Yes, it is true that the liquidity of a business firm is measured by its ability to pay its long-term obligations as they become due. Here, the longterm obligation means payment of principal amount on the due date and payment of interest on the regular basis.
For measuring the long term solvency of any business, we calculate the following ratio.
(i) Debt equity ratio
(ii) Proprietary ratio

(i) Nature of a business makes inventory turnover ratio more important in case of a grocery store as compare to an insurance company.
(ii) A grocery store is a trading concern involved in trading. On the other hand, insurance company is involved in service business and involved in delivering service, so there is no question of inventory because service is perishable in nature and cannot be stored.

(i) Inventory turnover ratio is a relationship between the cost of goods sold during a particular period of time and the cost of average inventory during a particular period. It is expressed in number of times.
(ii) Inventory turnover ratio indicates the number of times, the stock has been turned over during the period and evaluates the efficiency with which a firm is able to manage its inventory.

Ratio will increases as both the quick assets and current liabilities i.e., cash and creditors, will decreases by the same amount.

High total assets to debt ratio indicates that assets have been mainly financed by owner's funds and the long-term debt is adequately covered by assets.

Current ratio gives the proportion of current assets to current liabilities of a business concern. It is computed by dividing current assets by current liabilities. It is calculated as follows:
Current ratio = \(\frac{Current assets}{Current liabilities}\).

Liquidity means capability of being converted into cash with ease. Liquidity ratios help to assess the ability of a business concern to meet its short term financial obligations. Liquidity ratios are also called as short term solvency ratios.

According to Myers, "Ratio analysis is a study of relationship among various financial factors in a business':

The benefits he will get from computerised records are
(i) High speed
(ii) Accuracy
(iii) Reliablility
(iv) Versatility
(v) Storage
Value indicated is - Taking care of public health by showing manufacturing and expire date electronically.

Ethical are being violated as the employer is not right in this conduct.

Following are the steps involved in designing accounting reports:
(i) Define the objective of generating report
(ii) Specify the structure of the report
(iii) Creating database queries to interact with the database to retrieve, modify, add or delete data from the records

(i) Computerised accounting system refers to the system of maintaining accounts using computers.
(ii) It involves the processing of accounting transactions through the use of computer in order to maintain and produce accounting records and reports.

Under subscription Over subscription 1. In under subscription all the shares offered
may not be taken up by the public. In over subscription all the shares
offered are taken up by the public 2. The shares cannot be allotted, if the
minimum subscription is not received Here all shares are subscribed, so
there is no question of minimum
subscription 3. Under subscription does not require any
special treatment in journal entries. In over subscription additional journal
entries are required for rejection and
adjustment of application money

(i) Allotment means acceptance by a company of the offer made by an applicant to take shares.
(ii) It is done by Board of Directors.
(iii) On allotment, the applicant becomes the shareholder or member of the company.

According to Lord Justice Lindley, A company is an association of many persons who contribute money or money's worth to - a common stock and employ it in some trade or business and who share the profit and loss arising there from. The common stock so contributed is denoted in money and is the capital of the company. The persons who contributed in it or form it, or to whom it belongs, are members. The proportion of capital to which each member is entitled is his share.

Yes, common size statement is also known as 100 % statement. Since in this statement, all items are expressed as percentage of the base item i.e. revenue from operations in case of common size statement of profit and loss or total assets in case of common size balance sheet.

There is no conflict between both the analysis because both serve different purposes. Horizontal analysis is used for intra-firm comparison and vertical analysis is used for inter-firm comparison. In real practice, both the analysis are complementary in nature.

Yes, financial statement analysis is a post-mortem of the business transactions as it assesses the operational ability, profitability and financial soundness of the business.

Funds flow analysis is concerned with preparation of funds flow statement which shows the inflow and outflow of funds in a given period of time. Funds flow analysis is useful in judging the credit worthiness, financial planning and preparation of budgets.

Trend refers to the tendency of movement. Trend analysis refers to the study of movement of figures over a period. The trend may be increasing trend or decreasing trend or irregular

(i) Intra-firm comparison is comparison within the organisation among different departments, division etc
(ii) Inter-firm comparison is comparison of one firm with other firm or firms in the industry.

The difference between income and expenditure account and profit and loss account are

Basis	Income and Expenditure Account	Profit and Loss Account
Preparation	Income and Expenditure account is prepared by non-profit organisation.	Profit and loss account is prepared by organization whose main objective is to earn profit
Basis of preparation	It is prepared on the basis of receipts and payments account.	It is prepared on the basis of trial balance and additional information
Objective	Its main objective is to ascertain surplus or deficit	Its main objective is to ascertain net profit or loss
Balance	The balance in this account is either surplus or deficit	The balance in this account is either net profit or net loss.

