Question 29 Chapter 4 of +2-A - T.S. Grewal 12 Class Part

Question 29 Chapter 4 of +2-A

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29. Balance Sheet of X and Y, who share profits and losses as 5 : 3, as at 1st April, 2019 is:

Liabilities		Assets
X’s Capital	52,000	Goodwill	8,000
Y’s Capital	54,000	Machinery	38,000
General Reserve	4,800	Furniture	15,000
Sundry Creditors	5,000	Sundry Debtors	33,000
Employees’ Provident Fund	1,000	Stock	7,000
Workmen Compensation Reserve	10,000	Bank	25,000
		Advertisement Suspense A/c	800
	1,26,800		1,26,800

On the above date, they decided to change their profit-sharing ratio to 3 : 5 and agreed upon the following:

Goodwill be valued on the basis of two years’ purchase of the average profit of the last three years. Profits for the years ended 31st March,are: 2016-17 − 7,500; 2017-18 − 4,000; 2018-19 − 6,500.
Machinery and Stock be revalued at 45,000 and 8,000 respectively.
Claim on account of workmen compensation is 6,000.

Prepare Revaluation Account, Partners’ Capital Accounts and the Balance Sheet of the new firm.

The solution of Question 29 Chapter 4 of +2-A

Partners’ Capital Accounts for the year ended 31st March, 2019
Particulars	X	Y	Particulars	X	Y
To Advertisement Suspense A/c	500	300	By Balance B/d	52,000	54,000
To Goodwill A/c ^*2	5,000	3,000	By General Reserve A/c	3,000	1,800
To X’s Capital A/c^*3	–	3,000	By WCF A/c	2,500	1,500
			By Revaluation A/c	5,000	3,000
			By Y’s Capital A/c ^*3	3,000	–
To Balance c/d	60,000	54,000
	65,500	60,300		65,500	60,300

Balance Sheet as on 01st April, 2019
Particulars		Amount	Particulars	Amount
Sunday Creditors		5,000	Machinery	45,000
Outstanding Expenses		15,000	Furniture	15,000
Employees’ Provident Fund		1,000	Sundry Debtors	33,000
Workmen’s Compensation Reserve		6,000	Stock	8,000
Capital A/c			Bank	25,000
X	58,500
Y	55,500	1,14,000
		1,26,000		1,26,000

Working Note :

WN *1 Adjustment of Profit on revaluation: –

Amount to be Credited to X’s Capital	=	8,000	X	5
				8
	=	5,000

Amount to be Credited to Y’s Capital	=	8,000	X	3
				8
	=	3,000

WN *2 Adjustment of Existing goodwill already in the books: –

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Amount to be Credited to X’s Capital	=	8,000	X	5
				8
	=	5,000

Amount to be Credited to Y’s Capital	=	8,000	X	3
				8
	=	3,000

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

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

X’s Share Sacrificing/Gaining	=	5	–	3
		8		8

	=	5 – 2
	=	8

	=	2	(Sacrifice)
		8

Y’s Share Sacrificing/Gaining	=	3	–	5
		8		8

	=	3 – 5
	=	8

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	=	(-2)	(Gain)
		36

WN *1 Adjustment of General Reserve: –

Amount to be Debited to X’s Capital	=	42,000	X	2
				8
	=	4,000

Amount to be Credited to Y’s Capital	=	42,000	X	2
				8
	=	4,000

WN *3 Calculation of New Goodwill

Average Profit	=	Sum of all year Profit
	=	Numbers of Year

Goodwill	=	Average Profit X Number of Years of Purchase
	=	6,000 X 2
	=	12,000

Amount to be Debited to X’s Capital	=	12,000	X	2
				8
	=	3,000

Amount to be Debited to Y’s Capital	=	12,000	X	2
				8
	=	3,000

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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