Question 44 Chapter 6 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Question 44 Chapter 6 of +2-A

Question 44 Chapter 6 of +2-A

44. On 31st March 2019, the Balance Sheet of A, B, and C who were sharing profits and losses in proportion to their capitals stood as:

Liabilities Amount Assets  Amount
Creditors    10,800 Cash at Bank  13,000
Bills Payable  5,000 Sundry Debtors  10,000  
Capital A/cs:    Less: Provision for Doubtful Debts 200 9,800
A’s Capital  1,00,000   Stock    9,000
B’s Capital 60,000   Machinery  24,000
C’s Capital  50,000

2,10,000

Freehold Premises  50,000
    1,05,800     1,05,800
           

 

B retired and the following adjustments were agreed to determine the amount payable to B:

  1. Out of the amount of insurance premium debited to Profit and Loss Account, 1,000 be carried forward as prepaid Insurance.
  2. Freehold Premises be appreciated by 10%.
  3. Provision for Doubtful Debts is brought up to 5% on Debtors.
  4. Machinery is reduced by 5%.
  5. Liability for Workmen Compensation to the extent of 1,500 would be created.
  6. Goodwill of the firm be fixed at 18,000 and B’s share of the same be adjusted into the accounts of A and C who will share future profits in the ratio of 3/4th and 1/4th.
    The total capital of the firm as newly constituted be fixed at 60,000 between A and C in the proportion of 3/4th and 1/4th after passing entries in their accounts for adjustments, i.e., actual cash to be paid or to be brought in by continuing partners as the case may be.
    B be paid 5,000 in cash and the balance be transferred to his Loan Account.
    Prepare Capital Accounts of Partners and the Balance Sheet of the firm of A and C.

The solution of Question 44 Chapter 6 of +2-A: –

Revaluation Account
Particular
Amount Particular Amount
To Provision for Doubtful Debts  2,000 By Prepaid Insurance A/c 1,000
500 – 200   By Freehold Premises A/c 5,000
To Machinery A/c 1,200 (50,000 × 10%)  
To O/s Workmen’s Compensation A/c 1,500    
       
       
To Profit transferred to        
A’s Capital 1,500        
B’s Capital 1,000        
C’s Capital 500 3,000      
    6,000     6,000

 

Partners’ Capital Account
Part. A B C

Part.

A B C
To B’s Capital A/c (Goodwill) 4,500 1,500 By Balance B/d 45,000 30,000 15,000
To Bank A/c 5,000 By Revaluation A/c 1,500 1,000 500
        By A’s Capital A/c   4,500  
To X’s Loan A/c 32,000 –  By C’s Capital A/c   1,500  
To Balance c/d 45,000 15,000 By Cash A/c 3,000   1,000
  49,500 37,000 16,500   49,500 37,000 16,500

 

Balance Sheet
Liabilities
Amount Assets
Amount
Sundry Creditors 25,000 Cash at Bank     12,000
Loan Payable 15,000 Debtors 10,000  
C’s Loan A/c   32,125 Less: Prov. For D/D   500 9,500
      Stock   9,000
Capital:     Machinery
Freehold Premises
  22,800
A’s Capital 29,850     55,000
B’s Capital 51,775 81,625 Prepaid Insurance   1,000
           
    1,09,300       1,09,300

 

Bank Account
Particular
Amount Particular Amount
To Balance B/d 13,000 By B’s Capital A/c 5,000
To A’s Capital A/c 3,000    
To C’s Capital A/c 1,000    
    By Balance c/d (B.Fig) 12,000
    17,000     17,000

Working Note: –

i. Calculation of B’s share of goodwill

Old Ratio of X, Y, and Z  =  In their Capital Share
= 45,000 : 30,000 : 15,000

= 3: 2: 1

New Ratio of X and Z = 3:1

Gaining Ratio

X’s Gain = 3 3
4 6
         
  = 9 6
  12
         
  = 3    
  12    

 

Y’s Gain = 1 1
4 6
         
  = 3 2
  12
         
  = 1    
  12    

Gaining Ratio = 3: 1

Adjustment of Goodwill

Goodwill of the firm = Rs 18,000

B’s Share of Goodwill = 18,000 X 2
4
         
  = Rs 6,000    

 

This share of goodwill is to be distributed between X and Z in their gaining ratio i. e. 3:1

A’s Share = 6,000 X 3
4
         
  = Rs 4,500/-    

 

C’s Share = 6,000 X 1
4
         
  = Rs 1,300/-    

Adjustment of Partners’ Capital after B’s Retirement

Total Capital of the New Firm after B’s retirement = 60,000 (Given)

New Ratio of X and Z = 3:1

A’s New Capital = New Total Capital X A’s New Shares
  = 60,000 X 3
4
         
  = Rs 45,000    

 

B’s New Capital = New Total Capital X A’s New Shares
  = 60,000 X 1
4
         
  = Rs 15,000    

 

Calculation of Addition/withdrawal of Capital by the A and C

Addition/withdrawal of Capital = New Capital Balance of Capital Amount after all adjustments
Balance of Capital Amount after all adjustments = Opening Balance of Capital Account + All Credits  All Debits
             
Balance of A’s Capital Amount after all adjustments = 45,000 + 1,500 (4,500)
  = 42,000/-        
             
             
Balance of C’s Capital Amount after all adjustments = 15,000 + 500 (1,500)
  = 14,000/-        
             

 

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

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

= New Capital Amount Balance of Capital Amount after all adjustments
         
  = 45,000 42,000
         
  = 3,000/-    

 

addition/withdrawal by Y’s in/from Capital A/c = New Capital Amount Balance of Capital Amount after all adjustments
         
  = 15,000 14,000
         
  = 1,000/-    

 

 

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 44 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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