) 20 Pr acti cal 2 A mal ga mati on 20 Pr acti cal 3( a ) Part ners hi p 15 Pr acti cal 3(b ) NBF C 5 Pr acti cal 4 Cons oli dati on 20 Pr acti cal 4( a ) Ba nki ng 10 Pr acti cal 5(b ) Li q ui dati on 10 Pr acti cal 6( a ) AS 19 5 The or y 6(b ) AS 14 5 Pr acti cal 6( c ) Acc o unti ng f or ES OP 5 Pr acti cal 6(d ) Buy Bac k & Eq ui t y, Shar e w i t h Di ff ere nti al Ri g ht s 5 Pr acti cal 6( e ) Buy Bac k & Eq ui t y, Shar e w i t h Di ff ere nti al Ri g ht s 5 Pr acti cal

J ul y 2021 1 Yes

Acc o unti ng St a ndar ds ( AS- 7, 24, 4, 18) 20 Pr acti cal 2( a )

Buy Bac k & Eq ui t y, Shar e w i t h Di ff ere nti al Ri g ht s 15 Pr acti cal 2(b ) Buy Bac k & Eq ui t y, Shar e w i t h Di ff ere nti al Ri g ht s 5 Pr acti cal 3( a ) Part ners hi p 15 Pr acti cal 3(b ) NBF C 5 Pr acti cal 4( a ) Cons oli dat e d Fi na nci al St at e me nt s 15 Pr acti cal 4(b ) Cons oli dat e d Fi na nci al St at e me nt s 5 Pr acti cal 5( a ) A mal ga mati on 10 Pr acti cal 5(b ) Ba nki ng 10 Pr acti cal 6( a ) AS- 22 5 The or y 6(b ) Li q ui dati on 5 Pr acti cal 6( c ) AS- 9 5 Pr acti cal

Year Question No. Compulsory Chapter Name Marks Category

Dec. 2021 1( a ) Yes AS 4 5 Pr acti cal 1(b ) Yes AS 9 5 Pr acti cal 1( c ) Yes AS 26 5 Pr acti cal 1(d ) Yes AS 14 5 Pr acti cal 2( a ) Eq ui t y s har es w i t h di ff er e nti al ri g ht s 5 The or y 2(b ) A mal ga mati on 15 Pr acti cal 3( a ) CFS 15 Pr acti cal 3(b ) NBF C 5 Pr acti cal 4( a ) Part ners hi p 10 Pr acti cal 4(b ) Part ners hi p 5 The or y 5( a ) Buy Bac k 10 Pr acti cal 5(b ) Ba nki ng Co mpa ny 10 Pr acti cal 6( a ) Li q ui dati on 5 Pr acti cal 6(b ) Eq ui t y s har es w i t h di ff er e nti al ri g ht s 5 Pr acti cal 6( c ) AS 19 5 Pr acti cal 6(d ) AS 20 5 Pr acti cal 6( e ) ES OP 5 Pr acti cal Ma y 2022 1( a ) Yes AS- 5 5 Pr acti cal 1(b ) Yes AS- 20 5 Pr acti cal 1( c ) Yes AS- 29 5 Pr acti cal 1(d ) Yes AS- 7 5 Pr acti cal 2 A mal ga mati on 20 Pr acti cal 3( a ) Cons oli dat e d Fi na nci al St at e me nt s 15 Pr acti cal 3(b ) Ba nki ng c o mpa ny 5 The or y 4( a ) Part ners hi p 15 Pr acti cal 4(b ) Part ners hi p 5 The or y 5( a ) Buy Bac k 10 Pr acti cal 5(b ) Ba nki ng 10 Pr acti cal 6( a ) AS- 17 5 Pr acti cal 6(b ) Eq ui t y s har es w i t h di ff er e nti al ri g ht s 5 Pr acti cal 6( c ) AS- 19 5 The or y 6(d ) Li q ui dati on 5 Pr acti cal 6( e ) Acc o unti ng f or ES OP 5 Pr acti cal No v 2022 1( a ) Yes AS- 5 5 Pr acti cal 1(b ) Yes AS- 22 5 Pr acti cal 1( c ) Yes AS 20 5 Pr acti cal 1(d ) Yes AS- 4 5 Pr acti cal

Year Question

No.

2

Compulsory Chapter Name Marks Category

I nt er nal Rec onst r ucti on 20 Pr acti cal

3( a ) Cons oli dat e d Fi na nci al St at e me nt s 15 Pr acti cal

3(b ) NBF C 5 Pr acti cal

4( a ) Part ners hi p 15 Pr acti cal 4(b ) Part ners hi p 5 The or y

5( a ) Ba nki ng 15 Pr acti cal 5(b ) Li q ui dati on 5 Pr acti cal

6( a ) AS 9 5 Pr acti cal 6(b ) Buy Bac k 5 Pr acti cal 6( c ) Acc o unti ng f or ES OP 5 Pr acti cal 6(d ) AS 29 5 Pr acti cal 6( e ) AS 14 5 Pr acti cal

Chapter No.

CHAPTER-WISE COMPARISON WITH STUDY MATERIAL

Name of Chapter

Study Material Chapter

Acc o unti ng f or ES OP Chapt er 3 2 Buy Bac k & Eq ui t y Shar es w i t h D i ff er e nti al R i g ht s Chapt er 4 3 A mal ga mati on Chapt er 5 4 I nt er nal Rec onst r ucti on Chapt er 6 5 Li q ui dati on Chapt er 7 6 Ba nki ng Chapt er 8 7 NBF C Chapt er 9 8 Cons oli dat e d Fi na nci al St at e me nt s Chapt er 10 9

1

Acc o unti ng St a ndar ds Chapt er 1 AS- 4 AS- 5 AS- 7 AS- 9 AS- 14 AS- 17 AS- 18 AS- 19 AS- 20 AS- 22 AS- 24 AS- 26 AS 29 10 Part ners hi p Chapt er 2

