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Question 102 Chapter 5 of +2-A
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102. A and B are partners sharing profits in the ratio of 3: 2. They admit C as a new partner from 1st April 2019. They have decided to share future profits in the ratio of 4 : 3 : 3. The Balance Sheet as of 31st March 2019 is given below
| Liabilities | Assets | ||||
| A’s Capital | 1,76,000 | Goodwill | 34,000 | ||
| B’s Capita | 2,54,000 | 4,30,000 | Land and Building | 60,000 | |
| Workmen Compensation Reserve | 20,000 | Investment (Market value 45,000) | 50,000 | ||
| Investments Fluctuation Reserve | 10,000 | Debtor | 1,00,000 | ||
| Employee’s Provident Fund | 34,000 | Less: Provision for Doubtful Debts | 10,000 | 90,000 | |
| C’s Loan | 3,00,000 | Stock | 3,00,000 | ||
| Bank Balance | 2,50,000 | ||||
| Advertising Suspense A/c | 10,000 | ||||
| 7,94,000 | 7,94,000 |
Terms of C’s admission are as follows:
(i) C contributes proportionate capital and 60% of his share of goodwill in cash.
(ii) Goodwill is to be valued at 2 years’ purchase of super profit of the last three completed years. Profits for the years ended 31st March were: 2017 − 4,80,000; 2018 − 9,30,000; 2019 − 13,80,000. The normal profit is 5,30,000 with the same amount of capital invested in a similar industry.
(iii) Land and Building were found undervalued by 1,00,000.
(iv) Stock was found overvalued by 31,000.
(v) Provision for Doubtful Debts is to be made equal to 5% of the debtors. (vi) The claim on account of Workmen Compensation is 11,000. Prepare Revaluation Account, Partners’ Capital Accounts, and Balance Sheet.
The solution of Question 102 Chapter 5 of +2-A: –
| Revaluation Account | |||||
| Particular | Amount | Particular | Amount | ||
| Stock | 31,000 | Land and Building A/c | 1,00,000 | ||
| Provision for Doubtful Debts | 5,000 | ||||
| Profit on Revaluation | |||||
| A’s Capital | 44,400 | ||||
| B’s Capital | 29,600 | 74,000 | |||
| 1,05,000 | 1,05,000 | ||||
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| Partners’ Capital Account | |||||||
| Parti culars | A | B | C | Partic | A | B | C |
| To Goodwill | 20,400 | 13,600 | – | By Balance B/d | 1,76,000 | 2,54,000 | – |
| To Advertise ment Suspense A/c | 4,000 | 4,000 | By Cash | – | – | 3,06,000 | |
| By General Reserve | 36,000 | 24,000 | – | ||||
| By C’s Current A/c | 64,000 | 32,000 | – | ||||
| By Premium for Goodwill | 96,000 | 48,000 | – | ||||
| By Revaluation | 44,400 | 29,600 | – | ||||
| By IFR | 3,000 | 2,000 | – | ||||
| By WCR | 5,400 | 3,600 | – | ||||
| To Balance c/d | 3,62,400 | 3,51,600 | 3,06,000 | ||||
| 3,88,800 | 3,69,200 | 3,06,000 | 3,88,800 | 3,69,200 | 3,06,000 | ||
| Balance Sheet | |||||
| Liabilities | Amount | Assets | Amount | ||
| Workmen Compensation Reserve | 11,000 | Land & Building | 1,60,000 | ||
| Employees Provident Fund | 34,000 | Debtors | 1,00,000 | ||
| Capital: | Less: Provision for debtors | 5,000 | 95,000 | ||
| A | 3,62,400 | Bank A/c | 7,00,000 | ||
| B | 3,51,600 | Investment | 45,000 | ||
| C | 3,06,000 | 10,20,000 | Stock | 2,69,000 | |
| C ‘s Loan | 3,00,000 | C ‘s Current A/c | 96,000 | ||
| 13,65,000 | 13,65,000 | ||||
Working Note:-
Calculation of Sacrifice or Gain
Old Ratio of A and B = 3 : 2
New Ratio of A , Band C = 4 : 3 : 3
(New Ratio)Sacrificing (or Gaining) Ratio = Old Ratio – New Ratio
| A’s Share | = | 3 | – | 4 |
| 5 | 10 |
| = | 6 – 4 | |
| 10 |
| = | 2 | |
| 10 |
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| B’s Share | = | 2 | – | 3 |
| 5 | 10 |
| = | 4 – 3 | |
| 10 |
| = | 1 | |
| 10 |
Sacrificing Ratio = 2 : 1
Calculation of Goodwill
Goodwill=Super Profit × No. of Years’ Purchase =4,00,000×2=Rs 8,00,000
| C Share of Goodwill | = | 8,00,000 | X | 3 |
| 10 | ||||
| = | 2,40,000 |
| Goodwill bought in cash | = | 2,40,000 | X | 60 |
| 100 | ||||
| = | 1,44,000 |
Calculation of C’s Capital
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| Combined Capital A and B’s Capita | = | 3,62,400 + 3,51,600 |
| = | Rs 7,14,000 |
| C’s Share of Goodwill | = | 7,14,000 | x | 10 | x | 3 |
| 7 | 10 | |||||
| = | 3,06,000 |
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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
Check out T.S. Grewal +2 Book 2020@ Official Website of Sultan Chand Publication
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