Question 88 Chapter 5 of +2-A
88. A and B were partners in a firm sharing profits in 3 : 1 ratio. They admitted C as a partner for 1/4th share in the future profits. C was to bring 60,000 for his capital. The Balance Sheet of A and B as at 1st April, 2019, the date on which C was admitted, was:
| Liabilities | Assets | ||||
| Capital A/cs | Land and Building | 40,000 | |||
| A | 50,000 | Plant ad Machinery | 70,000 | ||
| B | 80,000 | 1,30,000 | Stock | 30,000 | |
| General Reserve | 10,000 | Debtors | 35,000 | ||
| Creditors | 70,000 | Less: Provision for Doubtful Debts | 1,000 | 34,000 | |
| Investments | 26,000 | ||||
| Cash | 10,000 | ||||
| 2,10,000 | 2,10,000 |
The other terms agreed upon were:
(a) Goodwill of the firm was valued at 24,000.
(b) Land and Building were valued at 65,000 and Plant and Machinery at 60,000.
(c) Provision for Doubtful Debts was found in excess by 400.
(d) A liability of 1,200 included in Sundry Creditors was not likely to arise.
(e) The capitals of the partners be adjusted on the basis of C’s contribution of capital to the firm. (f) Excess of shortfall, if any, be transferred to Current Accounts. Prepare Revaluation Account, Partners’ Capital Accounts and Balance Sheet of the new firm.
The solution of Question 88 Chapter 5 of +2-A: –
| Revaluation Account |
|||||
| Particular |
Amount | Particular | Amount | ||
| Plant and Machinery | (70,000 – 60,000) | 10,000 | Land and Building | (65,000 – 40,000) | 2,000 |
| Provision for Doubtful | 400 | ||||
| Creditors | 1,200 | ||||
| Profit transferred to | |||||
| A Capital | 12,450 | ||||
| B Capital | 4,150 | 11,700 | |||
| 26,600 | 26,600 | ||||
| Partners’ Capital Account |
|||||||
| Parti culars |
A | B | C |
Partic |
A | B | C |
| To Revaluation A/c | 7,800 | 3,900 | – | By Balance B/d | 50,000 | 80,000 | – |
| By General Reserve | 7,500 | 2,500 | – | ||||
| By Cash | – | – | 60,000 | ||||
| By C’s Current A/c | 4,500 | 1,500 | – | ||||
| To Balance c/d | 74,450 | 88,150 | 40,000 | By Premium for Goodwill | 12,450 | 4,150 | – |
| 74,450 | 88,150 | 40,000 | 74,450 | 88,150 | 40,000 | ||
| To B’s Current A/c | – | 43,150 | – | By Balance B/d | 74,450 | 88,150 | 60,000 |
| By A’s Current A/c | 60,550 | – | – | ||||
| To Balance c/d |
1,35,000 |
45,000 |
60,000 |
||||
| 1,35,000 | 88,150 | 60,000 | 1,35,000 | 88,150 | 60,000 | ||
| Balance Sheet |
|||||
| Liabilities |
Amount | Assets | Amount | ||
| Creditors | (70,000 – 1,200) | 68,800 | Land and Building | 65,000 | |
| B’s Current A/c | 43,150 | Plant and Machinery | 60,000 | ||
| Capital A/cs: | Stock | 30,000 | |||
| A | 1,35,000 | Debtors | 35,000 | ||
| B | 45,000 | Less: Prov. for Bad Debts | 600 | 34,400 | |
| C | 60,000 | 2,40,000 | Investments | 26,000 | |
| Cash | 70,000 | ||||
| A’s Current A/c | 60,550 | ||||
| C’s Current A/c | 6,000 | ||||
| 3,51,950 | 3,51,950 | ||||
Working Note:-
Sacrificing Ratio
Old Ratio of A and B = 3 : 1
Sacrificing Ratio of A and B= 3 : 1
Distribution of Revaluation Loss
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| C’s Share of Goodwill | = | 24,000 | X | 1 |
| 4 | ||||
| = | 6,000 |
| A will get | = | 6,000 | X | 3 |
| 4 | ||||
| = | 4,500 |
| B will get | = | 6,000 | X | 1 |
| 4 | ||||
| = | 1,500 |
As C has not brought his share of goodwill in cash, hence, his share shall be debited to his current account
Distribution of Revaluation Profit
| A will get | = | 16,600 | X | 3 |
| 4 | ||||
| = | 12,450 |
| B will get | = | 16,600 | X | 1 |
| 4 | ||||
| = | 4,150 |
Adjustment of Capitals (in new ratio)
| Total Capital of the firm on the basis of c’s share | = | 40,000 | X | 4 |
| 1 | ||||
| = | 1,60,000 |
| Total Capital of the firm after C’s admission 60,000 × 4 | = | 2,40,000 |
| Less: C’s Capital | = | 60,000 |
| Combined Capital of A and B | = | 1,80,000 |
| A’s Capital Share | = | 1,80,000 | X | 3 |
| 4 | ||||
| = | 1,35,000 |
| B and C Capital Share | = | 1,80,000 | X | 1 |
| 4 | ||||
| = | 45,000 |
| Cash Account |
|||||
| Particulars |
Amount | Particulars | Amount | ||
| Balance b/d | 10,000 | Balance c/d | 70,000 | ||
| C’s Capital | 60,000 | ||||
| 70,000 | 70,000 | ||||
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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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