Kerala Plus Two Accountancy Notes

PLUS

2 NOTES
Chapter Wise

Part A

ACCOUNTANCY
Contents

1. Accounting for Partnership – Basic Concepts

2. Reconstitution of a Partnership Firm –
Admission of a Partner

3. Reconstitution of a Partnership Firm –
Retirement/Death of a Partner

4. Dissolution of Partnership Firm

CHAPTER 1
ACCOUNTING FOR PARTNERSHIP – BASIC CONCEPTS
Partnership
Partnership is the ‘relation between persons who have agreed to share the profits of a business
carried on by all or any of them acting for all’.
Persons who have entered into partnership with one another are individually called ‘partners’ and
collectively called ‘firm'.
Features of Partnership
1. Two or More Persons
2. Partnership is the result of an Agreement
3. The agreement should be to carry on a lawful Business
4. The business of a partnership may be carried on by all the partners or any of them.
5. Sharing of Profit
6. Liability of Partners is unlimited.
Partnership Deed
Written agreement containing the terms and conditions of partnership business is called Partnership
deed.
Contents of Partnership Deed
1. The name of the firm and nature of the partnership business
2. Date of commencement of partnership
3. The name and address of partners
4. Amount of capital to be contributed by each partner
5. The ratio for sharing profit and loss among the partners
6. Interest, if any to be allowed on partner’s capitals
7. Arrangement of drawings by partners and interest to be charged on drawings
8. The amount of salary or commission payable to partners
9. Valuation of goodwill in case of admission, retirement and death of a partner
10. Procedure for admission, retirement and death of a partner.
11. Procedure for dissolution of partnership firm etc.
Provisions Relevant for Accounting (Rules applicable in the absence of Deed)
(a) Profits and losses are shared equally.
(b) No Interest on Capital .
(c) No Interest on Drawings.
(d) 6%p.a. Interest on loans advanced by partners.
(e) No Remuneration for Firm’s Work.
Methods of Maintenance of Capital Accounts of Partners
1. Fixed Capital Method
• The capitals of the partners remain fixed year after year.
• Two accounts are prepared for each partner namely Capital account and Current account.
• Capital account records partners capital contributions and withdrawals out of capital.
• Current Account records all other items like share of profit or loss, interest on capital,
drawings, interest on drawings, etc.
Dr Partners Capital account Cr
Date Particulars JF Amount(₹) Date Particulars JF Amount(₹)
Bank (permanent Balance b/d
withdrawal of capital) xx (opening balance) xx
Balance c/d Bank (fresh capital

(closing balance) xx introduced) xx
xx xx

Dr Partners Current account Cr
Date Particulars JF Amount(₹) Date Particulars JF Amount(₹)
Balance b/d (in case Balance b/d
of debit opening bal,) xx (in case of credit xx
Drawings xx opening balance) xx
Interest on drawings xx Salary xx
Profit & Loss account xx Commission xx
Balance c/d Interest on capital xx
(in case of credit Profit & Loss xx
closing balance) xx Appropriation
(share of profit) xx
Balance c/d
(in case of debit
closing balance) xx
xx xx
Illustration: Anil and Sunil are partners in a firm sharing profits and losses in the ratio of 2:1. Their
capital balances as on 1st April 2020 were ₹ 50000 and ₹ 40000 respectively. As per the deed Anil is
entitled to get a monthly salary of ₹ 2000 and Sunil a commission of ₹ 15000. Interest on capital is
allowed at 5% p.a. Drawings during the year were Anil ₹ 5000 and Sunil ₹ 4000. Interest charged
on drawings were Anil ₹ 500 and Sunil ₹ 400. Firm earned a profit of ₹ 30000 during the year
after making all the above adjustments. Prepare partners capital account under fixed capital method.
Answer:
Dr Partners Capital account Cr
Date Particulars JF Anil Sunil Date Particulars JF Anil Sunil
(₹) (₹) (₹) (₹)
2021 Balance c/d 50000 40000 2020 Balance b/d 50000 40000
Mar31 Apr 1

50000 40000 50000 40000
Dr Partners Current account Cr
Date Particulars JF Anil Sunil Date Particulars JF Anil Sunil
(₹) ( ₹) (₹) (₹)
2021 Drawing 5000 40002021 Salary 24000
Mar31 Interest on Ma31
Drawings 500 400 Commission 15000
Balance c/d 41000 22600 Interest on Capital 2500 2000
P/L account 20000 10000

46500 27000 46500 27000
Work sheet
David and Danesh are a partners with a capital of ₹ 70000 and ₹ 80000 respectively on 1 st April 2019.
They share profits in the ratio of 3:2. The partnership deed provides that they were entitled to get interest at
6% pa on their capital. They are also allowed salary as David ₹ 500 per month and Danesh ₹ 5000 p.a. They
made drawings of ₹ 7000 and ₹ 6000 respectively during the year. Interest were charged as David ₹ 350 and

Danesh ₹ 400. Profit made b the firm during the year after all the above adjustments were David ₹ 25000.
Prepare partners capital account under fixed capital method.

Dr Partners Capital account Cr
Date Particulars JF David Danesh Date Particulars JF David Danesh
(₹) ( ₹) (₹) (₹)

....... Balance c/d ........ ....... ........ Balance b/d ......... .........

......... ......... ........... .........

Dr Partners Current account Cr
Date Particulars JF David Danesh Date Particulars JF David Danesh
(₹) ( ₹) (₹) (₹)

...... Drawing ...... ...... 2021 Salary ........ ............
Interest on Ma31
Drawings ..... ...... Interest on Capital ....... ......
Balance c/d ....... ........ P/L account ......... ......

........ ...... ......... .........

2. Fluctuating Capital Method
• Only one account ,i.e., Capital account is prepared for each partner.
• All the adjustments like share of profit and loss, interest on capital, drawings, interest on
drawings, salary or commission to partners, etc are recorded directly in the capital accounts.
• Balance in the capital account fluctuates from year to year.
Dr Partners Capital account Cr
Date Particulars JF Amount(₹) Date Particulars JF Amount(₹)
Drawings xx Balance b/d xx
Interest on drawings xx Bank (fresh
Profit and Loss account xx capital introduced) xx
(for share of loss) Salaries xx
Balance c/d xx Interest on capital xx
Profit and Loss
Appropriation
(for share of profit) xx
xx xx
Illustration:
Anu and Binu are partners sharing profits in the ratio of 5:3. Their capital balances as on 1 st April
2019 were ₹ 100000 and ₹ 120000 respectively. According to partnership deed Anu will get ₹ 1000
per month as salary. Binu was entitled to get a commission of ₹ 25000. Interest on capital was
allowed at 10% pa. Their drawings during the year were Anur ₹ 10000 and Binu ₹ 15000. Interest
on drawings were charged as Anur ₹ 1000 and Binu ₹ 1500. Profit made by the firm during the
year after all above adjustments were ₹ 40000. Prepare Partners Capital account under Fluctuating
capital method.
Dr Partners Capital account Cr
Date Particulars JF Anu Binu Date Particulars JF Anu Binu
(₹) ( ₹) (₹) (₹)

2020 Drawings 10000 15000 2019 Balance b/d 100000 120000
Mar31 Interest on drawings 1000 1500 Apr 1
2020 Salary 12000

Ma31 Commission 25000
Balance c/d 136000 155500 Interest on Capital 10000 12000
Profit/Loss 25000 15000
account
147000 172000 147000 172000

Try Yourself:
A and B are partners in a firm with captials of ₹ 90000 and ₹ 80000 respectively on 1st April 2020.
They share profits in the ratio of 2:1. A will get a monthly salary of ₹ 2000 and B will get a
commission of ₹ 10000 during the year. As per the deed, interest of 10% pa is allowed on capital.
Drawings made by the partners during the year were A - ₹ 15000 and B - ₹ 20000. Interest on
drawings charged were A - ₹ 1500 and B - ₹ 2000. The firm made a profit of ₹ 45000 during the
year after all the above adjustments. Prepare Partners Capital account under the Fluctuating Capital
method.
Distinction between Fixed and Fluctuating Capital Accounts:
Basis Fixed Capital Account Fluctuating Capital Account
(i) Number of Two accounts, Capital account and One account, Capital account
accounts Current account for each partner.
(ii) Adjustments All adjustments for drawings,salary, All adjustments for drawings, salary,
interest on capital, etc. are made in interest on capital, etc. are made in the
the current accounts capital accounts
(iii) Fixed balance Capital balance remain fixed. Capital balance fluctuate from year to
year
(iv) Credit balance Capital account always shows credit Capital account sometimes shows debit
balance balance
Profit and Loss Appropriation Account : It is an extension of Profit and loss account. It is
prepared to ascertain the divisible profits among the partners. It starts with the net profit/net loss of
Profit and Loss account. Interest on capitals a, salary, commission etc. are debited and interest on
drawings is credited.
Journal entries:
1. Transfer of the balance of Profit and Loss Account
a) If Net profit
Profit and Loss account Dr.
To Profit and Loss Appropriation account
b) If Net loss
Profit and Loss Appropriation account Dr.
To Profit and Loss account
2. Interest on Capital
(a) For crediting interest on capital to partners’ capital account
Interest on Capital account Dr.
To Partner’s Capital/Current accounts (individually)
(b) For transferring interest on capital to Profit and Loss Appropriation Account
Profit and Loss Appropriation account Dr.
To Interest on Capital account
3. Interest on drawings
(a) For charging interest on drawings to partners’ capital accounts

Partners Capital/Current account’s Dr.
To Interest on Drawings account

(b) For transferring interest on drawings to Profit and Loss Appropriation Account
Interest on Drawings account Dr.
To Profit and Loss Appropriation account
4. Partner’s Salary
(a) For crediting partner’s salary to partner’s capital account
Salary to Partner account Dr.
To Partner’s Capital/Current account’s
(b) For transferring partner’s salary to Profit and Loss Appropriation Account
Profit and Loss Appropriation account Dr.
To Salary to Partner’s account
5. Partner’s Commission
(a) For crediting commission to a partner, to partner’s capital account
Commission to Partner account Dr.
To Partner’s Capital/Current account’s
(b) For transferring commission paid to partners to Profit and Loss Appropriation Account
Profit and Loss Appropriation account Dr.
To Commission to Partners Capital/Current account
6. Share of Profit or Loss after appropriations
(a) If Profit
Profit and Loss Appropriation account Dr.
To Partner’s Capital/Current account’s
(b) If Loss
Partner’s Capital/Current account’s Dr
To Profit and Loss Appropriation account
Illustration
Manu and Nanu are partners in a firm sharing profits in the ratio of 3:1. Their capitals on 1 st April
2020 were ₹ 60000 and ₹ 70000 respectively. As per partnership deed partners are entitled to
interest on capital at 8% pa. Manu was entitled to a salary of ₹ 15000 and Nanu a commission of ₹
20000. Drawings made by the partners during the year were Manu ₹ 8000 and Nanu ₹ 9000.
Interest on drawings were Manu ₹ 800 and Nanu ₹ 900. Profit earned by the firm during the year
was ₹ 84300. Prepare Profit and loss appropriation account.
Answer:
Dr Profit and Loss Appropriation Account Cr
Particulars Amount(₹) Particulars Amount(₹)
Interest on Capital Profit and Loss 84300
Manu 4800 Interest on Drawings
Nanu 5600 10400 Manu 800
Salary - Manu 15000 Nanu 900 1100
Commission - Nanu 20000
Partners’ Capital Accounts
Manu
Nanu 40000

85400 85400
Try Yourself
Suresh and Ragesh are partners in a firm sharing profits in the ratio of 2:1. Their capitals on 1st

April 2020 were ₹ 85000 and ₹ 75000 respectively. Partnership deed allowed interest on captial at
10% pa. Suresh were entitled to a salary of ₹ 14000 and Ragesh a commission of ₹ 16000.
Drawings during the year were Suresh ₹ 6000 and Ragesh ₹ 7000. Interest on drawings, Suresh ₹

600 and Ragesh ₹ 700. Firm earned a profit of ₹ 74700 for the year ended 31st March 2021.
Prepare Profit and loss appropriation account.

