Accounts Class 12 ISC (Commerce) CISCE Topics and Syllabus

• Meaning and Definitions of Partnership and Partnership Deed 
• Features of Partnership 
• The Indian Partnership Act 1932 
• Methods of Capital Accounts - Fixed and Fluctuating Capital Method 
• Preparation of Profit and Loss Appropriation Account 
• Partners Current Accounts When Fixed Capital Method is Followed 
• Adjustments - Interest on Capital, Drawings and Loans 
• Interest on Current Accounts (Debit and Credit) Salary 
• Division of Profit Among Partners 
• Transfer to Reserves 
• Commission to Partners and Managers 

Definition, meaning and features of a Partnership

• Self explanatory.

Provisions of The Indian Partnership Act, 1932, with respect to books of accounts.

• Meaning and importance
• Rules applicable in the absence of a partnership deed

Preparation of Profit and Loss Appropriation Account and Partners’ Capital and Current Accounts.

• Profit and Loss Appropriation Account.
• Partners’ capital accounts: fixed and fluctuating
• Partners’ Current Accounts when fixed capital method is followed
• Interest on capital, interest on drawings, interest on current accounts (debit and credit) salary, commission to partners and
  managers, transfer to reserves, division of profit among partners
• Guarantee of profits
• Past adjustments (Relating to interest on capital, interest on drawing, salary and Profit Sharing Ratio).

NOTE:

• Interest on loan given by the partner to the firm is to be taken as a charge against profits. This interest will be debited to the
  P/L account and credited to his loan account.
•  Interest on loan taken by a partner fromthe firm should be credited to P/L account and debited to his capital/current account as the case may be.
• Rent paid to a partner is a charge against profit and is to be credited to partners’ current account in case of fixed capital system or to partners’ capital account when capitals are fluctuating.
• Admission of manager as a Partner is excluded

• Concept of Goodwill 
  • Meaning of Goodwill
  • Nature and Features of Goodwill
  • Factors Affecting the Value of Goodwill
  • Need for Valuation of Goodwill
  • Methods of Valuation of Goodwill

  1. Average Profits Method
  2. Super Profits Method
  3. Capitalisation Methods

  • Treatment of Goodwill

  1. Premium Method
  2. Revaluation Method
  3. Hidden Goodwill
• Practical Application of Average Profit Method 
• Simple Average Method 
• Weighted Average Method 
• Practical Application of Super Profit Method 
• Practical Application of Capitalization Method 
• Factors Affecting Goodwill 
• Capitalization of Average Profit 
• Capitalization of Super Profit 

Concept of goodwill and mode of valuation

• Meaning, nature and features of Goodwill.
• Factors affecting the value of goodwill.
• Mode of Valuation.
• Average profit method –Meaning and practical application

1. Simple average.
2. Weighted average method.

• Super profit method – Meaning and practical application.
• Capitalization method – Meaning and practical application

1. Capitalization of average profit.
2. Capitalization of super profit.

NOTE: Capital Employed/Net assets are Total assets (excluding goodwill if existing in the balance sheets and fictitious assets) less
outside liabilities.

