Question 63 Chapter 5 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Question No.63 Chapter No.5 - T.S. Grewal +2 Book 2019-Solution

Question 63 Chapter 5 of +2-A

63. A and B are carrying on business in partnership and sharing profits and losses in the ratio of  3 : 2. Their Balance Sheet as at 31st March, 2019 stood as:

 Liabilities Assets Creditors 11,800 Cash 1,500 A’s Capital 51,450 Stock 28,000 B’s Capital 36,750 88,200 Debtors 19,500 Furniture 2,500 Machinery 48,500 1,00,000 1,00,000

They admit C into partnership on 1st April, 2019 and give him 1/8th share in future profits on the following terms:

1. Goodwill of the firm be valued at twice the average of the last three years’ profits which amounted to 21,000; 24,000 and 25,560.
2. C is to bring cash for the amount of his share of goodwill.
3. C is to bring cash 15,000 as his capital.
Pass Journal entries recording these transactions, draw out the Balance Sheet of the new firm and determine new profit-sharing ratio.

The solution of Question 63 Chapter 5 of +2-A: –

 Date Particulars L.F. Debit Credit Cash A/c Dr 20,880 To C’s Capital A/c 15,000 To Premium for Goodwill A/c 5,880 (Being C brought his share of goodwill and capital in cash) Premium for Goodwill A/c Dr 5,880 To X’s Capital A/c 3,528 To Y’s Capital A/c 2,352 (Being Premium for goodwill distributed between X, Y and Z in sacrificing ratio i.e. 3:1)

Case A

 Particulars A B C Particulars A B C By Balance B/d 51,450 36,750 – By Cash A/c – – 15,000 By Premium for Goodwill A/c 3,528 2,352 – To Balance c/d 54,978 39,102 15,000 54,978 39,102 15,000 54,978 39,102 15,000

 Balance Sheet Liabilities Amount Assets Amount Creditors 11,800 Cash (1,500 +20,880) 22,380 Stock 28,000 Capital: Debtors 19,500 A’s 54,978 Furniture 2,500 B’s 39,102 Machinery 48,500 C’s 15,000 1,09,080 1,20,880 1,20,880

Working Note:-

 Old Ratio of A and B = 3 : 2 C is admitted for 1/8th share of profit

Let the total share of the business = 1
Remaining share of A and B after C’s Admission = Total Share – C’s Share

 Remaining share = 1 – 1 8
 = 8 – 1 8
 = 7 8

To Calculate to New Ratio distribute the remaining share in the old ratio of old partners’

New Ratio = Combined share of A and B X Old Ratio

 A’s New Ratio = 7 X 3 8 5
 = 21 40
 B’s New Ratio = 7 X 2 8 5
 = 14 40
 C’s New Ratio = 1 X 5 8 5
 = 5 40

New Profit sharing Ratio between A ,B and C = 21 : 14 : 5

 Average Profit = Total Profit for past given years Number of years
 = 21,000 + 24,000 + 25,560 3
 = 70,560 3 = 23,520
 Number of years’ purchase = 2 Goodwill = Average Profit X Number of years’ purchase Goodwill = 23,520 X 2 Goodwill = 47,040

 C’s Share of Goodwill = Firm’s Goodwill  X Share of HinaS
 = 47,040 X 1 8 = 5,880

Sacrificing Ratio of A and B = 3 : 2

 A will get Share of Goodwill = C’s Goodwill  X Sacrifice share of A
 = 5,880 X 3 5 = 3,528

 B will get Share of Goodwill = C’s Goodwill  X Sacrifice share of B
 = 5,880 X 2 5 = 2,352

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. 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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