Calculation of Interest on Capital
• No interest is allowed on capital unless it is mentioned in partnership deed.
• Interest on capital is credited to partners capital account at an agreed rate.
• Interest is calculated for the period for which the capital remains in the business during the
financial year.
Illustration:
Anand and Balan are partners in a firm. Their capital accounts as on April 01. 2019 showed a
balance of ₹ 4,00,000 and ₹ 6,00,000 respectively. On July 01, 2019, Anand introduced additional
capital of ₹ 100,000 and Balan ₹ 120,000. On October 01 Anand withdrew ₹ 60,000, and on
January 01, 2020 Balan withdraw, ₹ 30,000 from their capitals. Interest is allowed @ 8% p.a.
Calculate interest payable on capital to both the partners during the financial year 2019–2020.
Answer:
Interest on Capital of Anand
On Rs.400000 for 3 months = 400000 X 8/100 X 3/12 = 8000
On Rs.500000 for 3 months = 500000 X 8/100 X 3/12 = 10000
On Rs.440000 for 6 months = 440000 X 8/100 X 6/12 = 17600
Interest on capital of Anand = 8000 + 10000 + 17600 = 35600
Interest on Capital of Balan
On Rs.600000 for 3 months = 600000 X 8/100 X 3/12 = 12000
On Rs.720000 for 6 months = 720000 X 8/100 X 6/12 = 28800
On Rs.690000 for 3 months = 690000 X 8/100 X 3/12 = 13800
Interest on capital of Balan = 12000 + 28800 + 13800 = 54600
Try Yourself
Satheesh a partner in firm has a capital of ₹ 80000 on 1st April 2018. On October 1st he withdrew ₹
10000 from the firm. On 1st January 2019 he introduced an additional capital of ₹ 20000. Calculate
interest on capital @ 10% pa for the year ended 31st March 2019.
Calculation of Interest on Drawings
• Interest on drawings is charged only when it is mentioned in the partnership deed.
• Interest is charged at an agreed rate, for the period money remained outstanding from the
partners during an accounting year.
(i) When Fixed Amounts is Withdrawn Every Month
(a) When the amount is withdrawn at the beginning of each month: Interest is calculated for
a period of 6 1/2 (6.5) months.
Interest on Drawings = Total drawings x Rate x 6.5
100 12
b) When the amount is withdrawn at the end of each month: Interest is calculated for a
period of 5 1/2 (5.5) months.
Interest on Drawings = Total drawings x Rate x 5.5
100 12
(c) When money is withdrawn in the middle of the month: Interest is calculated for a period
of 6 months.

Interest on Drawings = Total drawings x Rate x 6
100 12
Illustration:

Kamal, a partner in a firm withdrew ₹ 3000 per month from his firm. Interest on drawing were
charged @ 6% pa. Calculate interest on drawings:
a) When withdrawals are made on the first day of every month.
b) When withdrawals are made on the last day of every month.

c) When withdrawals are made in the middle of ever month.
Anwer
a) When withdrawals are made on the first day of every month.
Interest on drawings = Total drawings X Rate/100 X 6.5/12
= 36000 X 6/100 X 6.5/12 = 1170
b) When withdrawals are made on the last day of every month.
Interest on drawings = Total drawings X Rate/100 X 5.5/12
= 36000 X 6/100 X 5.5/12 = 990
c) When withdrawals are made in the middle of ever month.
Interest on drawings = Total drawings X Rate/100 X 6/12
= 36000 X 6/100 X 6/12 = 1080
Try Yourself
Basheer, a partner in a firm withdrew ₹ 4000 per month from his firm. Interest on drawing were
charged @ 8% pa. Calculate interest on drawings:
a) When withdrawals are made on the first day of every month.
b) When withdrawals are made on the last day of every month.
c) When withdrawals are made in the middle of ever month.
(ii) When Varying Amounts are Withdrawn at Different Intervals In this case the interest is
calculated using the product method. Interest on drawings is calculated as follows:

Interest on Drawings = Sum of the Product X Rate X 1
100 12
Illustration
Rekha, a partner in a firm withdrew the following amounts from the firm for personal uses for the
year ended 31st March 2020. Partnership deed charges interest on drawings at 8% pa. Calculate
interest on drawings.
Date Drawings (₹)
2019 May 1 5000
2019 August 1 7000
2019 November 1 9000
2020 January1 12000
2020 March 1 18000
Answer:
Date Drawings Period Product
2019 May 1 5000 11 55000
2019 August 1 7000 8 56000
2019 November 1 9000 5 45000
2020 January1 12000 3 36000
2020 March 1 18000 1 18000
210000
Interest on Drawings = Sum of the Product X Rate X 1
100 12
= 210000 X 8/100 X 1/12

= 1400

Try Yourself
Soumya, a partner in a firm withdrew the following amounts from the firm for personal uses for the
year ended 31st March 2021. Partnership deed charges interest on drawings at 6% pa. Calculate
interest on drawings.

Date Drawings (₹)
2020 April 1 8000
2020 July 1 10000
2020 October 1 6000
2020 December 31 4000
2021 March 1 7000

(iv) When Dates of Withdrawal are not mentioned, interest on drawings is calculated for an average
period of 6 months.
Interest on Drawings = Total drawings x Rate x 6
100 12
Guarantee of Profit to a Partner
Sometimes a partner may be admitted in the firm with a guaranteed minimum amount of profit. The
guaranteed amount is given to the new partner when his actual share of profit as per profit sharing
ratio is less than the guaranteed amount. The shortage in guaranteed amount is given by the old
partners in a specified ratio or by a partner individually.
Illustration
Gireesh and Ganesh are partners in a firm sharing profits in the ratio of 2:3. They admitted Gayathri
as a partner in the firm. The new profit sharing ratio of the firm is 3:2:1. Gireesh and Ganesh
guaranteed that Gayathri will get a minimum amount of ₹ 20000 as profit every year. During the
year 2019 – 20 firm earned a profit of ₹ 90000. Prepare Profit and loss appropriation account.
Answer
Calculation fo share of Profit:
Profit share of Gireesh = 90000 X 3/6 = 45000
Profit share of Ganesh = 90000 X 2/6 = 30000
Profit share of Gaathri = 90000 X 1/6 = 15000
Deficiency in Gaathhri's profit = 20000 – 15000 = 5000
Profit given by Gireesh = 5000 X 2/5 = 2000
Profit given by Ganesh = 5000 X 3/5 = 3000

Dr Profit and Loss Appropriation Account Cr
Particulars Amount(₹) Particulars Amount(₹)
Partners’ Capital Accounts Profit and Loss 90000
Gireesh 45000
Less: Share in deficiency 2000 43000
Ganesh 30000
Less: Share in deficiency 3000 27000
Gayathri 15000
Add: Share by Gireesh 2000

Share by Ganesh 3000 20000

90000 90000

Try Yourself
Sajitha and Rajitha are partners in a firm with a profit sharing ratio of 3:2. They decided to admit
Prajitha into the firm with a guaranteed amout of profit of ₹ 25000. The new profit sharing ratio
after Prajitha's admission is 4:3:3. Firm earned a profit of ₹ 70000 for the year ended 31st March
2020. Prepare Profit and loss appropriation account.
Questions and Answers
1. Partnership is the result of ................
a) an agreement b) an Act c) law d) None of these
Answer: a) an agreement
2. Minimum number of persons required to form a partnership is .............................
a) 50 b) 100 c) 2 d) 4
Answer: c) 2
3. Liability of a partner is .................
a) Limited to the extend of their shares b) Limited to the amount guaranteed
c) Limited to the share of profit d) Unlimited
Answer: d) Unlimited
4. Interest on capital is credited to .............. account.
a) Partner’s drawings b) Partner’s capital c) Partner’s loan d) Partner’s salary
Answer: b) Partner’s capital
5. Interest on drawings is .................... to capital account.
a) Credited b) Debited c) Not considered d) Debited or credited
Answer: b) Debited
6. Each individual in a partnership firm is called as ..................
a) Firm b) Shareholders c) Partners d) Members
Answer: c) Partners
7. Partners are collectively called as ......................
a) Firm b) Shareholders c) Partners d) Members
Answer: a) Firm
8. In fluctuating capital method all adjustments are recorded in .......................... account.
a) Profit and loss appropriation account b) Partner's Capital account
c) Partner's Current account d) Partner's Loan A//c
Answer: b) Partner's Capital account
9. In fixed capital method all adjustments are recorded in .......................... account.
a) Profit and loss appropriation account b) Partner's Capital account
c) Partner's Current account d) Partner's Loan A//c
Answer: c) Partner's Current account
10. .................... account is prepared to disrtibute profit or loss among the partners.
a) Profit andl losss account b) Partner's capital account
c) Profit and loss Appropriation account d) Goodwill account
Answer: c) Profit and loss Appropriation account
2 Score Questions
1. Mr. Sandeep a partner in a firm withdrew ₹ 3000 per month from the firm for personal use.
Calculate interest on drawings at 6% p.a. when the drawings are made on the firstt day of every
month.
Interest on drawings = Drawings X Rate/100 X 6.5/12
= 36000 X 6/100 X 6.5/12 = 1170

2. Define Partnership deed.
Partnership is the ‘relation between persons who have agreed to share the profits of a business
carried on by all or any of them acting for all.
3 Score Questions:

1. Capital account of Ajay, a partner in a firm showed a balance of ₹ 200000 on 1st April 2020. On
1st July 2020 he introduced an additional capital of ₹ 50000. He withdrew ₹ 20000 form the firm
for personal use on 31st December 2020. Calculate interest on capital of Ajay @ 5% p.a. for the
year ended 31st March 2021.

Interest on 200000 for 3 months = 200000 X 5/100 X 3/12 = 2500
Interest on 250000 for 6 months = 250000 X 5/100 X 6/12 = 6250
Interest on 230000 for 3 months = 230000 X 5/100 X 3/12 = 2875
Interest on capital of Ajay = 11625
2. Muneer a partner in a firm withdrew the following amounts duirng the year 2019 – 20.
Date Amount ( ₹ )
April 30, 2019 8000
July 31, 2019 10000
October 1, 2019 9000
December 31, 2019 12000
Interest on drawings to be charged @ 6% p.a. The books are closed on 31st March every year.
Calculate interet on drawings.
Answer:
Date Drawings Period Product
April 30, 2019 8000 11 88000
July 31, 2019 10000 8 80000
October 1, 2019 9000 6 54000
December 31, 2019 12000 3 36000
258000
Interest on Drawings = Sum of the Product X Rate X 1
100 12
= 258000 X 6/100 X 1/12 = 1290
4 Score / 5 Score Questions
1. Distinguish between Fixed Capital Method and Fluctuating Capital Method.
Answer:
Basis Fixed Capital Account Fluctuating Capital Account
(i) Number of Two accounts, Capital account and One account, Capital account
accounts Current account for each partner.
(ii) Adjustments All adjustments for drawings, All adjustments for drawings,
salary, interest on capital, etc. are salary, interest on capital, etc. are made
made in the current accounts in the capital accounts
(iii) Fixed balance Capital balance remain fixed. Capital balance fluctuate from year to
year
(iv) Credit balance Capital account always shows credit Capital account sometimes shows debit
balance balance
2. Fill the table given below on the basis of the provisions of Partnership Act in the absence of
Partnership deed.

Items Provisions

(i) Sharing of profits and losses. ?
(ii) Interest on partner’s capital. ?
(iii) Interest on Partner’s drawings. ?
?

