AIOU 1340 Solved Assignment Autumn 2025

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ALLAMA IQBAL OPEN UNIVERSITY

(Department of Commerce)

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WARNING

1. Plagiarism or hiring of ghost writer(s) for solving the assignment(s) will debar the student from award of degree/certificate if found at any stage.

2. Submitting assignment(s) borrowed or stolen from other(s) as one's own will be penalized as defined in the "Aiou Plagiarism Policy".

Assignment Submission Schedule
6 Credit Hours	Due Date	3 Credit Hours	Due Date
Assignment 1	15-12-2025	Assignment 1	08-01-2026
Assignment 2	08-01-2026
Assignment 3	30-01-2026	Assignment 2	20-02-2026
Assignment 4	20-02-2026

Course: Business Accounting (1340)	Semester: Autumn-2025
Level: FA/I. Com

Please read the following instructions for writing your assignments. (SSC, HSSC & BA Programmes)
1. All questions are compulsory and carry equal marks but within a question the marks are distributed according to its requirements.
2. Read the question carefully and then answer it according to the requirements of the questions.
3. Late submission of assignments will not be accepted.
4. Your own analysis and synthesis will be appreciated.
5. Avoid irrelevant discussion/information and reproducing from books, study guide of allied material.

Total Marks: 100	Pass Marks: 40

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ASSIGNMENT No. 1

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Q1. Define the concept of accounting in the context of modern business. Why is accounting considered a foundational element in effective business management? ▶

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Accounting in Modern Business: A Foundational Element for Effective Management

Accounting is a critical component of modern business, providing the financial information necessary for decision-making, planning, and control. Below is a detailed explanation organized under key headings.

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1. Introduction to Accounting

Accounting is the systematic process of recording, classifying, summarizing, and interpreting financial transactions. It provides stakeholders with accurate and timely information about a business's financial position and performance.

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2. Purpose of Accounting

The main purpose of accounting is to present a clear picture of an organization’s financial health. It helps in informed decision-making, planning, and controlling business activities.

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3. Financial Recording

Accounting involves recording all business transactions in a structured manner using journals and ledgers. Accurate recording ensures that no transaction is overlooked, forming the basis for all subsequent financial analysis.

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4. Classification of Transactions

Transactions are classified into categories such as assets, liabilities, income, and expenses. This classification helps in understanding the nature of each transaction and its effect on the business.

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5. Summarization of Financial Data

Accounting summarizes transaction data through financial statements like the balance sheet, income statement, and cash flow statement. These summaries provide a snapshot of financial performance over a specific period.

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6. Reporting to Stakeholders

Accounting reports are essential for stakeholders including investors, creditors, managers, and regulators. They provide transparent information about profitability, solvency, and liquidity, building trust and ensuring compliance.

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7. Decision-Making Support

Accounting information supports management in making informed decisions regarding budgeting, investments, and strategic planning. Decisions based on accurate financial data are more reliable than those based on assumptions.

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8. Legal and Regulatory Compliance

Businesses must comply with financial regulations and taxation requirements. Accounting ensures proper documentation and reporting, helping companies avoid legal penalties and maintain ethical standards.

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9. Performance Evaluation

Through accounting, businesses can evaluate performance by comparing actual results with budgets or industry benchmarks. This evaluation highlights areas of strength and identifies areas needing improvement.

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10. Cash Flow Management

Accounting tracks cash inflows and outflows, enabling businesses to manage liquidity effectively. Proper cash flow management ensures obligations can be met and growth opportunities pursued.

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11. Planning and Forecasting

Accounting provides historical data and trend analysis, which are vital for forecasting future revenues, expenses, and financial needs. This information helps in planning expansion, controlling costs, and managing risk.

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12. Foundation for Business Management

Accounting is considered foundational in business management because it underpins every major decision. From operational efficiency to long-term strategy, accurate accounting provides the information necessary to guide a business toward sustainability and growth.

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Conclusion:

Accounting serves as the backbone of modern business. It ensures transparency, efficiency, compliance, and informed decision-making, integrating financial discipline with managerial insight, making it indispensable for effective business management.

