Q.No.29 | Chapter 4 – Change in Profit-Sharing Ratio Among the Exiting Partners | T.S. Grewal 12 Class Book Keeping Part - A - Vol. 1

1. Goodwill be valued on the basis of two years' purchase of the average profit of the last three years. Profits for the years ended 31st March,are: 2016-17 − 7,500; 2017-18 − 4,000; 2018-19 − 6,500.
2. Machinery and Stock be revalued at 45,000 and 8,000 respectively.
3. Claim on account of workmen compensation is 6,000.

Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of the new firm.

The solution of Question 29 Chapter 4 of +2-A

Revaluation A/c

Particulars		Amount	Particulars	Amount
			By Machinery A/c	7,000
			By Stock A/c	8,000
To Profit on Revaluation*1		8,000
X	5,000
Y	3,000
		8,000		8,000

 

Partners’ Capital Accounts for the year ended 31st March, 2019

Particulars	X	Y	Particulars		X	Y
To Advertisement Suspense A/c	500	300	By Balance B/d		52,000	54,000
To Goodwill A/c *2	5,000	3,000	By General Reserve A/c		3,000	1,800
To X’s Capital A/c *3	-	3,000	By WCF A/c		2,500	1,500
			By Revaluation A/c		5,000	3,000
			By Y’s Capital A/c *3		3,000	-
To Balance c/d	60,000	54,000
	65,500	60,300			65,500	60,300

 

Balance Sheet as on 01st April, 2019

Particulars		Amount	Particulars		Amount
Sunday Creditors		5,000	Machinery		45,000
Outstanding Expenses		15,000	Furniture		15,000
Employees’ Provident Fund		1,000	Sundry Debtors		33,000
Workmen’s Compensation Reserve		6,000	Stock		8,000
Capital A/c			Bank		25,000
X	58,500
Y	55,500	1,14,000
		1,26,000			1,26,000

Working Note : 

WN *1 Adjustment of Profit on revaluation: -

Amount to be Credited to X's Capital	=	8,000	X	5
				8
	=	5,000

 

Amount to be Credited to Y's Capital	=	8,000	X	3
				8
	=	3,000

WN *2 Adjustment of Existing goodwill already in the books: -

Amount to be Credited to X's Capital	=	8,000	X	5
				8
	=	5,000

 

Amount to be Credited to Y's Capital	=	8,000	X	3
				8
	=	3,000

 

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

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

X's Share Sacrificing/Gaining	=	5	-	3
		8		8

=	5 - 2
		8

=	2	(Sacrifice)
			8

 

Y's Share Sacrificing/Gaining	=	3	-	5
		8		8

=	3 - 5
		8

=	(-2)	(Gain)
			36

WN *1 Adjustment of General Reserve: -

Amount to be Debited to X's Capital	=	42,000	X	2
				8
	=	4,000

 

Amount to be Credited to Y's Capital	=	42,000	X	2
				8
	=	4,000

WN *3 Calculation of New Goodwill

Average Profit	=	Sum of all year Profit
		Numbers of Year

=	7,500 + 4,000 + 6,500
		3
=	6,000

Goodwill	=	Average Profit X Number of Years of Purchase
	=	6,000 X 2
	=	12,000

Amount to be Debited to X's Capital	=	12,000	X	2
				8
	=	3,000

 

 

Amount to be Debited to Y's Capital	=	12,000	X	2
				8
	=	3,000

 

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

 

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