Question 87 Chapter 5 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Question 87 Chapter 5 of +2-A

Question 87 Chapter 5 of +2-A

87. A and B are in partnership sharing profits and losses in the proportion of 2/3rd and 1/3rd respectively. Their Balance Sheet as at 31st March, 2019 was: Cash 1,000; Sundry Debtors 15,000; Stock 22,000; Plant and Machinery 4,000; Sundry Creditors 2,000; Bank Overdraft 15,000; A’s Capital 15,000; B’s Capital 10,000. On 1st April, 2019 they admitted C into partnership on the following terms:
(a) C to purchase one-quarter of the goodwill for 3,000 and provide 10,000 as capital. C brings in necessary cash for goodwill and capital.
(b) Profits and losses are to be shared in the proportion of one-half to A, one-quarter to B and one quarter to C.
(c) Plant and Machinery is to be reduced by 10% and 500 are to be provided for estimated Bad Debts. Stock is to be taken at a valuation of 24,940.
(d) By bringing in or withdrawing cash the capitals of A and B are to be made proportionate to that of C on their profit-sharing basis. Prepare necessary Ledger Accounts in the books of the firm relating to the above arrangement and submit the opening Balance Sheet of the new firm

 

 

 

The solution of Question 87 Chapter 5 of +2-A: –

Revaluation Account
Particular
Amount Particular Amount
Plant and Machinery (4,000 × 10%) 400 Stock (24,940 – 22,000) 2,940
Provision for Bad Debts   500      
           
           
Profit transferred to          
A Capital 1,360        
B Capital 680 2,040      
    2,940     2,940

 

Partners’ Capital Account
Parti
culars
A B C

Partic
ulars

A B C
        By Balance B/d 15,000 10,000
        By Revaluation 1,360 680
        By Cash 10,000
To Balance c/d 18,360 11,680 10,000 By Premium for Goodwill 2,000 1,000
               
  18,360 11,680 10,000   18,360 11,680 10,000
To Cash A/c 1,680 By Balance B/d 18,360 11,680 10,000
        By Cash 1,640
To Balance c/d
20,000
10,000
10,000
       
  20,000 11,680 40,000   20,000 11,680 10,000



Balance Sheet
Liabilities
Amount Assets Amount
Sundry Creditors   2,000 Cash   13,960
Bank Overdraft   15,000 Stock   24,940
Capital A/cs:     Plant and Machinery   3,600
X 20,000   Debtors 15,000  
Y 10,000   Less: Prov. for Bad Debts 500 14,500
Z 10,000 40,.000 Cash at Bank (15,000 + 96,000 – 18,000) 93,000
    4,14,900     4,14,900

 

Working Note:-

Sacrificing Ratio
Old Ratio of A and B = 2 : 1
New Ratio of A ,B and C = 2 : 1 : 1

A’s Sacrificing Ratio = 2 2
3 4
  = 8 – 6
12
  = 2  
  12
B’s Sacrificing Ratio = 1 1
3 4
  = 4 – 3
12
  = 1
  12

Sacrifice Ratio of A and B = 2 : 1

Distribution of Premium for Goodwill

 

A will get = 3,000 X 2
3
  = 2,000    
B will get = 3,000 X 1
3
  = 1,000    

Distribution of Premium for Goodwill

A will get = 2,040 X 2
3
  = 1,360
   
B will get = 2,040 X 1
3
  = 680
   

Adjustment of Capitals (in new ratio)

Total Capital of the Firm = 10,000 X 4
1
  = 40,000
   

 

A’s Capital Share = 40,000 X 2
4
  = 20,000
   

 

B and C Capital Share = 40,000 X 1
4
  = 10,000
   

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 87 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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