Traditional classification of ratio is done on the basis of the financial statements from which the ratios are calculated. Under the traditional classification, the ratios are classified as:
(i) Balance sheet ratios,
(ii) Income statement ratios and
(iii) Inter-statement ratio.
(i) Balance sheet ratio: If both items in a ratio are from balance sheet, it is classified as balance sheet ratio.
(ii) Income statement ratio: If the two items in a ratio are from income statement, it is classified as income statement ratio.
(iii) Inter-statement ratio: If a ratio is computed with one item from income statement and another item from balance sheet, it is called inter-statement ratio.

Following are the characteristics of a company:
(a) Voluntary association: A company is a voluntary association of persons. No law can compel persons to form a company
(b) Separate legal entity: Company is an artificial person. It has a separate legal entity which is separate and distinct from its members.
(c) Common seal: A company may have a common seal which can be affixed on the documents.
(d) Perpetual succession: A company continues for ever. Its continuity is not affected by the changes in its members. It can be wound up only by law.
(e) Limited liability: The liability of the shareholders of the company is limited to the extent of face value of the shares held by the shareholders.
(f) Transferability of shares: The shares of a company are freely transferable except incase of a private company.

Values shown by the firm are
i. Responsibility :
Firm has shown responsibility towards senior citizens by giving them their dues.
ii. Compassion:
Partners have shown compassion towards senior citizens by fulfilling their duties towards senior citizens .

(i) Current ratio = \(\frac{Current assets}{Current liabilities}\) = \(\frac{1,50,000}{50,000}\) = 3:1
Current assets = Inventories + Trade receivables + Cash and cash equivalents + Prepaid expenses
= 45,000 + 70,000 + 30,000 + 5,000 = Rs.1,50,000
Current liabilities = Short term borrowings + Trade payables + Expenses payable + Short term provisions
= 17,000 + 25,000 + 3,000 + 5,000 = Rs.50,000
(ii) Quick ratio = \(\frac{Quick assets}{Current liabilities}\) = \(\frac{1,00,000}{50,000}\) = 2:1
Quick assets = Total current assets – Inventories – Prepaid expenses
= 1,50,000 – 45,000 – 5,000 = Rs.1,00,000

Following are the advantages of ratio analysis:
(i) Measuring operational efficiency : Ratio analysis helps to know operational efficiency of a business by finding the relationship between operating cost and revenues and also by comparison of present ratios with those of the past ratios.
(ii) Intra Firm Comparison: Comparison efficiency of different division of an organisation is possible by comparing the relevant ratio.
(iii) Inter Firm Comparison: Ratio analysis helps the firm to compare its performance with other firms.

Tutorial note: Over valuation of closing stock in 2017 will result in over valuation of opening stock in 2018.
Average profit = \(\frac { Total\ profit }{ Number\ of\ year } \)
= \(\frac { 41,000+34,000+60,000 }{ 3 } \)
= \(\frac { 1,35,000 }{ 3 } \) = Rs. 42,000
Goodwill = Average profit \(\times\) Number of years of purchase
= 45,000 × 2
= Rs. 90,000

(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.

Revaluation account will be credited

(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.

(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.

Note:
Computation of percentage increase for revenue form operations =  \(\frac{10,000}{50,000}\times100\) = 20%
Percentage increase for other incomes = \(\frac{20,000}{10,000}\times100\) = 200%
Percentage increase for expenses = \(\frac{10,000}{40,000}\times100\) = 25%

Since, new profit sharing ratio, share gained and the proportion of share gained is not given, the new share is calculated by assuming that the share gained is in the proportion of old ratio. Therefore, the new profit sharing ratio and the gaining ratio between the continuing partners, Raja and Pooja is their old profit sharing ratio, that is 4:3.

Accounting Information System (AIS) collects financial data, processes them and provides information to the various users. To provide information AIS requires data from other information system that is manufacturing, marketing and human resources.

