Question 33 Chapter 6 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Question 33 Chapter 6 of +2-A

Question 33 Chapter 6 of +2-A

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:

  1. 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.
  2. Patents will be completely written off and stock, machinery, and the building will be depreciated by 5%.
  3. An unrecorded creditor of 30,000 will be taken into account.
  4. N and S will share the future profits in a 2 : 3 ratio.
  5. 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)

     
  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

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
(after writing off Bad Debts)

= 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)

  • 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 33 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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