Question 73 Chapter 5 - Unimax Class 12 Part 1

Question 73 Chapter 5 – Unimax Class 12 Part 1 – 2021

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The solution of Question 73 Chapter 5 – Unimax Class 12 Part 1: –

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

73. A and B are partners sharing Profits and Losses in 3 : 2. They admit C as a new partner from 1st April, 2021. A gives 1/3rd of his share while B gives 1/4th of his share. The Balance Sheet as at 31st March, 2021 is given below :

Liabilities	Amount	Assets	Amount
A’s Capital	17,600	Goodwill	1000
B’s Capital	25,400	Land and Building	6000
Workmen compensation fund	2,000	Investments (Market value 4500)	5000
Investment Fluctuation fund	1,000	Debtors	30000
Employees Provident fund	1,000	Stock	16000
Provision for doubtful debtors	1,000	Cash	19,000
C’s loan	30,000	Advertisement Suspense a/c	1000


	78,000		78,000

Terms of C’s admission as follows :

C’s loan will be converted into his capital. C brings in 60% of his share goodwill in cash.
Goodwill is to be valued at 2 years’ purchase of Super Profits based on average profits of last three complete years. The profits were :

2018-2019 Rs. 45,000

2019-2020 Rs. 90,000

2020-2021 Rs. 13,5000

The normal profits are Rs. 60000. No goodwill is to appear in the books of firm. 40% of C’s share of goodwill be adjusted through a newly opened current account in his name.
Land and Building was found undervalued by Rs. 10000.
Stock was found overvalued by Rs. 6000.
Provision for doubtful debts is to be made equal to 5% of the debtors.
Claim on account of workmen compensation is Rs. 1000.
Capital accounts of partners be re-adjusted on the basis of their profit sharing ratio and any excess or deficiency be adjusted in cash. (C’s Capital should be taken as base.)

You are required to prepare Revaluation Account, Partner’s Capital Accounts and Balance Sheet.

The solution of Question 73 Chapter 5 – Unimax Class 12 Part 1: –

Revaluation A/c

Particulars		Rs.	Particulars	Rs.
To Stock a/c		6000	By Land and Building a/c	10,000
To Provision for bad debts a/c		500
To Profit on revaluation
A (3 : 2)	2100
B	1400	3500


		10,000		10,000

Capital Accounts

Particulars	A	B	C	Particulars	A	B	C
To goodwill a/c	600	400	1,635	By Balance b/d	17600	25400	–
To advertisement suspense a/c	600	400	1,635	By Workers comp.	600	400	–
To Balance c/d	40000	30000	30000	By Profit on rev.	2100	1400	–
To Cash a/c	–	2600	–	By Cash a/c	8600	–	–
				By Invt. Fluctuation fund a/c	300	200	–
				By C’s loan	–	–	30000
				By Premium a/c (10800) (60%)	7200	3600	–
				By C’s Current a/c (7200) (40%)	4800	2400	–

	41200	33400	30000		41200	33400	30000

Balance Sheet

Liabilities		Rs.	Assets	Rs.
Workers comp. fund Investment		1000	Land and Building	16000
Capital Accounts			Debtors	30000
A	40000		Stock	10000
B	30000		Cash (19000 + 8600 + 10800 – 2600)	35800
C	30000	100000	Investments	4500
Provision for bad debts (1000 + 500)		1500	C’s current a/c	7200
Employees Provident fund		1000

		1,03,500		1,03,500

Working Note:

(A) Calculation of new PSR :
A’s new share = 3/5 – (1/3 X 3/5) = 3/5 – 1/5 = 2/5
Old Share – Sacrifice
B’s new share = 2/5 – (1/4 X 2/5) = 2/5 – 1/10 = 3/10
C’s share = 1/5 + 1/10 = 3/10
New PSR = 4 : 3 : 3
(B) Sacrificing Ratio :
A’s sacrifice = 1/3 X 3/5 = 3/15
B’s sacrifice = 1/4 X 2/5 = 1/10
S.R. = 2 : 1
(C) Calculation of Goodwill :
Average Profits = (45000 + 90000 + 135000)/3
Super Profits = Average profits – Normal profits
= 90000 – 60000 = Rs. 30000
Total goodwill of firm = 30000 X 2 = Rs. 60000
C’s share = 3/10 X 60000 = Rs. 18000
(D) Calculation of Capitals :
Total capital of firm = 30000 X 10/3 = Rs. 100000
A’s req. capital = 4/10 X 100000 = Rs. 40000
B’s req. capital = 3/10 X 100000 = Rs. 30000