PARTNERSHIPS

THEORY QUESTIONS

Q.1. What is Piecemeal payments method under Partnership Dissolution? Briefly explain the two methods followed for determining the order in which the payments are made? (2 marks) (May 2010) Ans. : Ge ner all y, t he ass et s s ol d upo n di ss ol uti o n of part ners hi p ar e r e ali z e d o nl y i n s mall i nst al me nt s over a peri o d of ti me. I n s uc h ci r c u mst a nces t he c hoi ce i s ei t her t o di st ri b ut e what e ver i s c oll ect e d or t o wai t till whol e a mo unt i s c oll ect e d. Us uall y, t he first c o urs e i s a dopt e d. I n or der t o e ns ur e t hat t he di st ri b ut e d c as h a mo ngst t he part ners i s i n pr oporti o n t o t hei r i nt er est i n t he part ners hi p c oncer n ei t her of t he t wo met hods des cri be d bel o w may be f oll o we d f or det er m i ni ng t he or der i n whi c h t he pay me nt s ho ul d be ma de

(i) Maximum Loss Method:

Eac h i nst al me nt r e ali z e d i s c o nsi der e d t o be t he final pay me nt i e o ut st a ndi ng ass et s a nd cl ai ms ar e c o nsi der e d wort hl ess a nd part ners ’ acc o unt s ar e a dj ust e d o n t hat basi s e ac h ti me whe n a de posi t i s ma de f oll o w i ng ei t her Gar ner Vs Murr ay r ul e or t he pr o fit- s hari ng r ati o r ul e.

(ii) Highest Relative Capital Method:

Acc or di ng t o t hi s met ho d, t he part ner who has t he hi g her r el ati ve c a pi t al, t hat i s, whos e c a pi t al i s gr e at er i n pr oporti o n t o hi s pr o fit- s hari ng r ati o i s first pai d off. Thi s met ho d i s al s o c all e d as pr oporti o nat e c a pi t al met ho d. Q.2.

Ans. : Garner vs. Murray rule- Applicability

Whe n a part ner i s una bl e t o pay hi s de bt d ue t o t he fir m , he i s s ai d t o be i ns ol ve nt a nd t he s har e of l oss i s t o be bor ne by ot her s ol ve nt part ners i n acc or da nce w i t h t he deci si o n hel d i n t he Engli s h c as e of Gar ner vs. Murr ay. Acc or di ng t o t hi s deci si o n, nor mal l oss o n r e ali s ati o n of ass et s i s t o be br o ug ht i n c as h by all part ners (i ncl udi ng i ns ol ve nt part ner) i n t he pr o fit- s hari ng r ati o b ut a l oss d ue t o i ns ol ve nc y of a part ner has t o be bor ne by t he s ol ve nt part ners i n t hei r c a pi t al r ati o I n or der t o c al c ul at e t he c a pi t al r ati o, no a dj ust me nt will be ma de

i n c as e of fixe d c a pi t al s. Ho we ver, i n c as e of fl uct uati ng c a pi t al s, r ati o s ho ul d be c al c ul at e d o n t he basi s of a dj ust e d c a pi t al bef or e c o nsi deri ng pr o fit or l oss o n r e ali z ati o n at t he ti me of di ss ol uti o n.

Non-Applicability of Garner vs Murray rule:

1. Whe n t he s ol ve nt part ner has a de bi t bal a nce i n t he c a pi t al acc o unt. Onl y s ol ve nt part ners will be ar t he l oss of c a pi t al de fici e nc y of i ns ol ve nt part ner i n t hei r c a pi t al r ati o. I f i nci de nt all y a s ol ve nt part ner has a de bi t bal a nce i n hi s c a pi t al acc o unt, he will es c a pe t he li a bili t y t o be ar t he l oss d ue t o i ns ol ve nc y of a not her part ner.

2 Whe n t he fir m has o nl y t wo part ners

3. Whe n t her e i s a n agr ee me nt bet wee n t he part ners t o s har e t he de fici e nc y i n c a pi t al acc o unt of i ns ol ve nt part ner

4. Whe n all t he part ners of t he fir m ar e i ns ol ve nt.

LIMITED LIABILITY PARTNERSHIP (LLP)

Q.3. Explain the Limitations of Liability of Limited Liability Partnership (LLP) and its partners.

Ans. :

Under s ecti o n 27( 3) of t he LLP Act, 2008 a n o bli gati o n of a n LLP ari si ng o ut of a c o nt r act or ot her w i s e, s hall be s ol el y t he o bli gati o n of t he LLP ; u

The Li a bili ti es of a n LLP s hall be met o ut of t he pr operti es of t he LLP ; u

Under s ecti on 28( 1) a part ner i s not pers onall yli a bl e, di r ectl y or i ndi r ectl y, f or a n o bli gati o n r ef err e d t o i n Secti o n 27( 3) a bove, s ol el y by r e as o n of bei ng a part ner i n t he LLP ; u

Secti o n 27( 1) st at es t hat a n LLP i s not bo und by a nyt hi ng do ne by a part ner i n de ali ng w i t h a pers o n, i f: n

The part ner does not have t he a ut hori t y t o act o n be hal f of t he LLP i n doi ng a parti c ul ar act; a nd n

The ot her pers o n k no ws t hat t he part ner has no a ut hori t y or does not k no w or beli e ve hi mt o be a part ner i n t he LLP u

Under s ecti o n 30( 1) t he li a bili t y of t he LLP a nd t he part ners per pet r ati ng f r a ud ul e nt de ali ngs s hall be unli m i t e d f or all or a ny of t he de bt s or ot her li a bili ti es of t he LLP .

Q.4. Under what circumstances, an LLP can be wound up by the Tribunal.

