# Question 20 Chapter 4 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Question 20 Chapter 4 of +2-A

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:

1. Investments to be valued at 20,000.
2. Goodwill of the firm be valued at 24,000.
3. 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 2019 April 1 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

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

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

### 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. 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