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Q2. Mr. Dildar started his business on March 1, 2024, by investing Rs. 650,000 and recorded his business transactions under the single-entry system of bookkeeping. He further invested Rs. 175,000 and withdrew Rs. 87,500 during the financial year. On February 28, 2025, he wants to know the operating result of his business, for which he provided the following data as of February 28, 2025:

Cash Rs. 25,000, Bank Balance Rs. 50,000, Debtors Rs. 125,000, Land & Building Rs. 900,000, Machinery Rs. 450,000, Office Equipment Rs. 200,000, Bank Loan Rs. 1,000,000, and sundry creditors Rs. 60,000.

Depreciation @ 10% is charged annually on Machinery and Office Equipment on a straight-line basis.

Required:
i. Prepare the statement of affairs as on February 28, 2025
ii. Prepare a statement of Profit & Loss account for the period ended on February 28, 2025. ▶

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1. Statement of Affairs as on February 28, 2025

Depreciation has been charged at 10% on Machinery and Office Equipment. After adjusting depreciation:

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Assets:

Particulars	Amount (Rs.)
Cash	25,000
Bank	50,000
Debtors	125,000
Land & Building	900,000
Machinery (after depreciation)	405,000
Office Equipment (after depreciation)	180,000
Total Assets	1,685,000

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Liabilities and Capital:

Particulars	Amount (Rs.)
Bank Loan	1,000,000
Sundry Creditors	60,000
Capital (Balancing Figure)	625,000
Total Liabilities & Capital	1,685,000

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2. Calculation of Profit / Loss

Opening Capital: Rs. 650,000

+ Additional Investment: Rs. 175,000

- Drawings: Rs. 87,500

= Expected Capital without profit/loss: Rs. 737,500

Closing Capital: Rs. 625,000

Loss for the Year = 737,500 − 625,000 = Rs. 112,500

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3. Statement of Profit & Loss Account for the Year Ended February 28, 2025

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
Loss for the Year	112,500

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Summary:

• Closing Capital: Rs. 625,000
• Net Loss during the year: Rs. 112,500
• Depreciation has been accounted for on Machinery and Office Equipment.

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Q3. In July 2025, Mr. Hussain Jamal sent a consignment, which contained 3,000 pieces of toys of Rs. 600,000 to his agent, Mr. Nazir. They agreed upon 5% commission and 3% del-credere commission on gross sales proceeds. Consignor incurred Rs. 12,000 in packing and freight expenses and drew a bill on Consignee amounting to Rs. 200,000, which was duly accepted by the consignee. Consignee incurred selling expenses amounting to Rs. 30,000 and sold 2,000 toys @ Rs. 250 each. At the end of August 2025, the consignee sent an account sales and a bank draft for the balance due to the consignor.
You are required to
(a) prepare an account sale
(b) pass the journal entries
(c) prepare necessary accounts in the books of Mr. Hussain Jamal. ▶

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(a) prepare an account sale

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Particulars	Details	Amount (Rs.)
Gross Sales	2,000 toys @ Rs. 250 each	500,000
Less: Expenses Incurred by Consignee
Selling Expenses		30,000
Less: Commission
Ordinary Commission (5% of Rs. 500,000)		25,000
Del-Credere Commission (3% of Rs. 500,000)		15,000
Net Balance Due		430,000

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(b) pass the journal entries

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Sr. No	Particulars	Debit (Rs.)	Credit (Rs.)
1	Consignment A/c	600,000
	To Goods Sent on Consignment A/c		600,000
Being goods costing Rs. 600,000 sent on consignment
2	Consignment A/c	12,000
	To Bank A/c		12,000
Being packing and freight paid on consignment
3	Consignee (Nazir) A/c	500,000
	To Consignment A/c		500,000
Being sales proceeds of 2,000 toys @ Rs. 250 each
4	Consignment A/c	70,000
	To Consignee A/c		70,000
Being consignee’s expenses Rs. 30,000 and commission Rs. 40,000 charged
5	Bills Receivable A/c	200,000
	To Consignee A/c		200,000
Being bill accepted by consignee in favor of consignor
6	Bank A/c	230,000
	To Consignee A/c		230,000
Being balance remitted by consignee through bank draft
7	Consignment A/c	18,000
	To Profit and Loss A/c		18,000
Being profit on consignment transferred to Profit and Loss A/c

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(c) prepare necessary accounts in the books of Mr. Hussain Jamal.