(4 marks) (May 2015)

Ans. :

Under f oll o w i ng ci r c u mst a nces, a n LLP c a n be wo und up by t he Tri b unal: (i ) I f t he LLP deci des t hat i t s ho ul d be wo und up by t he Tri b unal; (ii ) I f f or a peri o d of mor e t ha n si x mo nt hs, t he n u mber of part ners of t he LLP i s r e d uce d bel o w t wo;

(iii ) I f t he LLP i s una bl e t o pay i t s de bt s;

(iv ) I f t he LLP has act e d agai nst t he i nt er est s of t he i nt e gri t y a nd s over ei g nt y of I ndi a, t he s ec uri t y of t he st at e or p ubli c or der;

( v ) I f t he LLP has def a ul t e d i n t he fili ng of t he St at e me nt of Acc o unt a nd Sol ve nc y w i t h t he Re gi st r ar f or five c o ns ec uti ve fina nci al ye ars;

(vi ) I f t he Tri b unal i s of t he opi ni o n t hat i t i s j ust a nd e q ui t a bl e t hat t he LLP

Co mp ul s or y w i t h ROC 3 Cr eati o n Cr eat e d by a n Agr ee me nt

Cr eat e d by La w 4 Bo dy Cor por at e Not a bo dy c or por at e Yes, aft er r egi st r ati o n w i t h ROC , i t bec o mes a bo dy c or por at e 5 Se par at e Legal I de nti t y It has no s e par at e l egal i de nti t y

6 Per pet ual Successi o n Part ners hi ps do not have per pet ual s uccessi o n

Yes, all bo dy c or por at e i s s ai d t o have a s e par at e l egal i de nti t y.

It has per pet ual s uccessi o n a nd i ndi vi dual part ners may c o me a nd g o

7 Nu mber of Part ners M i ni mu m 2 a nd Maxi mu m 20 ( s ubj ect t o 10 f or ba nks)

8

9

O wners hi p of Ass et s Fi r m ca nnot o wn a ny ass et s. The part ners o wn t he ass et s of t he fir m

Li a bili t y of Part ners / Me mbers

Li a bili t y of t he part ners i s unli m i t e d. Part ners ar e s ever all y a nd j oi ntl y li a bl e f or acti o ns of ot her part ners a nd t he fir m a nd t hei r li a bili t y ext e nds t o pers o nal ass et s

M i ni mu m 2 but no maxi mu mli m i t

The LLP as a n i nde pe nde nt e nti t y ca n o wn ass et s

Li a bili t y of t he part ners i s li m i t e d t o t he ext e nt of t hei r c o nt ri buti o n t o war ds LLP exce pt i n cas e of i nt e nti o nal f r a ud or wr o ngf ul act of o m i ssi o n or c o mm i ssi o n by a part ner

10 Pri nci pal Age nt Rel ati o ns hi p

Part ners ar e t he age nt s of t he fir m a nd of eac h ot her

Part ners ar e age nt s of t he fir m o nl y a nd not of ot her part ners

Q.6. Write short notes on Designated Partner in a Limited Liability Partnership and what are their liabilities.

(4 marks) (Nov 2016)

Ans. : “ Desi g nat e d part ner” me a ns a ny part ner desi g nat e d as s uc h p urs ua nt t o s ecti o n 7 of t he Li m i t e d Li a bili t y Part ners hi ps ( LLPs) Act, 2008.

As per s ecti o n 7 of t he LLP Act, e ver y li m i t e d Li a bili t y Part ners hi p s hall have at l e ast 2 desi g nat e d Part ners who ar e i ndi vi d ual s a nd at l e ast o ne of t he m s hall be a r esi de nt i n I ndi a:

Provided t hat i n c as e of Li m i t e d Li a bili t y Part ners hi p i n whi c h all t he part ners ar e bo di es c or por at e or i n whi c h o ne or mor e part ners ar e I ndi vi d ual s a nd bo di es c or por at e, at l e ast 2 i ndi vi d ual s who ar e part ners of s uc hli m i t e dli a bili t y Part ners hi p or No m i nees of s uc h Bo di es c or por at e s hall act as desi g nat e d part ners.

“Liabilities of designated partners”

As per Secti o n 8 of LLP Act, unl ess e x pr essl y pr ovi de d ot her w i s e i n t hi s Act, a desi g nat e d part ner s hall be-

( a ) r es po nsi bl e f or t he doi ng of all act s, matt ers a nd t hi ngs as ar e r e q ui r e d t o be do ne by t he li m i t e d li a bili t y part ners hi p i n r es pect of c o mpli a nce of t he pr ovi si o ns of t hi s Act i ncl udi ng fili ng of a ny doc u me nt, r et ur n, st at e me nt a nd t he li ke r e port p urs ua nt t o t he pr ovi si o ns of t hi s Act a nd as may be s peci fie d i n t he li m i t e d li a bili t y part ners hi p agr ee me nt; a nd (b ) li a bl e t o all pe nal ti es i mpos e d o n t he li m i t e d li a bili t y part ners hi p f or a ny c o nt r ave nti o n of t hos e pr ovi si o ns.

Q.7. State the circumstances when LLP can be wound up by the Tribunal.

(4 marks) (May 2017)

Ans. : Under s ecti o n 64 of t he LLP Act, 2008, a n LLP may be wo und up by t he Tri b unal: u

I f t he LLP deci des t hat i t s ho ul d be wo und up by t he Tri b unal; u

I f f or a peri o d of mor e t ha n si x mo nt hs, t he n u mber of part ners of t he LLP i s r e d uce d bel o w t wo; u

I f t he LLP i s una bl e t o pay i t s de bt s; u

I f t he LLP has act e d agai nst t he i nt er est s of t he i nt e gri t y a nd s over ei g nt y of I ndi a, t he s ec uri t y of t he st at e or p ubli c or der; u

I f t he LLP has def a ul t e d i n t he fili ng of t he St at e me nt of Acc o unt a nd Sol ve nc y w i t h t he Re gi st r ar f or five c o ns ec uti ve fina nci al ye ars; u

I f t he Tri b unal i s of t he opi ni o n t hat i t i s j ust a nd e q ui t a bl e t hat t he LLP be wo und up.

Q.8. Explain the nature of Limited Liability Partnership. Who can be a designated partner in a Limited Liability Partnership?

