CBSE Class 12 Accountancy

1. Accounting for Partnership Firms

Partnership fundamentals · Goodwill · Change in profit-sharing ratio · Admission of a partner · Retirement and death of a partner · Dissolution of a partnership firm

• Partnership Fundamentals: Deed, Capital and Sharing Profit – A partnership is two or more people who share the profit of a business they run together. Their agreement (deed) says how profit is shared. If there is no deed, the Partnership Act 1932 gives the rules. Profit is first used for partners' interest, salary and commission in a P&L Appropriation Account, and the rest is shared in the profit-sharing ratio.
• Goodwill: What It Is and How to Value It – Goodwill is the value of a firm's good name: the reason it earns more than a normal business of the same size. It is an intangible asset. It is valued by the average profit, super profit or capitalisation method, and partners adjust it through their capital or current accounts.
• Change in Profit-Sharing Ratio Among Existing Partners – When partners agree on a new profit-sharing ratio, some partners give up part of their share (sacrifice) and others get more (gain). The gainer pays the sacrificer for goodwill. Assets and liabilities are revalued, and old reserves and profits are shared in the old ratio, because they were earned under it.
• Admission of a New Partner – When a new partner joins, the old partners give up part of their share. We find the new ratio and the sacrificing ratio, the new partner pays a premium for goodwill (shared by sacrificers as per AS 26), assets and liabilities are revalued, old reserves go to old partners, capitals may be adjusted, and a new balance sheet is drawn.
• Retirement and Death of a Partner – When a partner leaves (retires) or dies, the remaining partners take over his share. We find the gaining ratio, the gainers pay him for goodwill, assets are revalued and reserves shared in the old ratio, and the amount due is settled in cash or moved to his loan account. For a deceased partner, his share of profit up to death is added, and the amount is paid to his executors.
• Dissolution of a Partnership Firm – On dissolution, the firm stops business. All assets (except cash) are sold, all outside liabilities are paid, the profit or loss on this is found in a Realisation Account and shared by partners, and finally partners are paid their capital balances so that every account closes to zero.

2. Accounting for Companies

Accounting for share capital · Accounting for debentures

• Accounting for Share Capital – A company raises money by selling shares. Money usually comes in parts: application, allotment and calls. Journal entries record each part, including premium, extra applications, unpaid calls, advance payments, shares given for assets, and shares taken back (forfeited) and sold again (reissued). Share capital is shown in the balance sheet under Shareholders' Funds.
• Accounting for Debentures – A debenture is a written loan to a company. The company pays fixed interest and returns the money later (redemption). Debentures can be issued at par, premium or discount, redeemed at par or premium, issued to a vendor for assets, or kept with a lender as collateral security. Interest is a charge, and any discount or loss on issue is written off from securities premium and then from profits.

3. Analysis of Financial Statements

Financial statements of a company · Tools of financial statement analysis · Accounting ratios

• Financial Statements of a Company (Schedule III) – A company prepares two main statements: the Balance Sheet (what it owns and owes on a date) and the Statement of Profit and Loss (income and expenses for a year). Schedule III of the Companies Act 2013 gives a fixed vertical format with main heads and sub-heads, so every company's statements look alike and can be compared.
• Tools of Financial Statement Analysis – Analysis means studying financial statements to judge a company's profit, safety and growth. Its main tools are comparative statements (compare two years side by side: change in rupees and %) and common-size statements (show every item as a % of a common base: revenue or total). Analysis has limits: it uses past data, ignores non-money facts and depends on accounting choices.
• Accounting Ratios: Liquidity, Solvency, Activity and Profitability – A ratio compares two related numbers from the financial statements. Liquidity ratios check if short-term debts can be paid; solvency ratios check long-term safety; activity (turnover) ratios check how fast assets are used; profitability ratios check how much profit each rupee earns.

4. Cash Flow Statement

Cash flow statement

• Cash Flow Statement (AS 3): Where Did the Cash Come From and Go? – A cash flow statement shows how cash came into a company and went out during a year. Every cash movement is put in one of three groups: operating, investing or financing. Under the indirect method we start from profit before tax, add back items that used no cash, adjust for changes in current assets and liabilities, and subtract tax paid.

5. Computerised Accounting (option to Part B)

Computerised accounting system · Spreadsheets in accounting · Using a computerised accounting system

• Computerised Accounting System (CAS): Features, Parts and Software Types – A computerised accounting system (CAS) records business deals on a computer. You enter a voucher once and the software posts it, totals it and prints ledgers and statements. A CAS has six parts: hardware, software, people, procedure, data and connectivity. Accounting software may be ready-made, customised or tailored.
• Spreadsheets in Accounting: Formulas, BRS, Schedules, Ratios and Charts – A spreadsheet is a grid of rows and columns where each cell can hold a number, a word or a formula. When one number changes, every formula that uses it updates by itself. Accountants use spreadsheets for bank reconciliation, depreciation and loan schedules, payroll, ratio analysis and charts.
• Using a Computerised Accounting System: From Installation to Statements – To use accounting software you install it, create the company, set up groups and account codes, enter vouchers, and let the software check them. At the year end you pass adjusting and closing entries, print the statements and carry balances forward as opening entries. Passwords, user rights, audit trail and backups keep the data safe.

6. Project Work

Project on financial statement analysis

Coming soon