• Admission of a Partner - Sacrifice Ratio and New Ratio 
• Admission - Calculation of Gaining Ratio 
• Admission of a Partner - Adjustment of Capitals 
• Adjustment of old partner’s Capital Accounts on the basis of the new partner’s capital 
• Calculation of New Partner’s Capital on the Basis of Old Partner’s Adjusted Capital 
• Admission of a Partner - Treatment of Goodwill 
• Admission of a Partner - Adjustment of Accumulated Profits and Losses 
• Preparation of Revaluation Account and Balance Sheet 
• Change in Profit Sharing Ratio 
  • Change in PSR takes place at the time of admission of a partnership firm.
  • Accounting treatment of accumulated profits and losses through one journal entry:
  • Gaining partners cap/current A/c Dr.
  • To sacrificing Partners cap/current (in case of profits).
  • Sacrificing partners’ cap/current A/c Dr.
  • To Gaining Partners cap/current (in case of losses)
  • General Reserve/ Reserve fund, Workmen Compensation Reserve/ Fund, Investment Fluctuation Reserve/ Fund, Contingency Reserve, Profit and Loss Account (Debit and Credit Balance) and Advertisement Suspense Account/ Deferred Revenue Expenditure
• Retirement and Death of a Partner - Calculation of New Profit Sharing Ratio 
• Retirement and Death of a Partner - Gaining Ratio 
• Retirement Or Death of a Partner - Preparation of Loan Account of the Retiring Partner 
• Retirement and Death of a Partner - Sacrificing Ratio 
• Adjustment with Regard to Goodwill Including Hidden Goodwill 
• Adjustment with Regard to Undistributed Profits and Losses 
• Adjustment with Regard to Share of Profits of the Retiring Or Deceased Partner from the Date of the Last Balance Sheet to the Date of Retirement Or Death 
  • Through P & L Suspense A/c (in case of no change in PSR of remaining partners).
  • Through Gaining Partners capital/ current A/c (in case of change in PSR of remaining partners).
• Retirement and Death of a Partner - Adjustment of Capitals 
  1. Readjusting the adjusted capital of the continuing partners in the new profit sharing ratio.
  2. Adjusting the capitals of the continuing partners on the basis of the total capital of the new firm.
  3. When the continuing partners bring in cash to pay off the retiring partners.
• Preparation of Revaluation Account on Retirement Or Death of a Partner 
• Calculation and Payment of Amount Due to Retiring Partner 
• Dissolution of Partnership Firm 
• Dissolution of a Partnership Firm - Settlement of Accounts 
  • Settlement of accounts under Section 48 of The Indian Partnership Act 1932
• Dissolution of a Partnership Firm - Preparation of Realization Account, and Other Related Accounts 
  • Capital accounts of partners
  • Cash and bank a/c (excluding piecemeal distribution, sale to a company and insolvency of partner(s)).
• Dissolution of a Partnership Firm - Partner’s Loan Account 

Admission

Calculation of new profit sharing ratio, sacrificing ratio and gaining ratio.

Self Explanatory

Accounting treatment of goodwill on admission of a partner.

Based on Accounting Standard –26 issued by the Institute of Chartered Accountants of India in the context of Intangible Assets. 

• Premium for goodwill paid privately.
• Premium for goodwill paid (in cash or kind) and retained in the business.
• Premium for goodwill paid and withdrawn by the old partners.
• When the incoming partner cannot bring premium for goodwill in cash, adjustments are to be done through his current account.
• Hidden goodwill.
• When goodwill appears in the old Balance Sheet.

Preparation of Revaluation Account.

• Preparation of a Revaluation Account where changes in the values of assets and liabilities are reflected in the new Balance Sheet after reconstitution of a partnership firm.

NOTE: Memorandum revaluation account is excluded from the syllabus.

Accounting treatment of accumulated profits and losses.

• General Reserve / Reserve Fund, Workmen Compensation Reserve/ Fund, Investment Fluctuation Reserve/Fund, Contingency Reserve, Profit and Loss Account (Debit andCredit balance) and Advertisement Suspense Account/ Deferred Revenue Expenditure.

Adjustment of Capitals

• Adjustment of old partner’s Capital Accounts on the basis of the new partner’s capital.
• Calculation of new partner’s capital on the basis of old partner’s adjusted capital.

Change in Profit Sharing Ratio.

• Change in PSR takes place at the time of admission of a partnership firm.
• Accounting treatment of accumulated profits and losses through one journal entry:
• Gaining partners cap/current A/c Dr.
• To sacrificing Partners cap/current (in case of profits).
• Sacrificing partners’ cap/current A/c Dr.
• To Gaining Partners cap/current (in case of losses)
• General Reserve/ Reserve fund, Workmen Compensation Reserve/ Fund, Investment Fluctuation Reserve/ Fund, Contingency Reserve, Profit and Loss Account (Debit and Credit Balance) and Advertisement Suspense Account/ Deferred Revenue Expenditure

Retirement and death of a partner

Calculation of new profit sharing ratio, gaining ratio and sacrificing ratio.

• Self Explanatory.

Adjustment with regard to goodwill including hidden goodwill.

• Self Explanatory.

Adjustment with regard to undistributed profits and losses.

• Self Explanatory.

