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:
- Freehold Premises and Stock are to be appreciated by 20% and 15% respectively.
- Machinery and Furniture are to be reduced by 10% and 7% respectively.
- Provision for Doubtful Debts is to be increased to 1,500.
- Goodwill of the firm is valued at 21,000 on Z’s retirement.
- 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: –
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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/- |
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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)
- 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
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