(iv) Interest on Partner’s loan ?
(v) Salary to a partner.
Answer:
Items Provisions
(i) Sharing of profits and losses. Equally
(ii) Interest on partner’s capital. No
(iii) Interest on Partner’s drawings. No
(iv) Interest on Partner’s loan 6%
(v) Salary to a partner. N0
3. Kabeer and Sudheer are partners in a firm sharing profits in the ratio of 2:3. Their capitals on 1 st
April 2019 were ₹ 120000 and ₹ 140000 respectively. As per partnership deed partners are entitled
to interest on capital at 6% pa. Sudheer was entitled to a monthly salary of ₹ 1500 and Kabeer a
commission of ₹ 24000. Drawings made by the partners during the year were Kabeer ₹ 10000 and
Sudheer ₹ 12000. Interest on drawings were Kabeer ₹ 1000 and Sudheer ₹ 1200. Profit earned by
the firm during the year was ₹ 70400. Prepare Profit and loss appropriation account.
Answer:
Dr Profit and Loss Appropriation Account Cr
Particulars Amount(₹) Particulars Amount(₹)
Interest on Capital Profit and Loss 70400
Kabeer 7200 Interest on Drawings
Sudheer 8400 15600 Kabeer 1000
Salary - Sudheer 18000 Sudheer 1200 2200
Commission - Kabeer 24000
Partners’ Capital Accounts
Kabeer 6000 15000
Sudheer 9000
72600 72600

CHAPTER 2
RECONSTITUTION OF A PARTNERSHIP FIRM - ADMISSION OF A PARTNER

Reconstitution of partnership
Any change in the relation between partners is called reconstitution of partnership. It takes place in
the following circumstances.
1. Admission of a partner.
2. Change in profit sharing ratio.
3. Retirement of a partner.
4. Death of a partner.
Admission of a partner
Inclusion of a person as a partner in to the existing firm is called admission of a partner.
Rights of a new partner
1. Right to share the assets of the partnership firm; and
2. Right to share the profits of the partnership firm.
Accounting adjustments at the time of admission of a new partner
1. Calculation of New profit sharing ratio;
2. Calculation of ratios ( New ratio and Sacrificing ratio);
3. Treatment of goodwill;
4. Revaluation of assets and Reassessment of liabilities;
5. Distribution of accumulated profits (reserves); and
6. Adjustment of partners’ capitals
Sacrificing Ratio
The ratio in which the old partners agree to sacrifice their share of profit in favour of the incoming
partner is called sacrificing ratio.
Sacrificing ratio = Old ratio – New ratio
Illustration
Anil and Vishal are partners sharing profits in the ratio of 3:2. They admitted Sumit as a new partner
for 1/5 share in the future profits of the firm. Calculate new profit sharing ratio of Anil, Vishal and
Sumit.
Solution
Let total profit =1 Old ratio = 3:2
Sumit’s share = 1/5
Remaining share = 1 – 1/5 = 4/5
Anil’s new share = 4/5 x 3/5 = 12/25
Vishal’s new share = 4/5 x 2/5 = 8/25
New ratio = 12/25 : 8/25: 1/5
= 12/25 : 8/25 : 5/25
= 12:8:5
Illustration
A and B are partners sharing profits in the ratio of 3:2. They admit C as a new partner for 1/5th
share in the future profits of the firm which he gets equally from Akshay and Bharati. Calculate new
profit sharing ratio of A, B and C.
C’s share = 1/5
A’s sacrifice = 1/5 x 1/2 = 1/10

B’s sacrifice = 1/5 x 1/2 = 1/10
Sacrificing ratio = 1/10 : 1/10
New ratio = Old ratio – Sacrificing ratio
A’s new share = 3/5 – 1/10 = 6/10 – 1/10 = 5/10

B’s new share = 2/5 – 1/10 = 4/10 – 1/10 = 3/10
New ratio = 5/10 : 3/10 : 1/5
= 5/10 : 3/10 : 2/10
= 5:3:2
Illustration
Rohit and Mohit are partners in a firm sharing profits in the ratio of 3:2. They admit Bijoy as a new
partner for 1/4 share in the profit. The new profit sharing ratio will be 3:3:2. Calculate the
sacrificing ratio of Rohit and Mohit.
Sacrificing ratio = Old ratio – New ratio
Rohith sacrifice = 3/5 – 3/8 = 24/40 – 15/40 = 9/40
Mohith sacrifice = 2/5 – 3/8 = 16/40 – 15/40 = 1/40
Sacrificing ratio = 9/40 : 1/40 = 9:1
Try Yourself
Amar and Bahadur are partners in a firm sharing profits in the ratio of 3:2. They admitted Mary as a
new partner for 1/4 share. The new profit sharing ratio between Amar and Bahadur will be 2:1:1.
Calculate their sacrificing ratio.
Goodwill
Goodwill is the value of the reputation of a firm in respect of the profits expected in future over and
above the normal profits.
Factors Affecting the Value of Goodwill
1. Nature of business
2. Location
3. Efficiency of management
4. Market situation
5. Special advantages such as import license, patent etc.
Need for Valuation of Goodwill
1. Change in the profit sharing ratio among the existing partners;
2. Admission of new partner;
3. Retirement of a partner;
4. Death of a partner; and
5. Amalgamation of partnership firms.
Methods of Valuation of Goodwill
1. Average Profits Method
2. Super Profits Method
3. Capitalisation Method
Average Profits Method
Under this method, the goodwill is valued at agreed number of ‘years’ purchase of the average
profits of the past few years.
Average profit = Total profits / No. of years profit
Value of goodwill = Average profit x No. of years purchase
Illustration
The profit for the five years of a firm are Rs. 4,00,00, Rs. 3,50,00,Rs. 4,50,00; Rs. 4,45,00 and Rs.
5,05,00. Calculate goodwill of the firm on the basis of 4 years purchase of 5 years average profits.
Solution
Average profits = Total profits / No. of years profits
= 215000 / 5
= 43000
Value of goodwill = 43000 x 4 = 172000

Super Profit Method:
Super Profits means the excess of the actual profits over and above the normal return expected on
investment in similar class of business.
Super Profit = Actual Profit – Normal Profit.

Normal Profit = Capital Employed x Normal Rate of Return / 100
Value of Goodwill = Super Profit x Number of year’s profit
Illustration
The capital of the firm is Rs.200000 and normal rate of return is 10%. The average profits of the
firm is Rs.30000. Calculate the value of goodwill at 3 years purchase of the super profits of the
firm.
Average profit = 30000
Normal profit = Capital x normal rate / 100
= 200000 x 10/100 = 20000
Super profit = Average profit – normal profit
= 30000 – 20000 = 10000
Value of goodwill = 10000 x 3
= 30000
Try Yourself
The capital employed in a firm is Rs.250000 and normal rate of return is 10%. The profits of the
firm for the last 3 years were Rs.50000, Rs.40000 and Rs.30000. Calculate the value of goodwill at
4 years purchase of the super profits of the firm.
Capitalisation Method
1. Capitalisation of average profit
Value of capitalisation = Average profit x 100/Normal rate
Value of goodwill = Value of capitalisation – Capital employed (Net assets)
2. Capitalisation of super profit
Super Profit = Actual Profit – Normal Profit.
Normal Profit = Capital Employed x Normal Rate of Return / 100
Value of Goodwill = Super Profit x 100/Normal rate
Treatment of Goodwill
1. Goodwill premium paid to the old partners privately, no entry is to be passed in the
books of the firm
2. New partner brings cash for goodwill.
Cash Account Dr
To Old Partners’ Capital Account
Try Yourself
Rajan and Sajan are partners in a firm sharing profits and losses in the ratio of 3:2. They admit
Sojan into partnership with 1/5 share in the profits. He brings in Rs. 30,000 as his capital. He also
brings in the necessary amount for his share of goodwill. On the date of admission, the goodwill is
valued at Rs. 60,000 Record the necessary journal entries in the books of the firm.
Treatment of Accumulated Profits and Losses
Accumulated profits or losses are to be transferred to the old partners capital accounts in their old
profit sharing ratio.
1. For transferring accumulated Profits
General Reserve / Reserve Fund account Dr.
To Old Partners’ Capital account
2. For Debiting accumulated Losses
Old Partners’ capital account Dr.
To Profit and Loss account

Illustration
Anu and Achu are partners in a firm sharing profits in the ratio of 3:2. They admit Manu as a new

partner. On that date there was a balance of Rs. 20,000 in general reserve and a debit balance of Rs.
10,000 in the profit and loss account of the firm. Pass necessary journal entries.

Solution:
Journal entries -
1. General reserve Dr 20000
To Anu’s capital account 12000
To Achu’s capital account 8000
2. Anu’s capital account Dr 6000
Achu’s capital account Dr 4000
To P&L account 10000
Try Yourself
Sheena and Smitha are partners in a firm sharing profits equally. They admit Beena as a new
partner. At that time, there was a balance of Rs. 30,000 in general reserve and a debit balance of Rs.
9,000 in the profit and loss account of the firm. Pass necessary journal entries.
Revaluation of Assets and Liabilities
Revaluation Account is prepared to ascertain the profit or loss on revaluation of assets and
liabilities. Decrease in assets, Increase in liabilities and unrecorded liabilities are debited in this
account. Increase in assets, decrease in liabilities and unrecorded assets are credited in this account.
The profit or loss on revaluation is transferred to the capital account of all partners including
retiring partners in their old profit sharing ratio.
Format: Dr Revaluation Account Cr
Decrease in assets xxxxxx Increase in assets xxxxxx
Increase in liabilities xxxxxx Decrease in liabilities xxxxxx

Capital account - xxxxxx Capital account - xxxxxx
(Profit) (Loss)

xxxxxx xxxxxx

Dr Revaluation Account Cr
ആസ്തിയിലെ കുറവ് xxxxxx ആസ്തി വർദ്ധിച്ചാൽ xxxxxxx
ബാധ്യത വർദ്ധിച്ചാൽ xxxxxx ബാധ്യത കുറഞ്ഞാൽ xxxxxxx

കാപിറ്റൽ അക്കൗണ്ട് കാപിറ്റൽ അക്കൗണ്ട് xxxxxxx
(ലാഭം) xxxxxx (നഷ്ടം )
xxxxxx xxxxxxx
Illustration
Given below is the Balance Sheet of A and B, who are carrying on partnership business as on March
31,2021. A and B share profits in the ratio of 2:1.
Balance Sheet of A and B as at March 31, 2021
Liabilities Amount Assets Amount
Bills Payable 10,000 Cash in hand 10,000
Sundry creditors 58,000 Cast at bank 40,000
Outstanding expenses 2,000 Sundry debtors 60,000
Capitals - Stock 40,000
A 180000 Plant and machinery 1,00,000

B 150000 3,30,000 Building 1,50,000
4,00,000 400000
C is admitted as a partner on the date of the balance sheet on the following terms:

1. C will bring in Rs 1,00,000 as his capital and Rs 50,000 as his share of goodwill for 1/4 share in
profits.
2. Plant is to be appreciated to Rs 1,20,000 and the value of buildings is to be appreciated by 10%.
3. Stock is reduced by Rs 4,000.
4. A provision for doubtful debts is to be created at 5% of debtors.
5. Creditors were unrecorded to the extend of Rs 1,000.
Prepare Revaluation Account.
Solution
Dr Revaluation account Cr
Stock 4000 Plant 20,000
Provision for bad debts 3000 Buildings 15,000
Creditors 1000
Capitals -
A 19000 27000
B 8000 35,000 35000
Questions and Answers
1. Any change in the existing agreement between partners amounts to………..of a partnership firm
Ans. Reconstitution.
2. As a result of………... existing agreement of partners comes to an end and a new agreement
is formed.
Ans. Reconstitution.
3. While transferring reserve of the firm on reconstitution, amount to be credited to....……………
Ans. Old partner's capital account.
4. At the time of admission of a partner in a firm, unrecorded assets will be .....………….
Ans. Credited to Revaluation account
5. Share of goodwill brought in by new partner in cash is called ...………………..
Ans. Premium
6. At the time of admission of a partner in a firm, unrecorded liability will be .....…………….
Ans. Debited to Revaluation account.
7. On admission of a partner, goodwill brought in cash has to be credited to existing partners in
------------- ratio.
Ans. Sacrificing ratio
9. Sacrificing ratio is calculated on -----------of a partner.
Ans. Admission
10. What are the different occasions (modes) in which reconstitution of a firm takes place?
Ans. a. Change in profit sharing ratio, Admission, retirement/death of a partner.
11. What are the 2 main rights acquired by a new(Incoming) partner?
Ans. a. Right to share assets of the firm.
b. Right to share profit/loss of the firm.
12. Write any 3 accounting adjustments on admission of a partner
Ans. a. Capital of new partner.
b. New profit sharing ratio and sacrificing ratio
c. Treatment of goodwill
13. Write journal entry required to record capital brought in by new partner
Ans. Cash/ Other assets account Dr.
To new partners capital
14. What are the factors affecting(influencing) value of goodwill?

a. Nature of business b. Efficiency of management c. Location d. Market
15. What are the circumstances(occasions or need) for the valuation of goodwill?
Ans. a. Change in profit sharing ratio. b. Admission/Retirement/Death of a partner. c.
Dissolution

16. A and B are equal partners in a firm. C joins the firm for ¼ share in the profits. He brings
Rs.25000 for capital and Rs.10000 for share of goodwill. Show journal entry.