Adjustment with regard to share of profits of the retiring or deceased partner from the date of the last Balance Sheet to the date of
retirement or death (on the basis of time or turnover).

• Through P & L Suspense A/c (in case of no change in PSR of remaining partners).
• Through Gaining Partners capital/ current A/c (in case of change in PSR of remaining partners).

Preparation of Revaluation Account on retirement or death of a partner.

• Self Explanatory.

Adjustment of capitals.

• Readjusting the adjusted capital of the continuing partners in the new profit sharing ratio.
• Adjusting the capitals of the continuing partners on the basis of the total capital of the new firm.
• When the continuing partners bring in cash to pay off the retiring partners.

Calculation and payment of amount due to retiring partner.

• Self Explanatory.

Preparation of retiring partner’s loan accounts and deceased partner’s executor’s loan account (with interest on loan accrued and due and interest on loan accrued but not due).

• Self Explanatory

Change in Profit Sharing Ratio.

• Change in PSR takes place at the time of retirement / death of a partnership firm.
• Accounting treatment of accumulated profits and losses through one journal entry:
• Gaining partners cap/current A/c Dr.
• To sacrificing Partners cap/current (in case of profits).
• Sacrificing partners’ cap/current A/c Dr.
• To Gaining Partners cap/current (in case of losses)
• General Reserve/ Reserve fund, Workmen Compensation Reserve/ Fund, Investment Fluctuation Reserve/ Fund,
  Contingency Reserve, Profit and Loss Account (Debit and Credit Balance) and Advertisement Suspense Account/ Deferred Revenue Expenditure

NOTE:

Preparation of Balance Sheet in Partnership Accounts to be done in Horizontal format only.

Memorandum Revaluation Account, Joint Life Policy, Individual life policy are excluded from the syllabus.

Dissolution of a Partnership firm.

Meaning of dissolution and settlement of accounts under Section 48 of The Indian Partnership Act 1932.

• Self Explanatory

Preparation of Realization Account, Partner’s Loan Account, Partner’s Capital Account and Cash/Bank Account.

• Self-explanatory

NOTE:

• When an asset or a liability is taken to the realization account any corresponding/related fund or reserve is also transferred to
  realization account and not to capital account.
• When accounts are prepared on a fixed basis, partners current account balances are to be transferred to capital account. No adjustments are required to be passed through current account.
• Bank overdraft is to be taken to the bank/cash A/c and not to be transferred to realization account but bank loan must be transferred to realization account.
• If question is silent about the payment of a liability, then it is has to be paid out in full.
• If the question is silent about the realization of an asset, its value is assumed to be nil.
• Loan taken from a partner will be passed through cash or bank account.
• Loan given to a partner will be transferred (debited) to his Capital account.
• Admission cum retirement, amalgamation of firms and conversion/sale to a company
  together with piecemeal distribution and insolvency of a partner / partners not required.

• Issue of Shares for Consideration Other than Cash 
• Calls in Advance and Arrears 
• Over Subscription of Shares 
• Under Subscription of Shares 
• Prorata Allotment of Over and Under Subscription 
• Accounting Treatment of Forfeiture and Re-issue of Share 
• Disclosure of Share Capital in Company’s Balance Sheet (Horizontal Form) 

Problems on issue of shares.

• Issue of shares at par and premium under Companies Act, 2013.
• Issue of shares for considerations other than cash:

1. To promoters (can be considered either through Goodwill account or Incorporation costs account).
2. To underwriters.
3. To vendors.

• Calls in arrears, calls in advance and interest thereon including the preparation of ledger accounts.
• Over and undersubscription (including prorata allotment).

NOTE: In prorata allotment when shares are issued at a premium, excess money received on application will first be adjusted towards the share capital. Any excess thereon will be utilized towards the Securities Premium Reserve.

When allotment or any call money is due, it is to be transferred to the calls in arrears account, on which interest if provided in the
Articles of Association will be calculated.

• Forfeiture and reissue of shares at par, premium or discount.
  Self explanatory.
• Disclosure of Share capital in the company’s Balance Sheet. *

NOTE: Issue of bonus and rights shares, private placement of shares, sweat equity shares, employees’ stock option scheme, reservations for small individual participants and minimum tradable lots are not required.

