Question 102 Chapter 5 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Question 102 Chapter 5 of +2-A

Question 102 Chapter 5 of +2-A

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

 

Partners’ Capital Account
Parti
culars
A B C

Partic
ulars

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

 

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

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        

 

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)

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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2 Book 1 min - Question 102 Chapter 5 of +2-A - T.S. Grewal 12 Class Part - A Vol. 1
Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms

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