CHAPTER : 3
RECONSTITUTION OF A PARTNERSHIP FIRM –
RETIREMENT/DEATH OF A PARTNER
Retirement or death of a partner also leads to reconstitution of a partnership firm. On the retirement
or death of a partner the remaining partners may continue the business with a new agreement.
Ascertaining the Amount Due to Retiring/ Deceased Partner
The sum due to the retiring partner (in case of retirement) and to the legal representatives (in
case of death) includes:
1.Credit balance of his capital account
2. Credit balance of his current account (if any)
3. His share of goodwill
4. His share of accumulated profits or reserves
5. His share in the profit on revaluation of assets and liabilities.
6. His share of profits up to the date of retirement/death;
7. Interest on his capital, if any, up to the date of retirement/death
8.Salary/commission, if any, due to him up to the date of retirement/death.
Deductions to be made from capital of Retiring or Deceased partner
The following deductions should be made from retired or deceased partner’s share:
1. Debit balance of his current account (if any)
2. His share of goodwill to be written off, if necessary
3. His share of accumulated losses
4. His share of loss on revaluation of assets and liabilities
5. His share of loss up to the date of retirement/death
6. His drawings up to the date of retirement/death
7. Interest on drawings, if any, up to the date of retirement/death.
Work Sheet
Identify whether the given items are to be debited or credited in the Capital Account of a Retiring
Partner by Put tick mark(√) in the relevant column:
No Items Debited Credited
(a) Share of accumulated losses
(b) Interest on capital up to the date of retirement
(c) Share in the profit on revaluation
(d) Interest on drawings up to the date of retirement
(e) Share of goodwill
Accounting Adjustments on Retirement
Accounting aspects involved on retirement of a partner are as follows:
1. Ascertainment of new profit sharing ratio and gaining ratio
2. Treatment of goodwill
3. Revaluation of assets and liabilities
4. Adjustment in respect of unrecorded assets and liabilities
5. Distribution of accumulated profits and losses
6. Ascertainment of share of profit or loss up to the date of retirement
7. Adjustment of capital, if required
8. Settlement of the amounts due to retired partner.
New Profit Sharing Ratio

New profit sharing ratio is the ratio in which the remaining partners will share future profits
after the retirement of any partner. The new share of each of the remaining partner will consist of
his own share in the firm plus the share acquired from the retiring partner.
New Ratio = Old Ratio + Gain of partner

Illustration: A, B and C are partners sharing profits in the ratio of 3:2:1. ‘A’ retires and his share is
taken up by B and C in the ratio of 3:2. Calculate the new profit sharing ratio.
Solution:

Gaining Ratio
The ratio in which the continuing partners have acquired the share from the retiring partner
is called the gaining ratio. Normally, the gaining ratio of the remaining partners will be the same as
their old profit sharing ratio.
Gaining Ratio = New Ratio – Old Ratio
Illustration
A, B and C are partners sharing profits in the ratio 4:3:2. ‘A’ retires; ‘B’ and ‘C’ decided to share
profits in future in the ratio of 5:3. Calculate the Gaining Ratio
Solution:

Worksheet
Maya, Neha and Tina are partners sharing profits in the ratio of 5:3:2. Give new profit
sharing ratio in the following cases, in the absence of any agreement between the partners.
No Particulars Continuing New Ratio
Partners
(a) If Maya retires from the firm Neha : Tina
(b) If Neha retires from the firm Maya : Tina
(c) If Tina retires from the firm Maya : Neha
Worksheet
Show the following items in the correct side of the given Revaluation Account:
(a) Increase in assets (b) Increase in liabilities

(c) Decrease in assets (d) Decrease in liabilities
(e) Unrecorded Assets (f) Unrecorded liabilities

Dr. Revaluation Account Cr.
Particulars JF Amount Particulars JF Amount

Adjustment of Accumulated Profits and Losses
The following journal entries are required:
(i) For transfer of reserves
Reserves account Dr.
To All Partners’ Capital account’s
(Reserves transferred to all partners’ capital account’s in old profit sharing ratio).
(ii) For transfer of accumulated profits
Profit and Loss account Dr.
To All Partners’ Capital account
(Accumulated profits transferred to all partners’ capital account’s in old profit sharing ratio)
(ii) For transfer of accumulated losses
All Partners’ Capital account Dr.
To Profit and Loss account
(Accumulated loss transferred to all partners’ capital accounts in their old profit-sharing ratio)
Worksheet
A, B and C were equal partners in a firm. On 31/03/2021, C decided to retire from the firm.
On the date of retirement, the Balance Sheet shows General Reserve of Rs. 60,000 and accumulated
loss of Rs. 30,000. From the adjusting entries given in the journal, fill in the blanks by giving the
appropriate accounts:
Journal
Date Particulars JF Debit (Rs.) Credit (Rs.)
31/03/2021 General Reserve account Dr. 60,000
To....................................... 20,000
To........................................... 20,000
To................................................ 20,000
(Reserves shared in the old ratio 1:1:1)
A’s Capital account Dr. ...............
,, B’s Capital account Dr. .............
C’s Capital account Dr. ...............
To............................................ 30,000
Disposal of Amount Due to Retiring Partner
1. Amount paid in cash immediately.
2. Amount transferred to loan account.
3. Partly paid in cash and the balance transferred to loan account.
The following journal entries are required in these cases:
1. When retiring partner is paid cash in full.

Retiring Partners’ Capital account Dr.
To Cash/Bank account
2. When retiring partners’ whole amount is treated as loan.
Retiring Partners’ Capital account Dr.

To Retiring Partners’ Loan account
3. When retiring partner is partly paid in cash and the remaining amount
treated as loan.
Retiring Partners’ Capital account Dr.
To Cash/Bank account
To Retiring Partners’ Loan account
Partner’s Loan Account
Worksheet
Anil, Binil and Sunil were partners in a firm. On retirement of Anil, Rs. 1,20,000 were due
to him from the firm. The firm is unable to pay this amount immediately on retirement. They agreed
to pay of the amount in 3 equal annual instalments along with 10% interest p. a. on the outstanding
balance. Fill up the blank items in the given Loan account of the retiring partner.
Anil’s Loan Account
Year Particulars Rs. Year Particulars Rs.
1 Cash/Bank ……… 1 Anil's capital 1,20,0000
(Installment + Interest) account ………...
Balance c/d 80000 Interest (10%)

1,32,000 1,32,000
2 Cash/Bank …………. 2 ………...
Balance c/d 40000 Balance b/d 8000
88,000 Interest 88,000
3 Cash/Bank ……… 3 40000
Balance b/d ………...
44,000 Interest 44,000
Questions and Answers
One Score Questions
1. X, Y and Z were partners sharing profits in the ratio of 4:2:1. After the retirement of ‘X’, the
business continues with the same set of books. In the absence of any agreement, the new profit
sharing ratio will be:
(a) 4 : 3 (b) 4 : 1 (c) 1 : 1 (d) 2 : 1
Answer: (d) 2 : 1
2. Retiring partner’s share of goodwill is debited to remaining partners capital account in-
(a) Old ratio (c) Sacrificing ratio (d) New ratio
Answer: (b) Gaining ratio
3. If the firm is not in a position to pay cash immediately, the credit balance in the capital account of
a retired partner is transferred to-
(a) Partners Current account (b) Partners Loan account
(c) Revaluation account (d) Profit and Loss Suspense account
Answer: (b) Partners Loan account
4. Retired partner’s share in the accumulated profit is debited in.....................
(a) Profit and Loss account (b) Partners Capital account
(c) Revaluation account (d) Partners Current account
Answer: (a) Profit and Loss account
5. Which among the following should be credited to an outgoing partner?

(a) Share of Revaluation loss (b) Share of Reserve
(c) Share of Accumulated loss (d) Interest on Drawings
Answer: (b) Share of Reserve
6. Whose Capital Accounts are debited for adjusting the share of goodwill to a retired partner?

(a) Sacrificing Partners (b) Gaining Partners
(c) Outgoing partners (d) All partners
Answer: (b) Gaining Partners
7. Unless otherwise agreed upon, the gaining ratio of continuing partners will be same
as..........................................between them.
Answer : Old ratio
8. The ratio in which the continuing partners have acquired the share of profit from the retiring
partners is called...............
(a) Gaining ratio (b) Sacrificing ratio (c) Old ratio (d) New ratio
Answer: (a) Gaining ratio
9. The sum due to a retiring partner includes-
(a) His share of goodwill (b) His share of gain of revaluation
(c) His share of accumulated profits (d) All of these
Answer: (d) All of these
10. At the time of retirement of a partner, goodwill appears in the books of firm should be written
off in the ………………..ratio.
Answer: Old ratio
11. On retirement of a partner,, the unpaid electricity bill, unrecorded in the books should be-
(a) Credited in the Revaluation account (b) Credited in the Income account
(c) Debited in the Revaluation account (d) Credited in the Expense account
Answer: (c) Debited in the Revaluation account
12. Which of the following is credited in the Revaluation Account, at the time of retirement of a
partner?
(a) Decrease in assets (b) Increase in assets
(c) Increase in liabilities (d) Unrecorded liabilities
Answer: (b) Increase in assets
Two Score Questions
1. List out any four items to be debited to the capital account of a deceased partner.
Answer: (a) Share of revaluation loss, (b) Share of loss up to date of death
(c) Share of accumulated loss, (d) Interest on drawings up to date of death etc. (any four)
2. Anna, Balu and Cini are equal partners in a firm. 'Cini' retires and the Balance Sheet shows
Rs.36,000 as balance of Profit & Loss account on the asset side. Give the journal entry for
adjusting this item.
Answer: Anna's Capital account Dr. 12000
Balu's Capital account Dr. 12000
Cini's Capital account Dr. 12000
To Profit and Loss account 36000
Three Score Questions
1. X, Y, and Z share profit in the ratio 4:3:1. On X’s death, his share is taken by Y and Z equally.
Calculate the new ratio, after X's death.
Answer: Gain of partners = 4/8 x 1/2 = 4/16 = 2/8
Y's new share = 3/8 + 2/8 = 5/8
Z's new share = 1/8 + 2/8 = 3/8
New ratio = 5:3
2. Ajith, Benny and Ciril were partners in a firm sharing profits in the ratio of 3 : 2 : 1. Ajith
retires and the continuing partners decided to share future profits equally. Calculate the gaining
ratio of Benny and Ciril.
Answer: Benny's gain = 1/2 – 2/6 = 1/6

