Question 47 Chapter 6 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Question 47 Chapter 6 of +2-A

Question 47 Chapter 6 of +2-A

47. X, Y, and Z are partners in a firm sharing profits in the ratio of 3: 1: 2. On 31st March 2019, their Balance Sheet was:

Liabilities Amount Assets  Amount
Bills Payable  12,000 Freehold Premises  40,000
Sundry Creditors 28,000 Machinery 30,000
General Reserve 12,000 Furniture    12,000
Capital A/cs:    Stock    22,000
X’s Capital  30,000   Sundry Debtors 20,000  
Y’s Capital 20,000   Less: Provision for Doubtful Debt 1,000 19,000
Z’s Capital  28,000 78,000 Cash   7,000
    1,30,000     1,30,000

Z retired on 1st April 2019 from the business and the partners agree to the following:

  1. Freehold Premises and Stock are to be appreciated by 20% and 15% respectively.
  2. Machinery and Furniture are to be reduced by 10% and 7% respectively.
  3. Provision for Doubtful Debts is to be increased to 1,500.
  4. Goodwill of the firm is valued at 21,000 on Z’s retirement.
  5. Continuing partners to adjust their capitals in their new profit-sharing ratio after the retirement of Z. Surplus/deficit, if any, in their Capital Accounts will be adjusted through Current Accounts.

Prepare necessary Ledger Accounts and draw the Balance Sheet of the reconstituted firm.

 

The solution of Question 47 Chapter 6 of +2-A: –

Revaluation Account
Particular
Amount Particular Amount
To Machinery A/c 3,000 By Freehold Premises A/c 8,000
30,000 × 10%   40,000 × 20%  
To Furniture A/c 840 By Stock A/c 3,300
12,000 × 7%     22,000 × 15%    
To Prov. for Doubtful Debts A/c 500      
1,500 – 1,000          
To Profit transferred to          
X’s Capital A/c 3,480        
Y’s Capital A/c 1,160        
Z’s Capital A/c 2,320 6,960      
    11,300     11,300

 

Partners’ Capital Account
Part. X Y Z

Part.

X Y Z
To Z’s Capital A/c 5,250 1,750 By Balance B/d 30,000 20,000 28,000
        By General Reserve A/c 6,000 2,000 4,000
        By X’s Capital A/c (Goodwill) 10,200
To Z’s Loan A/c 41,320 By Y’s Capital A/c (Goodwill) 20,400
To Y’s Current A/c 7,500 By Revaluation A/c 3,480 1,160 2,320
To Balance c/d 41,730 13,910 By X’s Current A/c 7,500
               
  46,980 23,160 41,320   46,980 23,160 41,320

 

Balance Sheet
Particular
Amount Particular Amount
Bills Payable 12,000 Freehold Premises 48,000
Sundry Creditor 28,000 40,000 + 8,000  
Z’s Loan A/c 41,320 Machinery 27,000
Y’s Current A/c   7,500 30,000 – 3,000  
      Furniture   11,160
      12,000 – 840  
      Stock   25,300
      22,000 + 3,300  
      Debtors 20,000  
      Less: Prov. For D/D 1,500 18,500
Capital A/cs          
X’s Capital 41,730   Cash A/c   7,000
Z’s Capital 13,910 55,640 X’s Current A/c   7,500
           
    1,44,460     1,44,460

Working Note:-

Calculation of Gaining Ratio

Old Ratio of X, Y, and Z = 3: 1: 2

Z retires from the firm.

New Ratio is not given in the question that’s why to assume that the old ratio left after the retirement of Z will be their new ratio and then gaining will become the same with the new ratio. We will show you by calculating it as following: –

New Ratio of X and Y = 3:1

Gaining Ratio =  New Ratio – Old Ratio

X’s Gaining Share = 3 3
4 6
         
  = 9 6
  12
         
  = 3    
  12    

 

Y’s Gaining Share = 1 1
4 6
         
  = 3 2
  12
         
  = 1    
  12    

Gaining Ratio = 3:1

Adjustment of Goodwill: –

Goodwill of the firm = Rs 21,000

Z’s Share of Goodwill = Firm’s Goodwill X Z’s share
         
  = 21,000 X 2
6
         
  = Rs 7,000    

Gaining Ratio = 3: 1

 X will pay = Z’s Goodwill X

Share of X

         
  = 7,000 X 3
4
         
  = Rs 5,250    

 

Y will pay = Z’s Goodwill X

Share of Y

         
  = 7,000 X 3
4
         
  = Rs 1,750    

Calculation of Addition/withdrawal of Capital by the Amit and Balan

Balance of Capital Amount after all adjustments = Opening Balance of Capital Account + All Credits  All Debits

 

Balance of X’s Capital Amount after all adjustments = 30,000 + 6,000 + 3,480 5,250    
  = 34,230/-                

 

Balance of Y’s Capital Amount after all adjustments = 20,000 + 2,000 + 1,160 1,750    
  = 21,410/-                

 

Total Capital of the firm = X’s Capital Balance + Y’s Capital Balance
         
  = 34,230 + 21,410
         
  = 55,640/-    

 

Calculation of Total Capital

The total capital of the Firm= Rs 55,640

New Profit Sharing Ratio = 3:1 

X’s New Capital = Firm’s New Capital X

Share of X

         
  = 55,640 X 3
4
         
  = Rs 41,730/-    

 

Y’s New Capital = Firm’s new Capital X Share of Y
         
  = 55,640 X 1
4
         
  = Rs 13,910/-    

 

Calculation of Addition/withdrawal of Capital by the X and Y

Addition/withdrawal by X’s in/from Capital A/c

= New Capital Amount Balance of Capital Amount after all adjustments
         
  = 41,730 34,230
         
  = 7,500/-    

 

Addition/withdrawal by Y’s in/from Capital A/c = New Capital Amount Balance of Capital Amount after all adjustments
         
  = 13,910 21,410
         
  = (-)7,500/-    

The negative value so he will withdrawal Capital. 

 

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 47 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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