(4 marks) (Nov 2017)

Ans. : Nature of Limited Liability Partnership: A li m i t e d li a bili t y part ners hi p i s a bo dy c or por at e f or me d a nd i nc or por at e d under t he LLP Act, 2008 a nd i s a l e gal e nti t y s e par at e f r o mt hat of i t s part ners. A li m i t e d li a bili t y part ners hi p s hall have per pet ual s uccessi o n a nd a ny c ha nge i n t he part ners of a li m i t e d li a bili t y part ners hi p s hall not aff ect t he e xi st e nce, ri g ht s or li a bili ti es of t he li m i t e d li a bili t y part ners hi p

Designated partners: Ever y li m i t e d li a bili t y part ners hi p s hall have at l e ast t wo desi g nat e d part ners who ar e i ndi vi d ual s a nd at l e ast o ne of t he m s hall be a r esi de nt i n I ndi a.

I n c as e of a li m i t e d li a bili t y part ners hi p i n whi c h all t he part ners ar e bo di es c or por at e or i n whi c h one or mor e part ners ar ei ndi vi dual s a nd bodi es c or por at e, at l e ast t wo i ndi vi d ual s who ar e part ners of s uc h li m i t e d li a bili t y part ners hi p or no m i nees of s uc h bo di es c or por at e s hall act as desi g nat e d part ners.

(4 Marks) (May 2018)

Ans. : Distinction between an ordinary partnership firm and an LLP

Key Elements

Partnerships

Appli ca bl e La w I ndi a n Part ners hi p Act, 1932

Nu mber of Part ners

O wners hi p of Ass et s

Li a bili t y of Part ners / Me mbers

M i ni mu m 2 a nd Maxi mu m 20 ( s ubj ect t o 10 f or ba nks)

Fi r m ca nnot o wn a ny ass et s. The part ners o wn t he ass et s of t he fir m

Unli m i t e d: Part ners ar e s ever all y a nd j oi ntl y li a bl e f or acti o ns of ot her part ners a nd t he fir m a nd t hei r li a bili t y ext e nds t o pers o nal ass et s.

LLPs

The Li m i t e d Li a bili t y Part ners hi ps Act, 2008

M i ni mu m 2 but no maxi mu m li m i t

The LLP as a n i nde pe nde nt e nti t y ca n o wn ass et s

Li m i t e d t o t he ext e nt of t hei r c o nt ri buti o n t o war ds LLP exce pt i n cas e of i nt e nti o nal f r a ud or wr o ngf ul act of o m i ssi o n or c o mm i ssi o n by a part ner

Q.10. Write short notes on extent of liability of LLP and its Partners.

(5 Marks) (May 2018)

Ans. : Ever y part ner of a n LLP f or t he p ur pos e of i t s b usi ness i s a n age nt of t he LLP b ut i s not a n age nt of ot her part ners. Obli gati o ns of LLP ar e s ol el y i t s o bli gati o ns a nd li a bili ti es of LLP ar e t o be met o ut of pr operti es of LLP .

The part ners of a n LLP i n t he nor mal c o urs e of b usi ness ar e not li a bl e f or t he de bt s of t he LLP . The LLP i s li a bl e i f a part ner of LLP i s li a bl e t o a ny pers o n as a r es ul t of wr o ngf ul or o m i ssi o n o n hi s part i n t he c o urs e of b usi ness of t he LLP or w i t h hi s a ut hori t y. Ho we ver, a part ner will be li a bl e f or hi s o wn wr o ngf ul act s or c o mm i ssi o ns, b ut will not be li a bl e f or t he wr o ngf ul act s or c o mm i ssi o ns of ot her part ners of t he LLP . Th us, a part ner may be c all e d t o pay t he li a bili t y of a n LLP under e xce pti o nal ci r c u mst a nces.

I f a n LLP or a ny of i t s part ners act w i t h t he i nt e nt t o def r a ud cr e di t ors of t he LLP or a ny ot her pers o n or f or a ny f r a ud ul e nt p ur pos e, t he n t he li a bili t y of t he LLP a nd t he c o ncer ne d part ners i s unli m i t e d Ho we ver, wher e t he f r a ud ul e nt act i s c arri e d o ut by a part ner, t he LLP i s not li a bl e i f i t i s est a bli s he d by t he LLP t hat t he act was w i t ho ut t he k no w l e dge or a ut hori t y of t he LLP Wher e t he b usi ness i s c arri e d o ut w i t h f r a ud ul e nt i nt e nt or f or f r a ud ul e nt p ur pos e, e ver y pers o n who was k no w i ngl y a part y i s p uni s ha bl e w i t h i mpri s o n me nt a nd fine.

Q.11. Can a partner be called upon to pay the liability of the LLP? If yes, under what circumstances?

Ans. : Under s ecti o n 27( 3) of t he LLP Act, 2008, a ny o bli gati o n of t he LLP ari si ng o ut of a c o nt r act or ot her w i s e will be t he s ol e o bli gati o n of t he LLP . The part ners of a n LLP i n t he nor mal c o urs e of b usi ness ar e not li a bl e f or t he de bt s of t he LLP . Ho we ver, under s ecti o n 28( 2) of t he LLP Act, 2008, a part ner will be li a bl e f or hi s o wn wr o ngf ul act s or c o mm i ssi o ns, b ut will not be li a bl e f or t he wr o ngf ul act s or c o mm i ssi o ns of ot her part ners of t he LLP . Th us, a part ner may be c all e d t o pay t he li a bili t y of a n LLP under e xce pti o nal ci r c u mst a nces.

SIMPLE DISSOLUTION

Liabilities ` Assets `

Joint Life Policy Reserve 1,99,125 Stock 1,77,525 Loan from Mrs. L 1,12,500 Sundry Debtors 4,00,500 Capital Accounts: Joint Life Policy 1,99,125 Commission L 3,15,000 Receivable 1,05,413 M 1,68,750 Cash in Hand 36,562 N 90,000 5,73,750 17,65,462 17,65,462

The following details are relevant for dissolution:

(i) The joint life policy was surrendered for ` 1,74,375.

(ii) L took over plant and machinery for ` 6,75,000. (iii) L also agreed to discharge bank overdraft and loan from Mrs. L. (iv) Furniture and stocks were divided equally between L and M at an agreed valuation of ` 2,70,000.

(v) Sundry debtors were assigned to firm’s creditors in full satisfaction of their claims.

(vi) Commission receivable was received in time. (vii) A bill discounted was subsequently returned dishonoured and proved valueless ` 23,062 (including ` 375 noting charges).

