Question 41 Chapter 6 of Class 12 Part – 1 Usha Publication

Question 41 Chapter 6 of Class 12 Part – 1 Usha Publication

The Balance Sheet of Arthur, Baldwin and Curtis who were sharing profits in proportion to their capitals stood as follows on 31st March, 2016 :

Liabilities		Rs	Assets		Rs
Sundry Creditors		6,900	Cash at bank		5,500
Capitals			Debtors	5,000
Arthur	20,000		Less: Provision D/D	100	4,900
Baldwin	15,000		Stock		8,000
Curtis	10,000	45,000	Plant & machinery		8,500
			Building		25,000
		51,900			51,900

Mr. Baldwin retires and the following readjustments of the assets and liabilities have been agreed upon before the ascertainment of the amount payable by the firm to Mr. Baldwin :

(a) That the stock be depreciated by 6 per cent.
(b) That the reserve for doubtful debts be brought upto 5% on debtors.
(c) That the factory land and building be appreciated by 20%.
(d) That a provision of ₹ 770 be made in respect of outstanding legal charges.
(e) That the goodwill of the entire firm be fixed at Z 10,800 and Mr. Baldwin's share of the same be adjusted into the accounts of Arthur and Curtis who are going to share in future in the proportion of five eights and three eights respectively (No Goodwill account is to be raised).
(f) That the entire capital of the firm as newly constituted be fixed at Rs 28,000 between Arthur and Curtis in the proportion of five-eights and three eights after passing entries in their accounts for goodwill (i.e. actual cash to be paid off to or to be brought in by the continuing partners as the case may be).
Pass the necessary journal entries to give effect to the above arrangements and prepare the balance sheet of Arthur and Curtis transferring Baldwin's share of capital and goodwill to be separate loan account in his name.

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Journal

Date	Particulars		L.F.	Debit	Credit
1	Revaluation A/c	Dr.		1,400
	To Stock A/c				480
	To Provision for Doubtful Debts A/c				150
	To Provision for Legal Charges A/c				770
	(Being decrease in the value of assets and provisions are created in the books)
2	Land and Building A/c	Dr.		5,000
	To Revaluation A/c				5,000
	(Being increase in the value of asset recorded in the books)
3	Revaluation A/c	Dr.		3,600
	To A’s Capital A/c				1,600
	To B’s Capital A/c				1,200
	To C’s Capital A/c				800
	(Being profit on revaluation transferred to capital A/cs)
4	A’s capital A/c	Dr.		1,950
	C’s capital A/c	Dr.		1,650
	To B’s capital A/c				3,600
	(Being adjustment of goodwill made through capital A/cs)
5	A’s capital A/c	Dr.		2,150
	To Bank A/c				2,150
	(Being excess capital withdrawal by A)
6	B’s capital A/c	Dr.		19,800
	To B’s Loan A/c				19,800
	(Being balance of the retiring partner transferred to his loan account)
7	Bank A/c	Dr.		1,350
	To C’s Capital A/c				1,350
	(Being short capital introduced to business by C)

Partners’ Capital Account

Particulars	A	B	C	Particulars	A	B	C
To B’s Capital A/c	1,950		1,650	By Balance b/d	20,000	15,000	10,000
To B’s Loan A/c		19,800		By Revaluation A/c	1,600	1,200	800
To Bank A/c (Bal. Fig.)	2,150			By A’s Capital A/c		1,950
				By C’s Capital A/c		1,650
To Balance c/d	17,500		10,500	By Bank A/c (Bal. Fig.)			1,350
	21,600	19,800	12,150		21,600	19,800	12,150

Balance Sheet

Liabilities		Amount	Assets		Amount
Sundry Creditors		6,900	Cash at Bank		4,700
Provision for legal Charges		770	Debtors	5,000
B’s Loan		19,800	Less :- Provision for D/D	250	4,750
Capital Accounts			Stock		7,520
A	17,500		Plant & Machinery		8,500
C	10,500	28,000	Factory Land and Building		30,000
		55,470			55,470

Calculation of gaining ratio of A and C:

Gaining ratio = New share - Old share

A’s Gain	=	5	-	4	=	45 - 32
		8		9		72
	=	13
		72

C’s gain	=	3	-	2	=	27 - 16
		8		9		72
	=	11
		72

Gaining ratio = 13 : 11

Calculation of B’s Share of Goodwill:

=	Firm Goodwill	-	B’s share
=	₹ 10,800	X	3
				9
=	₹ 3,600

A’s share	=	₹ 3,600	X	13
				24
	=	₹ 1,950

C’s share	=	₹ 3,600	X	11
				24
	=	₹ 1,650

Calculation of new share of capital of continuing Partner A and C:-

Total capital = ₹ 28,000
New Profit Sharing ratio = 5 : 3

A’s share	=	₹ 28,000	X	5
				8
	=	₹ 17,500

C’s share	=	₹ 28,000	X	3
				8
	=	₹ 10,500

Comment if you have any questions.