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Consignment Account
Date	Particulars	Debit (Rs.)	Credit (Rs.)
July 2025	From Goods Sent on Consignment A/c	600,000
July 2025	From Cash/Bank (Packing & Freight)	12,000
Aug 2025	From Consignee (Expenses & Commission)	70,000
Aug 2025	To Consignee (Sales 2,000 @ Rs. 250)		500,000
Aug 2025	To Closing Stock (1,000 toys @ Rs. 200)		200,000
Aug 2025	To Profit & Loss A/c (Profit transferred)		18,000
Totals		682,000	718,000

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Q4. Define depreciation and explain the factors for determining the depreciation. ▶

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Depreciation – Definition

Depreciation is the systematic allocation of the cost of a tangible fixed asset over its useful life. Fixed assets such as machinery, vehicles, equipment, furniture, and buildings are used in business operations to earn revenue. Over time, these assets lose their value because of wear and tear, usage, passage of time, or becoming outdated.

In accounting, depreciation is treated as an expense. This ensures that the cost of the asset is spread over the years it is used, and the financial statements reflect the true and fair value of the asset and the business’s profit.

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Factors Determining Depreciation

1. Cost of the Asset
The starting point in calculating depreciation is the total cost of the asset. This cost includes not just the purchase price but also expenses like freight, installation, customs duties, and legal fees. Depreciation is calculated on this total cost.

2. Estimated Useful Life
Useful life means the expected period for which the asset will provide economic benefits to the business. It depends on the nature of the asset, usage conditions, and industry practice. For example, a machine may last 10 years while a computer may last only 3 to 5 years.

3. Residual Value (Scrap Value)
Residual value is the estimated value of the asset at the end of its useful life. Depreciation is charged on the cost of the asset minus its residual value. For example, if a machine costs Rs. 100,000 and has a scrap value of Rs. 10,000, depreciation will be calculated on Rs. 90,000.

4. Obsolescence
An asset may become outdated before its physical life ends due to new technology or better alternatives. For example, computers may still work but become obsolete when faster models are introduced. This reduces useful life and increases depreciation.

5. Usage of the Asset
The more intensively an asset is used, the faster it depreciates. A vehicle or machine used heavily will lose value more quickly than one used occasionally. In some cases, depreciation is charged based on hours of usage or units produced.

6. Passage of Time
Some assets lose value simply with time, even without use. For example, patents or leasehold rights expire after a fixed period regardless of usage. Depreciation for such assets is time-based.

7. Legal or Contractual Provisions
Sometimes laws, tax regulations, or contracts specify the method or rate of depreciation. Companies may be required to follow these rules for tax or legal compliance.

8. Nature and Type of Asset
Different assets depreciate differently. Machinery and vehicles depreciate faster, buildings depreciate more slowly, and land usually does not depreciate at all.

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Conclusion

Depreciation is a vital accounting concept that ensures assets are valued correctly and their cost is matched with the revenue they help generate. The main factors that determine depreciation are cost, useful life, residual value, usage, obsolescence, legal requirements, and the type of asset.

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Q5. Numan Care Centre provides the following information for the year ended on 31st December 2025.

Receipts	Amount	Payments	Amount
Entrance fee	10,800	Profit on refreshment	28,950
Subscription received	59,400	Secretary's honorarium	4,500
Arrears of the previous year	5,250	Advertisement paid	4,800
Arrears of this year	4,950	Postage expenses	1,650
In advance last year	1,650	Cash in hand Jan 01, 2025	7,050
In advance this year	1,350	Lockers rent received	1,500
Donations received	3,900	Investment at Jan 01, 2025	13,500
Rent & taxes paid	81,750	Investment bought	3,300
Rent and taxes are unpaid this year	4,410	Charities	1,800
Rent & taxes unpaid last year	3,750	Printing & Stationery	1,500

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Required: You are required to prepare the Receipts & Payments account and Income & Expenditures account for the year ended on 31st December, 2025.

