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Question 34 Chapter 6 of +2-A
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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:
- 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.
- Plant and Machinery to be reduced by 10% and Furniture by 5%.
- Stock to be appreciated by 15% and Building by 10%.
- Provision for Doubtful Debts to be raised to 2,000.
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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
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= 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 | ||||
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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 |
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| 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 | = | 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/- |
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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)
- 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
