About this Class 12 Accountancy practice test

Success in senior secondary commerce belongs to students who can record complex partnership structures, corporate equity transactions, and financial statement ratios with absolute precision. This practice workspace is designed for board-grade accounting revision.

Class 12 Accountancy Practice Test sample questions

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1. What statutory document governs the rules, rights, and duties of partners in a partnership firm when written down and signed?
2. Which specific ledger account is prepared by a partnership firm to show how net profit is distributed among partners according to their deed agreement?
3. If a partner withdraws 5,000 rupees at the beginning of every month throughout the year, for how many months should interest on drawings be calculated on average?
4. What type of partner capital account structure requires the opening of separate current accounts to record daily drawings, interest, and salary distributions?
5. When a new partner is admitted, in what specific ratio do the existing partners surrender their corporate profit shares?
6. What basic valuation method calculates goodwill by multiplying the average excess profits earned over normal market returns by a specified number of years purchase?
7. Which temporary valuation account is opened to record the increases or decreases in asset and liability values at the time of a partner's retirement?
8. Upon the death of a partner, to whose legal account should the total accumulated credit balance of the deceased partner be transferred?
9. What specialized ledger account is opened to collect all realized asset funds and settle external debts during the complete formal dissolution of a partnership firm?
10. If the existing profit-sharing ratio among three partners changes from 3:2:1 to 1:1:1, what is the calculated sacrificing or gaining status for the first partner?
11. At the time of a partner's admission, what account should be debited if unrecorded investments are suddenly brought into the official books?
12. If a firm's average profit is 80,000 rupees, normal rate of return is 10 percent, and net assets are 620,000 rupees, what is the goodwill using the capitalization of average profits method?
13. What maximum portion of a company's authorized share capital can be called up only in the event of the actual winding up and liquidation of the enterprise?
14. When shares are issued to the public and applications are received for more shares than the company offered, what type of allotment situation arises?
15. Which corporate ledger account is credited with the extra money received when a company issues its 10-rupee face value shares at 15 rupees each?
16. What action is taken by a corporate board when a shareholder continuously defaults on paying their valid call money updates?
17. When forfeited shares are subsequently reissued to a new buyer at a discount, which specific account is debited to absorb that discount value?
18. What net residual balance remaining in the Share Forfeiture Account after the reissue of all forfeited shares must be transferred to which reserve?
19. Which long-term debt security represents a corporate loan certificate and can be issued as collateral security to commercial banks?
20. If a company issues 1,000 debentures of 100 rupees each at a premium of 5 percent, what total amount is credited to the Debentures Account?
21. Under what broad category heading must 'Premium on Redemption of Debentures' be listed in a vertical corporate balance sheet?
22. What short-term investment asset is considered so highly liquid that it is treated exactly like cash in corporate reporting?
23. Which financial analysis ratio measures a company's ability to settle its immediate short-term obligations using its most liquid quick assets without selling inventory?
24. If a company has a Current Ratio of 2.5:1 and current liabilities totaling 40,000 rupees, what is the exact value of its current assets?
25. What operational efficiency ratio is calculated by dividing the Cost of Revenue from Operations by the Average Inventory held during the year?
26. Which structural solvency ratio compares total long-term debt funding directly against the equity share capital pool of the shareholders?
27. Under which distinct cash flow classification activity must cash received from issuing new equity shares be reported?
28. How should the purchase of a new manufacturing factory building be categorized inside a standardized corporate Cash Flow Statement?
29. Find the odd one out when grouping by non-cash items to be added back to net profit in a Cash Flow Statement: Depreciation, Goodwill Amortization, Purchase of Machinery, Loss on Sale of Plant.
30. Find the odd one out when grouping by items that alter a partner's capital account balance: Interest on Capital, Partner Salary, General Reserve Distribution, Underwriting Commission.