Normal rate of return refers to the rate at which profit is earned by similar business entities in the industry under normal circumstances.

Return on Investment (ROI) = \(\frac { Net\quad profit\quad before\quad interest\quad and\quad tax }{ Capital\quad employed } \)
Capital employed = Share capital + Reserves and surplus + Long term borrowings
= 2,90,000 + 60,000 + 50,000 = Rs.3,90,000
∴ Return on Investment = \(\frac { 50,000 }{ 4,00,000 } \) x 100 = 12.5%

Following steps are to be followed to enter the transaction in Tally ERP 9
1. To create company
Company Info > Create Company
Type the Name as Robert and keep all other fields as they are and choose ‘Yes’ to accept.

2. To maintain accounts only
Gateway of Tally > F11 Accounting Features > General > Maintain accounts only: Yes > Accept> Yes

3. To Create ledger accounts
Gateway of Tally > Masters > Accounts Info > Ledgers > Single Ledger > Create

(i) To Create Devi's Capital A/c
Name: Devi's Capital A/c
Under Capital Account
Accept: Yes

(ii) To Create Indian Bank A/c
Name: Indian Bank A/c
Under: Bank Accounts
Accept: Yes

(iii) To Create Furniture A/c
Name: Furniture A/c
Under: Fixed Assets
Accept: Yes

(iv) To Create Purchases A/c
Name: Purchases A/c
Under: Purchase
Accept: Yes

(v) To Create Mohaideen A/c
Name: Mohaideen A/c
Under: Sundry Creditors
Accept: Yes

(vi) To Create Sales A/c
Name: Sales A/c
Under: Sales Account
Accept: Yes

(vii) To create Rony A/c
Name: Rony A/c
Under: Sundry Debtors
Accept: Yes

(viii) To create Salaries A/c
Name: Salaries A/c
Under: Indirect Expenses
Accept: Yes

(ix) To create Wages A/c
Name: Wages A/c
Under: Direct Expenses
Accept: Yes

(x) To create Stationery A/c
Name: Stationery A/c
Under: Indirect Expenses
Accept: Yes

(xi) To create Pandian Ltd. A/c
Name: Pandian Ltd. A/c
Under:Sundry Creditors
Accept: Yes

4. To enter transactions through vouchers
Gateway of Tally > Transactions > Accounting Vouchers
(i) Robert commenced a transport business with a capital of Rs. 1,00,000
F6: Receipt Voucher: Accounts: Cash
Particulars: Robert Capital A/c (Choose from List of Ledgers Accounts)
Enter the amount of Capital Rs. 1,00,000
Narration: Capital Introduced
Accept: Yes

(ii) An account was opened with State Bank of India and deposited Rs. 30,000
F4: Contra Voucher
Accounts: State Bank of India
Particulars: Cash
Amount: Rs. 30,000
Narration: Opened bank account in SBI
Accept: Yes

(iii) Purchased Furniture by paying cash Rs. 10,000
F5: Payment Vouchers
Account: Cash
Particulars: Furniture A/c
Amount: Rs. 15,000
Narration: Furniture bought by Cash
Accept: Yes

4 Goods purchased on credit from Mohaideen for Rs. 20,000
F9: Purchase voucher
Party A/c name: Mohaideen A/c
Particulars: Purchases A/c
Amount: Rs. 20,000
Narration: Goods purchased on
credit from Mohaideen
Accept Yes

(5) Cash sales made for Rs. 8,000
F8: Sales Voucher,
Account: Cash
Particulars: Sales A/c
Amount: Rs. 8,000
Narration: Cash Sales Mode
Accept: Yes

(6) Goods purchased from Rathinam for Rs. 5,000 and money deposited in CDM
F9: Purchase Voucher
Account: Bank
Particulars: Purchase A/c
Amount: Rs. 5,000
Narration: Goods Purchased

