Question 20 Chapter 4 of +2-A - T.S. Grewal 12 Class Part

Question 20 Chapter 4 of +2-A

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20. Bhavya and Sakshi are partners in a firm, sharing profits and losses in the ratio of 3 : 2. On 31st March, 2018 their Balance Sheet was as under:

Liabilities		Assets
Sundry Creditors	13,800	Furniture	16,000
General Reserve	23,400	Land and Building	56,000
Investment Fluctuation Fund	20,000	Investments	30,000
Bhavya’s Capital	50,000	Receivables	18,500
Sakshi’s Capital	40,000	Cash in Hand	26,700
	1,47,200		1,47,200

The partners have decided to change their profit sharing ratio to 1 : 1 with immediate effect. For the purpose, they decided that:

Investments to be valued at 20,000.
Goodwill of the firm be valued at 24,000.
General Reserve not to be distributed between the partners.
You are required to pass necessary Journal entries in the books of the firm. Show workings

The solution of Question 20 Chapter 4 of +2-A

In the Books of _______________
Date	Particulars		L.F.	Debit	Credit
2018
31^st March	Investment Fluctuation Reserve A/c	Dr		20,000
	To Investment A/c^*1				10,000
	To Bhavya’s Capital A/c^*1				6,000
	To Sakshi’s Capital A/c^*1				4,000
	(Being Adjustment for General Reserve)
	Sakshi’s Capital A/c^*3	Dr		2,400
	To Bhavya’s Capital A/c				2,400
	(Being Adjustment for Goodwill through Capital account)
	Sakshi’s Capital A/c^*4	Dr		2,340
	To Bhavya’s Capital A/c				2,340
	(Being Adjustment for General Reserve through Capital account)

Working Note :

WN *1 Calculation of Share of Investment Fluctuation Reserve –
In the case IV – The amount of I.F.R distributed as following: –

Distributable Amount of I.F.R.	=	Total I.F.R. Balance – (Difference between Market value and Cost)
	=	20,000- (30,000 – 20,000)
Distributable Amount of I.F.R.	=	10,000

Amount to be Credited to Bhavya’s Capital	=	10,000	X	3
				5
	=	6,000

Amount to be Credited to Sakshi’s Capital	=	10,000	X	2
				5
	=	4,000

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WN *2 Calculation of Share of General Reserve –

Old Ratio of X, & Y	=	3 : 2
New Ratio of X, & Y	=	1 : 1

Calculate the Sacrificing or Gaining Ratio of Partners
Sacrificing or Gaining Ratio = Old Ratio – New Ratio

Bhavya’s Share Sacrificing/Gaining	=	3	–	1
		5		2

	=	6- 5
	=	10

	=	1	(Sacrificing)
		10

Sakshi’s Share Sacrificing/Gaining	=	5	–	1
		5		2

	=	4 – 5
	=	10

	=	– 1	Gaining
		10

WN *3 Calculation of Share of Goodwill

Amount to be Credited to Bhavya’s Capital	=	24,000	X	1
				10
	=	2,400

Amount to be Debited to Sakshi’s Capital	=	24,000	X	1
				10
	=	2,400

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WN *4 Calculation of Adjustment of General Reserve because not to be
distributed among the Partner

Amount to be Credited to Bhavya’s Capital	=	23,400	X	1
				10
	=	2,340

Amount to be Debited to Sakshi’s Capital	=	23,400	X	1
				10
	=	2,340

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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