Question 33 Chapter 6 of +2-A
Table of Contents
33. N, S, and G were partners in firm sharing profits and losses in the ratio of 2: 3: 5. On 31st March 2016 their Balance Sheet was as under:
| Liabilities | Amount | Assets | Amount | ||
| Creditors | 1,65,000 | Cash | 1,20,000 | ||
| General Reserve | 90,000 | Debtors | 1,35,000 | ||
| Capital A/cs: | Less: Provision | 15,000 | 1,20,000 | ||
| N’s Capital | 2,25,000 | Stock | 1,50,000 | ||
| S’s Capital | 3,75,000 | Machinery | 4,50,000 | ||
| G’s Capital | 4,50,000 | 10,50,000 | Patents | 90,000 | |
| Building | 3,00,000 | ||||
| Profit and Loss Account | 75,000 | ||||
| 13,05,000 | 13,05,000 | ||||
G retired on the above date and it was agreed that:
- Debtors of 6,000 will be written off as bad debts and a provision of 5% on debtors for bad and doubtful debts will be maintained.
- Patents will be completely written off and stock, machinery, and the building will be depreciated by 5%.
- An unrecorded creditor of 30,000 will be taken into account.
- N and S will share the future profits in a 2 : 3 ratio.
- Goodwill of the firm on G’s retirement was valued at 90,000.
Pass necessary Journal entries for the above transactions in the books of the firm on G’s retirement.
The solution of Question 33 Chapter 6 of +2-A: –
Journal Entries
| Date | Particulars |
L.F. | Debit | Credit | |
| General Reserve A/c | Dr. | 90,000 | |||
| To N’s Capital A/c | 18,000 | ||||
| To S’s Capital A/c | 27,000 | ||||
| To G’s Capital A/c | 45,000 | ||||
| (Being General reserve transferred to partners’ capital accounts) | |||||
| N’s Capital A/c | Dr. | 15,000 | |||
| S’s Capital A/c | Dr. | 22,500 | |||
| G’s Capital A/c | Dr. | 37,500 | |||
| To Profit & Loss A/c | 75,000 | ||||
| (Being balance of Profit & Loss transferred to partners’ capital accounts) | |||||
| N’s Capital A/c | Dr. | 18,000 | |||
| S’s Capital A/c | Dr. | 27,000 | |||
| To G’s Capital A/c | 45,000 | ||||
| (Being adjustment for goodwill recorded in the books) | |||||
| Revaluation A/c | Dr. | 1,35,000 | |||
| To Patent A/c | 90,000 | ||||
| To Stock A/c | 7,500 | ||||
| To Machinery A/c | 22,500 | ||||
| To Building A/c | 15,000 | ||||
| (Being Decrease in the value of assets transferred to Revaluation account) | |||||
| Revaluation A/c | Dr. | 30,000 | |||
| To Creditors A/c | 30,000 | ||||
| (Being balance of Y’s capital account transferred to Y’s loan account) |
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| Provision for Doubtful Debts A/c | Dr. | 2,550 | |||
| To Revaluation A/c | 2,550 | ||||
| (Being provision created transferred to Revaluation Account ) |
|||||
| N’s Capital A/c | Dr. | 32,490 | |||
| S’s Capital A/c | Dr. | 48,735 | |||
| G’s Capital A/c | Dr. | 81,225 | |||
| To Revaluation A/c | 1,62,450 | ||||
| (Being loss on revaluation transferred to partners’ capital accounts 1,35,000 + 30,000 -2550 = 162450/-) | |||||
| G’s Capital A/c | Dr. | 4,21,275 | |||
| To G’s Loan A/c | 4,21,275 | ||||
| (Being balance of Y’s capital account transferred to Y’s loan account) |
|||||
Working Note:-
Calculation of Gaining Ratio
Old Ratio of N, S, and G = 2: 3: 5
New Ratio of N and S = 2:3
Gaining Ratio = New Ratio – Old Ratio
| N’s Gaining Share | = | 2 | – | 2 |
| 5 | 10 | |||
| = | 4 | – | 2 | |
| 10 | ||||
| = | 2 | |||
| 10 | ||||
| S’s Gaining Share | = | 3 | – | 3 |
| 5 | 10 | |||
| = | 6 | – | 3 | |
| 10 | ||||
| = | 3 | |||
| 10 | ||||
Gaining Ratio = 2:3
Adjustment of Goodwill
Goodwill of the firm = Rs 90,000
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| G’s Share of Goodwill | = | 90,000 | X | 5 |
| 10 | ||||
| = | Rs 45,000 |
This share of goodwill is to be distributed between N and S in their gaining ratio i. e. 2:3
| N’s Share | = | 45,000 | X | 2 |
| 5 | ||||
| = | Rs 18,000/- |
| S’s Share | = | 45,000 | X | 3 |
| 5 | ||||
| = | Rs 27,000/- |
Calculation of Excess/Deficit Provision for Doubtful Debts
Required Provision = 5%
Closing Debtors = Debtors – Bad Debts
(after writing off Bad Debts)
|
Closing Debtors |
= | Debtors | – | Bad Debts |
| = | 1,35,000 | – | 6,000 | |
| = | 1,29,000 /- |
| New Provision on Closing Debtors | = | Closing Debtors | X | Rate of Provision |
| = | 1,29,000 | X | 5% | |
| = | 6,450/- |
| Balance of Old Provision after Bad Debts | = | Old Provision | – | Bad debts |
| = | 15,000 | – | 6,000 | |
| = | 9,000/- |
| Excess/(Deficit) Provision | = | Old Provision | – | Old Provision |
| = | 9,000 | – | 6,450 | |
| = | 2,550/- |
Calculation of G’s Loan Balance
| Amount due to G | = | Opening Capital | + | All Credits | – | All Debits | ||||
| = | 4,50,000 | + | (45,000 | + | 45,000) | – | (37,500 | + | 81,225) | |
| = | 4,21,275/- | |||||||||
T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)
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- 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