Answer key & quick explanations

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1. What statutory document governs the rules, rights, and duties of partners in a partnership firm when written down and signed?: Partnership DeedThe Partnership Deed serves as the internal legal charter for a firm to prevent messy verbal disputes later on. It lays out clear rules for profit distributions, interest percentages, and salary caps. A helpful student trap to note is that if this deed is missing or silent, the Indian Partnership Act mandates that profits must be split completely equally, and no interest on capital can be claimed.
2. Which specific ledger account is prepared by a partnership firm to show how net profit is distributed among partners according to their deed agreement?: Profit and Loss Appropriation AccountThis account acts as an extension of the regular Profit and Loss statement. It takes the net profit figure and applies partner-specific transactions like interest on capital, partner salaries, and drawings. Think of it as a dedicated filter that splits the final net business profit into specific individual partner rewards.
3. If a partner withdraws 5,000 rupees at the beginning of every month throughout the year, for how many months should interest on drawings be calculated on average?: 6.5 monthsTo find the average time frame, look at the months remaining after the very first drawing added to the months left after the final drawing, then divide by two. For drawings made at the start of each month, the math works out to (12 + 1) / 2, which gives exactly 6.5 months. This shortcut keeps you from needing to calculate interest twelve separate times.
4. What type of partner capital account structure requires the opening of separate current accounts to record daily drawings, interest, and salary distributions?: Fixed Capital Account MethodUnder the fixed capital structure, the main Capital Account stays untouched unless a partner adds permanent capital or permanently withdraws funds. All routine adjustments like interest, profits, and salary updates go into a separate Current Account instead. This dual tracking pattern keeps the original core investment clean and transparent.
5. When a new partner is admitted, in what specific ratio do the existing partners surrender their corporate profit shares?: Sacrificing RatioThe sacrificing ratio calculates exactly how much of their old profit share the original partners give up to make room for the newcomer. The simple calculation steps are: Sacrificing Ratio = Old Ratio - New Ratio. This ratio tells you exactly how to split the premium for goodwill cash brought in by the incoming partner.
6. What basic valuation method calculates goodwill by multiplying the average excess profits earned over normal market returns by a specified number of years purchase?: Super Profit MethodSuper profit reflects a firm's ability to generate better returns than ordinary competitors using identical capital. To find it, subtract the normal market profit from your actual average profit. An easy memory aid is to view super profit like bonus points; goodwill is calculated by multiplying these bonus profit points by the requested years of purchase.
7. Which temporary valuation account is opened to record the increases or decreases in asset and liability values at the time of a partner's retirement?: Revaluation Account (or Profit and Loss Adjustment Account)The Revaluation Account compiles asset and liability value revisions so that old valuation changes don't unfairly penalize or benefit a changing roster of partners. Every asset appreciation and liability drop goes on the credit side, while asset drops go on the debit side. The final net balance is split among the old partners in their existing profit ratio.
8. Upon the death of a partner, to whose legal account should the total accumulated credit balance of the deceased partner be transferred?: Deceased Partner's Executor's AccountSince a deceased individual cannot legally receive cash payouts, their entire accumulated financial stake is moved into a formal Executor's Account. This balance represents a binding liability for the surviving firm. It remains there earning interest at 6 percent per year or following agreed payout steps until settled with the legal heirs.
9. What specialized ledger account is opened to collect all realized asset funds and settle external debts during the complete formal dissolution of a partnership firm?: Realisation AccountA Realisation Account is opened only during the complete closure of a business. It differs from a Revaluation Account because it closes out assets and settles liabilities entirely rather than adjusting book values. Think of it like a closing-down ledger where all physical assets are sold for cash on the credit side, and external liabilities are paid off on the debit side.
10. If the existing profit-sharing ratio among three partners changes from 3:2:1 to 1:1:1, what is the calculated sacrificing or gaining status for the first partner?: Sacrifice of 1/6To evaluate the change, subtract the new share from the old share. The first partner's old share was 3/6 and their new share is 1/3 (which equals 2/6). Calculating the difference: 3/6 - 2/6 = 1/6. Because the result is a positive fraction, it confirms this partner has sacrificed exactly 1/6 of their total profit share to benefit the others.
11. At the time of a partner's admission, what account should be debited if unrecorded investments are suddenly brought into the official books?: Investments AccountBringing an unrecorded asset into the ledger requires increasing that specific asset's balance via a debit entry. The offsetting credit goes straight to the Revaluation Account to log the value gain. A common student trap is trying to debit the Revaluation Account directly; remember that assets must be debited to show growth in physical holdings.
12. If a firm's average profit is 80,000 rupees, normal rate of return is 10 percent, and net assets are 620,000 rupees, what is the goodwill using the capitalization of average profits method?: 180,000 rupeesFirst find the capitalized value of average profits: Average Profit / Normal Rate of Return = 80,000 / 0.10 = 800,000 rupees. Goodwill is then the capitalized value minus the actual net assets: 800,000 - 620,000 = 180,000 rupees.
13. What maximum portion of a company's authorized share capital can be called up only in the event of the actual winding up and liquidation of the enterprise?: Reserve CapitalReserve capital represents a designated portion of uncalled capital set aside by a special company resolution. It acts as an emergency safety fund that cannot be accessed during normal operating years. Do not mix this up with Capital Reserve; Capital Reserve holds accumulated capital profits, while Reserve Capital is uncalled equity cash kept on standby for liquidation attorneys.
14. When shares are issued to the public and applications are received for more shares than the company offered, what type of allotment situation arises?: Over-subscriptionOver-subscription happens when public demand outstrips corporate supply. Because a company cannot legally allot more shares than it registered in its prospectus, management must utilize a pro-rata allotment framework. This scales down everyone's requests proportionally and shifts extra application cash forward to cover upcoming allotment calls.
15. Which corporate ledger account is credited with the extra money received when a company issues its 10-rupee face value shares at 15 rupees each?: Securities Premium AccountThe extra 5 rupees collected per share represents a premium reflecting the company's strong market reputation. This cash is directed to the Securities Premium Account under equity reserves. Law preserves this account carefully, restricting its use to specific actions like issuing fully paid bonus shares or writing off initial underwriting commissions.