Ciril's gain = 1/2 – 1/6 = 2/6
Gaining Ratio = 1:2
3. A, B and C are partners sharing profits and losses in the ratio of 5:3:2 respectively. ‘A’ retires

from the firm on 1st April 2021. After his retirement, his capital account shows a credit balance
of Rs.1,35,000 after the necessary adjustments made. Give journal entries, if
(a) Amount due is paid off immediately.
(b) Amount due is not paid immediately.
Answer: (a) C’s capital account Dr 1,35,000
To Bank account 1,35000
(The amount due is paid to C)
(b) C’s capital account Dr 1,35,000
To C’s Loan account 1,35,000
(The amount due to C is
transferred to C’s loan account)
Four Score Questions
1. P, Q and R were partners in a firm by sharing profits in the ratio of 3 : 2 : 1. Q retires from the
firm. At that time, firm's Balance Sheet includes General Reserve of Rs. 60,000 and debit balance
of Profit and Loss Account of Rs. 30,000.
(a) What represents the debit balance of Profit and Loss Account?
(b) Pass journal entries to share both these amounts among the partners.
Answer: (a) Accumulated loss or undistributed loss
(b) Journal Entries:
(i) General Reserve account Dr. 60,000
To P's Capital account 30,000
To Q's Capital account 20,000
To R's Capital account 10,000
(ii) P's Capital account Dr. 15,000
Q's Capital account Dr. 10,000
R's Capital account Dr. 5,000
To P& L account 30,000
2. A, B, and C are equal partners in a firm. ‘B’ retires from the firm on 1st April 2019. On the
date of his retirement Rs. 68,000 were due to him. They agreed to pay Rs. 8,000 immediately
and balance will be paid in three equal yearly instalments together with interest @ 10% p.a. on
the unpaid balance. Prepare B’s Loan Account till the amount is fully paid off.
Answer: B’s Loan Account
1 Cash/Bank 26000 1 X's capital account 60000
Balance c/d 40000 Interest 6000

66000 66000
2 Cash/Bank 24000 2 Balance b/d 40000
Balance c/d 20000 Interest 4000
44000 44000
3 Cash/Bank 22000 3 Balance b/d 20000
Interest 2000
22000 22000

3. A and B and C were partners in the ratio of 3:2:1. C retires from the firm on 01/04/2021. The
assets and liabilities of the business as on the date were:

Rs.
Cash in hand 3,000
Debtors 12,000
Stock 15,000

Furniture 10,000
Machinery 30,000
Creditors 20,000
The following terms were agreed up by the partners regarding the revaluation of assets and
liabilities:
(a) Value of stock is reduced by 10%.
(b) Machinery is appreciated by 10%.
(c) Furniture is revalued at Rs. 9,000.
(d) A provision for doubtful debts is to be created on debtors at 5%.
(e) Outstanding electricity bill Rs. 200.
(f) Unrecorded investment worth Rs.1000is to be accounted.
(g) A creditor of Rs. 100 is not likely to claim his money.
Prepare the Revaluation Account on retirement of 'C'.
Revaluation Account
Particulars Rs. Particulars Rs.
Stock 1500 Machinery 3000
Furniture 1000 Investments 1000
Provision for D/D 600 Creditors 100
Electricity Bill 200
A's Capital account 600
B's capital account 200
4100 4100
4. A, B and C are equal partners in a firm Mr.'C' retires from the firm. Explain the important
accounting adjustments to be made in the books of the firm, in connection with his retirement.
Answer: Accounting adjustments on retirement of partner:
(a) Calculation of new ratio based on the gain of continuing partners.
(b) Treatment of goodwill
(c) Adjustment of accumulated profits or losses
(d) Revaluation of Assets and liabilities
(e) Disposal of amount due to retiring partner
(f) Adjustment of capital of continuing partners. (any four with brief explanation)

CHAPTER - 4
DISSOLUTION OF FIRM
Dissolution of Partnership Firm
When the partnership between all the partners of a firm comes to an end it is called dissolution of
partnership firm .In the case of dissolution of firm all assets are realised and all liabilities are paid
off
Dissolution of Partnership
When the relation of partnership among different partners changes without affecting the entity
of the firm, it is called dissolution of partnership. Dissolution of partnership takes place in the case
of admission, retirement, death etc.

Difference between dissolution of firm and dissolution of partnership
Basis of difference Dissolution of Partnership Dissolution of firm
Termination of Business The business is not terminated The business is terminated
Economic relation between partners Economic relation between
Economic relationship continues partners comes to an end

Preparation of Balance A new balance sheet is prepared New Balance Sheet is not
sheet prepared

Closure of books The books of accounts are not The books of accounts are
closed closed
Modes of dissolution of firm
Dissolution of a firm take place in different ways . They are-
1. Dissolution by agreement
2. Compulsory dissolution
3. Dissolution on happening of certain contingencies
4. Dissolution by notice
5. Dissolution by Court
Realisation account
Realisation account is a nominal account prepared to know the profit or loss on realisation of assets
and payment of liabilities. It is prepared at the time of dissolution of firm.
Journal Entries
1.For closing Assets account
Realisation account Dr
To Assets account (Except Cash , Bank and fictitious assets)
2. For closing liabilities
Liabilities account Dr
To Realisation account
3. For sale of assets
Cash account Dr

To Realisation account

4. For assets taken over by partners
Partner’s capital account Dr
To Realisation account
5. For payment of liabilities
Realisation account Dr
To cash account
6.For liability taken over by partner
Realisation account Dr
To Partner’s capital account
7. For Realisation expense paid by firm
realisation account Dr
To Cash account
8. When partner agrees to pay Realisation expenses on behalf of firm
Realisation account Dr
To Partner’s Capital account
9.For the amount realised from unrecorded assets
Cash account Dr
To Realisation account
10.Unrecorded assets taken over by partner
Partner’s capital account Dr
To Realisation account
11.For the payment of unrecorded liability
realisation account Dr
To Cash account
12.Unrecorded liabilities taken over by partner
Relaisation account Dr
To Partner’s Capital account
13. For closing realisation account
a) If Profit
realisation account Dr
To Partners Capital account
b) If Loss
Partners Capital account Dr
To Realisation account
Differences between Revaluation account and Realisation account
Revaluation account realisation account
Prepared at the time of Admission , Retirement Prepared at the time of dissolution of firm
or death of Partner
Records increases or decreases in the value of Assets and Liabilities are shown at their book
assets value
Firm continues even after its preparation Firm is dissolved after its preparation
Questions and Answers
1. Realisation Account is a ……………….account.
2. When realisation expenses are paid by a partner on behalf of firm , …………….
account is debited
3. Loss on realisation is debited to ……………account

4. When the relation between all the partners come to an end , it is called...........
5. Debit balance of Realisation accounts shows.........................

6. The profit on realisation is transferred to ……………..account
7. On dissolution of partnership firm the amount paid for unrecorded liability
should be debited to ………………account
Ans: 1. Nominal account 2.Realisation account 3.Partners Capital 4. Dissolution of firm 5. Loss
on Realisation 6.Partners’s Capital account 7. Realisation Account
1.Write the journal entries for the payment of realisation expenses of a firm in the following
circumstances
1. When realisation expense is paid by a partner on behalf of firm
2. When realisation expenses is paid by firm
Ans: 1) Realisation account Dr
To Partner’s Capital account
2) Realisation account Dr
To Cash account
2. Write the journal entries for recording the following transactions at the time of
dissolution of a firm.
a) Assets realized Rs 36000
b) Liability paid by Ashok , a partner Rs 4000
c) Realisation expenses paid by firm Rs 1000
d) Furniture taken by Sunil , a partner Rs 5000
Ans:
a) Cash account Dr 36000
To Realisation account 36000
b) Realisation account Dr 4000
To Ashok’s Capital account 4000
c) Realisation account Dr 1000
To Cash account 1000
d) Sunil’s Capital account Dr 5000
To Realisation account 5000
3. Mention any 4 ways of dissolution of firm.
Ans : 1. Dissolution by agreement
2. Compulsory dissolution
3. Dissolution on happening of certain contingencies
4. Dissolution by notice
4. Kamal and Viaml are partners sharing profits in the ratio 3:2.They dissolved
the firm on 31/3/2017. Give journal entries in the following cases
• Liabilities were paid at Rs 7500
• Stock was taken over byVimal at Rs 4500
• Realisation expenses paid by Kamal Rs 600
• Total assets realized Rs 80,000
• An unrecorded asset taken over by kamal for Rs 2500
Ans : Journal
Date Particulars L/F Amount(Cr) Amount (Dr)
realisation account Dr 7500
To Cash account
1 7500
(Liabilities were paid )

Vimal’s Capital account Dr
2 To Realisation account 4500
(Stock taken over by Vimal) 4500
Realisation account Dr
To Kamal’s Capital account 600
3
(Realisation expenses paid by kamal) 600
Cash account Dr
To realisation account 80000
4
(Assets Realised )
80000
Kamal’s Capital account Dr
To Realisation account 2500
5 2500
( Assets taken over by kamal)
5.Anil and Amal are partners sharing profits and losses equally. Their Balance sheet as on
31/03/2019
BALANCE SHEET as on 31/03/2019
Liabilities Amount Assets Amount
Creditors 10000 Bank 12000
Debtors 10000
Capital account 16000 Stock 8000
Anil 11000 Furniture 7000
Amal
37000 37000
The firm was dissolved on the date of balance sheet .Assets realized as follows Furniture and
Stock realised Rs 9000 and Rs 7000 respectively .Debtors Rs 8,500. Creditors were paid Rs
8000 .Realisation expenses Rs 500. Prepare realisation Account
Realisation Account
Particulars Amount Particulars Amount
Debtors 10000 Creditors 10000
Stock 8000 Cash ( 9000+8500+7000) 24500
Furniture 7000
Cash ( Creditors) 8000
Cash ( Expense) 500
Capital account
Anil 500
Amal 500 1000
34500 34500

Try your Self
1. What journal entries would you pass for the following transactions of the firm of A and B.
a) Realisation expenses Rs 600 paid by A
b) B agreed take over Machinery Rs 5000

c) An unrecorded assets Rs 1000
d) Profit on realisation Rs 4000 shared among partners
e) Liabilities were paid off Rs 8500

2. Binoy , Jincy and Stephen are partners sharing profits in the ratio 2:1:1.They dissolved the firm
on 31/3/2019. Give journal entries in the following cases
a) Creditors were paid at Rs 8600
b) Stock was taken over by Binoy at Rs 10000
c) realisation expenses paid by Jincy Rs 1500
d) Total assets realized Rs 120000
e) Total liabilities paid Rs 36500
3.Arya and Anil are partners sharing profits and losses in the ratio 3:2. Their Balance sheet as on
31/03/2018
BALANCE SHEET as on 31/03/2018
Liabilities Amount Assets Amount
Capital account Bank 10000
Arya 20000 Cash 5000
Anil 10000 Debtors 7000
Creditors 10000 Stock 8000
Machinery 10000
40000 40000
The firm was dissolved and Assets realized as Machinery Rs 9000 , Debtors Rs 6,500 ,Stock Rs
8,500 .Creditors were paid Rs 9000 Realisation expenses Rs 800 paid by Arya. Prepare realisation
account.
4. From the following information, prepare Realisation account.
Assets except cash Rs.120000
Outside liabilities Rs.40000
Cash realised from assets Rs.117000
Realisation expenses Rs.1000

PART - B
COMPUTERISED ACCOUNTING
Contents
1. Overview of Computerised Accounting
2. Spreadsheet
3. Use of Spreadsheet in Business Applications
4. Graphs and Charts for Business Data
5. Accounting Software Package – GNUKhata
6. Database Management System

CHAPTER- 1
OVERVIEW OF COMPUTERISED ACCOUNTING SYSTEM
Computerised Accounting System(CAS)
Computerised Accounting System refers to the process of accounting with the help of Computers
and Accounting software.
Components of CAS
a. Procedure b. Datac. People d. Hardware e. Software
Features of Computerised Accounting System (CAS)
1. Simple and Integrated
2. Accuracy and Speed
3. Scalability (Flexibility)
4. Transparency and control
5. Reliability
Codification of Accounts: Giving a numerical number or alphabet or both to a particular account
for identification is known as Codification of Accounts.
Types of Codes
1. Sequential Code
The code is sequential when each succeeding code is one number greater than the preceding code.
Codes Accounts
AC001 Purchase Account
AC002 Sales Account
2. Block Codes
In block code, a range of numbers is partitioned into a desired number of sub ranges and each sub
range is allotted to a specific group.
Codes Account Group
001 – 500 Direct Expense
501 – 1000 Indirect Expense
1001 – 1500 Direct Income
1501 – 2000 Indirect Income
3. Mnemonic Codes
A mnemonic code consists of alphabets or abbreviations as symbols to codify
an Account.
E.g. Salary Account can be coded as 'SLR',
Building Account can be coded as 'BLD',
Trivandrum – TVM, Delhi – DEL, Bangalore – BLR, Kannur– KNR
Security Features of CAS Software
a. Password Security
b. Data Audit
c. Data Vault
Advantages of CAS
1. Timely generation of reports and information in desired format.
2. Alterations and addition in transactions are easy

