Question 34 Chapter 6 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Q-34 - CH-6 - T.S. Grewal +2 Book 2019 - Solution-min

Question 34 Chapter 6 of +2-A

34. A, B and C are partners in a firm, sharing profits and losses as A 1/3, B 1/2, and C 1/6 respectively. The Balance Sheet of the firm as of 31st March 2019 was:

Liabilities Amount Assets  Amount
Capital A/cs:    Building    50,000
A’s Capital  30,000   Plant and Machinery  40,000
B’s Capital 40,000   Furniture   10,000
C’s Capital  25,000 95,000 Stock    25,000
General Reserve 16,000 Debtors  18,000  
Creditors   25,000 Less: Provision for Doubtful Debts  500 17,500
Loan Payable  15,000 Cash in Hand 8,500
    1,51,000     1,51,000

 

C retires on 1st April 2019 subject to the following adjustments:

  1. Goodwill of the firm is valued at 24,000. C’s share of goodwill is adjusted into the accounts of A and B who are going to share in the future in the ratio of 3: 2.
  2. Plant and Machinery to be reduced by 10% and Furniture by 5%.
  3. Stock to be appreciated by 15% and Building by 10%.
  4. Provision for Doubtful Debts to be raised to 2,000.

Pass Journal entries to record the above transactions in the books of the firm and show the Profit and Loss Adjustment Account, Capital Account of C, and the Balance Sheet of the firm after C’s retirement.

The solution of Question 34 Chapter 6 of +2-A: –

Journal Entries

Date Particulars
L.F. Debit Credit
  Profit and Loss Adjustment A/c Dr.   6,000  
  To Plant and Machinery A/c       4,000
  To Provision for Doubtful Debts A/c     1,500
  To Furniture A/c       500
  ((Being Decrease in the value of assets transferred to Profit and Loss Adjustment account)      
           
  Stock A/c Dr.   3,750  
  Factory Building A/c Dr.   5,000  
  To Profit & Loss Adjustment A/c       8,750
  (Being increase in the value of assets transferred to Revaluation account)      
           
  Profit and Loss Adjustment A/c Dr.    2,750  
  To A’s Capital A/c       917
  To B’s Capital A/c       1,375
  To C’s Capital A/c       458
  (Being balance of Profit and Loss Adjustment account transferred to partners’ capital accounts)      
           
  A’s Capital A/c Dr.   6,400  
  To B’s Capital A/c       2,400
  To C’s Capital A/c       4,000
  (Being adjustment of goodwill recorded in the books)      
           
  C’s Capital A/c Dr.   32,125  
  To C’s Loan A/c       32,125
  (Being balance of C’s capital account transferred to C’s loan account)


     
  Reserve Fund A/c Dr.    16,000  
  To A’s Capital A/c       5,333
  To B’s Capital A/c       8,000
  To C’s Capital A/c       2,667
  (Being reserve transferred to partners’ capital accounts)      
         

 

Profit and Loss Adjustment Account
Particular
Amount Particular Amount
To Plant and Machinery A/c 4,000 By Stock A/c 3,750
(40,000 × 10%)   (25,000 ×15%)  
To Furniture A/c 500 By Factory Building A/c 5,000
(10,000 × 5%)   (50,000 ×10%)  
To Provision for Doubtful Debts A/c 1,500    
(2,000– 500)      
To Profit transferred to        
A’s Capital 917        
B’s Capital 1,375        
C’s Capital 458 2,750      
    8,750     8,750

 

 

Partners’ Capital Account
Part. A B C

Part.

A B C
To B’s Capital A/c (Goodwill) 2,400 By Balance B/d 30,000 40,000 25,000
To C’s Capital A/c (Goodwill) 4,000 By Reserve Fund 5,333 8,000 2,667
        By Revaluation A/c 917 1,375 458
To X’s Loan A/c 32,125 By A’s Capital A/c (Goodwill) 2,400

4,000

To Balance c/d 43,200 51,775        
  36,250 51,775 32,125   36,250 51,775 32,125

 

Balance Sheet
Liabilities
Amount Assets Amount
Sundry Creditors 25,000 Factory Building   55,000
Loan Payable 15,000 Plant and Machinery 36,000
C’s Loan A/c   32,125 Furniture   9,500
Capital:     Stock   28,750
A’s Capital 29,850   Sundry Debtors 18,000  
B’s Capital 51,775 81,625 Less: Provision 2,000 16,000
      Cash in Hand 8,500
    1,15,000     1,15,000

 

Working Note:-

Calculation of Gaining Ratio

Old Ratio of A, B, and C =  1/3: 1/2: 1/6

= 2/6:3/6:1/6 (Make base equal of all)

=2:3:1

New Ratio of N and S = 3:2

Gaining Ratio = New Ratio – Old Ratio

A’s Gaining Share = 3 2
5 6
         
  = 18 10
  30
         
  = 8    
  30    

 

B’s Gaining Share = 2 3
5 6
         
  = 12 15
  30
         
  = (-)3    
  30    

Mr. B is sacrificing. 

Adjustment of Goodwill

Goodwill of the firm = Rs 24,000

C’s Share of Goodwill = 24,000 X 1
6
         
  = Rs 4,000    

 

A’s gain = 24,000 X 8
30
         
  = Rs 6,400    

 

B’s Sacrifice = 24,000 X 3
30
         
  = Rs 2,400    

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 34 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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