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Question 32 Chapter 6 of +2-A
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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:
- Out of the insurance premium debited to Profit and Loss Account, 1,500 to be carried forward as Prepaid Insurance.
- Provision for Doubtful Debts to be brought up to 5% of Sundry Debtors.
- Land and Building to be appreciated by 20%.
- 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: –
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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 | ||||
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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/- |
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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. 8 – Company Accounts – Accounting for Share Capital
- Chapter No. 9 – Company Accounts – Issue of Debentures
- Chapter No. 10 – Redemption of Debentures
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