(vii) Goods sold to Rony on credit for Rs. 60,000
F8: Sales Voucher
Party: A/c Name: Rony A/c
Particulars: Sales A/c
Amount: Rs. 70,000
Narration: Goods sold on credit to Rony
Accept: Yes

(viii) Money withdrawn from bank for office use Rs. 9,000
F4: Contra Voucher
Account: Cash
Particulars: State Bank of India A/c
Amount: Rs. 9,000
Narration: Cash withdrawn from bank
Accept: Yes

(ix) Part payment of Rs 10,000 to Mohaideen by cheque
F5: Payment Vouchers
Account: State Bank of India
Particulars: Mohaideen A/c
Amount: Rs.10,000
Narration: Payment made to
Mohaideen by cheque
Accept Yes

(x) Rony made part payment of Rs. 5,000 by cash
F6: Receipt voucher
Account: Cash
Particulars: Rony A/c
Amount: Rs. 5,000
Narration: Cash received from Rony
Accept Yes.

(xi) Salaries Paid to Staff through ECS Rs. 6,000
F5: Payment Vouchers
Account: Indian Bank
Particulars: Salaries A/c
Amount: Rs 6,000
Narration: Salaries paid through ECS,
Accept: Yes

(xii) Wages of Rs. 3,000 paid by cash
F5: Payment voucher
Account: Cash
Particulars: Wages A/c
Amount: Rs. 3,000
Narration: Wages paid by cash
Accept Yes

(xiii) Purchased stationery from Pandian Ltd. on credit Rs.4,000
F7: Journal Voucher
Particulars: Computer A/c
Account: Muthu Ltd.
Amount: Rs. 4,000
Narration: Stationery bought on credit from Pandian Ltd.
Accept: Yes

To view reports
(i) To view Trial Balance
Gateway of Tally > Reports > Display > Trial Balance > Alt + F1 (detailed)

(ii) To view profit and loss Account
F10: A/c Reports > Profit & Loss A/c > Alt + F1 (detailed) or
Gateway of Tally > Reports > Profit & Loss A/c Alt + F1 (detailed)

(iii) To view Balance sheet
F10: A/c Reports > Balance sheet > Alt + F1 (detailed)
Gate of Tally > Reports > Balance Sheet > Alt + F1 (detailed)

(iv) To view Ratio Analysis
F10: A/c Reports > Ratio Analysis (or)
Gateway of Tally > Reports > Ratio Analysis

(v) To view Day book
F10: A/c Reports > Day Book > Alt + F1 (detailed (or)
Gateway of Tally > Reports > Display > Day Books > Alt + F1 (detailed)

This type of a voucher basically analyses a business transaction from the accounting stand point and is used for recording purposes
These are commonly prepared by accountants on the basis of supporting vouchers and approved by a different individual. They are further subdivided into two, Cash and Non-cash vouchers.
Examples of cash type :
1. Credit Vouchers
2.  payment Vouchers
3. Contra Vouchers
4. Purchase Vouchers
5. Sales Vouchers
6. journal vouchers
Examples of the Non-cash type :
1. Debit note
2. Credit note
3. Invoice

Average profit = \(\frac { Total\ profit }{ Number\ of\ year } \)
=\(\frac { 62,000+61,000+63,000 }{ 3 } \)
= \(\frac { 1,86,000 }{ 3 } \)
= Rs. 62,000
Normal profit = Capital employed \(\times\) Normal rate of return
= 4,00,000 \(\times\) 10%
= Rs. 40,000
Super profit = Average profit - Normal profit
= 62,000 – 40,000
= Rs. 22,000
Goodwill = \(\frac { Super\ profit }{ Normal\ rate\ of\ return } \) \(\times\)100
= \(\frac { 22,000 }{ 10 } \) \(\times\) 100
= Rs. 2,20,000

[Hint: As depreciation on furniture is a non cash item, it is excluded in receipts and payments account]