Question 87 Chapter 5 of +2-A
87. A and B are in partnership sharing profits and losses in the proportion of 2/3rd and 1/3rd respectively. Their Balance Sheet as at 31st March, 2019 was: Cash 1,000; Sundry Debtors 15,000; Stock 22,000; Plant and Machinery 4,000; Sundry Creditors 2,000; Bank Overdraft 15,000; A's Capital 15,000; B's Capital 10,000. On 1st April, 2019 they admitted C into partnership on the following terms:
(a) C to purchase one-quarter of the goodwill for 3,000 and provide 10,000 as capital. C brings in necessary cash for goodwill and capital.
(b) Profits and losses are to be shared in the proportion of one-half to A, one-quarter to B and one quarter to C.
(c) Plant and Machinery is to be reduced by 10% and 500 are to be provided for estimated Bad Debts. Stock is to be taken at a valuation of 24,940.
(d) By bringing in or withdrawing cash the capitals of A and B are to be made proportionate to that of C on their profit-sharing basis. Prepare necessary Ledger Accounts in the books of the firm relating to the above arrangement and submit the opening Balance Sheet of the new firm
Revaluation Account
| Particular |
Amount | Particular | Amount | ||
|---|---|---|---|---|---|
| Plant and Machinery | (4,000 × 10%) | 400 | Stock | (24,940 – 22,000) | 2,940 |
| Provision for Bad Debts | 500 | ||||
| Profit transferred to | |||||
| A Capital | 1,360 | ||||
| B Capital | 680 | 2,040 | |||
| 2,940 | 2,940 | ||||
Partners’ Capital Account
| Parti culars |
A | B | C |
Partic |
A | B | C |
|---|---|---|---|---|---|---|---|
| By Balance B/d | 15,000 | 10,000 | - | ||||
| By Revaluation | 1,360 | 680 | - | ||||
| By Cash | - | - | 10,000 | ||||
| To Balance c/d | 18,360 | 11,680 | 10,000 | By Premium for Goodwill | 2,000 | 1,000 | - |
| 18,360 | 11,680 | 10,000 | 18,360 | 11,680 | 10,000 | ||
| To Cash A/c | - | 1,680 | - | By Balance B/d | 18,360 | 11,680 | 10,000 |
| By Cash | 1,640 | - | - | ||||
| To Balance c/d |
20,000 |
10,000 |
10,000 |
||||
| 20,000 | 11,680 | 40,000 | 20,000 | 11,680 | 10,000 |
Balance Sheet
| Liabilities |
Amount | Assets | Amount | ||
|---|---|---|---|---|---|
| Sundry Creditors | 2,000 | Cash | 13,960 | ||
| Bank Overdraft | 15,000 | Stock | 24,940 | ||
| Capital A/cs: | Plant and Machinery | 3,600 | |||
| X | 20,000 | Debtors | 15,000 | ||
| Y | 10,000 | Less: Prov. for Bad Debts | 500 | 14,500 | |
| Z | 10,000 | 40,.000 | Cash at Bank | (15,000 + 96,000 – 18,000) | 93,000 |
| 4,14,900 | 4,14,900 | ||||
Working Note:-
Sacrificing Ratio
Old Ratio of A and B = 2 : 1
New Ratio of A ,B and C = 2 : 1 : 1
| A’s Sacrificing Ratio | = | 2 | - | 2 |
| 3 | 4 |
| = | 8 - 6 |
| 12 |
| = | 2 |
| 12 |
| B’s Sacrificing Ratio | = | 1 | - | 1 |
| 3 | 4 |
| = | 4 - 3 |
| 12 |
| = | 1 |
| 12 |
Sacrifice Ratio of A and B = 2 : 1
Distribution of Premium for Goodwill
| A will get | = | 3,000 | X | 2 |
| 3 | ||||
| = | 2,000 |
| B will get | = | 3,000 | X | 1 |
| 3 | ||||
| = | 1,000 |
Distribution of Premium for Goodwill
| A will get | = | 2,040 | X | 2 |
| 3 | ||||
| = | 1,360 |
| B will get | = | 2,040 | X | 1 |
| 3 | ||||
| = | 680 |
Adjustment of Capitals (in new ratio)
| Total Capital of the Firm | = | 10,000 | X | 4 |
| 1 | ||||
| = | 40,000 |
| A’s Capital Share | = | 40,000 | X | 2 |
| 4 | ||||
| = | 20,000 |
| B and C Capital Share | = | 40,000 | X | 1 |
| 4 | ||||
| = | 10,000 |
T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)
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Accounting & Commerce Educator
Sarbjit Singh holds a B.Com and M.Com degree and has over 12 years of teaching experience in double entry bookkeeping, financial accounting, and business studies.
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