ISC Class 12 Accountancy Syllabus 2023-24

• 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 from the firm should be credited to P/L account and debited to his capital/current account as the case may be.

• Rent due 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.

• Rectification of errors (past adjustments) through a single journal entry/ adjusting and closing journal entries, preparation of partners’ adjusted capital/current accounts.

• Admission of manager as a Partner is excluded from the topic of past adjustments/guarantee of profits.

• Average profit method – Meaning and practical application.

• Super profit method – Meaning and practical application.

• Capitalization method – Meaning and practical application.

• If question is silent about the payment of a liability, then it 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 even if the partner’s capital account has a debit balance.

• 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.

• To promoters (can be considered either through Goodwill account or Incorporation costs account).

• To underwriters.

• To vendors.

• 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 .

• To promoters.

• To underwriters.

• To vendors

• Creation of Debenture Redemption Reserve (wherever applicable)

• 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- for immediate cancellation; as an investment and then later cancelled.

• Unlisted NBFCs and HFCs need not deposit any amount of its debentures maturing during the year with scheduled banks or invest it in specified government securities.

• The following companies will continue to invest or deposit, on or before 30th April in each year, a sum which shall not be less than 15 per cent, of the amount of its debentures maturing during the year, ending on 31st March of the next year, in deposits with any scheduled bank, free from any charge or lien / in unencumbered securities of the Central Government or any State Government / in unencumbered securities mentioned in Section 20 of the Indian Trusts Act, 1882/ in unencumbered bonds issued by any other company notified under Section 20 of the Indian Trusts Act, 1882:

• Issue of shares at par and premium, issue of debentures at par, premium and discount.

• Redemption of preference shares and debentures at par.

• Interest paid on Long-Term and Short- Term Borrowings.

• Dividend– interim and final- paid on shares.

• Long-term borrowings and Short-term borrowings – bank overdraft, cash credit and short-term loan. whether taken or repaid.

• Share issue expenses / underwriting commission paid.

• Cash purchase of fixed assets.

• Cash sale of fixed assets.

• Purchase of shares or debentures or long- term investments of other companies.

• Interest and dividend received on shares or debentures or long- term investments of other companies.

• Sale of shares or debentures or long- term investments of other companies.

• Cash

• Bank

• Short term investments

• Marketable securities

A. Liquidity Ratios

  (i) Current Ratio
$$= \frac{\text{Current Assets}}{\text{Current Liabities}}$$

Current Assets = Current Assets= Current Investments + Inventories (excluding Loose Tools and Spare)
+ 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

(ii) Quick Ratio/Liquid Ratio / Acid Test Ratio:

$$=\frac{\text{Quick Assets}}{\text{Current Liablities}}$$ 

 OR

= $$\frac{\text{All Current Assets - Inventories(excluding Loose Tools and Spare Parts)- Prepaid Expenses}}{\text{Current Liabilities}}\\\text{OR}\\=\frac{\text{Liquid Assets}}{\text{Current Liablities}}$$

B. Solvency Ratios:

(i) Debt to Equity Ratio: 

$$=\frac{\text{Debt/ Long Term Debt}}{\text{Equity/Sharehooder's Funds}}$$

Debt = Long Term Borrowings + Long Term Provisions
Equity/Sharehlders' Funds = Share Capital + Reserves and Surplus

OR

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

OR

Non-Current Assets + Working Capital - Non - Current Liabilities

OR

= (Property, Plant and Equipment + Intangible Assets + Non-Current Investments + Long Term Loans and Advances) + Working Capital - (Long Term Borrowings + Long Term Provisions)

(ii) Proprietary Ratio:

$$ =\frac{\text{Shareholders Funds/ Equity}}{\text{Total Assets}}$$

 Total Assets = Non- Current Assets + Current Assets

= Property , Plant and Equipment + 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

(iii) Debt to Total Assets Ratio:

$$=\frac{\text{Debt}}{\text{Total Assets}}$$

(iv) Interest coverage ratio

$$=\frac{\text{Net profit before interest and taxes}}{\text{Fixed Interest Charges}} $$ Fixed Interest Charges includes interest on only long -term borrowings.

