Question 46 Chapter 6 of +2-A
Table of Contents
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:
- Goodwill of the firm was valued at 1,02,000.
- There was a claim of 8,000 for workmen’s compensation.
- The provision for bad debts was to be reduced by 2,000.
- 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.
- 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)
- 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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