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Question 53 Chapter 6 of +2-A
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53. The Balance Sheet of X, Y and Z who were sharing profits in the ratio of 5 : 3: 2 as at 31st March 2019 is as follows:
| Liabilities | Amount | Assets | Amount | |
| Creditors | 50,000 | Cash at Bank | 40,000 | |
| Employees’ Provident Fund | 10,000 | Sundry Debtors | 1,00,000 | |
| Profit and Loss A/c | 85,000 | Stock | 80,000 | |
| Capital A/cs: | Fixed Assets | 60,000 | ||
| X | 40,000 | |||
| Y | 62,000 | |||
| Z | 33,000 | 1,35,000 | ||
| 2,80,000 | 2,80,000 |
X retired on 1st Apri 2019 and Y and Z decided to share profits in future in the ratio of 3: 2 respectively. The other terms on retirement were:
a Goodwill of the firm is to be valued at 80,000.
b Fixed Assets are to be depreciated to 57,500.
c Make a Provision for Doubtful Debts at 5% on Debtors.
d A liability for a claim, included in Creditors for 10,000, is settled at 8,000. The amount to be paid to X by Y and Z in such a way that their Capitals are proportionate to their profit-sharing ratio and leave a balance of 15,000 in the Bank Account.
Prepare Profit and Loss Adjustment Account and Partners’ Capital Accounts.
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The solution of Question 53 Chapter 6 of +2-A: –
| Revaluation Account | |||||
| Particular | Amount | Particular | Amount | ||
| To Fixed Assets A/c 60,000 – 57,500 | 2,500 | By Creditors 10,000 – 8,000 | 2,000 | ||
| To Provision for Doubtful Debts | 5,000 | ||||
| By Loss transferred to: | |||||
| X’s Capital A/c | 2,750 | ||||
| Y’s Capital A/c | 1,650 | ||||
| Z’s Capital A/c | 1,100 | 5,500 | |||
| 7,500 | 7,500 | ||||
| Partners’ Capital Account | |||||||
| Part. | X | Y | Z | Part. | X | Y | Z |
| To Revaluation A/c | 2,750 | 1,650 | 1,100 | By Balance B/d | 40,000 | 62,000 | 33,000 |
| To X’s Capital A/c | – | 24,000 | 16,000 | By Profit & Loss A/c | 42,500 | 25,500 | 17,000 |
| By Y’s Capital A/c | 24,000 | – | – | ||||
| By Z’s Capital A/c | 16,000 | – | – | ||||
| To Balance c/d | 1,19,750 | 61,850 | 32,900 | ||||
| 1,22,500 | 87,500 | 50,000 | 1,22,500 | 87,500 | 50,000 | ||
| To Capital A/c | 1,19,750 | – | – | By Balance b/d | 1,19,750 | 61,850 | 32,900 |
| To Balance c/d | – | 1,18,500 | 79,000 | By Cash A/c | – | 56,650 | 46,100 |
| 1,19,750 | 1,18,500 | 79,000 | 1,19,750 | 1,18,500 | 79,000 | ||
Working Notes:
Calculation of Gaining Ratio
Old Ratio X, Y and Z = 5:3:2
New Ratio Y and Z = 3:2
Gaining Ratio = New Ratio – Old Ratio
| Y’s Share | = | 3 | – | 3 |
| 5 | 10 | |||
| = | 3 | |||
| 10 |
| Z’s Share | = | 2 | – | 2 |
| 5 | 10 | |||
| = | 2 | |||
| 10 |
Adjustment of Goodwill
Total Goodwill of the Firm = 80,000
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| X’s Share of Goodwill | = | 80,000 | X | 5 |
| 10 | ||||
| = | Rs 40,000 |
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To be borne by Gaining partners in their Gaining Ratio i.e. 3:2
| Y’s Share | = | 40,000 | X | 3 |
| 5 | ||||
| = | Rs 24,000 |
| Z’s Share | = | 40,000 | X | 2 |
| 5 | ||||
| = | Rs 16,000 |
Adjustment of Capital
X’s Capital before adjustment = 1,19,750
Y’s Capital before adjustment = 61,850
Z’s Capital before adjustment = 32,900
| Total Capital of New Firm | = | X’s Capital +Y’s Capital + Z’s Capital + Closing balance of Bank Account | – | Available Bank Balance |
| = | 1,19,750+61,850+32,900+15,000 | – | 32,000 | |
| = | Rs 1,97,500 |
New Profit Sharing Ratio = 3:4
| Y’s Share of Goodwill | = | 1,97,500 | X | 3 |
| 5 | ||||
| = | Rs 1,18,500 |
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| Z’s Share of Goodwill | = | 1,97,500 | X | 2 |
| 5 | ||||
| = | Rs 79,000 |
| Balance Sheet | |||
| Liabilities | Y | Z | |
| New Capital Balance | 1,18,500 | 79,000 | |
| Adjusted Old Capital Balance | 61,850 | 32,900 | |
| Cash brought in by the Partner | 56,650 | 56,650 | |
| Cash Account | |||||
| Particulars | Amount | Particulars | Amount | ||
| Balance b/d | 40,000 | Creditors | 8,000 | ||
| Y’s Capital A/c | 56,650 | X’s Capital A/c | 1,19,750 | ||
| Z’s Capital A/c | 46,100 | ||||
| Balance c/d | 15,000 | ||||
| 1,42,750 | 1,42,750 | ||||
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
Check out T.S. Grewal +2 Book 2020@ Official Website of Sultan Chand Publication
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