BSEB Inter Accountancy common mistakes
BSEB Inter Accountancy · Understand the traps and how to avoid them.
Treating a partner's salary or interest on capital as an expense in the Profit and Loss Appropriation Account and then also deducting it again while distributing profit, so the divisible profit is understated twice.
Candidates carry the cost-accounting habit of charging every payment as an expense, and do not internalise that appropriations are a distribution of profit among partners, not a charge against profit.
What to do instead
Before writing any entry, classify it: is it a charge against profit (partner's salary is not, but interest on partner's loan is) or an appropriation? Salary, interest on capital and interest on drawings go to the debit/credit of the Appropriation Account only once; interest on a partner's loan is debited to Profit and Loss before appropriation. Practise by reworking one question with both treatments side by side and marking which account each item touches.
Valuing goodwill on admission using the new profit-sharing ratio instead of the sacrificing ratio, so the incoming partner's premium is credited to all partners including the one who gained.
The default assumption that all old partners sacrifice equally is applied mechanically, even when the question gives an actual new ratio that reveals one partner has gained.
What to do instead
Always compute Sacrificing Ratio = Old Share − New Share for each old partner before crediting goodwill. If the result is negative for a partner, that partner is a gainer and must be debited, not credited. Write the sacrificing ratio explicitly at the top of the answer; the examiner awards method marks for it.
On admission, revaluing assets and liabilities but leaving the Revaluation Account balance in the books instead of transferring it to all old partners in the old ratio.
Candidates prepare the Revaluation Account correctly, then post the profit or loss to the partners' capital accounts in the new ratio or to the incoming partner as well, forgetting that the new partner is not entitled to gains arising before admission.
What to do instead
Close the Revaluation Account by transferring its balance to the old partners' capital accounts in the old profit-sharing ratio only. Then confirm that the new partner's capital is introduced for the agreed amount and that goodwill is separately adjusted. Treat the revaluation and goodwill adjustments as a single step: both belong to old partners.
On the death of a partner, calculating the deceased partner's share of profit for the current year as the full year's profit times the old ratio, ignoring the time factor and the basis (previous year's profit or average profit) given in the question.
Candidates memorise the 'share of profit' formula but forget that death occurs mid-year, and they miss that the deceased partner's share is based on the old ratio, not the new one.
What to do instead
Write down three things before computing: the period (date of last balance sheet to date of death), the profit basis stated in the question, and the old profit-sharing ratio. Then compute share = profit basis × period/12 × old share. Also remember interest on capital up to the date of death and interest on drawings for the same period.
In dissolution, using the Revaluation Account for asset and liability adjustments instead of Realisation Account, and mixing the two accounts in the same answer.
Revaluation and Realisation both involve assets and liabilities, and candidates revise them close together, so the labels blur under exam pressure.
What to do instead
Use a simple keyword test: Revaluation appears only when the firm continues (admission, retirement, death); Realisation appears only when the firm closes. In dissolution, all assets except cash/bank and all external liabilities are transferred to the Realisation Account at book value, and the partner's capital accounts are settled last. Draw a one-line flowchart of the dissolution entries and reproduce it before starting each question.
Applying Section 52 (premium on issue) and Section 53 (discount on issue) in the wrong direction, or crediting the Securities Premium Account with the full issue price rather than the premium portion.
The two sections are learned as paired numbers and get swapped; candidates also forget that discount on issue of shares is debited to a 'Discount on Issue of Shares' account and written off, not to Securities Premium.
What to do instead
Anchor the rule: premium is a credit to Securities Premium (a capital receipt, used only for the purposes listed in Section 52), discount is a debit written off against Securities Premium or, if none, against profit. Practise journal entries with a numeric example where issue price exceeds face value by a stated amount, and verify that share capital is always credited at face value.
Recording the redemption of debentures entirely through the Statement of Profit and Loss, or ignoring the creation of a Debenture Redemption Reserve where it is required, so the balance sheet and cash flow become inconsistent.
Candidates treat debenture redemption as an ordinary expense and forget that it is a financing outflow that reduces a liability, with DRR being an appropriation of profit, not a charge.
What to do instead
Separate three events: interest on debentures (expense), transfer to DRR (appropriation from surplus), and redemption (financing outflow reducing the liability). Show each in the relevant place: interest in the Statement of Profit and Loss, DRR under appropriations, redemption in the Cash Flow Statement under financing activities. Check that the debenture liability in the balance sheet falls by the face value redeemed.
Classifying items in the Schedule III balance sheet by name rather than by nature, for example putting 'Loose Tools' or 'Stores and Spares' under Trade Receivables, or showing 'Calls in Arrears' as an asset without deducting it from share capital.
The Schedule III format is memorised as a list of headings, and the sub-classification logic (current vs non-current, share capital shown net of calls in arrears) is not practised.
What to do instead
Build a personal classification table with three columns: item, nature (non-current asset, current asset, etc.), and Schedule III heading. For share capital, always show it as subscribed capital less calls in arrears. For each item ask: will it be realised or settled within twelve months? That single question resolves most classification errors.
Computing ratios with mismatched numerators and denominators, such as using average inventory with closing debtors for the operating cycle, or using profit before tax for return on capital employed when interest has not been added back.
Formulas are recalled in isolation, and the candidate does not check that the numerator and denominator refer to the same period and the same base.
What to do instead
Write the formula, then annotate each component with 'average' or 'closing' and 'before/after interest and tax' before substituting numbers. For turnover ratios, use average balances consistently; for return on capital employed, use profit before interest and tax. After computing, sanity-check the ratio against a rough expectation (for example, a current ratio far below 1 needs justification).
In the Cash Flow Statement, treating a non-cash item such as depreciation, a profit on sale of fixed assets, or a revaluation as a cash flow, or misplacing interest paid and dividends paid between operating and financing activities.
The indirect method requires adding back non-cash charges and removing non-operating gains, and candidates confuse the adjustment with the actual cash movement; the classification of interest and dividends is also memorised without the underlying logic.
What to do instead
Use a two-step discipline: first adjust net profit for every non-cash and non-operating item (add back depreciation and losses, deduct gains), then classify each remaining inflow and outflow as operating, investing or financing. Remember that purchase and sale of fixed assets are investing, while interest paid on borrowings and dividends paid are financing for a company. Reconcile the closing cash balance as a final check.
In Not-for-Profit Organisations, treating subscriptions received in advance, subscriptions outstanding, and the subscription relating to the previous year as income of the current year, and treating the surplus as profit distributable to members.
Candidates apply the accrual concept partially, adjusting for outstanding subscriptions but not for advance or prior-year amounts, and they carry the profit-making vocabulary of a trading entity into an NPO.
What to do instead
Prepare a subscription account that explicitly separates current-year, prior-year and advance amounts, and show only the current-year amount as income. Remember that an NPO reports a surplus or deficit, which is added to or deducted from the Capital Fund; it is never distributed. Also distinguish specific donations (capitalised) from general donations (income).
Failing to show the working note for the sacrificing ratio, the revaluation distribution, or the cash flow adjustments, and presenting only the final figures.
Under time pressure candidates skip workings, believing the final answer is what is marked, and they have not practised writing compact workings as part of the answer.
What to do instead
Treat the working note as part of the answer: a small table with ratio computation, or a list of add-backs, takes under a minute and secures method marks even if an arithmetic slip occurs. Before the exam, rehearse a standard layout for each of the ten domains so the working note is produced automatically rather than reconstructed under pressure.