RBSE SS Accountancy common mistakes
RBSE SS Accountancy · Understand the traps and how to avoid them.
When preparing the Revaluation Account on admission of a partner, the candidate debits the increase in the value of an asset (or credits a decrease) instead of doing the reverse, so the profit or loss on revaluation is recorded with the wrong sign.
The candidate memorises 'revaluation account' by name and assumes it behaves like a normal asset account, forgetting that the account is prepared on the old partners' perspective: an increase in an asset is a gain to the firm and therefore a credit, while an increase in a liability is a loss and therefore a debit.
What to do instead
Before writing any entry, state the rule aloud: increases in assets and decreases in liabilities are credited (gain); decreases in assets and increases in liabilities are debited (loss). Then post the balancing figure to old partners' capital accounts in the old profit-sharing ratio only, never to the new partner.
On admission, the candidate credits the entire goodwill brought in cash or premium to all partners including the new partner, or omits the sacrifice ratio and simply uses the old ratio when writing off goodwill.
The candidate treats goodwill like ordinary capital and forgets that the incoming partner compensates only the sacrificing partners; the new partner does not sacrifice anything, so crediting them is wrong. Using the old ratio instead of the sacrifice ratio is a related slip when the old partners' shares change unevenly.
What to do instead
Compute sacrifice ratio as old share minus new share for each old partner. Credit the premium for goodwill to sacrificing partners in that ratio, then immediately write off the goodwill appearing in the books against all partners in the new profit-sharing ratio. If goodwill is not brought in cash, raise the new partner's capital account and credit the sacrificing partners.
In the Realisation Account on dissolution, the candidate records the sale of an asset by debiting Bank and crediting Realisation but also leaves the asset's book value sitting in the Realisation Account as a debit, double counting the asset; or records the payment of a liability at book value rather than the actual amount paid.
The candidate confuses the transfer entry (asset transferred to Realisation at book value) with the realisation entry (cash received), and forgets that the Realisation Account is a nominal account that must be closed, so only actual amounts realised and actually paid should appear in the cash-side entries.
What to do instead
Build the Realisation Account in strict order: (1) transfer all assets except cash and bank at book value to the debit side; (2) transfer all external liabilities at book value to the credit side; (3) record actual sale proceeds on the credit side and actual payments on the debit side; (4) never bring cash and bank into the account; (5) close the balance to partners' capital accounts in the profit-sharing ratio.
When a partner is insolvent on dissolution, the candidate writes off the deficiency directly to the firm's Realisation Account or divides it among solvent partners in the profit-sharing ratio instead of applying the Garner v. Murray rule.
The candidate learns 'deficiency borne by solvent partners' without the qualification that the deficiency is shared in the ratio of the solvent partners' capitals as they stood before dissolution, not the profit-sharing ratio, and only where the partnership deed is silent and the capital accounts are fixed.
What to do instead
First bring in the insolvent partner's capital deficiency as a debit to their capital account. Then apportion that deficiency among solvent partners in the ratio of their opening capital balances (Garner v. Murray), not the profit-sharing ratio, unless the deed specifies otherwise. State the assumption explicitly in the answer.
On forfeiture of shares, the candidate credits the full amount called up (including calls in arrears) to Share Forfeiture, or forfeits shares that were issued at a premium and forgets to deal with the premium already received.
The candidate treats the Share Forfeiture Account as a mirror of the called-up amount and overlooks that only amounts actually received can be forfeited; unpaid calls must be debited to the Share Forfeiture Account. The premium complication is missed because the candidate does not track which calls were actually received.
What to do instead
Debit Share Capital with the called-up amount, credit Share Forfeiture with the amount actually received (called-up less unpaid calls), and debit Share Forfeiture with any unpaid calls. If the premium was already received, it stays in the Securities Premium Account and is not forfeited; if the premium was not received and the shares are forfeited, debit Share Forfeiture with the unpaid premium.
On pro-rata allotment, the candidate applies the excess application money against allotment without first checking whether the applicant was allotted fewer shares than applied for, and then records calls in arrears for the full amount instead of the net amount after adjustment.
The candidate does not build a category-wise table of applications (full allotment, pro-rata, nil) and therefore cannot match excess money to the correct applicant group; the arithmetic becomes guesswork.
What to do instead
Draw a table with columns for shares applied, shares allotted, application money received, excess adjusted on allotment, and balance due on allotment. Apply the pro-rata ratio only to the over-subscribed category, adjust excess in order (allotment, then calls), and compute calls in arrears only on the net amount after all adjustments.
When preparing the Cash Flow Statement by the indirect method, the candidate starts from net profit after tax but forgets to add back depreciation, amortisation and interest expense, or treats a revaluation gain or the profit on sale of a fixed asset as an operating inflow.
The candidate conflates the statement of profit and loss with cash flow and does not separate non-cash and non-operating items before computing cash from operations; the treatment of gains on asset sales is a common blind spot because the sale proceeds belong to investing activities.
What to do instead
Adopt a fixed sequence: net profit before tax; add back non-cash and non-operating charges (depreciation, amortisation, interest, loss on sale); deduct non-operating income (interest received, profit on sale, revaluation gain); then adjust working capital changes; then deduct tax paid. Show the sale proceeds of fixed assets in investing activities only, never the gain.
In ratio analysis, the candidate computes the current ratio including prepaid expenses and loose tools in current assets, or uses closing stock and average debtors inconsistently, producing figures that do not reconcile with the balance sheet.
The candidate learns the formula but not the classification: Schedule III presentation and standard ratio definitions exclude prepaid expenses and loose tools from quick assets, and mixing opening, closing and average balances across ratios makes answers internally inconsistent.
What to do instead
Write the current assets classification first (inventories, trade receivables, cash and cash equivalents, short-term loans and advances, other current assets) and the quick assets as current assets minus inventories and prepaid expenses. Use average trade receivables and average inventory consistently for turnover ratios, and state which base you used.
When preparing the Income and Expenditure Account of a not-for-profit organisation, the candidate records capital receipts such as donations for building, life membership fees or legacies as income, and records the purchase of a fixed asset as an expenditure item in the same account.
The candidate treats the Income and Expenditure Account as a cash account and does not distinguish revenue from capital items, nor recognise that the Receipts and Payments Account is the cash-based summary from which only revenue items are transferred.
What to do instead
Classify every receipt as revenue or capital before posting: subscriptions, sale of old materials and interest are revenue; specific donations for building, legacies and life membership fees are capital and go to the Balance Sheet. Fixed asset purchases are capital expenditure and appear only in the Balance Sheet; depreciation of those assets is the revenue charge in the Income and Expenditure Account.
On issue and redemption of debentures, the candidate records the full face value of debentures as interest expense, or on redemption out of profits forgets to transfer the required amount to the Debenture Redemption Reserve and to invest in specified securities before the redemption date.
The candidate confuses the coupon base with the proceeds and does not connect the statutory reserve and investment requirements to the timing rules; the interest accrual for the part-year and the treatment of own debentures as an investment are also commonly skipped.
What to do instead
Compute interest on the face value outstanding for the exact number of months, and separate interest on own debentures (which is internal and eliminated on cancellation). Before redemption, transfer the prescribed percentage of the nominal value to the Debenture Redemption Reserve out of profits available for dividend, and ensure the required investment in specified securities is made at least fifteen days before redemption where the law requires it.