Question 40 Chapter 6 of +2-A
Table of Contents
40. X, Y, and Z are partners sharing profits and losses in the ratio of 3: 2: 1. The Balance Sheet of the firm as of 31st March 2019 was as follows:
| Liabilities | Amount | Assets | Amount | ||
| Creditors | 21,000 | Cash at Bank | 5,750 | ||
| Workmen Compensation Reserve | 12,000 | Debtors | 40,000 | ||
| Investments Fluctuation Reserve | 6,000 | Less: Provision for Doubtful Debts | 2,000 | 38,000 | |
| Stock | 1,24,000 | ||||
| Capital A/cs: | Investment (Market Value 17,600) | 15,000 | |||
| X’s Capital | 68,000 | Patents | 50,000 | ||
| Y’s Capital | 32,000 | Goodwill | 6,000 | ||
| Z’s Capital | 21,000 | 1,21,000 | Advertisement Expenditure | 5,250 | |
| 1,60,000 | 1.60.000 | ||||
Z retired on 1st April 2019 on the following terms:
- Goodwill of the firm is to be valued at 34,800.
- The value of Patents is to be reduced by 20% and that of machinery to 90%.
- Provision for doubtful debts is to be created @ 6% on debtors.
- Z took over the investment at market value.
- Liability for Workmen Compensation to the extent of 750 is to be created.
- A liability of 4,000 included in creditors is not to be paid.
- Amount due to Z to be paid as follows: 5,067 immediately, 50% of the balance within one year, and the balance by a draft for 3 Months.
Give necessary Journal entries for the treatment of goodwill, prepare Revaluation Account, Capital Accounts, and the Balance Sheet of the new firm
The solution of Question 40 Chapter 6 of +2-A: –
Journal Entries
| Date | Particulars |
L.F. | Debit | Credit | |
| X’s Capital A/c | Dr. | 3,000 | |||
| Y’s Capital A/c | Dr. | 2,000 | |||
| Z’s Capital A/c | Dr. | 1,000 | |||
| To Goodwill A/c | 6,000 | ||||
| (Being existing goodwill transferred to Partners′ Capital Accounts in their old ratio i.e. 5:3:2) | |||||
| X’s Capital A/c | Dr. | 3,480 | |||
| Y’s Capital A/c | Dr. | 2,320 | |||
| To Z’s Capital A/c | 5,800 | ||||
| (Being share of the goodwill of retiring partner credit to his capital account) | |||||
| Revaluation Account |
|||||
| Particular |
Amount | Particular | Amount | ||
| To Patents A/c | 2,000 | By Investments A/c | 2,600 | ||
| To Machinery | 5,000 | 17,600 – 15,000 | |||
| To Prov. for Doubtful Debts | 400 | By Creditors A/c | 4,000 | ||
| By Loss transferred to | |||||
| A’s Capital A/c | 400 | ||||
| B’s Capital A/c | 267 | ||||
| C’s Capital A/c | 133 | 2,000 | |||
| 7,400 | 7,400 | ||||
| Partners’ Capital Account |
|||||||
| Part. | X | Y | Z |
Part. |
X | Y | Z |
| To Goodwill A/c | 3,000 | 2,000 | 1,000 | By Balance B/d | 1,00,000 | 60,000 | 50,000 |
| To Revaluation A/c | 400 | 267 | 133 | By X’s Capital A/c | – | – | 3,480 |
| To Z’s Capital A/c | 3,480 | 2,320 | – | By Y’s Capital A/c | 2,320 | ||
| To Adv. Exp. A/c | 2,625 | 1,750 | 875 | By WCR A/c | 5,625 | 3,750 | 1,875 |
| To Investments A/c | – | – | 17,600 | By Inv. Flu. Reserve A/c | 3,000 | 2,000 | 1,000 |
| To Bank A/c | – | – | 5,067 | ||||
| To Bills Payable A/c | – | – | 2,500 | ||||
| To Z’s Loan A/c | – | – | 2,500 | ||||
| To Balance c/d | 67,120 | 31,413 | – | ||||
| 76,625 | 37,750 | 29,625 | 76,625 | 37,750 | 29,625 | ||
| Balance Sheet |
|||||
| Liabilities |
Amount | Assets | Amount | ||
| Sundry Creditors | 17,000 | Cash at Bank | 683 | ||
| Workmen Compensation Claim | 750 | 5,750 – 5,067 | |||
| Bills Payable | 2,500 | Stock | 30,000 | ||
| Patents | 8,000 | ||||
| Debtors | 40,000 | ||||
| Z’s Loan | 2,500 | Less: Prov. For D/D | 2,400 | 37,600 | |
| Capital: | Stock | 1,12,000 | |||
| X’s Capital | 67,120 | 1,24,000 – 12,000 | |||
| Y’s Capital | 31,413 | 41,200 | Machinery | 45,000 | |
| 1,21,283 | 1,21,283 | ||||
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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