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 |
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)
- 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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