Income and expenditure account is prepared by a non-profit organization and is a summary of income and expenditure of the accounting year.
Income and expenditure account is akin to profit and loss account because of the following similarities
which are observed amongst these accounts.
(i) Both are nominal accounts.
(ii) Both are one prepared on accrual basis.
(iii) Both record revenue items related to current accounting year only.
(iv) In both the accounts, expenses and losses are recorded on the debit side and incomes and gains
are recorded on the credit side

It is so because receipts and payments account is prepared on cash basis of accounting

No, as the balance in receipt and payments account is closing cash and bank balance

The profit or loss on revaluation of assets and liabilities on the retirement of Mohana will be transferred to the capital accounts of the partners in their old ratio i.e. 4:3:2.

At the time of retirement a partner is entitled to get an amount equal to his share in profits out of firm's goodwill

If the retiring partner is not paid fully immediately on retirement, then the remaining balance of his capital account will be transferred to his loan account and will be shown as his loan on the liabilities side . of the balance sheet of the firm

No, the accountant is not correct. He has not recorded the interest on loan currently because the interest on loan is a charge against profits and not an appropriation of profits.

It is so because salary or commission paid to a partner is not a charge on profit but an I appropriation of profit.

If the drawings are made regularly on the first day of each month, the interest on drawings will be
calculated for 6\(\frac12\) months i.e
Interest on drawings = Total drawings x \(\frac{Rate}{100}\) x \(\frac{6.5}{12}\)

Interest on partner's capital and interest on drawings are an appropriation of profit and not a charge on profit and hence is recorded through profit and loss appropriation account instead of profit and loss account

According to Indian partnership Act, 1932, no salary is allowed to partners in the absence of partnership deed so the claim of A for salary of Rs.18,000 per month is not valid.

According to Indian partnership Act, 1932 in the absence of partnership deed, profits are shared equally among the partners. So, the claim of Ramesh to share the profits in the ratio of capitals is not valid.

Revaluation account will be credited

Revaluation account will be debited. Increase in bills payable is a loss for the firm. Being a nominal account, to record this loss, revaluation account will have to be debited.

The individual other than minors who cannot be admitted by them are
(i) Person of unsound mind
(ii) Person of disqualified by law

(i) Simple method: Proprietors, who do not have the proper knowledge of accounting principles. Find it much convenient and easier to maintain their business records under this system.
(ii) Less expensive: It is an economical mode of maintaining records as there is no need to appoint specialised accountant.
(iii) Flexible: Owner may record transactions as particular own needs. It can be easily adjusted or changed whenever needed.
(iv) Less time consuming: Maintaining books according to the single entry system is less time consuming, as only few books are to be maintained. Further the books are not as comprehensive as they are under double entry system.

Statement of affairs prepared under single entry system is not called a balance sheet because statement of affairs is not prepared with the list of ledger balances kept on the basis of double entry system. Also value of assets and liabilities shown in statement of affairs are only the estimates and not the actual values.

No, as arithmetical accuracy is checked by preparing a trial balance and in case of single entry system a trial balance cannot be prepared as it does not record both aspects of a transaction.

A person may join as a new partner in an existing partnership firm. This is called admission of a partner.

A person who is retired from the firm is known as an outgoing partners or retiring partners.

New profit sharing ratio is the agreed proportion in which future profit will be distributed to the continuing partners

(a) Under fixed capital method, salary payable to a partner is recorded in the current account
(b) Under fixed capital method, drawings made by a partner is recorded in the current account.

(i) Drawings is the amount withdrawn in each or in kind, for personal purposes.
(ii) A drawings account is opened in the name of each partner and the drawings are debited to this account.
(iii) At the end of every year, the drawings account is closely by a transfer to the respective partner's capital account or current account

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

If the firm enjoys good reputations for its product's quality, there will be higher sales and the value of its goodwill will increase.

Number of years purchase means for how many specific years the business will earn same amount of profits because of its past efforts.

Annuity refers to series of uniform cash flow at regular intervals. The table value gives the present value of annuity of rupee one received at the end of every year for a specified number of years.
Annuity factor=\(=\frac { i{ (1+i) }^{ n } }{ { (1+i) }^{ n }-1 } \)
Where, i = interest rate
n = estimated number of yea

Following are the steps involved in the preparation of receipts and payments accounts:
(i) Record the opening balance of cash in hand and favourable bank balance on the debit side of receipts and payments account. If there is a bank overdraft, it must be recorded on the credit side
(ii) Actual cash receipts during the year are recorded on the debit side and actual cash payments during the year are recorded on the credit side.
(iii) While recording cash-receipts and payments, no distinction needs to be made between revenue and capital items.
(iv) If the total of the debit side is more than the credit side, the balancing figure will appear on the credit side. It represents the closing balance of cash or bank.
(v) If the total of the credit side is more than the debit side, the balancing figure will appear on the debit side. It represents bank overdraft.