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

Question 65 Chapter 5 of +2-A

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)

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 65 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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