CBSE Class 12 Accountancy Notes PDF- VidyaSetu

Class 12 Accountancy Notes PDF Chapter 3 Admission of a Partner

Class 12 Accountancy Notes PDF Chapter 4 Retirement/ Death of a Partner

Class 12 Accountancy Notes PDF Chapter 5 Dissolution of Partnership Firm

Class 12 Accountancy Notes PDF Chapter 8 Financial Statements of a Company

Class 12 Accountancy Notes PDF Chapter 9 Financial Statement Analysis

Class 12 Accountancy Notes PDF Chapter 10 Accounting Ratios

Class 12 Accountancy Notes PDF Chapter 11 Cash Flow Statement

Accounting for Not-for-Profit Organisation

Class 12 Accountancy Chapter 1 Notes / Not For Profit Organisation Class 12 Notes

Difference between Profit Seeking Entities and Not-for-Profit Entities: Profit-seeking

entities undertake activities such as manufacturing trading, banking, and

insurance to bring financial gain to the owners. Not-for-Profit entities exist to

provide services to the member or to the society at large. Such entities might

sometimes carry on trading activities but the profits arising therefrom are used

to further the service objectives.

2. Appreciation of the need for separate Accounting Treatment for Not-for-Profit

Organizations: Since not-for-profit entities are guided primarily by a service

motive, the decisions made by their managers are different from those made by

their counterparts in profit-seeking entities. Differences in the nature of

decisions imply that the financial information on which they are based, must

also, be different in content and presentation.

3. Explanation of the nature of the Principal Financial Statements prepare by Not-for-

Profit enterprises: Not-for-Profit Organisations that maintain accounts based on the double-entry system of accounting, generally prepare three principal statements to fulfill their information needs. These include Receipts and Payments Account, Income and Expenditure Account, and a Balance Sheet.

The Receipts and Payments Account is summarised under relevant heads,

cashbook which records all cash Receipts and cash Payments without

distinguishing between capital and revenue items, and between items relating

to the current year and those relating to previous or future years.

The Income and Expenditure Account is an income statement that is prepared

to ascertain the excess of revenue income over revenue expenditure or vice

versa, for a particular accounting year, as a result of the entity’s overall activities.

Although it is considered to be a substitute for the Trading and Profit and Loss

An account of a profit-seeking entity, there are certain conceptual differences

between the two statements. The Balance Sheet is prepared at the end of the

entity’s accounting year to depict the financial position on that date. It includes

the Capital Fund or Accumulated Fund, special purpose funds, and current

liabilities on the left hand or liabilities side, and fixed assets and current assets

on the right hand or assets side.

4. Difference between the Receipt and Payment Account and the Income and

Expenditure Account: Many differences exist between the Receipt and Payment

Account and the Income and Expenditure Account which is evident from the

nature and purpose of the two statements. While the former records both capital

and revenue receipts and payments relating to any accounting year, the latter

records only revenue items relating to the current accounting year. 

Non-cash expenses such as depreciation on fixed assets and outstanding incomes and

expenses are shown in the latter but omitted in the former. The Receipt and

Payment Account has an opening balance while the Income and Expenditure

The account does not. The closing balance of the former account represents cash

and bank balances on the closing date while in the latter account it indicates

surplus or deficit from the activities of the enterprise.

5. Conversion of a Receipt and Payment Account into an Income and Expenditure

Account: This essentially involves five steps namely, (i) adjusting the revenue

receipts on the debit side to include accrued incomes and incomes relating to

the current year received earlier and to exclude amounts received in arrears

or in advance; (ii) adjusting revenue payments on the credit side; (iii) identifying

and showing non-cash expenses and losses on the debit side of the Income

and Expenditure Account; (iv) computing and showing profits/losses from

trading and/or social activities on the credit/debit side of the Income and

Expenditure Account; and (v) ascertaining the surplus or deficit as the closing

balance of the Income and Expenditure Account.

Accounting for Partnership: Basic Concepts

Class 12 Accountancy Chapter 2 Notes

Definition of partnership and its essential features: Partnership is defined as

“Relation between persons who have agreed to share the profits of a business

carried on by all or any one of them acting for all”. The essential features of

partnership are : (i) To form a partnership, there must be at least two persons;

(ii) It is created by an agreement; (iii) The agreement should be for carrying on

some legal business; (iv) sharing of profits and losses; and (v) relationship of

mutual agency among the partners.

2. Meaning and contents of a partnership deed: A document that contains the terms

of partnership as agreed among the partners is called ‘Partnership Deed’. It

usually contains information about all aspects affecting the relationship between

partners, including the objective of business, the contribution of capital by each partner,

The ratio in which profit and losses will be shared by the partners, the entitlement of

partners to interest on capital, interest on a loan and the rules to be followed in

case of admission, retirement, death, dissolution, etc.