(viii) L paid the expenses of dissolution amounting to ` 13,500. You are required to prepare: (i) Realisation Account (ii) Partners’ Capital Accounts and (iii) Cash Account. (RTP)

Ans. :

Realisation A/c ` ` ` `

To Ass et s: By li a bili ti es Pl a nt & Mac hi ner y A/c 7, 97, 850 Sundr y Cr e di t ors A/c 4, 25, 250 J oi nt Li f e Poli cy Fur ni t ur e A/c 48, 487 Res er ve A/c 1, 99, 125 St oc k A/c 1, 77, 525 Cas h A/c: Sundr y De bt ors A/c 4, 00, 500 J oi nt Li f e Poli cy 1, 74, 375 J oi nt Li f e Poli cy A/c Co mm i ssi on 1, 99, 125 Co mm i ssi on Recei va bl e 1, 05, 413 Recei va bl e 1, 05, 413 By L ’ s Capi t al A/c: To L ’ s Capi t al A/c: Pl a nt a nd

` ` ` `

Di ss ol uti on Expe ns es 13, 500 Mac hi ner y 6, 75, 000

To Cas h A/c:

Fur ni t ur e, St oc ks 1, 35, 000 8, 10, 000 Bill di s hono ur e d 23, 062 By M‘ s Capi t al A/c:

To Part ner ’ s Capi t al Acc o unt s:

( Pr ofit on r eali s ati on)

Fur ni t ur e a nd st oc ks 1, 35, 000

L 41, 851 M 27, 900 N 13, 950 83, 701 18, 49, 163 18, 49, 163

Partners’ Capital A/c’s

L M N L M N ` ` ` ` ` `

To Reali s ati on A/c:

By Bal a nce b/ d 3, 15, 000 1, 68, 750 90, 000

Pl a nt a nd Mac hi ner y 6, 75, 000 - - By Ba nk Over dr aft A/c

Fur ni t ur e, St oc ks 1, 35, 000 1, 35, 000 By Loa n f r o m

4, 54, 837 -

Mrs. L A/c 1, 12, 500 -

To Cas h A/c 1, 27, 688 61, 650 1, 03, 950 By Reali s ati on A/c: ( Bal a nci ng fig ur e) Di ss ol uti on Expe ns es 13, 500 Pr ofit on r eali s ati on 41, 851 27, 900 13, 950 9, 37, 688 1, 96, 650 1, 03, 950 9, 37, 688 1, 96, 650 1, 03, 950

Cash A/c

To Bal a nce b/ d 36, 562 By Reali s ati o n A/c: To Reali s ati o n A/c: Bill di s ho no ur e d 23, 062 J o i n t Li f e P o l i c y Co mm i ssi o n 1, 74, 375 By Part ners ’ Capi t al Acc o unt s:

Recei va bl e A/c 1, 05, 413 L 1, 27, 688 M 61, 650 N 1, 03, 950 3, 16, 350 3, 16, 350

Note: Ther e will be no e nt r y f or assi g n me nt of s undr y de bt ors t o s undr y cr e di t ors i n f ull s ati sf acti o n of t hei r cl ai ms.

Q.13. P, Q and R are partners sharing profits and losses in the ratio of 2: 2: 1. Their Balance Sheet as on 31st March, 2009 is as follows:

Liabilities ` Assets `

Capital Accounts: Plant & Machinery 1,08,000 P 1,20,000 Fixtures 24,000 Q 48,000 Stock 60,000 R 24,000 1,92,000 Sundry debtors 48,000 Reserve fund 60,000 Cash 60,000 Creditors 48,000 3,00,000 3,00,000

They decided to dissolve the firm. The following are the amounts realized from the assets: `

Plant and Machinery 1,02,000 Fixtures 18,000 Stock 84,000 Sundry debtors 44,400 Creditors allowed a discount of 5% and realization expenses amounted to ` 1,500. A bill for ` 4,200 due for sales tax was received during the course of realization and this was also paid. You are required to prepare: (a) Realization account (b) Partners’ capital accounts (c) Cash account. (6 Marks) (Nov 2009)

Ans. :

Realisation A/c

Particulars Amount Amount

To De bt ors A/c 48, 000 By Cr e di t ors A/c 48, 000

To St oc k A/c 60, 000 By Cas h A/c ( ass et s r eali z e d):

To Fi xt ur es A/c 24, 000 Pl a nt & Mac hi ner y 1, 02, 000

To Pl a nt a nd mac hi ner y A/c 1, 08, 000 Fi xt ur es 18, 000

To Cas h A/c ( Cr e di t ors) 45, 600 St oc k 84, 000

To Cas h A/c ( Sal es Tax) 4, 200 De bt ors 44, 400 2, 48, 400

To Cas h A/c ( r eali s ati o n ex pe ns es) 1, 500

Particulars Amount Amount

To Pr o fit o n r eali s ati o n P 2, 040 Q 2, 040 R 1, 020 5, 100 2, 96, 400 2, 96, 400

Partners’ Capital A/c

Particulars

P Q R

Particulars

P Q R

To Cas h A/c ( Bal fig ) 1, 46, 040 74, 040 37, 020 By Bal a nce b/ d 1, 20, 000 48, 000 24, 000 By Res er ve f und 24, 000 24, 000 12, 000 By Re al i s at i o n A/c ( Pr ofit) 2, 040 2, 040 1, 020 1, 46, 040 74, 040 37, 020 1, 46, 040 74, 040 37, 020

Cash A/c

Particulars Amount (` ) Particulars Amount (` )

To Bal a nce b/ d 60, 000 By Reali s ati on A/c ( Cr e di t ors) 45, 600

To Re al i s ati o n A/ c ( as s et s r eali z e d) 2, 48, 400 By Reali s ati on A/c ( Expe ns es) 1, 500 By Reali s ati o n A/c ( Sal es t ax) 4, 200 By Part ners ’ Ca pi t al Acc o unt s

1, 46, 040

74, 040

37, 020 3, 08, 400 3, 08, 400

On 31st March, 2014, the firm is dissolved and the following points are agreed upon:

(a) A is to takeover sundry debtors at 80% of book value.

