# Question 65 Chapter 5 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Question No.65 Chapter No.5 - T.S. Grewal +2 Book 2019-Solution

Question 65 Chapter 5 of +2-A

65. Given below is the Balance Sheet of A and B, who are carrying on partnership business on 31st March, 2019. A and B share profits and losses in the ratio of 2 : 1.

 Liabilities Assets Bills Payable 10,000 Cash in Hand 10,000 Creditors 58,000 Cash at Bank 40,000 Outstanding Expenses 2,000 Sundry Debtors 60,000 Capital A/cs: Stock 40,000 A’s 1,80,000 Plant 1,00,000 B’s 1,50,000 3,30,000 Building 1,50,000 4,00,000 4,00,000

C is admitted as a partner on 1st April, 2019 on the following terms:
(a) C will bring 1,00,000 as his capital and 60,000 as his share of goodwill for 1/4th share in the profits.
(b) Plant is to be appreciated to 1,20,000 and the value of building is to be appreciated by 10%.
(c) Stock is found overvalued by 4,000.
(d) A provision for doubtful debts is to be created at 5% of sundry debtors.
(e) Creditors were unrecorded to the extent of 1,000.
Pass the necessary Journal entries, prepare the Revaluation Account and Partners’ Capital Accounts, and show the Balance Sheet after the admission of C

## The solution of Question 65  Chapter 5 of +2-A: –

 Date Particulars L.F. Debit Credit Revaluation A/c Dr 1,60,000 To C’s Capital A/c 1,00,000 To Premium for Goodwill A/c 60,000 (Being C brought his share of goodwill and capital in cash) Premium for Goodwill A/c Dr 60,000 To A’s Capital A/c 40,000 To B’s Capital A/c 20,000 (Being Premium for goodwill distributed between X, Y and Z in sacrificing ratio i.e. 3:1) Plant A/c Dr 20,000 Building A/c Dr 15,000 To Revaluation A/c 35,000 (Increase in value of plant and Building of transferred to Revaluation Accounts) Revaluation A/c Dr 8,000 To Stock A/c 4,000 To Provision for Doubtful Debts A/c 3,000 To Creditors A/c (Unrecorded) 1,000 (Being Decrease in stock, creation of Provision for Doubtful Debt and transferred to Revaluation Account. Unrecorded Creditors recorded in the books) Revaluation A/c Dr 27,000 To A’s Capital A/c 18,000 To B’s Capital A/c 9,000 (Being Profit on revaluation account distributed between A and B in their old ratio)

 Revaluation A/c Particular Amount Particular Amount Stock 4,000 Plant 20,000 Provision for Doubtful Debts 3,000 Building 15,000 Creditors (Unrecorded) 1,000 Profit transferred to A’s Capital 18,000 B’s Capital 9,000 27,000 35,000 35,000

 Partners’ Capital Accounts the year ended 31st March, 2019 Particulars A B C Particulars A B C By Balance B/d 1,80,000 1,50,000 – By Cash A/c – – 1,00,000 By Premium for Goodwill A/c 40,000 20,000 – By Revaluation A/c 18,000 9,000 – To Balance c/d 2,38,000 1,79,000 1,00,000 2,38,000 1,79,000 1,00,000 2,38,000 1,79,000 1,00,000

 Balance Sheet Liabilities Amount Assets Amount Bills Payable 32,950 Cash in Hand 10,000 Creditors 59,000 Cash at Bank (40,000+ 1,60,000) 2,00,000 Capital: Stock (40,000 – 4,000) 36,000 A’s 2,38,000 Sundry Debtors 60,000 B’s 1,79,000 Less: Provision for D. Debts 3,000 57,000 C’s 1,00,000 5,17,000 Plant 1,20,000 Outstanding Expenses 2,000 Building 1,65,000 5,88,000 5,88,000

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)

• 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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