• Problems on Issue of Debentures 
• Issue of Debentures at Par at Premium and at Discount 
  • Issue of debentures at par, at premium and at discount under Companies Act 2013.
• Issue of Debentures as Collateral Security for a Loan 
• Issue of Debentures for Consideration Other than Cash 
  • To promoters
  • To underwriters
  • To vendors
• Accounting Entries at the Time of Issue When Debentures Are Redeemable at Par and Premium 
• Calls in Arrears, Calls in Advance and Interest Thereon 
• Interest on Debentures 
  • Interest on debentures (with TDS)
• Disclosure of Debentures in the Company’s Balance Sheet 
• Methods of Writing off Discount / Loss on Issue of Debentures 
  • When debentures are redeemable in a lump sum at the end of a specified period;
  • When debentures are redeemable in instalments
• Disclosure of Discount on Issue of Debentures in the Company’s Balance Sheet When Debentures Are Redeemed in Instalments 

Problems on issue of debentures (at par, at premium and at discount.)

Problems on issue of debentures to include:

• Issue of debentures at par, at premium and at discount under Companies Act 2013.
• Issue of debentures as collateral security for a loan.
• Issue of debentures for considerations other than cash.

1. To promoters.
2. To underwriters.
3. To vendors

• Accounting entries at the time of issue when debentures are redeemable at par and premium.
• Interest on debentures (with TDS).
• Disclosure of Debentures in the company’s Balance Sheet.
• Disclosure of discount on issue of debentures in the company’s Balance Sheet when debentures are redeemed in instalments.

NOTE:

Premium on the redemption of debentures to be recorded under the head → Non Current Liabilities, subhead → Long Term Borrowings.

• Creation of Debenture Redemption Reserve 
• Redemption of Debentures Out of Profits 
• Redemption of Debentures Out of Capital 
• Redemption of Debentures for Immediate Cancellation - Draw of Lots, Lump Sum and Purchase in the Open Market 

• Creation of Debenture Redemption Reserve (DRR).
• Redemption of debentures out of profits.
• Redemption of debentures out of capital.
• Redemption of debentures in a lump sum.
• Redemption of debentures in annual instalments by draw of lots.
• Redemption of debentures by purchase in the open market.
• Self-Explanatory.

NOTE: Calculation of ex-interest and cum-interest are not required.

• Preparation of Balance Sheet 
  • Preparation of Balance sheet from receipt and payment account with additional information
• Statement of Profit and Loss and Balance Sheet in the Prescribed Form with Major Headings and Sub Headings 
• Preparation of Comparative Balance Sheet and Statement of Profit and Loss (Inter-firm and Intrafirm) Showing Absolute Change and Percentage Change 
• Common Size Statement of Profit and Loss to Be Prepared as a Percentage of Revenue from Operations 

Preparation of the Balance Sheet of a company (along with notes to accounts) as per Schedule III Part I of Companies Act
2013. **

NOTE: Schedule III Part II of Companies Act 2013 (Statement of Profit and Loss) is not required for the purpose of preparing final accounts of a Company.

However, for the preparation of Comparative and Common Size Income Statements (Section B – Unit 4: Financial
Statement Analysis), the extent and format of the Statement of Profit and Loss as per

Schedule III Part II of the Companies Act 2013 to be studied is as follows:

Statement of Profit and Loss for the year ended:………………..

• Liquidity Ratios 

  Current Ratio: `"Current Assets"/"Current Liabilities"`

  Current Assets = Current Investments + Inventories (excluding Loose Tools and Spare Parts) + Trade Receivables + Cash and Bank Balance + Short-term Loans and Advances + Other Current Assets

  Current Liabilities = Short term borrowings + Trade payables + Other Current Liabilities + Short term Provisions.

