Question 73 Chapter 5 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Question 73 Chapter 5 of +2-A

Question 73 Chapter 5 of +2-A

73. Rajesh and Ravi are partners sharing profits in the ratio of 3 : 2. Their Balance Sheet at 31st March, 2019 stood as:

Liabilities     Assets    
Creditors   38,500 Cash   2,000
Outstanding Ren   4,000 Stock   15,000
Capital A/cs     Prepaid Insurance   1,500
Rajesh 29,000   Debtors 9,400  
Ravi 15,000 34,000 Less : Provision for Doubtful Debts 400 9,000
      Machinery   19,000
      Building   35,000
      Furniture   5,000
    86,500     86,500

Raman is admitted as a new partner introducing a capital of 16,000. The new profit-sharing ratio is decided as 5 : 3 : 2. Raman is unable to bring in any cash for goodwill. So, it is decided to value the goodwill on the basis of Raman’s share in the profits and the capital contributed by him. Following revaluations are made:
(a) Stock to decrease by 5%;
(b) Provision for Doubtful Debts is to be 500;
(c) Furniture to decrease by 10%;
(d) Building is valued at 40,000. Show necessary Ledger Accounts and Balance Sheet of new firm.

 

The solution of Question 73 Chapter 5 of +2-A: –

Revaluation Account
Liabilities
Amount Assets Amount
To Stock A/c   3,000 By Building A/c   5,000
To Provision for D. Debts A/c 500        
Less: Old Provision 400 100      
To Furniture A/c   500      
Profit on Revaluation transferred to         18,400
Rajesh Capital 2,190        
Ravi Capital 1,460 3,650      
    5,000     5,000

 

Partners’ Capital Account
the year ended 31st March, 2019

Parti
culars
Rajesh Ravi Rama

Partic
ulars

Rajesh
Ravi Rama
      By Balance B/d 29,000 15,000
        By Bank A/c A/c 16,000
To Balance c/d 31,190 16,460 16,000 By Reevaluation A/c 2,190 1,460
  31,190 16,460 16,000   31,190 16,460 16,000
To Rajesh’s Capital A/c 1,635 By Balance c/d A/c 31,190 16,460 16,000
To Raman’s Capital A/c 1,635 By Raman’s Capital A/c 1,635 1,635
To Balance c/d 32,825
18,095 12,730        
  32,825 18,095 16,000   32,825 18,095 16,000

 

 

Balance Sheet
Liabilities
Amount Assets Amount
Creditors   11,200 Cash (2,000 + 16,000) 18,000
Outstanding Rent   3,000 Stock (15,000 – 750) 14,250
      Prepaid Insurance   1,500
Capital:     Debtors 9,400  
Rajesh 32,825   Less : Provision for D.D 500 8,900
Ravi 18,095   Building (35,000 + 5,000) 40,000
Raman 12,730 63,730 Furniture (5,000 – 500) 4,500
    1,06,150     1,06,150

Working Note:-

Calculation of Sacrificing Ratio
Old Ratio of Rajesh and Ravi = 3 : 2
New Ratio of Rajesh, Ravi and Raman = 5 : 3 : 2

Sacrificing Ratio = Old Ratio − New Ratio

Rajesh’s New Ratio = 3 5
5 10
  = 6 – 5
10
  = 1
  10

 

Ravi’s New Ratio = 2 3
5 10
  = 4 – 3
10
  = 1
  10

Sacrificing Ratio = 1 : 1

Calculation of Goodwill

Actual Capital of all Partners before adjustment of goodwill = Rajesh’s Capital + Ravi’s Capital + Raman’s Capital
  = 31,190 + 16,460 + 16,000
Goodwill = Rs 63,650

Calculation of Raman’s share of goodwill

Capitalized value on the basis of Raman’s share = 16,000 X 10
2
  = 80,000
   

Calculation of Goodwill

Goodwill of the Firm = Capitalised value of the firm- Actual Capital of the all partner before adjustement of goodwill
  = 80,000 – 63,650
Goodwill = 16,350

 

Raman’s share of Goodwill = 16,350 X 2
10
  = 3,270
   

Adjustment of Raman’s share of goodwill

Rajesh and Ravi each Capital Accounts will be credited by = 3,270 X 1
2
  = 1,635
   

 

Date Particulars
L.F. Debit Credit
  Raman’s Capital A/c Dr   3,270  
  To Rajesh’s Capital A/c       1,635
  To Ravi’s Capital A/c       1,635
  (Raman’s share of goodwill adjusted)
cash)
       

 

Distribution of Profit on Revaluation (in old ratio)

Rajesh will get = 3,650 X 3
5
  = 2,190
   

 

Ravi will get = 3,650 X 2
5
  = 1,460
   

 

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 73 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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