Q.No.32 | Chapter 6 – Retirement/Death of a Partner | T.S. Grewal 12 Class Book Keeping Part - A - Vol. 1

1. Out of the insurance premium debited to Profit and Loss Account, 1,500 to be carried forward as Prepaid Insurance.
2. Provision for Doubtful Debts to be brought up to 5% of Sundry Debtors.
3. Land and Building to be appreciated by 20%.
4. A provision of 4,000 is made in respect of outstanding bills for repairs.
   Goodwill of the firm was determined at 21,600.

Y's share of goodwill is adjusted to that of X and Z who will share profits in the future in the ratio of 3: 1.
Pass necessary Journal entries and give the Balance Sheet after Y's retirement.

The solution of Question 32 Chapter 6 of +2-A: -

Journal Entries

Date	Particulars		L.F.	Debit	Credit
	Revaluation A/c	Dr.		4,300
	To Prov. for Doubtful Debts A/c				300
	To Prov. for O/s Repair Bills A/c				4,000
	(Being provision created transferred to Revaluation Account )
	Prepaid Insurance A/c	Dr.		1,500
	Land and Building A/c	Dr.		10,000
	To Revaluation A/c				11,500
	(Being Increase in the value of assets transferred to revaluation account)
	Revaluation A/c	Dr.		7,200
	To X’s Capital A/c				3,600
	To Y’s Capital A/c				2,400
	To Z’s Capital A/c				1,200
	(Being Profit on revaluation transferred to capital accounts)
	X’s Capital A/c	Dr.		1,500
	Z’s Capital A/c	Dr.		10,000
	To Y’s Capital A/c				11,500
	(Being adjustment for goodwill recorded in the books)
	To Y’s Capital A/c	Dr.		39,600
	To Y’s LoanA/c				39,600
	(Being balance of Y’s capital account transferred to Y’s loan account)

 

Balance Sheet

Liabilities		Amount	Assets		Amount
Sundry Creditors		13,800	Cash at Bank		11,000
Prov. for O/s Repair Bills		4,000	Sundry Debtors	10,000
Y’s Loan A/c		39,600	Less: Prov. for D/D	500	9,500
Capital:			Stock		16,000
Disha’s Capital	43,200		Prepaid Insurance		1,500
Kabir’s Capital	14,400	57,600	Plant and Machinery		17,000
			Land and Building		60,000
		1,15,000			1,15,000

Working Note:-

Revaluation Account

Particular		Amount	Particular		Amount
To Prov. for Doubtful Debts		300	By Prepaid Insurance A/c		1,500
To Prov. For O/s Repairs Bills		4,000	By Land And Building A/c		10,000
To Profit transferred to
X’s Capital	3,600
Y’s Capital	2,400
Z’s Capital	1,200	7,200
		11,500			11,500

 

Partners’ Capital Account

Part.	X	Y	Z	Part.	X	Y	Z
To Y’s Capital A/c	5,400	-	1,800	By Balance B/d	45,000	30,000	15,000
To X’s Loan A/c	-	39,600	-	By X’s Capital A/c	-	5,400	-
				By Z’s Capital A/c	-	1,800	-
				By Revaluation A/c	3,600	2,400	1,200
To Balance c/d	43,200	-	14,400
	48,600	39,600	16,200		48,600	39,600	16,200

Working Note: -

i. Calculation of B’s share of goodwill

Old Ratio of X, Y, and Z  =  In their Capital Share
= 45,000 : 30,000 : 15,000

= 3: 2: 1

New Ratio of X and Z = 3:1

Gaining Ratio

X's Gain	=	3	-	3
		4		6
	=	9	-	6
		12
	=	3
		12

 

Y's Gain	=	1	-	1
		4		6
	=	3	-	2
		12
	=	1
		12

Gaining Ratio = 3: 1

Adjustment of Goodwill

Goodwill of the firm = Rs 21,600

Kanika’s Share of Goodwill	=	21,600	X	2
				4
	=	Rs 7,200

 

This share of goodwill is to be distributed between X and Z in their gaining ratio i. e. 3:1

X's Share	=	7,200	X	3
				4
	=	Rs 5,400/-

 

Z's Share	=	7,200	X	1
				4
	=	Rs 1,800/-

 

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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