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

Question 64 Chapter 5 of +2-A

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

 

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
   

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)

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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2 Book 1 min - Question 64 Chapter 5 of +2-A - T.S. Grewal 12 Class Part - A Vol. 1
Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms

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