Solvency ratios show the long - term financial solvency and measure the enterprises ability to pay interest and long - term liability at maturity. They include:
(i)  Debt to Equity Ratio
(ii) Proprietary Ratio
(iii) Total assets to debt Ratio

The monopoly condition or limited competition enable the concern to earn high profits which leads to higher value of Goodwill.

The firm that produces high value added products or has stable demand will be able to earn more profit and more Good will.

The monopoly condition or limited competition enables the concern to earn high profits which leads to higher value of goodwill

Computation of sacrificing ratio and new profit sharing ratio
Share sacrificed =  \(\frac { 1 }{ 5 } ,\frac { 1 }{ 5 } \)
Sacrificing ratio of Hameed and Govind is 1:1
Old ratio is 5:3 that is \(\frac { 5 }{ 8 } :\frac { 3 }{ 8 } \)
New share of old partner = Old share - Share sacrificed
Hameed = \(\frac { 5 }{ 8 } -\frac { 1 }{ 5 } =\frac { 25-8 }{ 40 } =\frac { 17 }{ 40 } \)
Govind = \(\frac { 3 }{ 8 } -\frac { 1 }{ 5 } =\frac { 15-8 }{ 40 } =\frac { 7 }{ 40 } \)
Share of new partner
John = Sum of shares sacrificed by old partners
=\(\frac { 1 }{ 5 } +\frac { 1 }{ 5 } =\frac { 2 }{ 5 } \)
In order to equalise the denominator of John’s share, multiply and divide by 8 John’s share =\(\\ \frac { 2 }{ 5 } \times \frac { 8 }{ 8 } =\frac { 16 }{ 40 } \)
New profit sharing ratio of Hameed, Govind and John is \(\frac { 17 }{ 40 } :\frac { 7 }{ 40 } :\frac { 16 }{ 40 } \) or 17:7:16

Return Investment = \(\frac{Net\ profit\ before\ interest\ and\ tax}{Capital\ employed}\) \(\times\) 100
= \(\frac{25,000}{1,25,000}\) = x 100 = 20%
Capital employed = Share capital + Reserves and surplus + Long term borrowings
= 70,000 + 25,000 + 30,000 = Rs.1,25,000

Date	Particulars		L.F.	Debit Rs.	Credit Rs.
	Equity share capital A/c (500 × 10)	Dr.		5,000
	To Equity share call A/c (500 × 2)				1,000
	To Forfeited shares A/c (500 × 8)				4,000
	(500 shares forfeited for non payment of call money)

(i) Quick ratio gives the proportion of quick assets to current liabilities.
(ii) It indicates whether the business concern is in a position to pay its current liabilities as and when they become due, out of its quick assets.
(iii) It is otherwise called liquid ratio or acid test ratio.
(iv) It is calculated as follows:
Quick ratio = \(\frac { Quick\ assets }{ Current\ liabilities } \).
Quick assets = Current assets - Inventries - prepaid expenses. higher the Quick ratio better is the short - term financial position of an enterprises.  

(i) Ratio is a mathematical expression of relationship between two related or interdependent items.
(ii) It is the numerical or quantitative relationship between two items
(iii) It is calculated by dividing one item by the other related item.
(iv) When ratios are calculated on the basis of accounting information, these are called 'accounting ratios'.

Journal entry

Date	Particulars		L.F	Debit Rs.	Credit RS.
2019 January 1	Mary’s capital A/c	Dr.		25,000
	Meena’s capital A/c	Dr.		25,000
	Mariam’s capital A/c	Dr.		25,000
	To Profit and loss a/c				75,000
	(Accumulated loss transferred to all partners’ capital account in the old profit sharing ratio)

Journal entry

Date	Particulars		L.F	Debit Rs.	Credit RS.
2017 March 31	General reserve A/c	Dr.		60,000
	To Vivin’s capital A/c (60,000 × 3/6)				30,000
	To Hari’s capital A/c (60,000 × 2/6)				20,000
	To Joy’s capital A/c (60,000 × 1/6)				10,000
	(General reserve transferred to all partners’ capital account in the old profit sharing ratio)