3. Provisions of Partnership Act 1932 applicable to accounting: If the partnership deed

is silent in respect of certain aspects, the relevant provisions of the Indian

Partnership Act, 1932 became applicable. According to the Partnership Act,

the partners share profits equally, no partner is entitled to remuneration, no

interest on capital is allowed and no interest on drawings is charged. However,

if any partner has given some loan to the firm, he is entitled to interest on such

An amount @ 6% per annum.

4. Preparation of capital accounts under fixed and fluctuating capital methods: All

transactions relating to partners are recorded in their respective capital

accounts in the books of the firm. There can be two methods of maintaining

Capital Accounts. These are; (i) fluctuating capital method, (ii) fixed capital

method. Under the fluctuating capital method, all the transactions relating to partners are directly recorded in the capital account. Under the fixed capital method,

however, the amount of capital remains fixed, the transactions like interest on

capital, drawings, interest on drawings, salary, commission, the share of profit or

losses are recorded in a separate account called ‘Partner’s Current Account’.

5. Distribution of profit and loss: The distribution of profits among the partners is

shown through a Profit and Loss Appropriation Account, which is merely an

extension of the Profit and Loss Account. It is usually debited with interest on

capital and salary/commission allowed to the partners, and credited with net

profit as per the Profit and Loss Account and the interest on drawings. The balance

being profit or loss is distributed among the partners in the profit-sharing ratio

and transferred to their respective capital accounts.

6. Treatment of guarantee of minimum profit to a partner: Sometimes, a partner

may be guaranteed a minimum amount by way of his share in profits. If in any

year, the share of profits as calculated according to his profit sharing ratio is

less than the guaranteed amount, the deficiency is made good by the

guaranteeing partners’ in the agreed ratio which usually is the profit-sharing

ratio. If, however, such guarantee has been given by any of them, he or they

alone shall bear the amount of deficiency.

7. Treatment of past adjustments: If, after the final accounts have been prepared,

some omission or commissions are noticed say in respect of the interest on

capital, interest on drawings, partner’s salary, commission, etc. necessary

adjustments can be made in the partner’s capital accounts through the Profit

and Loss Adjustment Account, to rectify the same.

8. Preparation of final accounts of a partnership firm: There is not much difference

in the final accounts of a sole proprietary concern and that of a partnership

firm except that in the case of a partnership firm an additional account called

Profit and Loss Appropriation Account is prepared to show the distribution of profit

and loss among the partners.

Reconstitution of a Partnership Firm – Admission of a Partner

Class 12 Accountancy Chapter 3 Notes

1. Matters requiring adjustments at the time of admission of a partner: Various

matters which need adjustments in the books of the firm at the time of admission

of a new partner are: goodwill, revaluation of assets and liabilities, reserves

and other accumulated profits and losses and the capitals of the old partners’

(if agreed).

2. Determining the new profit sharing ratio and calculating sacrificing ratio: The

new partner acquires his share in profits from the old partners’. This reduces

the old partners’ share in profits. Hence, the problem of determining the new

profit sharing ratio simply involves the determination of old partners’ new share

in the profits of the reconstituted firm. Given the new partners’ share in profits

and the ratio, in which he acquires it from the old partners, the new share of

each old partner shall be worked out by deducting his share of sacrifice from

his old share in profits. The ratio in which the old partners have agreed to

sacrifice their shares in profit in favor of the new partner is called the

sacrificing ratio. It is usually the same as the old profit-sharing ratio. However,

based on the agreement it can be different also.

3. Treatment of Goodwill: Goodwill is an intangible asset and belongs to its owner

at a point of time. On the admission of a new partner, the goodwill of the firm

belongs to the old partners. It means that on the admission of a new partner

some adjustments must be made into the capital accounts of the old partners

for goodwill so that the new partner will not acquire a share in that profit

which the firm earns because of its goodwill earned before admission without

making any payment for the same. The amount that the new partner pays for

goodwill is called goodwill. From an accounting point of view, the firm may have to

face different situations for the treatment of goodwill at the time of admission of

a partner. The amount of premium brought in by the new partner is shared by

old partners in the ratio of sacrifice. In case the new partner fails to bring his

share of the premium for goodwill in cash then the capital account of the new

partner is debited for his share of the premium of goodwill and the old partner’s

capital accounts are credited in their sacrificing ratio.

4. Adjustments for Revaluation of Assets and Reassessment of Liabilities: If, at

the time of admission of a partner, the assets and liabilities are revalued or

some asset or liability is found unrecorded, necessary adjustments are made

through the Revaluation Account. Any gain or loss arising from such exercise

shall be distributed among the old partners in their old profit-sharing ratio.

5. Adjustment for reserves and accumulated profits/losses: If, at the time of

admission of a partner, any reserve and accumulated profits or losses exist in

books of the firm, these should be transferred to the old partner’s capital/current

accounts in their old profit sharing ratio.