(b) S is to take over the stocks at 95% of the value.

(c) R is to discharge sundry creditors.

(d) Other assets realise ` 6,00,000 and the expenses of realisation come to ` 60,000.

(e) V is found insolvent and ` 43,800 is realized from his estate. You are required to prepare Realisation Account and Capital Accounts of the partners. Show also the Cash A/c. The loss arising out of capital deficiency may be distributed following the decision in Garner vs Murray.

(RTP)

Ans. :

Realisation A/c ` `

To Sundr y De bt ors 7, 00, 000 By Sundr y Cr e di t ors 6, 00, 000

To St oc k 4, 00, 000 By Pr ovi si on f or Do ubtf ul De bt s 1, 00, 000

To Ot her ass et s 6, 20, 000 By A ’ s Ca pi t al A/c ( De bt ors) 5, 60, 000

To R ’ s Capi t al A/c ( Cr e di t ors) 6, 00, 000 By S ’ s Ca pi t al A/c ( st oc k) 3, 80, 000

To Cas h By Cas h ( Ot her ass et s) 6, 00, 000

Ex pe ns es o n r eali z ati o n 60, 000 By A ’ s Ca pi t al A/c 56, 000 By V ’ s Ca pi t al A/c 14, 000 By R ’ s Ca pi t al A/c 28, 000 By S ’ s Ca pi t al A/c 42, 000 1, 40, 000 ( Loss o n r eali s ati o n) 23, 80, 000 23, 80, 000

Partners’ Capital A/c’s

A V R S A V R S ` ` ` ` ` ` ` `

To Bal a nce b/f 4, 00, 000 3, 00, 000 By Bal a nce b/f 14, 00, 000 6, 00, 000

To Reali s ati on 5, 60, 000 By Reali s ati on 6, 00, 000 ( De bt ors) 3, 80, 000 ( Cr e di t ors) 4, 14, 000

To Reali s ati on By Bal a nce c/ d ( St oc k)

To Reali s ati on 56, 000 14, 000 28, 000 42, 000 (l oss)

To Bal a nce c/ d 7, 84, 000 2, 72, 000 1, 78, 000 14, 00, 000 4, 14, 000 6, 00, 000 6, 00, 000 14, 00, 000 4, 14, 000 6, 00, 000 6, 00, 000

To Bal a nce b/ d 4, 14, 000 By Bal a nce b/ d 7, 84, 000 2, 72, 000 1, 78, 000

A V R S

A V R S ` ` ` ` ` ` ` `

To V ’ s A/c 2, 59, 140 1, 11, 060 By Cas h 43, 800

To Cas h 5, 24, 860 2, 72, 000 66, 940 By A 2, 59, 140 By S 1, 11, 060 7, 84, 000 4, 14, 000 2, 72, 000 1, 78, 000 7, 84, 000 4, 14, 000 2, 72, 000 1, 78, 000

Cash A/c

` ` `

To Bal a nce b/ d 2, 80, 000 By Reali s ati o n A/c ( ex pe ns es) 60, 000

To Reali s ati o n A/c 6, 00, 000 By Ca pi t al A/c

To V ’ s Ca pi t al A/c 43, 800 A 5, 24, 860 R 2, 72, 000 S 66, 940 8, 63, 800 9, 23, 800 9, 23, 800

Note: V ’ s de fici e nc y will be bor ne by A a nd Si n t he r ati o of 7: 3 i. e. o n ope ni ng c a pi t al s of ` 14, 00, 000 a nd ` 6, 00, 000. R will not be ar a ny porti o n of t he l oss si nce at t he ti me of di ss ol uti o n he ha d a de bi t bal a nce i n hi s c a pi t al acc o unt.

Q.15. A, B, C and D are sharing profits and losses in the ratio 5: 5: 4: 2. Frauds committed by C during the year were found out and it was decided to dissolve the partnership on 31st March, 2010 when their Balance Sheet was as under:

Following information is given to you:

(i) A cheque for ` 4,300 received from debtor was not recorded in the books and was misappropriated by C.

(ii) Investments costing ` 5,400 were sold by C at ` 7,900 and the funds transferred to his personal account. This sale was omitted from the firm’s books.

(iii) A creditor agreed to take over investments of the book value of ` 5,400 at ` 8,400. The rest of the creditors were paid off at a discount of 2%.

(iv) The other assets realized as follows: Building 105% of book value Stock ` 78,000 Investments The rest of investments were sold at a profit of ` 4,800 Debtors The rest of the debtors were realized at a discount of 12%

(v) The bills payable was settled at a discount of ` 400. (vi) The expenses of dissolution amounted to ` 4,900 (vii) It was found out that realization from C’s private assets would only be ` 4,000. Prepare the necessary Ledger Accounts.

(16 Marks) (Nov 2010)

Ans. : Realisation A/c

Particulars

` Particulars `

To Buil di ng 1, 20, 000 By Tr a de cr e di t ors 47, 000

To St oc k 85, 500 By Bill s paya bl e 20, 000

To I nvest me nt 29, 000 By Cas h

To De bt ors 42, 000 Buil di ng 1, 26, 000

To Cas h- cr e di t ors pai d ( W . N . 1) 37, 828 St oc k 78, 000

To Cas h- ex pe ns es 4, 900 I nvest me nt s ( W . N . 2) 23, 000

To Cas h- bill s paya bl e ( 20, 000400) 19, 600 De bt ors ( WN 3) 33, 176 2, 60, 176

To Part ners ’ Ca pi t al A/cs By De bt orsunr ec or de d 4, 300

A 171 By I nvest me nt sunr ec or de d 7, 900 B 171 C 137 D 69 548 3, 39, 376 3, 39, 376

Cash A/c

Particulars ` Particulars `

To Bal a nce b/ d 14, 500 By Reali s ati o n- cr e di t ors pai d 37, 828

To Reali s ati o n - ass et s r eali z e d By Reali s ati o n- bill s paya bl e 19, 600 Buil di ng 1, 26, 000 By Reali s ati o n- ex pe ns es 4, 900 St oc k 78, 000 By Ca pi t al acc o unt