16. What action is taken by a corporate board when a shareholder continuously defaults on paying their valid call money updates?: Forfeiture of SharesShare forfeiture is the legal process of canceling a investor's membership due to non-payment of dues. When shares are forfeited, the company shuts down the outstanding account, wipes out the called-up capital, and keeps all past application monies already paid in. This retained cash is stored safely inside the Share Forfeiture Account.
17. When forfeited shares are subsequently reissued to a new buyer at a discount, which specific account is debited to absorb that discount value?: Share Forfeiture AccountWhen reissuing forfeited shares at a discount, the reissue loss is covered using the cash kept from the original owner. This means you debit the Share Forfeiture Account instead of a standard Discount on Shares account. A key regulatory rule is that this reissue discount cannot exceed the total cash amount confiscated from the original defaulting buyer.
18. What net residual balance remaining in the Share Forfeiture Account after the reissue of all forfeited shares must be transferred to which reserve?: Capital ReserveOnce a company successfully reissues forfeited shares and covers the reissue discount, any leftover profit in the forfeiture account becomes a realized capital gain. Because this profit comes from equity adjustments rather than daily commercial operations, the remaining balance must be moved via a credit entry directly into the Capital Reserve.
19. Which long-term debt security represents a corporate loan certificate and can be issued as collateral security to commercial banks?: DebentureDebentures function as corporate debt certificates carrying a fixed interest obligation. When used as collateral security for a bank loan, they act as a back-up guarantee. If the company pays off its loan on time, the collateral debentures simply lapse without triggering any interest payouts; if the firm defaults, the bank becomes a debenture holder.
20. If a company issues 1,000 debentures of 100 rupees each at a premium of 5 percent, what total amount is credited to the Debentures Account?: 100,000 rupeesA primary rule of corporate book balancing is that the core Debentures Account can only hold the nominal face value of the securities. Multiplying 1,000 debentures by their 100 rupees face value yields exactly 100,000 rupees. The extra 5,000 rupees collected from the premium must be credited separately to the Securities Premium Account.
21. Under what broad category heading must 'Premium on Redemption of Debentures' be listed in a vertical corporate balance sheet?: Non-current Liabilities (under Long-term Liabilities)Premium on redemption represents a known future obligation that the company must pay back when the debentures mature down the road. Because this repayment timeline matches the long-term life of the debentures (typically exceeding one year), it is categorized under Non-current Liabilities on the balance sheet.
22. What short-term investment asset is considered so highly liquid that it is treated exactly like cash in corporate reporting?: Cash Equivalents (e.g., Treasury Bills or Commercial Paper)Cash equivalents represent highly secure, short-term investments that can be converted into known cash amounts almost instantly. They typically carry maturities of three months or less, making them immune to interest-rate valuation risks. They are combined with cash balances to form the baseline starting and ending check anchors of a Cash Flow Statement.
23. Which financial analysis ratio measures a company's ability to settle its immediate short-term obligations using its most liquid quick assets without selling inventory?: Liquid Ratio (or Quick Ratio / Acid Test Ratio)The liquid ratio provides a strict test of working capital health by excluding slow-moving inventories and prepaid items from current assets. The standard formula is: Quick Assets / Current Liabilities. A target ratio of 1:1 indicates that the company holds exactly one rupee of instant cash-ready assets for every single rupee of short-term debt it owes.
24. If a company has a Current Ratio of 2.5:1 and current liabilities totaling 40,000 rupees, what is the exact value of its current assets?: 100,000 rupeesThe current ratio formula is structured as Current Assets / Current Liabilities = 2.5 / 1. To find the current assets value, multiply the current liabilities by the ratio factor. Multiplying 40,000 rupees by 2.5 yields exactly 100,000 rupees in total current assets, proving the firm holds a solid safety margin over short-term claims.
25. What operational efficiency ratio is calculated by dividing the Cost of Revenue from Operations by the Average Inventory held during the year?: Inventory Turnover RatioThe inventory turnover ratio measures how quickly a business rotates its warehouse stock into finished sales. A high turnover ratio indicates efficient inventory management and brisk sales, whereas a low ratio warns of overstocking and capital tied up in slow-moving goods. Think of it as a speed tracking dial for warehouse operations.
26. Which structural solvency ratio compares total long-term debt funding directly against the equity share capital pool of the shareholders?: Debt-to-Equity RatioThe debt-to-equity ratio measures the financial balance between outsider debt financing and insider equity backing. It is calculated using the simple fraction: Long-term Debt / Shareholders' Funds. A ratio of 2:1 is generally considered the safe ceiling, indicating that lenders have provided twice as much capital as the actual owners of the enterprise.
27. Under which distinct cash flow classification activity must cash received from issuing new equity shares be reported?: Financing ActivitiesFinancing activities record transactions that alter the overall size and composition of a company's capital structure and borrowing setups. Issuing new shares brings in equity funding, making it a major financing cash inflow. Other typical financing actions include paying out dividends or paying back long-term bank loans.
28. How should the purchase of a new manufacturing factory building be categorized inside a standardized corporate Cash Flow Statement?: Investing Activity OutflowInvesting activities cover the acquisition and disposal of long-term fixed assets and productive investments. Spending cash to purchase a factory building represents a major investing outflow designed to boost production capacity for future years. This is distinct from daily operating expenses like buying raw inventory or paying factory utility bills.
29. Find the odd one out when grouping by non-cash items to be added back to net profit in a Cash Flow Statement: Depreciation, Goodwill Amortization, Purchase of Machinery, Loss on Sale of Plant.: Purchase of MachineryDepreciation, goodwill amortization, and loss on asset sales are non-cash or non-operating items adjusted under operating activities to reconcile accounting net profit back to real cash. Purchase of machinery stands out as the odd entry because it is an actual cash expenditure that belongs under Investing Activities.
30. Find the odd one out when grouping by items that alter a partner's capital account balance: Interest on Capital, Partner Salary, General Reserve Distribution, Underwriting Commission.: Underwriting CommissionInterest on capital, partner salaries, and general reserve distributions are standard partnership appropriations that change a partner's capital balance. Underwriting commission is the odd entry out because it is a corporate share-issue expense paid to financial brokers, completely unrelated to partnership firm accounting.