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▶

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Numan Care Centre Receipts & Payments Account for the year ended 31 December 2025
Receipts	Amount (Rs.)	Payments	Amount (Rs.)
Cash in hand b/f (Jan 01, 2025)	7,050	Profit on refreshment	28,950
Investment b/f (Jan 01, 2025)	13,500	Secretary's honorarium	4,500
Entrance fee	10,800	Advertisement paid	4,800
Subscription received	59,400	Postage expenses	1,650
Arrears of previous year (collected)	5,250	Investment bought	3,300
Arrears of this year (amount outstanding)	4,950	Charities	1,800
In advance last year (opening advance)	1,650	Printing & Stationery	1,500
In advance this year (advance received)	1,350	Rent & taxes paid	81,750
Donations received	3,900
Lockers rent received	1,500
Totals	102,750	Totals	128,250
Balance c/d (Cash and bank at 31 Dec 2025)	25,500
Grand Total	128,250	Grand Total	128,250

Numan Care Centre Income & Expenditure Account for the year ended 31 December 2025
Expenditure	Amount (Rs.)	Income	Amount (Rs.)
Rent & Taxes (Expense) [Paid 81,750 + Closing unpaid 4,410 - Opening unpaid 3,750]	82,410	Subscription (net for year)	59,400
Profit on refreshment (transfer to I&E as income is shown on income side)		Entrance fee	10,800
Secretary's honorarium	4,500	Donations	3,900
Advertisement	4,800	Lockers rent received	1,500
Postage	1,650	Profit on refreshment	28,950
Charities	1,800
Printing & Stationery	1,500
Totals	96,660	Totals	104,550
Excess of Income over Expenditure (Surplus) c/d	7,890
Grand Total	104,550	Grand Total	104,550

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ASSIGNMENT No. 2

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Q1(a). What is a partnership deed? Discuss the essential elements of the Partnership deed. ▶

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What is a Partnership Deed?

A partnership deed is a written agreement made between the partners of a business firm that outlines their rights, duties, responsibilities, and obligations. While it is not legally compulsory to have a partnership deed, preparing one helps avoid disputes and misunderstandings. If no deed exists, the provisions of the Indian Partnership Act, 1932 (or relevant law in other countries) apply, which may not always suit the partners’ specific needs.

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Essential Elements of a Partnership Deed

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1. Name and Address of the Firm and Partners
The deed should clearly state the official name of the firm and the full details of all partners.

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2. Nature and Scope of Business
It must mention the type of business activities the partnership will carry out.

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3. Capital Contribution
The deed should specify the capital contributed by each partner, whether in cash, kind, or assets.

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4. Profit and Loss Sharing Ratio
The proportion in which profits and losses will be shared among partners must be clearly stated.

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5. Remuneration and Interest
The deed should mention whether partners will receive salary, commission, or interest on capital/loans.

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6. Rights and Duties of Partners
The roles, powers, and responsibilities of each partner in managing the business should be defined.

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7. Admission, Retirement, and Death of a Partner
It should include conditions and procedures for admitting new partners, handling retirement, or settlement in case of a partner’s death.

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8. Duration of Partnership
The deed should clarify whether the partnership is for a fixed period, a specific project, or at will.

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9. Accounts and Audit
The method of maintaining books of accounts and auditing arrangements should be specified.

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10. Settlement of Disputes
The procedure for resolving disputes, such as through arbitration, should be clearly mentioned.

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Conclusion
A partnership deed acts as the rule book of a firm. It protects the interests of partners, ensures clarity, and helps in smooth functioning of the business.

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Q1(b). Differentiate between (a) Fixed Capital Method. (b) Fluctuating Capital Method. ▶

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Difference Between Fixed Capital Method and Fluctuating Capital Method

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(a) Fixed Capital Method

1. Under this method, the capital of each partner remains constant unless additional capital is introduced or withdrawn permanently.
2. A separate Capital Account and a Current Account are maintained for each partner.
3. All adjustments like interest on capital, drawings, salary, and share of profit or loss are recorded in the Current Account only.
4. Suitable when partners agree to keep their capital balances unchanged.

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(b) Fluctuating Capital Method

1. Under this method, the capital balance of each partner keeps changing (fluctuates) with every adjustment.
2. Only one Capital Account is maintained for each partner.
3. All adjustments such as interest, drawings, salary, and share of profit or loss are directly recorded in the Capital Account.
4. Suitable when partners allow their capital balances to vary according to transactions.