  Quick Ratio / Liquid Ratio : `"Quick Assets"/"Current Liabilities"`

  Or

  `"All Current Assets- Inventories(excluding Loose Tools and Spare Parts)- Prepaid Expenses"/"Current Liabilities"`

  Or

  `"Liquid Assets"/"Current Liabilities"`

``

Current Assets = Current Investments + Inventories (excluding Loose Tools and Spare Parts) + Trade Receivables + Cash and Bank

Balance + Short-term Loans and Advances + Other Current Assets

Current Liabilities = Short term borrowings + Trade payables + Other Current Liabilities + Short term Provisions

``

OR

``

OR

``

• Solvency Ratios - Debt to Equity Ratio 

  Debt to Equity Ratio: `"Debt / Long Term Debt"/"Equity / Shareholders' Funds"`

  Debt = Long Term Borrowings + Long Term Provisions

  Equity / Shareholders’ Funds = Share Capital + Reserves and Surplus

  Or

  Non Current Assets + (Current Assets – Current Liabilities) - Non Current Liabilities

  = Non Current Assets + Working Capital- Non Current Liabilities

  = (Tangible Assets + Intangible Assets + Non Current Investments + Long Term Loans and Advances) +  Working Capital – (Long Term Borrowings + Long Term Provisions)

• Solvency Ratios - Proprietary Ratio 

  Proprietary Ratio: `"Shareholders Funds/ Equity"/"Total Assets"`

  Total Assets = Non Current Assets + Current Assets = Tangible Assets + Intangible Assets + Non Current Investments + Long Term Loans and Advances

  +

  Current Investments + Inventories (including Loose Tools and Spare Parts) + Trade Receivables + Cash
  and Bank Balance + Short-term Loans and Advances + Other Current Assets

• Solvency Ratios - Debt to Total Assets Ratio 

  Debt to Total Assets Ratio: Debt/Total Assets

• Solvency Ratios - Interest Coverage Ratio 

  Interest coverage ratio = Net profit before interest and taxes/Interest

  Interest includes interest on only long term borrowings.

``

Debt = Long Term Borrowings + Long Term Provisions

Equity / Shareholders’ Funds = Share Capital + Reserves and Surplus

OR

Non Current Assets + (Current Assets – Current Liabilities) - Non Current Liabilities

= Non Current Assets + Working Capital- Non Current Liabilities

= (Tangible Assets + Intangible Assets + Non Current Investments + Long Term Loans and Advances) + Working Capital – (Long Term Borrowings + Long Term Provisions)

``

Total Assets = Non Current Assets + Current Assets = Tangible Assets + Intangible Assets + Non Current Investments + Long Term Loans and Advances

Current Investments + Inventories (including Loose Tools and Spare Parts) + Trade Receivables + Cash and Bank Balance + Short-term Loans and Advances + Other Current Assets

``

"Interest coverage ratio" ="Net profit before interest and taxes"/"Interest"

Interest includes interest on only long term borrowings

• Activity Ratios - Trade Receivables Turnover Ratio 

  Trade Receivable Turnover Ratio: = Credit Revenue from Operation/Average Trade Receivable

  Credit Revenue from Operation = Revenue from Operation – Cash Revenue from Operation

  Average Trade Receivables = Opening Trade Receivable + Closing Trade Receivable/2

• Activity Ratios - Trade Payables Turnover Ratio 

  Trade Payable Turnover Ratio: = Net Credit Purchases/Average Trade Payable

  Average Trade Payables = Opening Trade Payable + Closing Trade Payable  / 2

• Activity Ratios - Working Capital Turnover Ratio 

  Working Capital Turnover Ratio = Revenue from Operations/Working Capital

• Activity Ratios - Inventory Turnover Ratio 

  Inventory Turnover Ratio = (Cost of Goods Sold /Cost of Revenue from Operation)/Average Inventory

  Cost of goods sold= Opening Stock + Net Purchases + Direct Expenses – Closing Stock

  Cost of Revenue from Operations = Revenue from Operations – Gross Profit

  Or

  Cost of Material Consumed (including direct expenses) + Change in inventories of WIP and Finished Goods

  Or

  Opening Inventory + Net Purchases+ Direct Expenses – Closing inventory

  Average Inventory = (Opening Inventory + Closing Inventory)/2

Debtors Turnover Ratio will be replaced by

``

Credit Revenue from Operation = Revenue from Operation – Cash Revenue from Operation

``

Creditors Turnover Ratio will be replaced by

``

``

``

Stock Turnover Ratio will be replaced by Inventory Turnover Ratio = Cost of Goods Sold /