Common-size income statement of Kumar Ltd for the year ended 31^st March, 2018

Particulars	Absolute amount	Percentage of revenue from operations
Revenue from operations	5,00,000	100
Add: Other income	20,000	4
Total revenue	5,20,000	104
Less: Expenses	3,00,000	60
Profit before tax	2,20,000	44

Computation of percentage for other income
\(\cfrac { 20,000 }{ 5,00,000 } \times 100=4%\)%

Journal entries

Date	Particulars		L.F	Debit Rs.	Credit Rs.
	Equity share first and final call A/c (15,000 × 2)	Dr.		30,000
	To Share capital A/c				30,000
	(Share first and final call money due)
	Bank A/c (14,900 × 2)	Dr.		29,800
	Calls in arrear A/c (100 × 2)	Dr.		200
	To Equity share first and final call A/c				30,000
	(Amount received on calls and amount not
	received transferred to calls in arrear account)

Accounting report is a compilation of accounting information that are derived from the accounting records of a business concern. Accounting reports may be classified as routine reports and special purpose reports.

(i) Automated accounting is an approach to maintain up-to-date accounting records with the aid of accounting software.
(ii) Under manual accounting system entries are made in different books of accounts while accounting software packages sallow manual entry in one field or one place.

Comparative income statement of Tharun Co. Ltd for the years ended 31^st March, 2017 and 31^st March, 2018

Particulars	2016-17	2017-18	Absolute amount of increase ( +) or decrease (–)	Percentage increase (+) or decrease (–)
	Rs.	Rs.	Rs.
Revenue from operations	2,00,000	2,50,000	+50,000	+25
Add: Other income	50,000	40,000	–10,000	–20
Total revenue	2,50,000	2,90,000	+40,000	+16
Less: Expenses	1,50,000	1,20,000	–30,000	–20
Profit before tax	1,00,000	1,70,000	+70,000	+70

Computation of percentage increase for revenue from operations
\(\cfrac { Absolute\ amount\ of\ increase\ or\ decrease }{ Year\ 1\ amount } \times 100=\cfrac { 50,000 }{ 2,00,000 } \times 100=25%\)

Journal entry

Date	Particulars	L.E.	Debit Rs.	Credit Rs.
2019	Kavitha’s capital A/c Dr.		40,000
January 1	Radha’s capital A/c Dr.		30,000
	To Profit and loss a/c (Accumulated loss transferred to old partners’ capital account in the old profit sharing ratio)			70,000

Journal entry

Date	Particulars	L.E.	Debit Rs.	Credit Rs.
2017	Reserve fund A/c Dr.		50,000
March 31	To Mala’s capital A/c (50,000 \(\times\) 3/5)			30,000
	To Vimala’s capital A/c (50,000 \(\times\) 2/5) (Reserve fund transferred to old partners’ capital account in the old profit sharing ratio)			20,000

Goodwill = Average profit \(\times\) Number of years of purchase
Average profit \(=\frac{Total\ profit}{Number\ of\ years}\)
\(\frac{10,000+11,000+12,000+13,000+14,000}{5}\)
\(=\frac{60,000}{5}\) = Rs. 12,000
Average profit = Rs. 12,000
Goodwill Average profit \(\times\) Number of years of purchase
12,000 \(\times\) 2 = 24,000
Goodwill = Rs. 24,000

Calculation of weighted average profit

Year	Profit (a) Rs.	Weights (b)	Weighted profits (a x b) Rs
2015	20,000	1	20,000
2016	22,000	2	44,000
2017	24,000	3	72,000
2018	28,000	4	1,12,000
Total		10	2,48,000

Weighted average profit = \(\frac { Total\ of\ weighted\ profits }{ Total\ of\ weights } \)
=\(\frac { 2,48,000 }{ 10 } \)=Rs.24,800
Goodwill = Weighted average profit × Number of years of purchase
= 24,800 x 3 = Rs.74,400

Goodwill = Average profit \(\times\) Number of years of purchase
Average profit = \(\frac { Total\ profit }{ Number\ ofyear } \)
= \(\frac { 4,000+3,000+5,000+4,500+3,500 }{ 5 } \)
= \(\frac { 20,000 }{ 5 } \)= Rs. 4,000
Goodwill =  Average profit \(\times\) Number of years of purchase
= 4,000 \(\times\) 3 = Rs.12,000

Partnership deed is a document in writing that contains the terms of the agreement among the partners. It is not compulsory for a partnership to have a partnership deed as per the Indian Partnership Act, 1932. But, it is desirable to have a partnership deed as it serve as an evidence of the terms of the agreement among the partners.