6. Determining/Adjusting partners’ capital: If agreed, the partner’s capital may

be adjusted so as to be proportionate to their new profit sharing ratio. In that

case, the new partner’s capital is normally used as a base for determining the

new capitals of the old partners and necessary adjustment made through case

or by transfer to partner’s current accounts. Another basis also may be available

for determining capitals of the partners after the admission of the new partner

like sharing the total capital to be in the firm immediately after admission of

the new partner.

7. Change in profit sharing ratio: Sometimes the partners of a firm may agree to

change their existing profit sharing ratio. As a result, some partners will

gain in future profits while others will lose. In such a situation, the partner

who gains by a change in profit affecting amounts to one partner buying the share

of profit from another partner. Apart from the payment for compensation, the

change in profit sharing ratio also necessitates an adjustment in partners’ capital

accounts with respect to undistributed profits and reserves, revaluation of

assets, and reassessment of liabilities.

Reconstitution of a Partnership Firm – Retirement/Death of a Partner

Class 12 Accountancy Chapter 4 Notes

1. New Profit Sharing Ratio: New profit sharing ratio is the ratio in which the

remaining partner will share future profits after the retirement or death of any

partner.

New Share = Old Share + Acquired Share from the Outgoing partner

2. Gaining Ratio: The gaining ratio is the ratio in which the continuing partners have

acquired the share from the retiring deceased partner.

3. Treatment of Goodwill: The basic rule is that gaining partner(s) shared

compensate the sacrificing partner to the extent of their gain for the respective

share of goodwill.

If goodwill already appears in the books, it will be written off by debiting all

partner’s capital account in their old profit sharing ratio.

4. Revaluation of Assets and Liabilities: At the time of retirement/death of a partner,

there may be some assets that may not have been shown at their current

values. Similarly, there may be certain liabilities that have been shown at a

value different from the obligation to be met by the firm.

Besides this, there may be unrecorded assets and liabilities which have to be

recorded.

5. Accumulated Profits or Losses: The reserves (Accumulated profits) or losses belong

to all the partners and should be transferred to the capital account of all partners.

6. Retiring partner/deceased partner may be paid in one lump sum or

installments with interest.

7. At the time of retirement/death of a partner, the remaining partner may decide

to keep their capital contributions in their profit sharing ratio.

Dissolution of Partnership Firm

Class 12 Accountancy Chapter 5 Notes

1. Dissolution of Partnership Firm: The dissolution of a firm implies the

discontinuance of partnership business and termination of economic relations

between the partners. In the case of a dissolution of a firm, the firm closes its

business altogether and realizes all its assets, and pays all its liabilities. The

payment is made to the creditors first out of the assets realized and, if necessary,

next out of the contributions made by the partners in their profit sharing ratio.

When all accounts are settled and the final payment is made to the partners

for the amounts due to them, the books of the firm are closed.

2. Dissolution of Partnership: A partnership gets terminated in case of admission,

retirement death, etc. of a partner. This does not necessarily involve the dissolution

of the firm.

3. Realisation Account: The Realisation Account is prepared to record the

transactions relating to the sale and realization of assets and settlement of creditors.

Any profit or loss arising act of this process is shared by partners in their

profit sharing ratio. Partners’ accounts are also settled and the Cash or Bank

the account is closed.

Accounting for Share Capital

Class 12 Accountancy Chapter 6 Notes

Company: An organization consisting of individuals called ‘shareholders’ by virtue

of their holding the shares of a company, who can act as a legal person as regards

it’s business through the board of directors.

Share: Fractional part of the capital, and forms the basis of ownership in a company.

Shares are generally of two types, viz. equity shares and preference shares,

according to the provisions of the Companies Act, 2013. Preference shares again

are of different types based on varying shades of rights attached to them.

Share Capital of a company is collected by issuing shares to either a select

group of persons through the route of private placements and/or offered to the

public for subscription. Thus, the issue of shares is basic to the capital of a

company. Shares are issued either for cash or for consideration other than

cash, the former being more common. Shares are said to be issued for

consideration other than cash when a company purchases business or some

asset/assets, and the vendors have agreed to receive payment in the form of

fully paid shares of a company.

Stages of Share Issue: The issue of shares for cash is required to be made in strict

conformity with the procedure laid down by law for the same. When shares are

issued for cash, the amount on them can be collected at one or more of the following

stages:

(i) Application for shares

(ii) Allotment of shares

(iii) Call/Calls on shares.

Calls in Arrears: Sometimes, the full amount called on the allotment and/or call (calls)

is not received from the allottees/shareholders. The amount not so received are

cumulatively called ‘Unpaid calls’ or ‘Calls in Arrears’. 

However, it is not mandatory for a company to maintain a separate Calls-in-Arrears Account. There are also instances where some shareholders consider it discreet to pay a part or whole of

the amount not yet called-up on the shares allotted to them. Any amount paid by

a shareholder in the excess of the amount due from him on allotment/call (calls) is

known as ‘Calls in Advance’ for which a separate account is maintained. 

A company has the power to charge interest on calls in arrears and is under an obligation to

pay interest on calls-in-advance if it accepts them in accordance with the provisions

of the Articles of Association.