3. Ensures effective control over the system
4. Confidentiality of data is maintained

Limitations of CAS
1. Faster obsolescence of technology necessitates investments in shorter period of time.
2. Data may be lost or corrupted due to power interruptions.
3. Data are prone (subject) to hawking.
QUESTIONS
1. KNR for Kannur is an example of :
a) Sequential code b) Mnemonic code
c) Block code d) None
2. What is not an advantages of a computerised accounting system?
a) High speed b) Reliability
c) High training cost d) Accurate
3. Which among these, cannot be treated as limitation of computerised accounting system?
a) Security breach b) Staff opposition
c) Automated document production d) Cost of training
4. Additional security through data encryption is provided in :
a) Password security b) Data audit
c) Data vault d) All of these
5. Find the odd one out with regard to components of a computerised accounting system.
a) Datab) People c) Report d) Procedure

CHAPTER 2
SPREADSHEET
A spreadsheet is an electronic sheet of paper consists of several rows and columns. Horizontal
vectors are rows and vertical vectors are columns. It is used to record, process and compare numerical
and financial data. The commonly used spreadsheet software are LibreOffice Calc, Lotus 1-2-3, MS
Excel and Quattro Pro.
Basic Concepts of a Spreadsheet
 A file is called as a workbook, which is a collection of worksheets.
 By default a workbook consists of one worksheet, Sheet1.
 We can add more sheets in a work book.
 At a time only one worksheet is active and the user can make operations in that worksheet.
 A worksheet consists of rows and columns. Rows are numbered serially as 1,2,3,4…………
and columns are identified by alphabets such as A,B,C, …………. AA, ….…..
 The intersection of a row and a column is called a Cell. A Cell is identified by a unique Cell
Address containing column name and row number. Eg: C5 -the cell in the Column C and row
number 5.
LibreOffice Calc
Spreadsheet program working on Linux operating system. It is included in LibreOffice Package,
which is a Free and Open Source Software (FOSS).
Features of LibreOffice Calc
a) Easy Calculation: Lot of tools are available to perform complex calculations on different data
spread across the sheet.
b) What-If Calculations: Allow the users to predict the changes in the results on the basis of
changes in certain conditions.
c) Serves as a Database: Helps to store large number of data in different sheets.
d) Arranging Data: Data stored in the sheet can be reorganised according to the needs of the
users. Stored data can be customised by filtering, formatting, sorting, etc.
e) Dynamic Charts: Different types of charts available in the application facilitates the various
needs of the users. Inbuilt charts and graphs are available for the presentation of data.
Components of LibreOffice Calc
a) Rows and Columns: A worksheet consists of rows and columns. Rows are numbered
serially as 1,2,3,4………… from top to bottom and columns are identified by alphabets such
as A,B,C, …………. AA, ….….. from left to right.
b) Cell: In spread sheet data are recorded in cells. The intersection of a row and a column is
called a Cell. A Cell is identified by a unique Cell Address containing column name and row
number. Eg: C5 -the cell in the Column C and row number 5.
c) Range: Range is a group of cells. A range may contain a single cell or many cells. Range is
specified by giving the name of first and last cells. Eg. A2:A10 represents range starting from
A2 to A10.
Naming Range: It is the process of giving name to a range. This range name can be used in
formula and functions instead of cell references. Steps for naming:
• Enter the data in the worksheet.
• Select the range to be named.
• Data Define Range
• Give a name to the range in the window and click Add button.

Spreadsheet Operations

Starting LibreOffice Calc
1. Applications Office LibreOffice Calc
Operating with Worksheet
1. Open a Worksheet

a) Open a New Workbook
File New OR Use the icon on the toolbar. (Ctrl+N)
b) Open an Existing Workbook
File Open OR Use the icon on the toolbar. (Ctrl+O)

2. Save a Workbook
File ----> Save / Save As OR Use the icon on the toolbar. (Ctrl+S) / (Ctrl+
Shift+S)
Enter the name of file and click on Save button
a) The file is saved with an extension of .ods
3. Delete a Worksheet
a) Place the mouse on the Sheet tab and click on the Right button of Mouse.
b) Select Delete sheet from the displayed window. OR
Edit Sheet Delete (Active sheet is deleted)
4. Rename a Worksheet
a) Place the mouse on the Sheet tab and click on the Right button of Mouse
b) Select Rename sheet from the displayed window and type new name. OR
a) Place the mouse on the Sheet tab and double click on the Mouse.
b) Type the name and press Enter key. OR
Format Sheet Rename (Active sheet is renamed)
5. Add a Worksheet
In LibreOffice Calc, we can add new worksheets in addition to the default one sheet.
a) Place the mouse on the Sheet tab and click on the Right button of Mouse.
b) Select Insert sheet from the displayed window.
c) We can insert a sheet Before and After the current sheet. OR
Insert Sheet (A sheet is inserted after the current sheet)
6. Close a Workbook (വർക്ക്ബുക്ക് അടയ്ക്കുക)
File Close
7. Quit LibreOffice Calc (ലിബ്രെ ഓഫീസ് കാൽക്കിൽനിന്നു പുറത്തുപോകുക )
File Exit LibreOffice
Data Used in Worksheet : Values, Labels and Formulas

Cell Reference
i) Relative Cell Reference–When a formula is copied from one cell to another, the
cell referred in the formula will change automatically to reflect the new location.
ii) Absolute Cell Reference – The cell reference in the formula is not changed when
it is copied to another cell. In absolute cell reference, the column letter and row
number are surrounded by dollar sign($).Eg. - $A$4.
iii) Mixed Cell Reference–The column letter or row number remains constant when a
formula is copied from one cell to another cell. Eg - $A4, here column letter will
not change, but the row number will change when the formula is copied.
Functions in LibreOffice Calc - In Calc, there are 12 categories of functions. The
functions used in Computerised Accounting are –
Date and Time Function
a) TODAY–Shows today’s date in the cell. Here today’s date is system date.
Syntax : =TODAY()
b) NOW- Shows Current date and time in the cell. Here also shows system date and time.

Syntax: =NOW()
c) DAY – Shows the day of a date as an integer from 1 to 31.
Syntax: =DAY(Cell reference)

d) MONTH - Shows the month of a date as an integer from 1 to 12.
Syntax: =MONTH(Cell reference)
e) YEAR - Shows the year of a date as an integer from 1900 to 9999.
Syntax: =YEAR(Cell reference)
f) DATEVALUE–Converts a date into corresponding serial number. By default 31 December
1899 is given the serial number 1.
Syntax: =DATEVALUE(“Date”)
g) DATE - Returns the value in date format.
Syntax: =DATE(Year, Month, Date)
1. Logical Function
a) IF Function - The IF function is used to test a specified condition. This function gives first
value if the condition is true and gives second value if the condition is false.
Syntax : =IF(Logical test, Value if true, Value if false)
Eg: =IF(C8=”Married”, “Yes”,”No”)
Nested IF - In nested IF, more IF functions are used to check different conditions at the
same time.
Eg: =IF(E1<80, IF(E1<60, IF(E1<40, “Fail”, “Passed”), “Second Class”), “First Class”).
b) AND - The AND function evaluates all the mathematical expression located in other cell.
The result will be True, if all the conditions in the formula are true. The result will be False, if
any of the conditions in the formula is not true.
Syntax : =AND(Logical test1, Logical test2, ……………….)
Eg: =AND(A1>50, B1>50, C1>50)
c) OR - The OR function evaluates at least one mathematical expression located in other cell.
The result will be True, if any of the conditions in the formula is true. The result will be
False, if all the conditions in the formula are not true.
Syntax : =OR(Logical test1, Logical test2, ……………….)
Eg: =OR(A1>50, B1>50, C1>50)
3) Mathematical Function - Some of the mathematical functions applicable business are
as follows:
a) SUM - This function is used to find out the sum of values stored in cells.
Syntax: =SUM(cell1, Cell2, Cell3, ………………. )
=SUM(Range)
=SUM(Range Name)
Eg: 1. =SUM(B2, C2, D2, E2,F2)
2. =SUM(B2:F2)
3. If the range is named as “Total”, then =SUM(Total)
b) Autosum - The autosum icon (∑) on toolbar can be used to find sum of values in adjacent cells.
 First select the range of cells to be added.
 Click on Autosum icon(∑) from the toolbar.
c) SUMIF - This function adds the values in a range of cells as per the specified criteria.
Syntax: =SUMIF(Range, Criteria, Sum range)
i. Range – Range of cells to evaluate.
ii. Criteria – It is the conditions to be evaluated.
iii. Sum range – Actual range of cells to add.
Eg: Total salary of employees whose name is started with “S” is calculated by
=SUMIF(A2:A6, “S*”, B2:B6)
Statistical Functions:
a) ROUND - This function is used to round off a fractional number to a specified number of

digits.
Syntax: =ROUND(Number, Num digits)
=ROUND(Cell reference, Num digits)

Eg: ROUND(43567.298721, 2) - the result will be 43567.30
b) ROUNDUP – Used to round a number up away from zero.
Eg: ROUNDUP(567.123, 0) – Result will be 568.
c) ROUNDDOWN – Used to round a number down towards zero.
Eg: ROUNDDOWN(567.123, 0) – Result will be 567
d) COUNT - This function is used to find the number of cells containing numbers in a
range of cells. Here number includes date and time.
Syntax: =COUNT(Range of cells)
Eg: COUNT(A1:B10)
e) COUNTA - Count all cells in the range except empty cells. It counts cells containing
numbers, text, logical values and error.
Syntax: =COUNTA(Range of cells)
f) COUNTBLANK - Count the empty cells in the given range. This function is used to find
the number of cell that contains no data.
Syntax: =COUNTBLANK(Range of cells)
g) COUNTIF - This function is used to find the number of cells in a range that satisfies a
given criteria. Here text values and blank cells are not considered.
Syntax: =COUNTIF(Range of cells, Criteria)
Eg: =COUNTIF(C2:C52, >=40)
h) AVERAGE - This function is used to find the average of values in a range of cells.
Syntax: =AVERAGE(Rangee)
Eg: =AVERAGE(B2:B10)
i) MIN - Used to find the lowest values from a range of cells.
Syntax: =MIN(Range)
Eg: =MIN(B2:B10)
j) MAX - Used to find the highest values from a range of cells.
Syntax: =MAX(Range)
Eg: =MAX(B2:B10)
Questions and Answers
1 Score Questions
1. A file in a spreadsheet is known as ................
a) Note book b) Work book c) Work sheet d) None of these
Answer: b) Work book
2. A work book is a collection of ..................
a) Cells b) Rows c) Columns d) Work sheets
Answer: d) Work sheets
3. In a workbook, ...... work sheets are available by default.
a) 1 b) 2 c) 3 d) 4
Answer: a) 1
4. Intersection of a column and a row is called ..............
a) Data b) Cell c) Sheet d) Workbook
Answer: b) Cell
5. Name of defualt sheet in a workbook is ..................
a) Sheet A b) Sheet2 c) Sheet1 d) None of these
6. ........... is a group of cells in a worksheet.
a) Workbook b) Spreadsheet c) Range d) None of these
Answer: c) Range
7. LibreOffice Calc is a ............ software.

a) Presentation b) Spreadsheet c) Database d)Text document
Answer: b) Spreadsheet
8. A formula in a work sheet begins with a ................
a) Plus Sign b) Minus Sign c) Equal to Sign d) Dot

