Question 71 Chapter 5 of +2-A
71. X and Y share profits in the ratio of 5 : 3. Their Balance Sheet as at 31st March, 2019 was:
| Liabilities | Assets | ||||
| Creditors | 15,000 | Cash at Bank | 5,000 | ||
| Employees’ Provident Fund | 10,00 | Sundry Debtors | 20,000 | ||
| Workmen Compensation Reserve | 5,800 | Less: Provision for Doubtful Debts | 600 | 19,400 | |
| Capital A/cs: | Stock | 25,000 | |||
| X | 70,000 | Fixed Assets | 80,000 | ||
| Y | 31,000 | 1,01,000 | Profit and Loss A/c | 2,400 | |
| 1,31,800 | 1,31,800 |
They admit Z into partnership with 1/8th share in profits on 1st April, 2019. Z brings 20,000 as his capital and 12,000 for goodwill in cash. Z acquires his share from X. Following revaluations are also made:
(a) Employees’ Provident Fund liability is to be increased by 5,000.
(b) All Debtors are good.
(c) Stock includes 3,000 for obsolete items.
(d) Creditors are to be paid 1,000 more.
(e) Fixed Assets are to be revalued at 70,000. Prepare Journal entries, necessary accounts and new Balance Sheet. Also, calculate new profit-sharing ratio.
The solution of Question 71 Chapter 5 of +2-A: –
| Revaluation Account |
|||||
| Liabilities |
Amount | Assets | Amount | ||
| To Stock A/c | 3,000 | By Provision for D. Debts A/c | 600 | ||
| To Creditors A/c | 1,000 | ||||
| To Fixed Assets A/c | 10,000 | Loss transferred to | |||
| To Provident Fund A/c | 5,000 | X Capital | 11,500 | ||
| Y Capital | 6,900 | 18,400 | |||
| 19,000 | 19,000 | ||||
| Partners’ Capital Account the year ended 31st March, 2019 |
|||||||
| Particulars | X | Y | C |
Particulars |
X |
Y | z |
| To Revaluation A/c (Loss) | 11,500 | 6,900 | – | By Balance B/d | 70,000 | 31,000 | – |
| To Profit and Los A/c | 1,500 | 900 | By Workmen’s Comp. Fund A/c | 3,625 | 2,175 | – | |
| By Cash A/c | – | – | 20,000 | ||||
| By Premium for Goodwill A/c | 12,000 | – | – | ||||
| To Balance c/d | 72,625 |
25,375 | 20,000 | ||||
| 85,625 | 33,175 | 20,000 | 85,625 | 33,175 | 20,000 | ||
| Balance Sheet |
|||||
| Liabilities |
Amount | Assets | Amount | ||
| Creditors | (15,000 + 1,000) | 16,000 | Land and Building | 5,000 | |
| Provident Fund | (10,000 + 5,000) | 15,000 | Sundry Debtors | 20,000 | |
| Stock | 25,000 | ||||
| -3,000 | 22,000 | ||||
| Capital: | Fixed Asset | 80,000 | |||
| -10,000 | 70,000 | ||||
| X | 72,625 | Cash | 32,000 | ||
| Y | 25,375 | ||||
| Z | 20,000 | 1,18,000 | |||
| 1,49,000 | 1,49,000 | ||||
Working Note:-
Distribution of Revaluation Loss
| X’s Capital will be Debited by | = | 18,400 | X | 5 |
| 8 | ||||
| = | 11,500 |
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| Y’s Capital will be Debited by | = | 18,400 | X | 3 |
| 8 | ||||
| = | 6,900 |
Distribution Accumulated Loss
| X’s Capital will be Debited by | = | 2,400 | X | 5 |
| 8 | ||||
| = | 1,500 |
| Y’s Capital will be Debited by | = | 2,400 | X | 3 |
| 8 | ||||
| = | 900 |
Distribution of Workmen’s Compensation Fund
| X’s Capital will be Debited by | = | 5,800 | X | 5 |
| 8 | ||||
| = | 3,625 |
| Y’s Capital will be Debited by | = | 5,800 | X | 5 |
| 8 | ||||
| = | 2,175 |
Z’s premium for goodwill will be transferred to X’s Capital Account because Z receives his entire share from X
Calculation of New Profit Sharing Ratio
Old Profit Sharing Ratio Between X and Y = 5 : 3
Z acquired 1/8th Share From X
| X’s New Ratio | = | 5 | – | 1 |
| 8 | 8 |
| = | 4 | |
| 8 |
| Y’s New Ratio | = | 3 |
| 8 |
| Z’s New Ratio | = | 1 |
| 8 |
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New Profit sharing Ratio between X ,Y and Z = 4 : 3 : 1
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
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