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Key Point of Difference

In the Fixed Capital Method, capital remains stable and adjustments are passed through a separate Current Account. In the Fluctuating Capital Method, capital changes frequently as all adjustments are recorded directly in the Capital Account.

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Q2. Red, Orange, and Yellow are partners in a firm sharing profit and loss in the ratio of 5:3:2, respectively. Their capital at the beginning of the year was Rs. 400,000, Rs. 300,000, and Rs. 200,000, respectively. According to the partnership deed.

(a) Red is entitled to a salary of Rs. 50,000 per month.
(b) Interest on capital and drawing is 10% per annum.
(c) Yellow is entitled to a monthly commission of Rs. 30,000 per month.

The profit for the year ended on December 31, 2024, before the above adjustments was Rs. 650,000. The partners made the drawing as Red Rs. 25,000/-, Orange Rs. 20,000/- during the year. You are required to prepare the profit and loss appropriation account and their capital accounts. ▶

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Profit & Loss Appropriation Account for the year ended 31 December 2024
Expenditure	Amount (Rs.)	Income	Amount (Rs.)
To Red Salary (50,000 per month)	600,000	By Profit b/f	650,000
To Yellow Commission (30,000 per month)	360,000	By Interest on Drawings	4,500
To Interest on Capital - Red	40,000
To Interest on Capital - Orange	30,000
To Interest on Capital - Yellow	20,000
To Partners Capital Accounts (Share of Loss) Red	197,750
To Partners Capital Accounts (Share of Loss) Orange	118,650
To Partners Capital Accounts (Share of Loss) Yellow	79,100
Totals	1,445,500	Totals	654,500
Balance carried down (Deficit to be transferred to Partners Capital Accounts)		790, (see distribution above)
Notes: Profit before adjustments Rs. 650,000. Interest on drawings Rs. 4,500 added. After appropriations a net loss of Rs. 395,500 arises and is shared as Red Rs. 197,750 Orange Rs. 118,650 Yellow Rs. 79,100.

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Red Capital Account
Date	Particulars	Debit (Rs.)	Credit (Rs.)
Jan 01, 2024	Balance b/d		400,000
During 2024	By Salary credited		600,000
During 2024	By Interest on Capital		40,000
During 2024	To Drawings	25,000
During 2024	To Interest on Drawings	2,500
Dec 31, 2024	To Share of Loss	197,750
Balance c/d			814,750
Closing balance transferred to next year

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Orange Capital Account
Date	Particulars	Debit (Rs.)	Credit (Rs.)
Jan 01, 2024	Balance b/d		300,000
During 2024	By Interest on Capital		30,000
During 2024	To Drawings	20,000
During 2024	To Interest on Drawings	2,000
Dec 31, 2024	To Share of Loss	118,650
Balance c/d			189,350
Closing balance transferred to next year

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Yellow Capital Account
Date	Particulars	Debit (Rs.)	Credit (Rs.)
Jan 01, 2024	Balance b/d		200,000
During 2024	By Commission credited		360,000
During 2024	By Interest on Capital		20,000
Dec 31, 2024	To Share of Loss	79,100
Balance c/d			500,900
Closing balance transferred to next year

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Q3. The following is the balance sheet of Abid and Akbar as at Dec. 31st:

Capital & Liabilities	Amount	Assets	Amount
Sundry creditors	30,000	Cash account	10,000
		Sundry assets	50,000
Owner’ equities
Capital – Abid Capital – Akbar	30,000
	60,000		60,000

The particulars shared profits and losses in the ratio 3:2. On the above date, Asghar was admitted as a partner for a 1/5 share in the business.

Required: Give the necessary journal entries and prepare a balance sheet under the following cases separately.
i. Asghar has invested Rs 10000/- in the partnership.
ii. If it is agreed that Rs.. 30000/- would represent 4/5 of the total capital of the new firm. ▶

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i. Asghar has invested Rs 10000/- in the partnership.

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Sr.No	Particulars	Debit	Credit
1	Cash A/c	10,000
	To Asghar’s Capital A/c		10,000
Being cash brought in by Asghar
2	Asghar’s Capital A/c	2,000
	To Abid’s Capital A/c		1,200
	To Akbar’s Capital A/c		800
Being excess capital treated as goodwill and distributed to old partners

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ii. If it is agreed that Rs.. 30000/- would represent 4/5 of the total capital of the new firm.