Answer: c) Equal to Sign
9. .......... identfies the location of a cell in a spreadsheet.
a) Range b) Sheet c) Workbook d) Cell reference
Answer: d) Cell reference
10. By default cell reference is ...............
a) Absolute b) Relative c) Mixed d) None of these
Answer: b) Relative
11. Find the odd one.
a) DATE b NOW c) SUM d) TODAY
Answer: c) SUM
12. Dolar sign prefixed on the column and row names in a formula is .........
a) Absolute cell reference b) Relative cell reference
c) Mixed cell reference d) None of these
Answer: b) Relative cell reference
13. Pre-defined formula in a spreadsheet is ...............
a) Function b) Cell reference c) Range d) Sheet
Answer: a) Function
2 Score Questions
1. Write the functions for the following in a spreadsheet.
a) Number of cell having no values in the range A1 to A10
b) Numner of cells containing any values in the range A1 to A10
Answer: a) =COUNTBLANK(A1:A10) b) =COUNTA(A1:A10)
2. Identify the type of data used to enter the following items in a spreadsheet.
a) Name of a person b) Age of a person
Answer: a) Label b) Value
3. Write function to display the followings in to cell B3.
a) System date b) System date and time
Answer: a) =TODAY() b) =NOW()
3 Score Question
1. How to give name to a range in a spreadsheet?
Answer:
• Enter the data in the worksheet.
• Select the range to be named.
• Data Define Range
Give a name to the range in the window and click Add button.
2. Write the procedure to rename a sheet in a spreadsheet.
Answer:
a) Place the mouse on the Sheet tab and click on the Right button of Mouse
c) Select Rename sheet from the displayed window and type new name. OR
c) Place the mouse on the Sheet tab and double click on the Mouse.
d) Type the name and press Enter key. OR
Format Sheet Rename (Active sheet is renamed)
3. Write the functions for the following in a spreadsheet.
a) Sum of values from B1 to B10
b) Sum of values greater than 100 in the range B1 to B10.
Answer:
a) =SUM(A1:A10) b) =SUMIF(A1:A10, ">100")

4. Match the following.
A B
Logical function Mathematical function
Statistical function IF
SUM COUNT
Answer:
A B
Logical function IF
Statistical function COUNT
SUM Mathematical function
5. Match the following.
A B
Intersection of Row and Column Collection of cells
Range File in spreadsheet
Workbook Cell
Answer:
A B
Intersection of Row and Column Cell
Range Collection of cells
Workbook File in spreadsheet
6. Explain the components of LibreOffice Calc.
Answer:
a) Rows and Columns: A worksheet consists of rows and columns. Rows are numbered serially as
1,2,3,4………… from top to bottom and columns are identified by alphabets such as A,B,C,
…………. AA, ….….. from left to right.
b) Cell: In spread sheet data are recorded in cells. The intersection of a row and a column is called
a Cell. A Cell is identified by a unique Cell Address containing column name and row number. Eg:
C5 -the cell in the Column C and row number 5.
c) Range: Range is a group of cells. A range may contain a single cell or many cells. Range is
specified by giving the name of first and last cells. Eg. A2:A10 represents range starting from A2 to
A10.
7. Explain any three features of LibreOffice Calc.
Answer:
a) Easy Calculation: Lot of tools are available to perform complex calculations on different
data spread across the sheet.
b) What-If Calculations: Allow the users to predict the changes in the results on the basis of
changes in certain conditions.
c) Serves as a Database: Helps to store large number of data in different sheets.
(Any 3
******************

CHAPTER 3
USE OF SPREADSHEET IN BUSINESS APPLICATIONS
Spreadsheet can be used for a number of purposes in business, some of them are Payroll
Accounting, Asset Management and Loan Repayment Schedule.
Payroll Accounting
Payroll is a statement prepared to show the calculation of remuneration (Salary) to employees in
an organization
Components of Payroll
a. Basic Pay (BP)
b. Dearness Allowance (DA)
c. House Rent Allowance (HRA)
d. Transport Allowance (TA / TRA)
Deductions :-
3. Professional Tax (PT)
4. Provident Fund (PF)
5. Tax Deductions at Source (TDS)
6. Recovery of Loan Instalment (LOAN)
Gross Pay (GP) (Total Earnings) = BP+DA+HRA+TA
Total Deductions (TD) = PT+PF+TDS+LOAN
Net Pay (NP) = GP - TD
Asset Accounting
There are two methods for charging depreciation; they are Straight Line Method (SLN) and
Written Down Value method (DB).

Straight Line Method
Under this method fixed amount of depreciation is charged on asset every year. The following is the
syntax.
Syntax: =SLN(Cost, Salvage, Life)
Cost – Purchase Value + Other Expenses such as Transportation charges, installation
charges, Pre-operating expenses etc.
Salvage – Scrap value after the life of asset.
Life – It indicates the life period of asset.
Eg. An asset purchased for Rs. 90000 and its installation cost is Rs. 10000. The useful life of the
asset is 10 years, at the end of which it will bring a salvage value of Rs.20000.
=SLN(100000,20000,10)
* If the values are entered in different cells, instead of the amount, the cell address can be used in
the formula
Written Down Value Method (WDV)
Written Down Value method uses the current book value as the base for calculating depreciation
for the next period.
Syntax: =DB(cost, salvage, life, period, months)

• Cost – The original cost of the asset.
• Salvage – The salvage value after the life period.

• Life – Life period of asset.
• Period – The year for which the depreciation is calculated, say 1st year , 5th
year etc.
. Months – (This is Optional) It is the number of months in the first year

Illustration
An asset that costs Rs. 1,00,000. The salvage value is Rs.8,000. It has an effective life of 10 years.
The depreciation for the first year, assuming that there are 12 months in first year (i.e.; the asset
was purchased on the opening day of the financial year) is calculated by the following formula:
=DB(100000,8000,10,1,12)
Questions and Answers:
1 Score Question
1. .................. is a statement prepared to show the calculation of remuneration (Salary) to
employees in an organization.
a) Loan repayment schedule b) Asset accounting
c) Payroll d) None of these
Answer : c) Payroll
2. Which of the following is not included in the Gross pay?
a) Basic Pay b) Dearness Allowance c) HRA d) PF
Answer: d) PF
3. HRA is 10% of Basic Pay. Basic Pay is entered in cell C5. Write the formula to be entered in D5
to calculate HRA.
a) c5*10% b) =C5*10% c) C5/10% d) =C5+10%
Answer: b) =C5*10%
4. ................. is the amount realised at the end of the useful life of an asset.
a) Acquisition cost b) Installation cost c) Scrap value d) Total cost
Answer: c) Scrap value
5. The firm decided to charge a fixed amount of depreciation on the asset every year. Identify the
function used in spreadsheet to find it.
a) DB b) PV c) SUM d) SLN
Answer: d) SLN
6. ........ function is used in spreadsheet to find the depreciation under Written Down Value method.
a) DB b) SLN c) PMT d) NPV
Answer: a) DB
7. ......... function helps to find out the amount of periodic instalments of loans and advances.
a) SLN b) PMT c) DB d) RATE
Anwer: b) PMT
8. NET PAY = ----------------------
a) Gross Pay+ Total Deduction b) Gross pay – Total Deductions
c) Gross pay x Total deduction d) None of these
Ans: b) Gross Pay – Total deductions
2. Score Questions:
1. Details of an employee is given in a spreadsheet as below:
A B C D E
1 Name Basic Pay DA HRA Gross Pay
2 Das 85000 .......... 1500 .................
DA – 10 of Basic Pay
Write the formula to calculate: a) DA b) Gross Pay.
Answer: a) =B2*10% b) = B2+C2+D2

2. Details of an asset is given in a spreadsheet as below:
A B C D E F G H
1 Asset Purchase Installat Transportati Total Salvage Life Time Depreciation
Price ion on Cost Cost Value
Cost
2 Plant 85000 5000 2000 ............ 7000 10 ...........

Write the formula to Calculate:
a) Total Cost
b) Depreciation under Straight Line method
Answer: a) =B2+C2+D2
b) =SLN(E2,F2,G2)
3 Score Questions:
1. Write the syntax of the following:
a) SLN b) DB c) PMT
Answer:
a) =SLN(Cost, Salvage, Life)
b) =DB(Cost, Salvage, Life, Period,Month)
c) =PMT(Rate, NPER, PV, [FV], Type)
4 Score Questions:
1. Match Column A with Column B
A B
Loan repayment schedule Gross pay
Straight Line method PMT
Written Down Value method SLN
Payroll DB
Answer

A B
Loan repayment schedule PMT
Straight Line method SLN
Written Down Value method DB
Payroll Gross pay

CHAPTER 4
GRAPHS AND CHARTS FOR BUSINESS DATA
A graph is a pictorial representation of data, which has at least two dimensional relationship. A
graph has at least two axis, i.e, X and Y. Horizontal axis is X axis and vertical axis is Y axis.
Types of Graphs and Charts
a) Column Chart :Used to compare values across different categories. Eg. Profit made by
different types of products for various years. Data is represented by vertical bars. X-axis shows
categories and Y-axis shows values.
b) Line Chart : The line chart shows data changes for a certain period of time. In other words, the
line chart is good for determining trends.
c) Pie Chart : Used to show the contribution of each value to total value. It contains only one data
series.
d) Bar Chart : Used to compare multiple values. Data is represented by horizontal bars.
e) Area Chart : Used to show the differences between various sets of data over a period of time.
Steps to Create Charts
1. Enter the data in a spreadsheet with column headers and row headers.

2. Select the range including column headers and row headers.
3. Select Insert → Object → Chart OR Insert → Chart Click on Chart Icon in the
panel.
4. Data Range – Tick the options First row as label and First column as label.
5. Click on Finish.
Elements of a Chart
1. Chart Area – Entire area of the chart, which includes labels, data, axis etc.
2. Plot Area – It is the area in which the actual data is plotted.
3. Data Point – A symbol that represents the data, it may be a bar, pie, line, bubble etc.
4. Data Series – A group of data points.
5. Axis – A line that serves as a major reference for plotting data. X-axis, Y-axis and Z-axis.
6. Chart and Axis Title – A label or title added to the chart. Eg. Chart Title, X- Axis Title,
- Axis Title etc.
7. Legend – They are the indicators of data items. It is shown in the form of colours or
symbol
8. Data Label – Additional information about a data marker to identify the details of data
point in a data series.

Advantages of Charts and Graphs
1. Visually appealing
2. Easy to read the data

3. Quick analysis and interpretation of data with a little time
4. To know the trends easily
5. To grasp the data quickly
6. A large volume of information can be exhibited through charts easily
Questions and Answers:
1 Score Question
1. .............. is a pictorial representation of data.
a) Function b) Operators c) Graph d) Formula
Answer: c) Graph
2. A graph has at least ................. axis.
a) 2 b) 3 c) 1 d) 4
Answer: a) 2
3. ............ is used to show the trend of sales of a business over a period of time.
a) Bar Chart b) Line Chart c) Column Chart d) Pie Chart
Answer: b) Line Chart
4. Legend in a chart shows
a) Categories of data b) A part of information shown in the chart
c) Individual values plotted in a chart d) Entire chart including all elements
Answer: b) A part of information shown in the chart
5. .................. represents the entire chart including all the elements.
a) Plot area b) Chart area c) Data point d) Data label
Answer: b) Chart area
4/5 Score Questions
1. What are the advantages of Charts and Graphs?
Answer:
Advantages of Charts and Graphs:
1) Create visual appeal.
2) Read the data easy
3) Analyse and interact the data quickly.
4) Know the trends easily.
5) Grasp the data quickly.
6) Present huge volume of data easily within a limited space.
2. Explain any Four elements of chart.
Answer:
i. Chart Area - Entire chart including all elements. Area within the rectangular outline.
ii. Data Point – Individual values plotted in a chart and represented by bars, columns, lines or
other shapes are known as Data Markers. Data markers of same color forms a Data Series
iii. Legend – An identifier of a part of information shown in the chart.
iv. Chart and Axis Title –Descriptive title given to the chart and axis. (An 4 points)

