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Question 51 Chapter 6 of +2-A
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51. A B and C are partners in firm sharing profits and losses in the ratio of 3 : 2: 1. Their Balance Sheet as at 31st March 2019 is:
| Liabilities | Amount | Assets | Amount | ||
| Creditors | 30,000 | Cash in Hand | 18,000 | ||
| Bills Payable | 16,000 | Debtors | 25,000 | ||
| General Reserve | 12,000 | Less: Provision for Doubtful Debts | 3,000 | 22,000 | |
| Capital A/cs: | Stock | 18,000 | |||
| A | 40,000 | Furniture | 30,000 | ||
| B | 40,000 | Machinery | 70,000 | ||
| C | 30,000 | 1,10,000 | Goodwill | 10,000 | |
| 1,68,000 | 1,68,000 |
B retires on 1st April 2019 on the following terms:
a Provision for Doubtful Debts is raised by 1,000.
b Stock to be reduced by 10% and Furniture by 5%.
c Their is an outstanding claim of damages of 1,100 and it is to be provided for.
d Creditors will be written back by 6,000.
e Goodwill of the firm is valued at 22,000.
f B is paid in full with the cash brought in by A and C in such a manner that their capitals are in proportion to their profit-sharing ratio and Cash in Hand remains at 10,000.
Prepare Revaluation Account, Partners’ Capital Accounts and the Balance Sheet of A and C.
The solution of Question 51 Chapter 6 of +2-A: –
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| Revaluation Account | |||||
| Particular | Amount | Particular | Amount | ||
| To Provision for Doubtful Debts | 1,000 | By Creditors | 6,000 | ||
| To Stock 18,000 × 10% | 1,800 | ||||
| To Outstanding Claim for Damages | 1,100 | ||||
| To Furniture 30,000 × 5% | 1,500 | ||||
| To Profit transferred to | |||||
| A’s Capital A/c | 300 | ||||
| B’s Capital A/c | 200 | ||||
| C’s Capital A/c | 100 | 600 | |||
| 6,000 | 6,000 | ||||
| Partners’ Capital Account | |||||||
| Part. | A | B | C | Part. | A | B | C |
| To B’s Capital A/c | 5,500 | – | 1,833 | By Balance B/d | 40,000 | 40,000 | 30,000 |
| To X’s Loan A/c | 5,000 | 3,333 | 1,667 | By Revaluation A/c | 300 | 200 | 100 |
| To Cash A/c | – | 48,200 | _ | By A’s Capital A/c | – | 5,500 | – |
| By C’s Capital A/c | – | 1,833 | – | ||||
| To Balance c/d | 35,800 | – | 28,600 | ||||
| 46,300 | 51,533 | 32,100 | 46,300 | 51,533 | 32,100 | ||
| To Cash A/c | – | – | 2,450 | By Balance b/d | 35,800 | – | 28,600 |
| To Balance c/d | 78,450 | – | 26,150 | By Cash A/c | 42,650 | – | – |
| 78,450 | – | 28,600 | 78,450 | – | 28,600 | ||
| Balance Sheet | |||||
| Liabilities | Amount | Assets | Amount | ||
| Creditors | 24,000 | Cash in Hand | 11,000 | ||
| Bills Payable | 16,000 | Debtor | 25,000 | ||
| Outstanding Claim for Damages | 1,100 | Less: Provision for Doubtful Debts | 4,000 | 21,000 | |
| Capital: | Stock | 16,200 | |||
| A | 78,450 | Furniture | 28,500 | ||
| C | 26,150 | 1,04,600 | Machinery | 70,000 | |
| 1,45,700 | 1,45,700 | ||||
| Cash Account | |||||
| Particulars | Amount | Particulars | Amount | ||
| Balance b/d | 18,000 | B’s Capital A/c | 48,200 | ||
| A’s Capital A/c | 42,650 | C’s Capital A/c | 2,450 | ||
| Balance c/d | 10,000 | ||||
| 60,650 | 60,650 | ||||
Working Notes:
Calculation of Profit-Sharing Ratio
Old Ratio A, B and C = 3: 2: 1
B retires from the firm
∴ New Ratio A and C = 3: 1 and
Gaining Ratio = 3 : 1
Adjustment of Goodwill
Goodwill of the firm = Rs 22,000
| B’s Share of Goodwill | = | 22,000 | X | 2 |
| 6 | ||||
| = | Rs 7,333 |
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This share of goodwill is to be distributed between A and C in their gaining ratio i.e. 3: 1.
| A ‘ share | = | 7,333 | X | 3 |
| 4 | ||||
| = | Rs 5,500 |
| C ‘ share | = | 7,333 | X | 1 |
| 4 | ||||
| = | Rs 1,833 |
Adjustment of Partners’ Capital after B’s Retirement
| Amount to be brought in by A and C | = | Cash to be paid to B + Minimum Balance of Cash | – | Existing Balance of Cash |
| = | 48,200 + 10,000 | – | 18,000 | |
| = | Rs 40,200 |
Combined Capital of A and C after of all adjustments = 35,800 + 28,600 = Rs 64,400
∴ Total Capital of the Firm = Amount to be brought in by A and C + Combined Capital of A and C
= 40,200 + 64,400 = 1,04,600
| A’s New Capital | = | 1,04,600 | X | 3 |
| 4 | ||||
| = | Rs 78,450 |
| C ‘ share | = | 1,04,600 | X | 1 |
| 4 | ||||
| = | Rs 26,150 |
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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