``

Cost of goods sold= Opening Stock + Net Purchases + Direct Expenses – Closing Stock

Cost of Revenue from Operations = Revenue from Operations – Gross Profit

Or

Cost of Material Consumed (including direct expenses) + Change in inventories of WIP and Finished Goods

Or

Opening Inventory + Net Purchases+ Direct Expenses – Closing inventory

``

• Profltabtltty Ratios - Gross Profit Ratio 

  Gross Profit Ratio: `"Gross Profit"/"Revenue from Operations"xx100`

  Gross Profit = Revenue from Operations – Cost of Revenue from Operations/ Cost of Goods Sold
  Cost of Revenue from Operations = Cost of Material Consumed (including direct expenses) + Change in inventories of WIP and Finished Goods.

  Or

  Opening Inventory + Net Purchases + Direct Expenses – Closing inventory

• Profitability Ratios - Net Profit Ratio 

  Net Profit Ratio = `"Net Profit"/"Revenue from Operations"xx100`

  Net Profit = Gross profit + Other Income – Indirect Expenses – Tax

   

   

• Profitability Ratios - Operating Ratio 

  Operating Ratio =``

  Operating Expenses = Employee Benefit Expenses + Depreciation and Amortisation Expenses + Selling
  and Distribution Expenses+ Office and Administrative Expense

  Operating Income = Sale of scrap, trading commission received, cash discount received, revenue from services.

   

• Profitability Ratios - Operating Profit Ratio 

  Operating Profit Ratio : ``

  Net operating profit = Net Profit after Tax+ Non-Operating Expenses – Non Operating Incomes

  Or

  Gross Profit – Operating Expenses + Operating Incomes

  Non Operating Expenses = Finance Cost (Interest on Borrowings) + Loss on sale of Non Current Assets

  Non Operating Incomes = Interest and Dividend Received on Investment + Profit on sale of Non Current Assets

• Profitability Ratios - Earning per Share 

  `"Earning per share" = "Net Profit after Tax and Preference Dividend"/"No. of Equity Shares"`

   

• Profitability Ratios - Price Earning Ratio 

  `"Price Earning Ratio" = "Market Value of an Equity share"/"Earning per share"`

  
  

  
  

• Profitability Ratios - Return on Investment 

  Return on Investment = `"Net Pr ofit before Interest and Tax"/"Capital Employed"xx100`

Gross Profit Ratio 

``

Gross Profit = Revenue from Operations – Cost of Revenue from Operations/ Cost of Goods SoldCost of Revenue from Operations = Cost of Material Consumed (including direct expenses) + Change in inventories of WIP and Finished Goods

OR

Opening Inventory + Net Purchases + Direct Expenses – Closing inventory

Net Profit Ratio

``

Net Profit = Gross profit + Other Income – Indirect Expenses – Tax

Operating Ratio: 

"Cost of Revenue from Operations/Cost of Goods Sold + Operating Expenses"/"Revenue from Operations"xx100

 Operating Expenses = Employee Benefit Expenses + Depreciation and Amortisation Expenses + Sellingand Distribution Expenses+ Office and Administrative Expense.

Operating Income = Sale of scrap, trading commission received, cash discount received, revenue from services

Operating Profit Ratio:

``

Net operating profit = Net Profit after Tax+ Non-Operating Expenses – Non Operating Incomes

OR

Gross Profit – Operating Expenses + Operating Incomes

Non Operating Expenses = Finance Cost (Interest on Borrowings) + Loss on sale of Non Current Assets

Non Operating Incomes = Interest and Dividend Received on Investment + Profit on sale of Non Current Assets

Earning per share:

``

Price Earning Ratio:

``

Return on Investment

`=`

NOTE:

• Current Ratio includes Net Debtors (Gross Debtors – Provision for doubtful debts) while Trade Receivables Turnover Ratio includes Gross
  Debtors.
• Capital employed = Shareholders’ Funds + Non-current liabilities – non trade investments
  OR
  Non-current assets (excluding Non-trade investments) + Working Capital
  OR
  Fixed Assets + Trade Investments + Working Capital