Calculation of interest on drawings of Vennila (using average period)
Total amount of drawings = 5,000 x 2 = Rs.10,000
If drawings are made at the end of every half year, average period = 9
Interest on drawings = Total amount of drawings x Rate of interest x \(\frac { Average\quad period }{ 12 } \)
= Rs.10,000 x \(\frac { 4 }{ 100 } \times \frac { 9 }{ 12 } \) = Rs. 300

Calculation of interest on drawings of Priya (using average period)
Total amount of drawings = 4,000 \(\times\) 4 = Rs. 16,000
If drawings are made at the end of every quarter, average period = 4.5
Interest on drawings = Total amount of drawings \(\times\) Rate of interest \(\times\) \(\frac { Average\quad period }{ 12 } \)
= Rs. 16,000 \(\times\) \(\frac { 6 }{ 100 } \times \frac { 4.5 }{ 12 } \) = Rs. 360

(i) Some organisations are established for the purpose of rendering services to the public without any profit motive.
(ii) They may be created for the promotion of art, culture, education, sports, etc. These organisations are called not-for-profit organisation.
(iii) Charitable institutions, educational, institutions, cultural societies, sports and recreation clubs, hospitals, libraries and literary associations are some of the examples of not-for-profit organisations.

Dr. Income and Expenditure Account for the year ended 31^st March, 2019 Cr.

Expenditure	Rs.	Rs.	Income	Rs.
To Sports materials consumed:			By Sale of old sports materials	500
Opening stock	3,000
Add: Purchased in the current year	9,000
	12,000
Less: Closing stock	4,000	8,000

Balance sheet as on 31^st March, 2019

Liabilities	Rs.	Rs.	Assets	Rs.	Rs.
			Stock of sports materials		4,000

Dr. Income and Expenditure Account for the year ended 31^st March, 2017 Cr Expenditure Rs. Income Rs. Rs.     By Subscription 60,000       Add: Outstanding subscription for 2016-17 2,400       Subscription received in advance in         in advance in 1,000 63,400           Tutorial note
(i) Subscription for the year 2015-16 Rs. 7,500 and for the year 2017-18 Rs. 1,500 do not relate to the current year. So they should not be recorded in Income and Expenditure Account.
(ii) Subscription outstanding for the current year 2016-17 is Rs. 2,400. It should be added with the amount of subscription received during 2016-17.

Dr.              Total creditors account             Cr

Particulars	Rs.	Particulars	Rs.
To Cash A/c (paid)	1,60,000	By Balance b/d	50,000
To Returns outward A/c	6,000	By Credit purchases A/c	1,86,000
To Balance c/d	70,000	(balancing figure)
	2,36,000		2,36,000

Format of bills payable account

Dr.     Bills payable account      Cr.

Particulars	Rs	Particulars	Rs
To Cash / Bank A/c	xxx	By Balance b/d	xxx
(bills payable paid)		(opening balance)
To Sundry creditors A/c	xxx	By Sundry creditors A/c	xxx
(bills payable dishonoured)		(bills accepted)
To Balance c/d	xxx
(closing balance)
	xxx		xxx

Statement of profit or loss for the year ended 31st March, 2019

Particulars	Rs.
Closing capital (as on 31.3.2019)	1,50,000
Add: Drawings during the year	30,000
Less: Additional capital introduced during the year	1,80,000
	25,000
Adjusted closing capital	1,55,000
Less: Opening capital (as on 1.4.2018)	1,60,000
Loss incurred during the year	(-) 5,000

Statement of profit or loss for the year ended 31^st March, 2017

Particulars	Rs.
Closing capital (as on 31.3.2017)	3,50,000 40,000
Add: Drawings during the year
	3,90,000
Less: Additional capital introduced during the year	70,000
Adjusted closing capital	3,20,000 2,00,000
Less: Opening capital (as on 1.4.2016)
Profit made during the year	1,20,000