Question 64 Chapter 5 of +2-A - T.S. Grewal 12 Class Part

Question 64 Chapter 5 of +2-A

Table of Contents

The solution of Question 64 Chapter 5 of +2-A: –

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

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)

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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

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	=	8 – 1
		8

	=	7
		8

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

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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

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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

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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

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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