C. Activity Ratios:

(i) Trade Receivables Turnover Ratio:

$$= \frac{\text{Credit Revenue from Operations}}{\text{Average Trade Receivables}}$$

Credit Revenue from Operations = Revenue from Operations - Cash Revenue from Operations

Average Trade Receivales:

 $$=\frac{\text{Opening Trade Receivables + Closing Trade Receivables}}{2}$$

(ii) Trade Payables Turnover Ratio: $$=\frac{\text{Net Credit Purchases}}{\text{Average Trade Payables}}$$ Average Trade Payables: $$=\frac{\text{Opening trade Payable + Closing Trade Payable}}{2}$$

(iii) Working Capital Turnover Ratio:

$$=\frac{\text{Revenue from Operations}}{\text{Working Capital}}$$

(iv) Inventory Turnover Ratio:

$$=\frac{\text{Cost of revenue from Operations}}{\text{Average Inventory}}$$

 Cost of Revenue from Operations = Revenue from Operations - Gross Profit
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: $$=\frac{\text{Opening Inventory + Closing Inventory}}{2}$$

D. Profitability Ratios:

(i) Gross Profit Ratio: 

$$=\frac{\text{Gross Profit}}{\text{Revenue from Operations}}×100$$

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

(ii) Net Profit Ratio:

$$=\frac{\text{Net Profit}}{\text{Revenue from Operations}}×100$$ Net Profit = Gross profit + Other Income - Indirect Expenses - Provision for Tax

(iii) Operating Ratio:

$$=\frac{\text{Cost of Revenue from Operations + Operating Expenses}}{\text{Revenue from Operations}}×100\\\text{OR}\\\frac{\text{Cost of Revenue from Operations + Operating Expenses - Operating Income}}{\text{Revenue from Operations}}×100$$
Operating Expenses = Employee Benefit Expenses + Depreciation of Tangible Assets + Selling and Distribution Expenses + Office and Admministrative Expenses.
Operating Income = Commission received, Cash discount received.

(iv) Operating Profit Ratio:

$$=\frac{\text{Net Operating Profit}}{\text{Revenue from Operations}}×100$$
Net operating profit = Net Profit after Tax + Provision for Tax + Non- Operating Expenses Non- Operating Incomes

OR

Gross Profit - Operating Expenses + Operating Incomes
Non- Operating Expenses = Finance Cost (Interest on Long - term Borrowings ) + Loss on sale of Non-Current Assets + Amortisation of Intangible Assets + Writing off capital losses
Non- Operating Incomes = Interest and Dividend Received on Investment + Profit on sale of Non- Current Assets.

(V) Earning per share: $$=\frac{\text{Net Profit after Tax and Preference Dividend}}{\text{No. of Equity Shares}}$$

(vi) Price Earning Ratio: $$=\frac{\text{Market Value of an Equity Share}}{\text{Earning per share}}$$

(vii) Return on Investment: $$=\frac{\text{Net Profit before Interest and Tax}}{\text{Capital Employed}}×100$$

NOTE:

1. Current Ratio includes Net Debtors (Gross Debtors - Provision for doubtful debts)
   while Trade Receivables Turnover Ratio includes Gross Debtors
2. Other Current Assets' is restricted to Prepaid Expenses and Accrued Income.
3. Capital employed = Shareholders' Funds + Non-current Liabilities - Non trade Investments
   OR
   Non - current Assets (excluding Non-trade Investments) + Working Capital
   OR Property, Plant & Equipment & Intangible Assets + Trade Investments + Working Capital
4. Investments to be taken as non-trade investments unless specified as trade investments.
5. In Return on Investments Ratio- Net Profit before interest and tax will not include interest on non- trade investments.
6. Revenue from operations (for a manufacturing company)
   $$\begin{rcases} \sdot\text{Net Sales} \\ \sdot\text{Sale of scrap} \end{rcases}\text{For a manufacturing company}$$

Other Income: (for a manufacturing company)

• Rent received (non-operating)
• Commission received (operating)
• Interest and Dividend Received (non- operating)
• Profit from Sale of Fixed Assets (non-operating)
• Cash discount received (operating)

7. Problems on effect of transactions on ratios to be restricted to Current Ratio, Quick Ratio and Debt- Equity Ratio.
8. Net Profit Ratio is to be calculated on 'Net Profit after Tax'

• Accounting Information

• Debtors and Creditors

• Bank Reconciliation Statement

• Asset Accounting