Question 86 Chapter 5 of +2-A - T.S. Grewal 12 Class Part

Question 86 Chapter 5 of +2-A

Table of Contents

The solution of Question 86 Chapter 5 of +2-A: –

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

86. X and Y are partners sharing profits in the ratio of 2 : 1. Their Balance Sheet as at 31st March, 2019 was:

Liabilities			Assets
Sundry Creditors		25,000	Cash/Bank	5,000
General Reserve		18,000	Sundry Debtors	15,000
Capital A/cs:			Stock	10,000
X	75,000		Investments	8,000
Y	62,000	1,37,000	Printer	5,000
		1,80,000		1,80,000

They admit Z into partnership on the same date on the following terms:
(a) Z brings in 40,000 as his capital and he is given 1/4th share in profits.
(b) Z brings in 15,000 for goodwill, half of which is withdrawn by old partners.
(c) Investments are valued at 10,000. X takes over Investments at this value. (d) Printer is to be reduced (depreciated) by 20% and Fixed Assets by 10%. (e) An unrecorded stock of Stationery on 31st March, 2019 is 1,000.
(f) By bringing in or withdrawing cash, the Capitals of X and Y are to be made proportionate to that of Z on their profit-sharing basis. Pass Journal entries, prepare Revaluation Account, Capital Accounts and new Balance Sheet of the firm.

The solution of Question 86 Chapter 5 of +2-A: –

Date	Particulars		L.F.	Debit	Credit
	Revaluation A/c	Dr		14,700
	To Typewriter A/c				1,000
	To Fixed Assets A/c				13,700
	(Decrease in value of typewriter and fixed assets transferred to Revaluation Account)
	Stationery A/c	Dr		1,000
	Investment A/c	Dr		2,000
	To Revaluation A/c				3,000
	(Increase in stationery and investment transferred to Revaluation Account)
	X’s Current A/c	Dr		7,800
	Y’s Current A/c	Dr		3,900
	To Revaluation A/c				11,700
	(Revaluation loss transferred to X and Y’s Capital Account in their old ratio)
	Reserve Fund A/c	Dr		18,000
	To X’s Capital A/c				12,000
	To Y’s Capital A/c				6,000
	(Reserve Fund distributed)
	Cash A/c	Dr		55,000
	To Investment A/c				40,000
	To Revaluation A/c				15,000
	(Z brought capital and share of goodwill)
	Premium for Goodwill A/c	Dr		15,000
	To X’s Capital A/c				10,000
	To Y’s Capital A/c				5,000
	(Premium for Goodwill distributed between X and Y in their sacrificing ratio i.e 2:1)
	X’s Capital A/c	Dr		5,000
	Y’s Capital A/c	Dr		2,500
	To Cash				7,500
	(Half of the Premium for Goodwill withdrawn by X and Y)
	X’s Capital A/c	Dr		10,000
	To Investments A/c				10,000
	(X took over the Investment)
	Cash A/c	Dr		4,800
	To X’s Capital A/c				4,800
	(X’ brought cash to make up deficiency in capital)
	Y’s Capital A/c	Dr		26,600
	To Cash A/c				26,600
	Y withdrew excess capital after all adjustments)

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Revaluation Account
Particular		Amount	Particular		Amount
Typewriter	(5,000 × 20%	1,000	Investment		2,000
Fixed Assets	(1,37,000 × 10%)	13,700	Stationery		1,000

			Loss transferred to
			X’s Current A/c	7,800
			Y’s Current A/c	3,900	11,700
		14,700			14,700

Partners’ Capital Account
Parti culars	X	Y	Z	Partic ulars	X	Y	Z
To Revaluation A/c	7,800	3,900	–	By Balance B/d	75,000	62,000	–
To Investment A/c	10,000	–	–	By Reserve Fund	12,000	6,000	–
To Cash A/c	5,000	2,500	–	By Cash	–	–	40,000
To Balance c/d	74,200	66,600	40,000	By Premium for Goodwill	10,000	5,000	–

	97,000	73,000	40,000		97,000	73,000	40,000
				By Balance B/d	74,200	66,600	40,000
				By Cash	5,800	–	–
To Balance c/d	80,000	66,600	40,000
	80,000	66,600	40,000		80,000	66,600	40,000

Balance Sheet
Liabilities		Amount	Assets		Amount
Sundry Creditors		25,000	Cash		31,700
Outstanding Rent		15,000	Sundry Debtors		15,000
Capital A/cs:			Stock		10,000
X			Stationery		1,000
Y	80,000		Typewriter	(5,000 – 1,000)	4,000
Z	40,000		Fixed Assets	(1,37,000 – 13,700)	1,23,300
C	40,000	1,60,000
		1,85,000			1,85,000

Working Note:-
Sacrificing Ratio
Old Ratio of X and Y= 2 : 1
Sacrificing Ratio of X and Y = 2 : 1

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Distribution of Revaluation Loss

Revolution loss transfer to X’s Capital	=	11,700	X	2
				3
	=	7,800

Revolution loss transfer to Y’s Capital	=	11,700	X	1
				3
	=	3,900

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Distribution of Premium for Goodwill

X will get	=	15,000	X	2
				3
	=	10,000

Y will get	=	15,000	X	1
				3
	=	5,000

Adjustment of Capital

Total Capital of the firm on the basis of Z’s share	=	40,000	X	4
				1
	=	1,60,000

Total Capital of the firm	=	1,60,000
Less: Z’s Capital	=	40,000
Combined Capital of X and Y	=	1,20,000

X’s Capital Share	=	1,20,000	X	2
				3
	=	80,000

Y’s Capital Share	=	1,20,000	X	1
				3
	=	40,000

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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