Question 88 Chapter 5 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Question 88 Chapter 5 of +2-A

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
ulars

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

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

 

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 88 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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