Question

(i) What is meant by an operating cycle ? 

(ii) State one difference between partner’s loan account and partner’s capital account. 

(iii) Give the adjusting entry and the closing entry for recording commission allowed to a partner, when the firm follows the fixed capital method. , 

(iv) How will the firm record the payment of realization expenses which were to be borne by a partner, but paid by the firm on his behalf ? 

(v) Give the accounting treatment in the books of a co-venturer under the Memorandum Joint | Venture Method, when he takes over the unsold stock.

(vi) What is the minimum price at which a company can reissue its forfeited shares which were originally issued at par ?

Answer 1

(i) The operating cycle is the average period of time required for a business to make an initial outlay . of cash to produce goods, sell the goods, and receive cash from customers in exchange for the goods.

(ii) Partner’s capital account is his contribution (equity) towards partnership. It is initial and, subsequent contributions by partner to the partnership, in the form of either cash or the market value of other types of assets.

While running a business, one or more of the owners or partners will lend the business money to keep it afloat during a rough time or to increase cash flow and fund growth. This is treated as Partner’s loan account. Interest may also be paid on this account as per the agreement of partnership contract.

(iii) Commission allowed to” a partner is recorded in the newly opened Current Accounts. Commission Account Dr. To Partner’s Current Account

(iv) When the actual expenses are paid by the firm on behalf of a partner the following entry will be recorded:

Partner’s capital A/c Dr 

To Bank A/c

(v) Goods Sent on Joint Venturer A/c Dc

To Joint Venture with …. A/c

(vi) When the forfeited shares are reissued at a discount, the amount of discount should not exceed the amount credited to Share Forfeited Account. If the discount allowed on reissue of shares is less than the forfeited amount, there will be some balance left in the Forfeited Account, which should be transferred to capital reserve, because it is a profit of capital nature.