Question 64 Chapter 5 of +2-A
64. Following was the Balance Sheet of A and B who were sharing profits in the ratio of 2 : 1 as at 31st March, 2019:
| Liabilities | Assets | |||
| A’s Capital | 15,000 | Building | 25,000 | |
| B’s Capital | 10,000 | 25,000 | Plant and Machinery | 17,500 |
| Sundry Creditors | 32,950 | Stock | 10,000 | |
| Sundry Debtors | 4,850 | |||
| Cash in Hand | 600 | |||
| 57,950 | 57,950 |
They admit C into partnership on the following terms:
(a) C was to bring 7,500 as his capital and 3,000 as goodwill for 1/4th share in the firm.
(b) Values of the Stock and Plant and Machinery were to be reduced by 5%.
(c) A Provision for Doubtful Debts was to be created in respect of Sundry Debtor 375.
(d) Building was to be appreciated by 10%.
Pass necessary Journal entries to give effect to the arrangements. Prepare Profit and Loss Adjustment Account (or Revaluation Account), Partners’ Capital Accounts and Balance Sheet
of the new firm.
The solution of Question 64 Chapter 5 of +2-A: –
| Date | Particulars |
L.F. | Debit | Credit | |
| Revaluation A/c | Dr | 1,750 | |||
| To Stock A/c | 500 | ||||
| To Plant and Machinery A/c | 875 | ||||
| To Reserve for Doubtful Debts A/c | 375 | ||||
| (Being Decrease in stock and Plant and creation of Reserve for Doubtful Debt transferred to Profit and Loss Adjustment Account) | |||||
| Building A/c | Dr | 5,880 | |||
| To Revaluation A/c | 3,528 | ||||
| (Increase in value of Building of transferred to Profit and loss Adjustment Accounts) | |||||
| Revaluation A/c | Dr | 750 | |||
| To A’s Capital A/c | 500 | ||||
| To B’s Capital A/c | 250 | ||||
| (Profit on revaluation of asset and liabilities distributed between A and B in their old ratio) | |||||
| Cash A/c | Dr | 10,500 | |||
| To C’s Capital A/c | 7,500 | ||||
| To Premium for Goodwill A/c | 3,000 | ||||
| (Being C brought his share of goodwill and capital in cash) | |||||
| Premium for Goodwill A/c | Dr | 3,000 | |||
| To A’s Capital A/c | 2,000 | ||||
| To B’s Capital A/c | 1,000 | ||||
| (Being Premium for goodwill distributed between X, Y and Z in sacrificing ratio i.e. 3:1) | |||||
| Balance Sheet |
|||||
| Particular |
Amount | Particular | Amount | ||
| Stock | 500 | Building | 2,500 | ||
| Plant and Machinery | 875 | ||||
| Reserve for Doubtful Debts | 375 | ||||
| Profit transferred to | |||||
| A’s Capital | 500 | ||||
| B’s Capital | 250 | 750 | |||
| 2,500 | 2,500 | ||||
| Partners’ Capital Accountsthe year ended 31st March, 2019 |
|||||||
| Particulars | A |
B | C | Particulars | A | B | C |
| By Balance B/d | 15,000 | 10,000 | – | ||||
| By Cash A/c | – | – | 7,500 | ||||
| By Premium for Goodwill A/c | 2,000 | 1,000 | – | ||||
| By Revaluation A/c | 500 | 250 | – | ||||
| To Balance c/d | 17,500 | 11,250 | 7,500 | ||||
| 17,500 | 11,250 | 7,500 | 17,500 | 11,250 | 7,500 | ||
| Balance Sheet |
|||||
| Liabilities |
Amount | Assets | Amount | ||
| Sundry Creditors | 32,950 | Building | (25,000 + 2,500) | 27,500 | |
| Plant and Machinery | (25,000 + 2,500) | 16,625 | |||
| Capital: | Stock | (10,000+ 500) | 9,500 | ||
| A’s | 17,500 | Sundry Debtors | 4,850 | ||
| B’s | 11,250 | Less: Provision for D. Debts | 375 | 4,475 | |
| C’s | 7,500 | 36,250 | Cash in Hand (600 + 10,500) | 11,100 | |
| 69,200 | 69,200 | ||||
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 |
Advertisement-X
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 |
Advertisement-Y
| = | 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 |
Distribution of Profit from Revaluation Account (in old ratio)
| A will get | = | 750 | X | 2 |
| 3 | ||||
| = | 500 |
| B will get | = | 750 | X | 1 |
| 3 | ||||
| = | 250 |
Advertisement-X
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
Advertisement-Y