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Question 64 Chapter 5 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Question 64 Chapter 5 of +2-A
Question No.64 Chapter No.5 - T.S. Grewal +2 Book 2019-Solution

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Question 64 Chapter 5 of +2-A

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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 Capital15,000 Building  25,000
B’s Capital10,00025,000Plant and Machinery17,500
Sundry Creditors 32,950Stock 10,000
   Sundry Debtors4,850
   Cash in Hand600
  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: –

 

DateParticulars
L.F.DebitCredit
 Revaluation A/cDr 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/cDr 5,880 
 To Revaluation A/c   3,528
 (Increase in value of Building of transferred to Profit and loss Adjustment Accounts)    
 Revaluation A/cDr 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/cDr 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/cDr 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
AmountParticularAmount
Stock 500Building 2,500
Plant and Machinery 875   
Reserve for Doubtful Debts 375   
Profit transferred to     
A’s Capital500    
B’s Capital250750   
  2,500  2,500

 

Partners’ Capital Accountsthe year ended 31st March, 2019
ParticularsA
BCParticularsABC
    By Balance B/d15,00010,000
    By Cash A/c7,500
    By Premium for Goodwill A/c2,0001,000
    By Revaluation A/c500250
To Balance c/d 17,500 11,250 7,500     
 17,50011,2507,500 17,50011,2507,500

 

Balance Sheet
Liabilities
AmountAssetsAmount
Sundry Creditors 32,950Building(25,000 + 2,500)27,500
   Plant and Machinery(25,000 + 2,500)16,625
Capital:  Stock(10,000+ 500)9,500
A’s17,500 Sundry Debtors4,850 
B’s11,250 Less: Provision for D. Debts3754,475
C’s7,50036,250Cash 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=11
8
 =8 – 1 
8

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 =7 
 8

 

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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=7X3
85
 =21 
 40
B’s New Ratio=7X2
85
 =14 
 40
C’s New Ratio=1X5
85
 =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

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 =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
 =47,040X1
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
 =5,880X3
5
 =3,528
  

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B will get Share of Goodwill=C’s Goodwill  X Sacrifice share of B

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 =5,880X2
5
 =2,352
  

Distribution of Profit from Revaluation Account (in old ratio)

A will get=750X2
3
 =500
  

 

B will get=750X1
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)

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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Check out T.S. Grewal +2 Book 2020@ Official Website of Sultan Chand Publication

+2 Book 1-min
Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms

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