Question 23 Chapter 4 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Question 23 Chapter 4 of +2-A

Question 23 Chapter 4 of +2-A

23. A, B and C are partners sharing profits and losses in the ratio of 5 : 3 : 2. Their Balance Sheet as at 31st March, 2019 stood as follows:

Liabilities     Assets  
Capital A/c     Land and Building  3,50,000
A 2,50,000   Machinery 2,40,000
B 2,50,000   Computers 70,000
C 2,00,000 7,00,000  Investments Market value 90, 000 1,00,000
General Reserve   60,000 Sundry Debtors   50,000
Investments Fluctuation Reserve    30,000 Cash in Hand  10,000
Sundry Creditors    90,000 Cash at Bank 55,000
      Advertisement Suspense 5,000
    8,80,000    8,80,000

They decided to share profits equally w.e.f. 1st April, 2019. They also agreed that:

  1. Value of Land and Building be decreased by 5%.
  2. Value of Machinery be increased by 5%.
  3. A Provision for Doubtful Debts be created @ 5% on Sundry Debtors.
  4. A Motor Cycle valued at 20,000 was unrecorded and is now to be recorded in the books.
  5. Out of Sundry Creditors, 10,000 is not payable.
  6. Goodwill is to be valued at 2 years’ purchase of last 3 years profits. Profits being for 2018-19 − 50,000 Loss; 2017-18 − 2,50,000 and 2016-17 − 2,50,000.
  7. C was to carry out the work for reconstituting the firm at a remuneration including expenses of 5,000. Expenses came to 3,000.
    Pass Journal entries and prepare Revaluation Account

 

The solution of Question 23 Chapter 4 of +2-A

 

In the Books of _______________
Date Particulars
L.F. Debit Credit
2019          
April 1 General Reserve A/c*1 Dr   60,000  
  To A’s Capital A/c       30,000
  To B’s Capital A/c       18,000
  To C’s Capital A/c       12,000
  (Being General Reserve Distributed among partners)        
  A’s Capital A/c Dr   2,500  
  B’s Capital A/c Dr   1,500  
  C’s Capital A/c Dr   1,000  
  To Advertisement Suspense A/c*2       5,000
  (Being Advertisement Suspense adjusted)        
  Investment Fluctuation Reserve A/c*3 Dr   30,000  
  To Investment A/c       10,000
  To A’s Capital A/c       10,000
  To B’s Capital A/c       6,000
  To C’s Capital A/c       4,000
  (Being Investment Fluctuation Reserve is Distributed among partners and adjusted)        
  Revaluation A/c Dr   25,000  
  To Land & Building A/c       17,500
  To Provision for Doubtful Debts A/c       2,500
  To Bank A/c       5,000
  (Being Increase in the value of the assets and decrease in the values of liabilities are transferred to revaluation a/c)        
  Machinery A/c Dr   12,000  
  Motor Cycle A/c Dr   20,000  
  Creditors A/c Dr   10,000  
  To Revaluation A/c       42,000
  (Being Increase in the value of the assets and decrease in the values of liabilities are transferred to revaluation a/c)        
  Revaluation A/c*4 Dr   17,000  
  To A’s Capital A/c       8,500
  To B’s Capital A/c       5,100
  To C’s Capital A/c       3,400
  (Being Profit on revaluation of assets and liabilities are Distributed among partners)        
  B’s Capital A/c Dr   10,000  
  C’s Capital A/c Dr   40,000  
  To A’s Capital A/c*5       50,000
  (Being goodwill account adjusted)        
           

 

 

Working Note : 

WN *1 Calculation of Adjustment of General Reserve: –

Amount to be Credited to A’s Capital = 60,000 X 5
10
  = 30,000    

 

Amount to be Credited to B’s Capital = 60,000 X 3
10
  = 18,000    

 

Amount to be Credited to C’s Capital = 60,000 X 2
10
  = 12,000    

 

WN *2 Calculation of Adjustment of Advertisement Suspense: –

 

Amount to be Debited to A’s Capital = 5,000 X 5
10
  = 2,500    

 

Amount to be Debited to B’s Capital = 5,000 X 3
10
  = 1,500    

 

Amount to be Debited to C’s Capital = 5,000 X 2
10
  = 1,000    

 

WN *3 Calculation of Adjustment of General Reserve: –

Distributable Amount of I.F.R. = Total I.F.R. Balance – (Difference between Market value and Cost)
  = 30,000 – (90,000 – 80,000)
Distributable Amount of I.F.R. = 20,000

 

Amount to be Debited to A’s Capital = 20,000 X 5
10
  = 10,000    

 

Amount to be Debited to B’s Capital = 20,000 X 3
10
  = 6,000    

 

Amount to be Debited to C’s Capital = 20,000 X 2
10
  = 4,000    

 

WN *4 Calculation of Adjustment of Revaluation Profit: –

 

Amount to be Debited to A’s Capital = 17,000 X 5
10
  = 8,500    

 

Amount to be Debited to B’s Capital = 17,000 X 3
10
  = 5,100    

 

Amount to be Debited to C’s Capital = 17,000 X 2
10
  = 3,400    

 

Old Ratio of X, & Y = 5 : 3 : 2 
New Ratio of X, & Y = 1 : 1 : 1

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

A’s Share Sacrificing/Gaining = 5  – 1
10 3
  = 15- 10
  30
  = 5  (Sacrificing)
  30

 

B’s Share Sacrificing/Gaining = 3  – 1
10 3
  = 9- 10
  30
  = – 1 Gain
  30
C’s Share Sacrificing/Gaining = 2  – 1
10 3
  = 6- 10
  30
  = – 4 Gain
  30

 

WN *5 Adjustment of Goodwill : –

Goodwill = Average Profit X No. of years’ Purchase
  = 1,50,000 X 2
Goodwill = 3,00,000

 

Amount to be Credited to A’s Capital = 3,00,000 X 5
30
  = 50,000    

 

Amount to be Debited to B’s Capital = 3,00,000 X 1
30
  = 10,000    

 

Amount to be Debited to C’s Capital = 3,00,000 X 4
30
  = 40,000    

 

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 23 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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