Question 86 Chapter 5 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Question 86 Chapter 5 of +2-A

Question 86 Chapter 5 of +2-A

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
75,000   Investments 8,000
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(b) Z brings in 15,000 for goodwill, half of which is withdrawn by old partners.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  (Half of the Premium for Goodwill withdrawn by X and Y)        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)        

 

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

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    

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)

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 86 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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