CHAPTER 5
ACCOUNTING SOFTWARE PACKAGE – GNUKhata

GNUKhata is a free and flexible software for accounting and inventory management
Features
1. Free and open source accounting software
2. Based on double entry principle
3. All financial reports can be prepared
4.Account for Profit and nonprofit making organizations are available
Creation Of organisation
Steps :-
1 open GNU Khata application
Application →Office →GNUkhata
2.Create organisation select the required Case to give organization’s name (Upper.
case , Lower case Etc)
3.Organisation type( profit or non-profit organization)
4.Financial year
Enter opening financial period. Closing financial period will be displayed
automatically .
5.Select for any one of 4 modes of operations( Accounting only,Accounting and
invoicing , Invoicing with bill wise accounting , Inventory with invoicing and bill
wise accounting)
6.Press proceed button to move to next screen , then
Create username
Create password
Confirm password
Enter security questions and answers
7. Enter : Create login
Groups and Sub-Groups
Grouping of account is a method of organizing the large number of ledger accounts into
sequential arrangement for recording and summarisation of accounting data. GNUKhata has
predefined Groups and Sub-Groups.
They are:

1 .Balance Sheet Groups
2. Profit & Loss / Income & Expenditure Account Group
1.Balance sheet Groups in GNUKhata:

Sl No Group Name Sub Group Name
1 Capital None

2 Current Assets Bank, cash loans and
advances sundry
debtors,Bills receivables

3 Current Liabilities Provisions., Creditors for
expense ,sundry creditors
for purchase assets

4 Fixed Assets Land and building,
Machinery, Furniture

5 Investments Investments in bank
deposit ,investment shares
etc
6 Loans( Assets) None

7 Loans ( Liabilities) Secured and Unsecured
Loan

8 Miscellaneous Expense None

9 Reserves None

2.. Profit & Loss / Income & Expenditure Account Group

Sl No Group Name Sub Group Name
1 Direct Expense None
2 Direct Income None
3 Indirect expense None
4 Indirect Income None

System generated ledger Accounts in GNU Khata
There are 4 System generated ledger accounts in GNU Khata
Sl Account Name Group Name Sub Group Name
No
1 Closing Stock Current Assets Inventory
2 Opening Stock Direct Expense ---
3 Stock at the beginning Current Assets Inventory
4 Profit and Loss Account Direct Income ----

How to create ledger accounts in GNU khata
Steps ;_
1.Open GNU Khata application
Application →Office →GNUkhata
2. Go to Master →Create account
3. Select group name and Sub group name
4..Enter the name of Account and Press Save Button

Types of Vouchers in GNU Khata

Sl Voucher Type Purpose Function Key
no
1 For recording receipt of cash or cheque
Receipt F4
2 For recording payments made by cash or cheque
Payment F5
3 Sales For recording cash sales and credit sales
F6
4 Purchase For recording cash purchases and credit
purchases
F7
5 For recording deposits or withdrawal of cash
Contra from bank F8
6 Journal For recording rectifying entries, transfer entries,
purchase of fixed asset on credit sale F9
7 Sales return for recording return of goods from customers
Ctrl+1

8 Purchase For recording return of goods to suppliers Ctrl+2
return

9 Credit Note For recording the reduction of amount payable

by customer Ctrl+3

10 Debit Note For recording the reduction of amount payable

to suppliers Ctrl+4

Questions

Fill in the blanks
1. ………….is a free and open source software for accounting (…………..
GNU Khata
2. …………..is the path for starting GNU Khata.
Application →Office →GNUkhata
3. Amount received by way of cash or cheque is recorded in GNU Khata by
using ……………….voucher
Receipt Voucher ( F4)
4. Short cut key for activating credit note is ………………
Ctrl+3
5. The sub group ‘Plant and Machinery’ comes under ….....group
Fixed Assets
Questions and Answers
1. Identify the group and sub group under which the following ledger accounts are to
be created
1. Carriage inward
2. Drawings
3. Commission received
4. Depreciation
Ans:
Sl Ledger Account Group Sub Group
No
1 Carriage Inward Indirect Expense None
2 Drawings Capital None
3 Commission received Indirect Income None
4 Furniture Fixed Assets Furniture
2. Question :- .Enter the following transactions through voucher entry
01/01/2019 Started Business Rs 300000
02/012019 Bought furniture 10000
05/01/2019 Paid wages Rs 5000
06/01/2019 Deposited Cash in to Bank Rs 20000
07/01/2019 Paid Rent Rs 8000
08/01/2019 Bought goods from Anil Rs 10000
09/01/2019 Received commission Rs 2000
12/012019 Goods returned to Anil Rs 500
13/01/2019 Sold goods to Amal Rs 3000
14/01/2019 Withdrew cash from Bank Rs 5000
Answ:

₹0.00 Account name Group Sub Group Voucher Key Dr/ Amount
Cr
01/01/2019 Cash Current Assets Cash Receipt F4 Dr 300000

Capital Capital None Cr
02/01/2019 Furniture Fixed Assets Furniture Payment Dr
Cash Current Assets Cash F5 Cr 10000

05/01/2019 Wages Direct Expenses None Payment F5 Dr 5000
Cash Current Assets Cash Cr
06/01/2019 Bank Current Assets Bank Contra F8 Dr 20000
Cash Current Assets Cash Cr
07/01/2019 Rent Indirect None Payment F5 Dr 8000
Cash Expenses Cash Cr
Current Assets
08/01/2019 Purchase Direct Expense None Dr

Anil Current Liability Creditors for Purchase F7 Cr 10000
purchase

09/01/2019 Cash Current Assets Cash Receipt F4 Dr 2000
Commission Indirect Income None Cr
12/01/2019 Anil Current Liability Creditors for Dr 500
purchase
Purchase Ctrl+
Purchase Return Direct Income None Return 2 Cr
13/01/2019 Amal Current assets Sundry Dr 3000
Debtors Sales F6
Sales Direct Income Cr
None
14/01/2019 Cash Current assets Cash Contra F8 Dr 5000
Bank Current assets Bank Cr

Try yourself
3. Fill the series as per hind given
Transaction Voucher Type Function Key
Salary Paid Payment F5
Deposited in to Bank ----------------- -------------------
Interest received ----------------- --------------------
Sold goods ------------------ ---------------------
6. Enter the following transactions through voucher entry
01/04/2020 Started business with Rs 250000
02/04/2020 Bought goods 10000
05/04/2020 Paid Rent Rs 5000
06/04/2020 Deposited Cash in to Bank Rs 12000
07/04/2020 Sold goods to Amal Rs 7000
10/04/2020 Received commission Rs 1800
14/04/2020 Returned goods by Amal Rs 1000
16/04/2020 Withdrew cash from Bank Rs 500

CHAPTER 6
DATABASE MANAGEMENT SYSTEM (DBMS)
DBMS: Meaning
A data base is a collection of data that is organised, so that its contents can easily be
accessed, managed and updated.
DBMS is a programme that enables the user to create and maintain a database. Software
packages like LibreOffice Base, MS Access, Oracle, SQL Server etc. are very popular in dealing
with database.
Database Components
The important components of a relational database design are as follows:
(a) Entities
The object for which data will be collected is called entity. Entities are represented through
Tables. Employee, Student, Account etc. may be the examples of entities.
(b) Attributes
The features that describe an entity are called attributes. Emp_ID, Emp_Name, Emp_Sex,
Emp_Address etc may be the attributes of the entity ‘Employee’.
(c) Identifier
An attribute which contains unique values for identifying the entity instance is known as
identifier or key attribute. For eg. Emp_ID can be used to identify the Employee details.
(d) Relationship
Relationship is a logical linkage between two entities that describes how the entities are
associated with each other.
Worksheet-1
Identify the database components from the given hints:
Description Database components
(a) They are represented through Tables.
(b) The features that describe an entity.
(c) Key attribute in the main or master table.
(d) Logical linkage between two entities.

LibreOffice Base
LibreOffice Base is a database software which provides a graphical interface for working
with databases. It is a free and open-source software.
Database Objects of LibreOffice Base
The four database objects in LibreOffice Base are as follows:
(a) Table
Tables are used to store the data about a specific entity.
(b) Forms
They are used to enter data into a Table.
(c) Query : The word ‘query’ means a request for information. A database query is a request for
data from a database.
(d) Reports
A database report is the formatted result of database queries and contains useful data for

decision-making and analysis.

Worksheet -2
Identify the relevent database objects in LibreOffice Base from the given descriptions:
Description Database objects
(a) Store the data about a specific entity.
(b) User friendly interface to insert data into a table.
(c) A request for data from a database.
(d) The formatted result of database queries
Creation of Database in LibreOffice Base
A new data base can be created by the following path:
Applications → Office → LibreOffice Base
Choose the ‘Create a new database’ option from the appeared window and select ‘Next’.
Click on ‘Finish’ button to proceed for saving the file. Save the file after giving a suitable name to
the database. The file will be saved with the extension ‘odb’.
Creation of Tables in LibreOffice Base
There are three options in the task panel for creating tables.
1. Create table in Design View
2. Use Wizard to create table
3. Create view
Create Tables in Design View
The steps to create tables in design view are explained below:
1. Choosing the option from database panel: Click on Tables option from database panel and
choose the ‘Create table in Design View’ option.
2. Giving Field Name
3. Choosing Field Type
4. Setting Field Properties
5. Giving Description
6. Setting Primary Key
7. Saving the Table
One Score Questions
1. The data type to be selected for entering date birth of an employee in a DBMS is.............
(a) Text (b) Date (c) Time (d) Number
Answer: (b) Date
2. The free and open source database software is:
(a) LibreOffice Base (b) MS Access (c) Oracle (d) LibreOffice Calc
Answer: (a) LibreOffice Base
3. Organised collection of data is called…………………….
Answer: Database
4. The software that allows creation and maintenance of database is:
(a) Spreadsheet (b) Word processor (c) DBMS (d) Language processor
Answer: (c) DBMS
5. The different features of an entity are called………………..
Answer: Attributes
6. The data storage element in a database is:
(a) Tables (b) Forms (c) Queries (d) Reports

Answer: (a) Tables
7. The key fields used to establish relationship between two tables are called…….
Answer: Primary key or identifier

8. The interface that allows the user to input data in a database is:
(a) Tables (b) Forms (c) Queries (d) Reports
Answer: (b) Forms
Two Score Questions
1. List out any four popularly used DBMS for business applications.
Answer: LibreOffice Base, MS Access, Oracle, SQL Server etc.
2. State the importance of key fields or identifier with the help of an example.
Answer: An attribute which contains unique values for identifying the entity instance is known
as identifier or key attribute. For eg. Emp_ID can be used to identify the Employee details.
3. Write short notes on:
(a) DBMS (b) Primary key
Answer: (a) DBMS: It is a programme that enables the user to create and maintain a
database. It is a general purpose software package that facilitates constructing and manipulating
database for different applications.
(b) Primary key : The key attribute in the main or master table is called ‘Primary Key’.
For eg., Emp_ID in ‘Employee’ Table is primary key.
4. Briefly explain the procedure for creating a database in LibreOffice Base.
Answer: A new data base can be created by the following path:
Applications → Office → LibreOffice Base
Choose the ‘Create a new database’ option from the appeared window and select ‘Next’.
Click on ‘Finish’ button to proceed for saving the file.
5. What are the objects available in database panel of LibreOffice Base.
Answer: (a) Table(b) Forms(c) Query(d) Reports
6. Describe the steps for setting a primary key.
Answer: To set the primary key, the following steps are required:
(a) Select and right click on the empty box just to the name of the field to be designated
as the primary key field.

(b) In the appeared popup menu, click on the ‘Primary Key’ option. Now a key symbol
will appear near the concerned field name.
Three Score Questions
1. Explain the steps in creating an employees data table in a DBMS.
Answer: 1. Choosing the option from database panel , 2. Giving Field Name ,
3. Choosing Field Type, 4. Setting Field Properties, 5. Giving Description
6. Setting Primary Key, 7. Saving the Table.
2. What do you understand by DBMS? Describe in brief the function of ‘Tables’, ‘Query’, ‘Forms’
and ‘Reports’ object of Base/Access program?
Answer: Meaning of DBMS, Brief explanation of (a) Table(b) Forms(c) Query(d) Reports.
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