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Question 83 Chapter 5 of +2-A
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83. Balance Sheet of Ram and Shyam who shares profits in the ratio of their capitals as at 31st March, 2019 is:
| Liabilities | Assets | |||
| Capital A/cs: | Freehold Premises | 20,000 | ||
| Ram | 30,000 | Plant and Machinery | 13,500 | |
| Shyam | 25,000 | 55,000 | Fixtures and Fittings | 1,750 |
| Current A/cs: | Vehicles | 1,350 | ||
| Ram | 2,000 | Stock | 14,100 | |
| Shyam | 1,800 | 3,800 | Bills Receivable | 13,060 |
| Creditors | 19,000 | Debtors | 27,500 | |
| Bills Payable | 16,000 | Bank | 1,590 | |
| Cash | 950 | |||
| 93,800 | 93,800 |
On 1st April, 2019, they admitted Arjun into partnership on the following terms:
(a) Arjun to bring 20,000 as capital and 6,600 for goodwill, which is to be left in the business and he is to receive 1/4th share of the profits.
(b) Provision for Doubtful Debts is to be 2% on Debtors.
(c) Value of Stock to be written down by 5% .
(d) Freehold Premises are to be taken at a value of 22,400; Plant and Machinery 11,800; Fixtures and Fittings 1,540 and Vehicles 800. You are required to make necessary adjustments entries in the firm, give
Balance Sheet of the new firm as at 1st April, 2019 and also determine the ratio in which the partners will share profits, there being no change in the ratio of Ram and Shyam.
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The solution of Question 83 Chapter 5 of +2-A: –
| Revaluation Account | |||||
| Particular | Amount | Particular | Amount | ||
| Reserve for D. Debts | (27,500 × 2%) | 550 | Free hold Premises | (22,400 – 20,000) | 2,400 |
| Stock | 705 | ||||
| Plant and Machinery | (13,500 – 11,800) | 1,700 | |||
| Fixture and Fittings | 210 | ||||
| Vehicles | 550 | Loss transferred to | |||
| Ram’s Current | 717 | ||||
| Shyam’s Current | 598 | 1,315 | |||
| 25,000 | 25,000 | ||||
| Partners’ Capital Account | |||||||
| Parti culars | Ram | Shyam | Arjun | Partic | Ram | Shyam | Arjun |
| By Balance B/d | 30,000 | 25,000 | – | ||||
| By Bank A/c A/c | – | – | 20,000 | ||||
| To Balance c/d | 30,000 | 25,000 | 20,000 | ||||
| 30,000 | 25,000 | 20,000 | 30,000 | 25,000 | 20,000 | ||
| Partners’ Capital Account | |||||||
| Parti culars | Ram | Shyam | Arjun | Partic | Ram | Shyam | Arjun |
| To Revaluation A/c | 717 | 598 | – | By Balance B/d | 2,000 | 1,800 | – |
| To Balance c/d | 4,883 | 4,202 | – | By Premium for Goodwill | 3,600 | 3,000 | – |
| 5,600 | 4,800 | – | 5,600 | 4,800 | – | ||
| Balance Sheet | |||||
| Liabilities | Amount | Assets | Amount | ||
| Creditors | 19,000 | Freehold Premises | 1,200 | ||
| Bills Payable | 16,000 | Plant and Machinery | 11,800 | ||
| Capital A/cs: | Fixture and Fittings | 1,540 | |||
| Ram | Debtors | 27,500 | |||
| Shyam | 30,000 | Less: 2% Reserve for D. Debts | 550 | 26,950 | |
| Arjun | 25,000 | Stock | (14,100 – 705) | 13,395 | |
| C | 20,000 | 1,00,700 | Bills Receivables | 13,060 | |
| Current A/cs: | Bank | 1,590 | |||
| Ram | 4,883 | Cash | (950 + 20,000 + 6,600) | 27,550 | |
| Shyam | 4,202 | 9,085 | Vehicles | 800 | |
| 1,19,085 | 1,19,085 | ||||
| Date | Particulars | L.F. | Debit | Credit | |
| Cash A/c | Dr | 26,600 | |||
| To Arjun’s Capital | 20,000 | ||||
| To Premium for Goodwill A/c | 6,600 | ||||
| (Arjun brought Capital and share of goodwill) | |||||
| Premium for Goodwill A/c | Dr | 6,600 | |||
| To Ram’s Current A/c | 3,600 | ||||
| To Shyam’s Current A/c | 3 ,000 | ||||
| (Premium for Goodwill transferred to partners current account in sacrificing ratio i.e. 6:5) | |||||
Working Note:-
Calculation of Sacrificing Ratio
Old Ratio of Ram and Shyam = 3 : 2
Arjun admitted for 1/4 share of profit
Remaining share of A and B after C’s Admission = Total Share – Arjun’s Share
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| Remaining share | = | 1 | – | 1 |
| 4 |
| = | 4 – 1 | |
| 4 |
| = | 3 | ||
| 4 |
New Ratio = Old Ratio − Combined share of Ram and Shyam
New Ratio = Combined share of A and B x Old Ratio
| Ram’s Sacrificing Ratio | = | 6 | X | 3 |
| 11 | 4 |
| = | 18 | |
| 44 |
| Shyam’s Sacrificing Ratio | = | 5 | X | 3 |
| 11 | 4 |
| = | 15 | |
| 44 |
| New Profit sharing Ratio between ram, Shyam and Arjun | = | 18 | : | 15 | : | 1 |
| 44 | 44 | 4 |
| = | 18 : 15 : 11 | |
| 44 |
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Distribution of Premium for Goodwill
| Ram will get | = | 6,600 | X | 6 |
| 11 | ||||
| = | 3,600 |
| Shyam will get | = | 6,600 | X | 5 |
| 11 | ||||
| = | 3,000 |
Valuation of Goodwill
| Ram will get | = | 1,315 | X | 2 |
| 10 | ||||
| = | 717 |
| Shyam will get | = | 1,315 | X | 1 |
| 2 | ||||
| = | 589 |
T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)
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- 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
Check out T.S. Grewal +2 Book 2020@ Official Website of Sultan Chand Publication
