Question 46 Chapter 6 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Question 46 Chapter 6 of +2-A

Question 46 Chapter 6 of +2-A

46. J, H, and K were partners in a firm sharing profits in the ratio of 5: 3: 2. On 31st March 2015, their Balance Sheet was as follows:

Liabilities Amount Assets  Amount
Creditors    42,000 Land and Building  1,24,000
Investment Fluctuation Fund 20,000 Motor Vans 40,000
Profit and Loss Account 80,000 Investments 38,000
      Machinery 24,000
Capital A/cs:    Stock    30,000
J’s Capital  1,00,000   Sundry Debtors  80,000  
H’s Capital 80,000   Less: Provision for Doubtful Debts 6,000 74,000
K’s Capital  40,000 2,20,000 Cash    32,000
    3,62,000     3,62,000

On the above date, H retired and J and K agreed to continue the business on the following terms:

  1. Goodwill of the firm was valued at 1,02,000.
  2. There was a claim of 8,000 for workmen’s compensation.
  3. The provision for bad debts was to be reduced by 2,000.
  4. H will be paid 14,000 in cash and the balance will be transferred in his Loan Account which will be paid in four equal yearly installments together with interest @ 10% p.a.
  5. The new profit-sharing ratio between J and K will be 3: 2 and their capitals will be in their new profit-sharing ratio. The capital adjustments will be done by opening Current Accounts.

Prepare Revaluation Account, Partners’ Capital Accounts, and Balance Sheet of the new firm.

The solution of Question 46 Chapter 6 of +2-A: –

Revaluation Account
Particular
Amount Particular Amount
To Claim for Workmen Comp 8,000 By Provision for Doubtful Debts A/c 2,000
       
    By Profit transferred to  
      J’s Capital A/c 3,000  
      H’s Capital A/c 1,800   
      K’s Capital A/c 1,200  6,000
    8,000     8,000

 

Partners’ Capital Account
Part. J H K

Part.

J H K
To Revaluation A/c 3,000 1,800 1,200 By Balance B/d 1,00,000 80,000 40,000
To H’s Capital A/c 10,200 20,400 By I.F.F. A/c 10,000 6,000 4,000
To Cash A/c 14,000 By P&L A/c 40,000 24,000 16,000
To H’s Loan A/c 1,24,800 By J’s Capital A/c 10,200
To J’s Current A/c 31,680 By K’s Capital A/c 20,400
        By K’s Current A/c 31,680
               
To Balance c/d 1,05,120 70,080        
  1,50,000 1,40,600 98,400   1,50,000 1,40,600 98,400

 

Balance Sheet
Particular
Amount Particular Amount
Creditors 42,000 Land and Building 1,24,000
Claim for Workmen Comp. 8,000 Motor Vans 40,000
H’s Loan A/c 1,24,800 Investments 38,000
J’s Current A/c   31,680 Machinery   24,000
      Stock   30,000
      Debtors 40,000  
Capital A/cs     Less: Prov. For D/D 4,000 7,600
J’s Capital 1,05,120   Cash A/c   18,000
K’s Capital 70,080 1,75,200 K’s Current A/c   31,680
           
    3,81,680     3,81,680

Working Note:-

Calculation of Gaining Ratio

Old Ratio of J, H, and K = 5: 3: 2

H retires from the firm.

New Ratio of Jand K = 3:2 (given)

Gaining Ratio =  New Ratio – Old Ratio

J’s Gain = 3 5
5 10
         
  = 6 5
  10
         
  = 1    
  10    

 

Y’s Gain = 2 2
5 10
         
  = 4 2
  10
         
  = 2    
  10    

Gaining Ratio = 1: 2

Adjustment of Goodwill

Goodwill of the firm = Rs 1,02,000

H’s Share of Goodwill = Firm’s Goodwill X H’s share
         
  = 1,02,000 X 3
10
         
  = Rs 30,600    

 

 J will pay = H’s Goodwill X

Share of J

         
  = 30,600 X 1
3
         
  = Rs 10,200    

 

K will pay = H’s Goodwill X

Share of K

         
  = 30,600 X 2
3
         
  = Rs 20,400    

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 J’s Capital Amount after all adjustments = 1,00,000 + 10,000 + 40,000 (3,000 + 10,200)
  = 1,00,000 + 50,000 13,200        
                     
  = 1,36,800/-                

 

Balance of K’s Capital Amount after all adjustments = 40,000 + 4,000 + 16,000 (1,200 + 20,400)
  = 40,000 + 20,000 21,600        
                     
  = 38,400/-                

 

Total Capital of the firm = J’s Capital Balance + K’s Capital Balance
         
  = 1,36,800 + 38,400
         
  = 1,75,200/-    

 

Calculation of Total Capital

The total capital of the Firm= Rs 1,75,200

New Profit Sharing Ratio = 3:2 

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

Share of J

         
  = 1,75,200 X 3
5
         
  = Rs 1,05,120    

 

K’s New Capital = Firm’s new Capital X Share of K
         
  = 1,75,200 X 2
5
         
  = Rs 70,080    

 

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

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

= New Capital Amount Balance of Capital Amount after all adjustments
         
  = 1,05,120 1,36,800
         
  = (-)31,680/-    

The negative value so he will withdrawal Capital. 

Addition/withdrawal by K’s in/from Capital A/c = New Capital Amount Balance of Capital Amount after all adjustments
         
  = 70,080 38,400
         
  = 31,680/-    

 

 

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 46 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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