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Question 84 Chapter 5 of +2-A
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84.Following is the Balance Sheet of X and Y as at 31st March, 2019 who are partners in a firm sharing profits and losses in the ratio of 3 : 2 respectively:
| Liabilities | Assets | ||||
| Creditors | 45,000 | Cash at Bank | 15,000 | ||
| General Reserve | 36,000 | Debtors | 60,000 | ||
| Capital A/cs: | Less: Provision for Doubtful Debts | 2,400 | 57,600 | ||
| X | 1,80,000 | Patents | 44,400 | ||
| Y | 90,000 | 2,70,000 | Investments | 24,000 | |
| Current A/cs: | Fixed Assets | 2,16,000 | |||
| X | 30,000 | Goodwill | 30,000 | ||
| Y | 6,000 | 36,000 | |||
| 3,87,000 | 3,87,000 |
Z is admitted as a new partner on 1st April, 2019 on the following terms:
(a) Provision for doubtful debts is to be maintained at 5% on Debtors.
(b) Outstanding rent amounted to 15,000.
(c) An accrued income of 4,500 does not appear in the books of the firm. It is now to be recorded.
(d) X takes over the Investments at an agreed value of 18,000
.(e) New Profit-sharing Ratio of partners will be 4 : 3 : 2.
(f) Z will bring in 60,000 as his capital by cheque.
(g) Z is to pay an amount equal to his share in firm’s goodwill valued at twice the average profit of the last three years which were 90,000; 78,000 and 75,000 respectively.
(h) Half of the amount of goodwill is to be withdrawn by X and Y. You are required to pass Journal entries, prepare Revaluation Account, Partners’ Capital and Current Accounts and the Balance Sheet of the new firm.
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The solution of Question 84 Chapter 5 of +2-A: –
| Revaluation Account | |||||
| Particular | Amount | Particular | Amount | ||
| Prov. for D. Debts | 600 | Accrued Income | 4,500 | ||
| Outstanding Rent | 15,000 | ||||
| Investment | 6,000 | ||||
| Loss transferred to | |||||
| X’s Current A/c | 10,260 | ||||
| Y’s Current A/c | 6,840 | 17,100 | |||
| 21,600 | 21,600 | ||||
| Partners’ Capital Account | |||||||
| Parti culars | X | Y | Z | Partic | X | Y | Z |
| By Balance B/d | 1,80,000 | 90,000 | – | ||||
| By Bank A/c A/c | – | – | 60,000 | ||||
| To Balance c/d | 1,80,000 | 90,000 | 60,000 | ||||
| 1,80,000 | 90,000 | 60,000 | 30,000 | 90,000 | 60,000 | ||
| Partners’ Capital Account | |||||||
| Parti culars | X | Y | Z | Partic | X | Y | Z |
| To Revaluation A/c | 10,260 | 6,840 | – | By Balance B/d | 30,000 | 6,000 | – |
| To Goodwill A/c | 18,000 | 12,000 | – | By General Reserve | 21,600 | 14,400 | |
| To Bank A/c | 12,600 | 5,400 | – | By Premium for Goodwill | 25,200 | 10,800 | |
| To Investments A/c | 18,000 | – | – | ||||
| To Balance c/d | 17,940 | 6,960 | – | – | |||
| 76,800 | 31,200 | – | 76,800 | 31,200 | – | ||
| Balance Sheet | |||||
| Liabilities | Amount | Assets | Amount | ||
| Creditors | 45,000 | Patents | 44,400 | ||
| Outstanding Rent | 15,000 | Fixed Assets | 2,16,000 | ||
| Capital A/cs: | Accrued Income | 4,500 | |||
| X | Debtors | 60,000 | |||
| Y | 1,80,000 | Less: 5% Reserve for D. Debts | 3,000 | 57,000 | |
| Z | 90,000 | Cash at Bank | (15,000 + 96,000 – 18,000) | 93,000 | |
| C | 60,000 | 3,30,000 | |||
| Current A/cs: | |||||
| X | 17,940 | ||||
| Y | 6,960 | 24,900 | |||
| 4,14,900 | 4,14,900 | ||||
| Date | Particulars | L.F. | Debit | Credit | |
| Cash A/c | Dr | 96,000 | |||
| To Z’s Capital | 60,000 | ||||
| To Premium for Goodwill A/c | 36,000 | ||||
| (Z brought Capital and share of goodwill) | |||||
| Premium for Goodwill A/c | Dr | 36,000 | |||
| To X’s Current A/c | 25,200 | ||||
| To Y’s Current A/c | 10,800 | ||||
| (Premium for Goodwill transferred to partners current account in sacrificing ratio i.e. 7:3) | |||||
| X’s Current A/c | Dr | 12,600 | |||
| Y’s Current A/c | Dr | 5,400 | |||
| To Bank A/c | 18,000 | ||||
| (Half of goodwill withdrawn by partners) | |||||
Working Note:-
Calculation of Z’s Share of Premium for Goodwill
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| Average Profit | = | 90,000+78,000+75,000/3 |
| = | Rs 81,000 | |
| Firm’s Goodwill | = | 81,000×2 |
| = | Rs 1,62,000 | |
| Z’s share | = | 1,62,000×2/9 |
| = | Rs 36,000 |
Calculation of Sacrificing Ratio
Sacrificing Ratio=Old Ratio-New
| X’s Sacrificing Ratio | = | 3 | – | 4 |
| 5 | 9 |
| = | 27 – 20 | |
| 45 |
| = | 7 | ||
| 45 |
| Y’s Sacrificing Ratio | = | 2 | – | 4 |
| 5 | 9 |
| = | 18 – 15 | |
| 45 |
| = | 3 | |
| 45 |
Sacrificing Ratio of X and Y= 7 : 3
Calculation of Share of Premium of Goodwill
Distribution of Premium for Goodwill
| X will get | = | 36,000 | X | 7 |
| 10 | ||||
| = | 25,200 |
| Y will get | = | 36,000 | X | 3 |
| 10 | ||||
| = | 10,800 |
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Valuation of Goodwill
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| X will get | = | 17,100 | X | 3 |
| 5 | ||||
| = | 10,260 |
| Y will get | = | 17,100 | X | 2 |
| 5 | ||||
| = | 6,840 |
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
Check out T.S. Grewal +2 Book 2020@ Official Website of Sultan Chand Publication
