Question 32 Chapter 6 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Q-32 - CH-6 - T.S. Grewal +2 Book 2019 - Solution-min

Question 32 Chapter 6 of +2-A

32. The Balance Sheet of X, Y, and Z who were sharing profits in the ratio of their capitals stood as follows on 31st March 2019:

Liabilities Amount Assets  Amount
Sundry Creditors 13,800 Cash at Bank 11,000
Capital A/cs:    Sundry Debtors  10,000  
X’s Capital  45,000   Less: Provision for Doubtful Debts 200 9,800
Y’s Capital 30,000   Stock    16,000
Z’s Capital  15,000 90,000 Plant and Machinery  17,000
      Land and Building  50,000
    1,03,800     1,03,800

Y retired on 1st April 2019 and the following terms:

  1. Out of the insurance premium debited to Profit and Loss Account, 1,500 to be carried forward as Prepaid Insurance.
  2. Provision for Doubtful Debts to be brought up to 5% of Sundry Debtors.
  3. Land and Building to be appreciated by 20%.
  4. A provision of 4,000 is made in respect of outstanding bills for repairs.
    Goodwill of the firm was determined at 21,600.

Y’s share of goodwill is adjusted to that of X and Z who will share profits in the future in the ratio of 3: 1.
Pass necessary Journal entries and give the Balance Sheet after Y’s retirement.

The solution of Question 32 Chapter 6 of +2-A: –

Journal Entries

Date Particulars
L.F. Debit Credit
  Revaluation A/c Dr.   4,300  
  To Prov. for Doubtful Debts A/c       300
  To Prov. for O/s Repair Bills A/c       4,000
  (Being provision created transferred to Revaluation Account )      
           
  Prepaid Insurance A/c Dr.   1,500  
  Land and Building A/c Dr.   10,000  
  To Asha’s Capital A/c       11,500
  (Being Increase in the value of assets transferred to revaluation account)      
           
  Revaluation A/c Dr.    7,200  
  To X’s Capital A/c       3,600
  To Y’s Capital A/c       2,400
  To Z’s Capital A/c       1,200
  (Being Profit on revaluation transferred to capital accounts)      
           
  X’s Capital A/c Dr.   1,500  
  Z’s Capital A/c Dr.   10,000  
  To Y’s Capital A/c       11,500
  (Being adjustment for goodwill recorded in the books)      
           
  To Y’s Capital A/c Dr.   39,600  
  To Y’s LoanA/c       39,600
  (Being balance of Y’s capital account transferred to Y’s loan account)

     

 

Balance Sheet
Liabilities
Amount Assets Amount
Sundry Creditors 13,800 Cash at Bank   11,000
Prov. for O/s Repair Bills 4,000 Sundry Debtors 10,000  
Y’s Loan A/c   39,600 Less: Prov. for D/D 500 9,500
Capital:     Stock   16,000
Disha’s Capital 43,200   Prepaid Insurance   1,500
Kabir’s Capital 14,400 57,600 Plant and Machinery 17,000
      Land and Building 60,000
    1,15,000     1,15,000


Working Note:-

Revaluation Account
Particular
Amount Particular Amount
To Prov. for Doubtful Debts 300 By Prepaid Insurance A/c 1,500
To Prov. For O/s Repairs Bills 4,000 By Land And Building A/c 10,000
To Profit transferred to        
X’s Capital 3,600        
Y’s Capital 2,400        
Z’s Capital 1,200 7,200      
    11,500     11,500

 

Partners’ Capital Account
Part. X Y Z

Part.

X Y Z
To Y’s Capital A/c 5,400 1,800 By Balance B/d 45,000 30,000 15,000
To X’s Loan A/c 39,600 By X’s Capital A/c 5,400
        By Z’s Capital A/c 1,800
        By Revaluation A/c 3,600 2,400

1,200

To Balance c/d 43,200 14,400        
  48,600 39,600 16,200   48,600 39,600 16,200

Working Note: –

i. Calculation of B’s share of goodwill

Old Ratio of X, Y, and Z  =  In their Capital Share
= 45,000 : 30,000 : 15,000

= 3: 2: 1

New Ratio of X and Z = 3:1

Gaining Ratio

X’s Gain = 3 3
4 6
         
  = 9 6
  12
         
  = 3    
  12    

 

Y’s Gain = 1 1
4 6
         
  = 3 2
  12
         
  = 1    
  12    

Gaining Ratio = 3: 1

Adjustment of Goodwill

Goodwill of the firm = Rs 21,600

Kanika’s Share of Goodwill = 21,600 X 2
4
         
  = Rs 7,200    

 

This share of goodwill is to be distributed between X and Z in their gaining ratio i. e. 3:1

X’s Share = 7,200 X 3
4
         
  = Rs 5,400/-    

 

Z’s Share = 7,200 X 1
4
         
  = Rs 1,800/-    

 

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 32 Chapter 6 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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