Q.No.44 | Chapter 6 – Retirement/Death of a Partner | T.S. Grewal 12 Class Book Keeping Part - A - Vol. 1

Question 44 Chapter 6 of +2-A

44. On 31st March 2019, the Balance Sheet of A, B, and C who were sharing profits and losses in proportion to their capitals stood as:

Liabilities		Amount	Assets		Amount
Creditors		10,800	Cash at Bank		13,000
Bills Payable		5,000	Sundry Debtors	10,000
Capital A/cs:			Less: Provision for Doubtful Debts	200	9,800
A's Capital	1,00,000		Stock		9,000
B's Capital	60,000		Machinery		24,000
C's Capital	50,000	2,10,000	Freehold Premises		50,000
		1,05,800			1,05,800

 

B retired and the following adjustments were agreed to determine the amount payable to B:

1. Out of the amount of insurance premium debited to Profit and Loss Account, 1,000 be carried forward as prepaid Insurance.
2. Freehold Premises be appreciated by 10%.
3. Provision for Doubtful Debts is brought up to 5% on Debtors.
4. Machinery is reduced by 5%.
5. Liability for Workmen Compensation to the extent of 1,500 would be created.
6. Goodwill of the firm be fixed at 18,000 and B's share of the same be adjusted into the accounts of A and C who will share future profits in the ratio of 3/4th and 1/4th.
   The total capital of the firm as newly constituted be fixed at 60,000 between A and C in the proportion of 3/4th and 1/4th after passing entries in their accounts for adjustments, i.e., actual cash to be paid or to be brought in by continuing partners as the case may be.
   B be paid 5,000 in cash and the balance be transferred to his Loan Account.
   Prepare Capital Accounts of Partners and the Balance Sheet of the firm of A and C.

The solution of Question 44 Chapter 6 of +2-A: -

Revaluation Account

Particular		Amount	Particular		Amount
To Provision for Doubtful Debts		2,000	By Prepaid Insurance A/c		1,000
500 – 200			By Freehold Premises A/c		5,000
To Machinery A/c		1,200	(50,000 × 10%)
To O/s Workmen’s Compensation A/c		1,500
To Profit transferred to
A’s Capital	1,500
B’s Capital	1,000
C’s Capital	500	3,000
		6,000			6,000

 

Partners’ Capital Account

Part.	A	B	C	Part.	A	B	C
To B’s Capital A/c (Goodwill)	4,500	-	1,500	By Balance B/d	45,000	30,000	15,000
To Bank A/c	-	5,000	-	By Revaluation A/c	1,500	1,000	500
				By A's Capital A/c		4,500
To X’s Loan A/c	-	32,000	-	By C's Capital A/c		1,500
To Balance c/d	45,000	-	15,000	By Cash A/c	3,000		1,000
	49,500	37,000	16,500		49,500	37,000	16,500

 

Balance Sheet

Liabilities		Amount	Assets			Amount
Sundry Creditors		25,000	Cash at Bank			12,000
Loan Payable		15,000	Debtors		10,000
C’s Loan A/c		32,125	Less: Prov. For D/D		500	9,500
			Stock			9,000
Capital:			Machinery Freehold Premises			22,800
A's Capital	29,850					55,000
B’s Capital	51,775	81,625	Prepaid Insurance			1,000
		1,09,300				1,09,300

 

Bank Account

Particular		Amount	Particular		Amount
To Balance B/d		13,000	By B’s Capital A/c		5,000
To A’s Capital A/c		3,000
To C’s Capital A/c		1,000
			By Balance c/d (B.Fig)		12,000
		17,000			17,000

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 18,000

B's Share of Goodwill	=	18,000	X	2
				4
	=	Rs 6,000

 

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

A's Share	=	6,000	X	3
				4
	=	Rs 4,500/-

 

C's Share	=	6,000	X	1
				4
	=	Rs 1,300/-

Adjustment of Partners’ Capital after B’s Retirement

Total Capital of the New Firm after B’s retirement = 60,000 (Given)

New Ratio of X and Z = 3:1

A's New Capital	=	New Total Capital	X	A's New Shares
	=	60,000	X	3
				4
	=	Rs 45,000

 

B's New Capital	=	New Total Capital	X	A's New Shares
	=	60,000	X	1
				4
	=	Rs 15,000

 

Calculation of Addition/withdrawal of Capital by the A and C

Addition/withdrawal of Capital

=

New Capital

-

Balance of Capital Amount after all adjustments

Balance of Capital Amount after all adjustments	=	Opening Balance of Capital Account	+	All Credits	-	All Debits
Balance of A’s Capital Amount after all adjustments	=	45,000	+	1,500	-	(4,500)
	=	42,000/-

Balance of C's Capital Amount after all adjustments	=	15,000	+	500	-	(1,500)
	=	14,000/-

 

calculation of Addition/withdrawal of Capital by the X and Y

Addition/withdrawal by A's in/from Capital A/c	=	New Capital Amount	-	Balance of Capital Amount after all adjustments
	=	45,000	-	42,000
	=	3,000/-

 

addition/withdrawal by Y's in/from Capital A/c	=	New Capital Amount	-	Balance of Capital Amount after all adjustments
	=	15,000	-	14,000
	=	1,000/-

 

 

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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