Particulars ` Particulars `

I nvest me nt s 23, 000 A 90, 528

De bt ors 33, 176 2, 60, 176 B 90, 528

To C ’ s ca pi t al A/c. 4, 000 D 35, 292 2, 78, 676 2, 78, 676

Partners’ Capital A/c’s

Particulars A B C D Particulars A B C D ` ` ` ` ` ` ` `

To Bal a nce b/ d 15, 000 By Bal a nce b/ d 90, 000 90, 000 - 35, 000

To De bt ors- m i sappr opri ati on 4, 300 By Ge ner al r es er ve 7, 500 7, 500 6, 000 3, 000

To I nvest me ntm i s appr opri ati on 7, 900 By Reali s ati on pr ofit

To C ’ s capi t al A/c ( WN 4) 7, 143 7, 143

171 171 137 69

By Cas h A/c 4, 000 By A ’ s capi t al A/c 7, 143 By B ’ s capi t al A/c 7, 143

To Cas h A/c 90, 528 90, 528 35, 292 By D ’ s capi t al A/c 2, 777 97, 671 97, 671 27, 200 38, 069 97, 671 97, 671 27, 200 38, 069

Working Notes:

1. Amount paid to creditors ` ` Book val ue 47, 000

Less: Cr e di t ors t a ki ng over i nvest me nt s ( 8, 400) 38, 600

Less: Di s c o unt @ 2 % ( 772) 37, 828

2. Amount received from sale of investments ` Book val ue 29, 000

Less: M i s a ppr opri at e d by C ( 5, 400) 23, 600

Less: Ta ke n over by a cr e di t or ( 5, 400) 18, 200

Add: Pr o fit o n s al e of i nvest me nt s 4, 800 23, 000

3. Amount collected from debtors ` Book val ue 42, 000

Less: Unr ec or de d r ecei pt ( 4, 300) 37, 700

Less: Di s c o unt @ 12 % ( 4, 524) 33, 176

4. Deficiency of C `

Bal a nce of ca pi t al as o n 31st Mar c h, 2010

15, 000

De bt ors- m i s a ppr opri ati o n 4, 300

I nvest me nt- m i s a ppr opri ati o n 7, 900 27, 200

Less: Reali s ati o n Pr o fit ( 137) Ge ner al r es er ve ( 6, 000) Co nt ri buti o n f r o m pri vat e ass et s ( 4, 000) Net de fici e ncy of ca pi t al 17, 063 Thi s de fici e ncy of ` 17, 063 i n C ’ s ca pi t al acc o unt will be s har e d by ot her part ners A , B a nd D i n t hei r ca pi t al r ati o of 90: 90: 35 Thus, A ’ s s har e of de fici e ncy = [ 17, 063 x ( 90/215)] = ` 7, 143 B ’ s s har e of de fici e ncy = [ 17, 063 x ( 90/215)] = ` 7, 143 D ’ s s har e of de fici e ncy = [ 17, 063 x ( 35/215)] = ` 2, 777

Q.16. P, Q, R and S had been carrying on business in partnership sharing profits & losses in the ratio of 4:3:2:1. They decided to dissolve the partnership on the basis of following Balance Sheet as on 30th April, 2011:

Liabilities Amount (` ) Assets Amount (` )

Capital Accounts Land & building 2,46,000 P 1,68,000 Furniture & fixtures 65,000 Q 1,08,000 2,76,000 Stock 1,00,000 General reserve 95,000 Debtors 72,500 Capital reserve 25,000 Cash in hand 15,500 Sundry creditors 36,000 Capital overdrawn: Mortgage loan 1,10,000 R 25,000 S 18,000 43,000 5,42,000 5,42,000

(i) The assets were realized as under: ` Land & building 2,30,000 Furniture & fixtures 42,000 Stock 72,000 Debtors 65,000 (ii) Expenses of dissolution amounted to ` 7,800. (iii) Further creditors of ` 18,000 had to be met. (iv) R became insolvent and nothing was realized from his private estate. Applying the principles laid down in Garner Vs. Murray, prepare the Realisation Account, Partners’ Capital Accounts and Cash Account.

(16 Marks) (Nov 2011)

Ans.

:

Realisation A/c

Particulars Amount (` ) Particulars Amount (` )

To La nd a nd buil di ng 2, 46, 000 By Sundr y cr e di t ors 36, 000

To Fur ni t ur e a nd fixt ur es 65, 000 By Mort gage l oa n 1, 10, 000 To St oc k 1, 00, 000 By Cas h acc o untTo De bt ors 72, 500 La nd a nd buil di ng 2, 30, 000

To Cas h A/c ( ex pe ns es o n Fur ni t ur e & fixt ur es 42, 000 di ss ol uti o n) 7, 800 St oc k 72, 000

To Cas h A/c ( cr e di t ors ` 36, 000 + ` 18, 000) 54, 000 De bt ors 65, 000

To Cas h A/c ( Mort gage l oa n) 1, 10, 000 By Part ners ’ ca pi t al acc o unt s ( Loss 4: 3: 2: 1) 1, 00, 300 P = 40, 120 Q = 30, 090 R = 20, 060 S = 10, 030 6, 55, 300 6, 55, 300

Partners’ Capital A/c

Particulars P Q R S Particulars P Q R S ` ` ` ` ` ` ` `

To Bal a nce b/ d - - 25, 000 18, 000 By Bal a nce b/ d 1, 68, 000 1, 08, 000

To Reali z ati on A/c

12, 636 8, 424 - - By Capi t al Res er ve 10, 000 7, 500 5, 000 2, 500

By Ge ner al ( Loss) 40, 120 30, 090 20, 060 10, 030 Res er ve 38, 000 28, 500 19, 000 9, 500 To R ’ s Capi t al A/c ( De fici e ncy)

To Cas h A/c 2, 03, 364 1, 35, 576

By Cas h A/c ( r eali z ati on l oss)noti onal e nt r y

40, 120 30, 090 - 10, 030

By P ’ s Capi t al A/c 12, 636 By Q ’ s Capi t al A/c 8, 424 By Cas h A/c 6, 000 2, 56, 120 1, 74, 090 45, 060 28, 030 2, 56, 120 1, 74, 090 45, 060 28, 030

