Q.No.23 | Chapter 4 – Change in Profit-Sharing Ratio Among the Exiting Partners | T.S. Grewal 12 Class Book Keeping Part - A - Vol. 1

Question 23 Chapter 4 of +2-A

23. A, B and C are partners sharing profits and losses in the ratio of 5 : 3 : 2. Their Balance Sheet as at 31st March, 2019 stood as follows:

Liabilities			Assets
Capital A/c			Land and Building	3,50,000
A	2,50,000		Machinery	2,40,000
B	2,50,000		Computers	70,000
C	2,00,000	7,00,000	Investments Market value 90, 000	1,00,000
General Reserve		60,000	Sundry Debtors	50,000
Investments Fluctuation Reserve		30,000	Cash in Hand	10,000
Sundry Creditors		90,000	Cash at Bank	55,000
			Advertisement Suspense	5,000
		8,80,000		8,80,000

They decided to share profits equally w.e.f. 1st April, 2019. They also agreed that:

1. Value of Land and Building be decreased by 5%.
2. Value of Machinery be increased by 5%.
3. A Provision for Doubtful Debts be created @ 5% on Sundry Debtors.
4. A Motor Cycle valued at 20,000 was unrecorded and is now to be recorded in the books.
5. Out of Sundry Creditors, 10,000 is not payable.
6. Goodwill is to be valued at 2 years' purchase of last 3 years profits. Profits being for 2018-19 − 50,000 Loss; 2017-18 − 2,50,000 and 2016-17 − 2,50,000.
7. C was to carry out the work for reconstituting the firm at a remuneration including expenses of 5,000. Expenses came to 3,000.
   Pass Journal entries and prepare Revaluation Account

The solution of Question 23 Chapter 4 of +2-A

In the Books of _______________

Date	Particulars		L.F.	Debit	Credit
2019
April 1	General Reserve A/c*1	Dr		60,000
	To A's Capital A/c				30,000
	To B's Capital A/c				18,000
	To C's Capital A/c				12,000
	(Being General Reserve Distributed among partners)
	A's Capital A/c	Dr		2,500
	B's Capital A/c	Dr		1,500
	C's Capital A/c	Dr		1,000
	To Advertisement Suspense A/c*2				5,000
	(Being Advertisement Suspense adjusted)
	Investment Fluctuation Reserve A/c*3	Dr		30,000
	To Investment A/c				10,000
	To A's Capital A/c				10,000
	To B's Capital A/c				6,000
	To C's Capital A/c				4,000
	(Being Investment Fluctuation Reserve is Distributed among partners and adjusted)
	Revaluation A/c	Dr		25,000
	To Land & Building A/c				17,500
	To Provision for Doubtful Debts A/c				2,500
	To Bank A/c				5,000
	(Being Increase in the value of the assets and decrease in the values of liabilities are transferred to revaluation a/c)
	Machinery A/c	Dr		12,000
	Motor Cycle A/c	Dr		20,000
	Creditors A/c	Dr		10,000
	To Revaluation A/c				42,000
	(Being Increase in the value of the assets and decrease in the values of liabilities are transferred to revaluation a/c)
	Revaluation A/c*4	Dr		17,000
	To A's Capital A/c				8,500
	To B's Capital A/c				5,100
	To C's Capital A/c				3,400
	(Being Profit on revaluation of assets and liabilities are Distributed among partners)
	B's Capital A/c	Dr		10,000
	C's Capital A/c	Dr		40,000
	To A’s Capital A/c*5				50,000
	(Being goodwill account adjusted)

Working Note : 

WN *1 Calculation of Adjustment of General Reserve: -

Amount to be Credited to A's Capital	=	60,000	X	5
				10
	=	30,000

 

Amount to be Credited to B's Capital	=	60,000	X	3
				10
	=	18,000

 

Amount to be Credited to C's Capital	=	60,000	X	2
				10
	=	12,000

 

WN *2 Calculation of Adjustment of Advertisement Suspense: -

 

Amount to be Debited to A's Capital	=	5,000	X	5
				10
	=	2,500

 

Amount to be Debited to B's Capital	=	5,000	X	3
				10
	=	1,500

 

Amount to be Debited to C's Capital	=	5,000	X	2
				10
	=	1,000

 

WN *3 Calculation of Adjustment of General Reserve: -

Distributable Amount of I.F.R.	=	Total I.F.R. Balance - (Difference between Market value and Cost)
	=	30,000 - (90,000 – 80,000)
Distributable Amount of I.F.R.	=	20,000

 

Amount to be Debited to A’s Capital	=	20,000	X	5
				10
	=	10,000

 

Amount to be Debited to B’s Capital	=	20,000	X	3
				10
	=	6,000

 

Amount to be Debited to C’s Capital	=	20,000	X	2
				10
	=	4,000

 

WN *4 Calculation of Adjustment of Revaluation Profit: -

 

Amount to be Debited to A’s Capital	=	17,000	X	5
				10
	=	8,500

 

Amount to be Debited to B’s Capital	=	17,000	X	3
				10
	=	5,100

 

Amount to be Debited to C’s Capital	=	17,000	X	2
				10
	=	3,400

 

Old Ratio of X, & Y	=	5 : 3 : 2
New Ratio of X, & Y	=	1 : 1 : 1

Calculate the Sacrificing or Gaining Ratio of Partners
Sacrificing or Gaining Ratio = Old Ratio - New Ratio

A's Share Sacrificing/Gaining	=	5	-	1
		10		3

=	15- 10
		30

=	5	(Sacrificing)
			30

 

B's Share Sacrificing/Gaining	=	3	-	1
		10		3

=	9- 10
		30

=	- 1	Gain
			30

C's Share Sacrificing/Gaining	=	2	-	1
		10		3

=	6- 10
		30

=	- 4	Gain
			30

 

WN *5 Adjustment of Goodwill : -

Goodwill	=	Average Profit X No. of years' Purchase
	=	1,50,000 X 2
Goodwill	=	3,00,000

 

Amount to be Credited to A's Capital	=	3,00,000	X	5
				30
	=	50,000

 

Amount to be Debited to B’s Capital	=	3,00,000	X	1
				30
	=	10,000

 

Amount to be Debited to C's Capital	=	3,00,000	X	4
				30
	=	40,000

 

T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)

• Chapter No. 1 – Financial Statement of Not-For-Profit Organisations
• Chapter No. 2 – Accounting for Partnership Firms – Fundamentals
• Chapter No. 3 – Goodwill: Nature and Valuation
• Chapter No. 4 – Change in Profit-Sharing Ratio Among the Existing Partners
• Chapter No. 5 – Admission of a Partner
• Chapter No. 6 – Retirement/Death of a Partner
• Chapter No. 7 – Dissolution of a Partnership Firm

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

• Chapter No. 8 – Company Accounts –  Accounting for Share Capital
• Chapter No. 9 – Company Accounts – Issue of Debentures
• Chapter No. 10 – Redemption of Debentures

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

• Chapter No. 1 – Financial Statements of a Company
• Chapter No. 2 – Financial Statement Analysis 
• Chapter No. 3 – Tools of Financial Statement Analysis – Comparative Statements and Common- Size Statements
• Chapter No. 4 – Accounting Ratios
• Chapter No. 5 – Cash Flow Statement

 

Check out T.S. Grewal +2 Book 2020@ Official Website of Sultan Chand Publication