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Sr.No	Particulars	Debit	Credit
1	Cash A/c	7,500
	To Asghar’s Capital A/c		7,500
Being cash brought in by Asghar for his 1/5 share

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Q4. The following is the balance sheet of Zafar and Muzammil on 31st December. Profit is being divided equally.

It is arranged that Asif shall be taken in partnership, and as a result of the negotiations, it is agreed to make the following adjustments in the above balance sheet.

Capital & Liabilities	Amount	Assets	Amount
Sundry creditors	20,000	Cash	200
Bank overdraft	6,000	Sundry debtors	24,400
Capital Zafar	8,400	Stock	14,000
Capital Muzammil	6,400	Investment	1200
		Furniture	1000
Total	40,800	Total	40,800

i. Investment be decrease by 25%, stock by 15%, and furniture 6%.
ii. Goodwill raised in the books Rs.. 4000/-
iii. Bad debts written off Rs.. 6000/-
iv. Asif introduces Rs 4000/- as his one-third share of the capital, the capital accounts of other partners shall be adjusted. ▶

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Capital & Liabilities	Amount	Assets	Amount
Sundry creditors	20,000	Cash	1,860
Bank overdraft	6,000	Sundry debtors	18,400
Capital Zafar	4,000	Stock	11,900
Capital Muzammil	4,000	Investment	900
Capital Asif	4,000	Furniture	940
		Goodwill	4,000
Total	38,000	Total	38,000

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Q5. Explain the modern accounting treatment applied during the retirement of a partner, including adjustments for goodwill, revaluation of assets and liabilities, and settlement of the retiring partner’s dues. Support your answer with a practical example. ▶

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Retirement of a Partner – Modern Accounting Treatment

When a partner retires from a partnership firm, the firm has to make certain adjustments in the accounts before settling the retiring partner’s dues. The modern accounting treatment generally covers the following:

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1. Adjustment for Goodwill

Goodwill represents the reputation and earning capacity of the firm. At the time of retirement, the retiring partner is entitled to his share of goodwill. This is usually adjusted through the capital accounts of the continuing partners in their gaining ratio. If goodwill already appears in the books, it is written off among all partners in the old profit-sharing ratio.

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2. Revaluation of Assets and Liabilities

Assets and liabilities are revalued so that any gain or loss arising from changes in their value is shared by all partners (including the retiring one) in their old profit-sharing ratio. A Revaluation Account (Profit and Loss Adjustment Account) is prepared for this purpose.

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3. Settlement of Retiring Partner’s Dues

After making adjustments for goodwill, revaluation, reserves, and accumulated profits or losses, the final balance standing to the credit of the retiring partner’s capital account is payable to him. The settlement may be made immediately in cash, partly in cash and partly by transferring to loan account, or fully through a loan account to be paid later with interest.

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Practical Example

A, B, and C are partners sharing profits in the ratio of 3:2:1. Their capitals are Rs. 200,000, Rs. 150,000, and Rs. 100,000 respectively. C retires from the firm. Goodwill of the firm is valued at Rs. 60,000. Assets are revalued, showing Land increase by Rs. 60,000 and Machinery decrease by Rs. 20,000. Goodwill is adjusted between A and B in their gaining ratio.

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Revaluation Account

Particulars	Debit (Rs.)	Credit (Rs.)
To Machinery (Decrease)	20,000
By Land (Increase)		60,000
By Profit transferred to A (3/6)		20,000
By Profit transferred to B (2/6)		13,333
By Profit transferred to C (1/6)		6,667

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Partners’ Capital Accounts

Particulars	A (Rs.)	B (Rs.)	C (Rs.)
Opening Balance	200,000	150,000	100,000
Add: Revaluation Profit	20,000	13,333	6,667
Less: Goodwill Adjustment	12,000	8,000	(20,000)
Closing Balance	208,000	155,333	126,667

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Settlement of Retiring Partner (C)

Particulars	Amount (Rs.)
Final Settlement paid to C by Bank	126,667

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Conclusion: Under the modern accounting treatment, the retiring partner’s account is settled after adjusting for goodwill, revaluation, and accumulated balances. In this example, C retires with a final settlement of Rs. 126,667, while A and B continue with adjusted capital balances.

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