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Question 12 Chapter 4 - Unimax Class 12 Part 1
12. P and Q share the profits of a business in the ratio of 5 : 3. They agreed to change their profit sharing ratio to 3 : 5. On the date of change the Balance Sheet of the firm was as follows :
| Liabilities | Amount | Assets | Amount |
|---|---|---|---|
| Creditors | 1,000 | Machinery | 26,000 |
| Employees’ Provident Fund | 1,000 | Furniture | 18,000 |
| Bank Loan | 12,000 | Stock | 10,000 |
| Workmen Compensation Fund | 2,000 | Debtors | 8,000 |
| Contingency Reserve | 2,800 | Bank | 6,000 |
| P’s Capital | 30,000 | Advertisement suspense A/c | 800 |
| Q’s Capital | 20,000 | ||
| 68,800 | 68,800 |
There also decide that :
1. Goodwill of the firm be valued at 4 years’ purchase of Super profits. The average super profits of the last three years are Rs. 20,000, while the normal profits that can be earned with Capital employed are Rs. 12,000.
2. Furniture be appreciated by Rs. 6,000 and value of stock to be reduced by 20%. You are required to prepare Revaluation Account, Partners’ Capital Accounts and the Balance Sheet of reconstituted Firm. (Accumulated profits and losses are to be distributed and assets will appear at revalued figures in Balance Sheet.)
Revaluation A/c
| Particulars | Rs. | Particulars | Rs. | |
|---|---|---|---|---|
| To Stock | 2000 | By Furniture | 6000 | |
| To Profit transferred | ||||
| P (4000 X 5/8) | 2500 | |||
| Q (4000 X 3/8) | 1500 | 4000 | ||
| 6000 | 6000 |
Capital Accounts
| Particulars | P | Q | Particulars | P | Q |
|---|---|---|---|---|---|
| To P’s Capital A/c (Share of goodwill) | _ | 8000 | By Balance b/d | 30000 | 20000 |
| To Advertisement suspense A/c | 500 | 300 | By Revaluation A/c (Profit) | 2500 | 1500 |
| To Balance c/d | 43000 | 15000 | By Q’s Capital a/c (share of goodwill) | 8000 | _ |
| By workmen comp. fund | 1250 | 750 | |||
| By Reserves A/c | 1750 | 1050 | |||
| 43500 | 23300 | 43500 | 23300 |
Balance Sheet of Reconstituted firm
| Liabilities | Rs. | Assets | Rs. | |
|---|---|---|---|---|
| Creditors | 1000 | Bank | 6000 | |
| Bank Loan | 12000 | Debtors | 8000 | |
| Employees provident fund | 1000 | Stock | 8000 | |
| Capital Accounts | Furniture | 24000 | ||
| P : | 43000 | Machinery | 26000 | |
| Q : | 15000 | 58000 | ||
| 72000 | 72000 |
Working Note :
Calculation of Sacrifice/Gain
| Old Share | New Share | Difference |
| P 5/8 | 3/8 | 2/8 (Sacrifice) |
| Q 3/8 | 5/8 | 2/8 (Gain) |
2. Calculation of goodwill
Super Profits = Average Profits – Normal Profits
= Rs. 20000 – Rs. 12000 = Rs. 8000
Goodwill = Rs. 8000 X 4 = Rs. 32000
Q will pay to P, share of goodwill
i.E (32000 X 1/4) = Rs. 8000, sacrificed by P.
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Accounting & Commerce Educator
Sarbjit Singh holds a B.Com and M.Com degree and has over 12 years of teaching experience in double entry bookkeeping, financial accounting, and business studies.
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