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

Question 20 Chapter 4 of +2-A

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)

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

2 Book 1 min - Question 20 Chapter 4 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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