Curriculum Mapping & Learning Guide

Use this breakdown to identify which skills each question tests and guide post-test review.

Class 12 Accountancy chapters covered

1. Chapter 1: Accounting for Partnership Firms - Fundamentals: Deed rules, capital accounts, and profit appropriations.
2. Chapter 2: Reconstitution of a Partnership Firm: Ratio shifts, goodwill calculations, and asset revaluations.
3. Chapter 3: Admission and Retirement of a Partner: Sacrificing metrics, capital adjustments, and executor settlements.
4. Chapter 4: Dissolution of a Partnership Firm: Closing ledgers, asset realization entries, and debt settlements.
5. Chapter 5: Accounting for Share Capital: Pro-rata allotments, call defaults, and share forfeiture balances.
6. Chapter 6: Accounting for Debentures: Issuing terms, discount write-offs, and redemption premium parameters.
7. Chapter 7: Financial Statements of a Company: Schedule III balance sheets and profit indexing setups.
8. Chapter 8: Analysis of Financial Statements: Comparative tools, common-size forms, and trend metrics.
9. Chapter 9: Accounting Ratios: Liquidity fractions, solvency checks, turnover speeds, and profit margins.
10. Chapter 10: Cash Flow Statement: Operating non-cash adjustments, investing outlays, and financing cash lines.

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