Cash A/c

Particulars Amount Particulars Amount

(` ) (` )

To Bal a nce b/ d 15, 500 By Reali z ati o n A/c:

To Reali z ati o n A/c: Ex pe ns es o n di ss ol uti o n 7, 800 La nd a nd buil di ng 2, 30, 000 Cr e di t ors ( 36, 000 +18, 000) 54, 000

Fur ni t ur e & fixt ur es 42, 000 Mort gage l oa n 1, 10, 000 St oc k 72, 000 By P ’ s ca pi t al A/c 2, 03, 364 De bt ors 65, 000 By Q ’ s ca pi t al A/c 1, 35, 576

To P , Q , S ’ s ca pi t al A/cs ( 40, 120 +30, 090 +10, 030) 80, 240

To S ’ s ca pi t al A/c 6, 000 5, 10, 740 5, 10, 740

Working Note:

As per Gar ner Vs. Murr ay r ul e, s ol ve nt part ners have t o bear l oss of i ns ol ve nt part ner i n t hei r ca pi t al r ati o

Computation of Capital Ratio (of Solvent Partners)

P Q S (` ) (` ) (` )

Ope ni ng ca pi t al 1, 68, 000 1, 08, 000 ( 18, 000)

Add: Ge ner al r es er ve 38, 000 28, 500 9, 500 Ca pi t al r es er ve 10, 000 7, 500 2, 500 2, 16, 000 1, 44, 000 ( 6, 000)

Tho ug h S i s a s ol ve nt part ner yet he ca nnot be call e d upo n t o bear l oss o n acc o unt of i ns ol ve ncy of R beca us e hi s ca pi t al acc o unt has a de bi t bal a nce. Ther ef or e, ca pi t al r ati o of P & Q = 216: 144 = 3: 2 De fici e ncy of R = ` {( 25, 000 + 20, 060) - ( 19, 000 + 5, 000) } = ` 45, 060` 24, 000 = ` 21, 060 De fici e ncy of R will be s har e d by P & Q i n t he ca pi t al r ati o of 3: 2 i. e. P = ` 21, 060 X 3/5 = ` 12, 636 Q = ` 21, 060 X 2/5 = ` 8, 424

Particular ` Particulars ` Stock 800 Cash 200 B’s drawings 550 5,550 5,550

The assets realized as under: `

Plant & Machinery 1,250 Furniture 150 Debtors 400 Stock 500 The expenses of realisation amounted to ` 775. A’s private estate is not sufficient even to pay his private debts, whereas B’s private estate has a surplus of ` 200 only. Show necessary ledger accounts to close the books of the firm. Ans. :

Realisation A/c

Particular ` Particulars ` `

To Sundr y Ass et s: By Cas h A/c: Pl a nt & Mac hi ner y 2, 500 Pl a nt & Mac hi ner y 1, 250 Fur ni t ur e 500 Fur ni t ur e 150 De bt ors 1, 000 De bt ors 400 St oc k 800 St oc k 500 2, 300 Cas h A/c- expe ns es 175 By Part ners ’ Capi t al A/c & Loss on r eali s ati on ( Bal. fig. )

1, 337 A B 1, 338 2, 675 4, 975 4, 975

Cash A/c

` `

Mar c h 31, 20 X1 Mar c h 31, 20 X1

To Bal a nce b/ d 200 By Reali s ati o n A/c- ex pe ns es 175 To Reali s ati o n A/c - Sal e of s undr y ass et s 2, 300 By Sundr y Cr e di t ors A/c ( Bal. fig ) 2, 525

To B ’ s Ca pi t al A/c 200 2, 700 2, 700

Sundry Creditors A/c

To Cas h A/c 2, 525 By Bal a nce b/ d 4, 800 To Defi ci e nc y A/ c- t r a nsf er ( bal. fig. ) 2, 275 4, 800 4, 800

Partners’ Capital A/c’s

A B A B ` ` ` `

To Bal a nce b/f 550 By Bal a nce b/f 750

To Reali s ati on A/c By Cas h A/c 200 - l oss 1, 337 1, 338 By De fici e ncy A/c - t r a nsf er ( bal fig )

587 1, 688 1, 337 1, 888 1, 337 1, 888

Deficiency Account

To Part ners ’ Ca pi t al A/c By Sundr y Cr e di t ors A/c 2, 275 A 587 B 1, 688 2, 275 2, 275

PIECEMEAL

On 5th July, 2016 25,200

On 30th August, 2016 60,000

On 15th September, 2016 80,000

The partners shared profits and losses in the ratio of 2: 2: 1. Prepare a statement showing distribution of cash amongst the partners by ‘Highest Relative Capital’ method. (RTP)

Ans. : Statement showing distribution of cash amongst the partners

Creditors B’s Loan A B C 2016 ` ` ` ` `

June 30 Bal a nce b/ d 30, 000 10, 000 76, 000 48, 000 36, 000 Cas h bal a nce l ess Pr ovi si o n f or ex pe ns es (` 10, 800` 5, 400) 5, 400 - - -Bal a nces unpai d 24, 600 10, 000 76, 000 48, 000 36, 000

July 5

1st I nst al me nt of ` 25, 200 23, 600 1, 600 - -Di s c o unt r ecei ve d o n f ull s ettl e me nt 1, 000 8, 400 76, 000 48, 000 36, 000 Less: Tr a nsf err e d t o Reali z ati o n A/c 1, 000 Nil

August 30 2 nd i nst al me nt of ` 60, 000 ( WN 2)

8, 400 32, 640 4, 640 14, 320 Bal a nce unpai d Nil 43, 360 43, 360 21, 680

September 15

A mo unt r eali z e d ` 80, 000 Add: Bal a nce o ut of t he Pr ovi si o n f or Ex pe ns es A/c 1, 400 81, 400 32, 560 32, 560 16, 280 A mo u nt u n p ai d b ei n g l os s o n Reali z ati o n i n t he r ati o of 2: 2: 1 10, 800 10, 800 5, 400