Question 96 Chapter 5 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Question 96 Chapter 5 of +2-A

Question 96 Chapter 5 of +2-A

96. L, M and N were partners in a firm sharing profits in the ratio of 3 : 2 : 1. Their Balance Sheet on 31st March, 2015 was as follows:

Liabilities     Assets  
Creditors   1,68,000 Bank 34,000
General Reserve   42,000 Debtors 46,000
Capital’s A/c     Stock 2,20,000
L 1,20,000   Investment 60,000
M 80,000   Furniture 20,000
N 40,000 2,40,00 Machinery 70,000
    4,50,000   4,50,000

On the above date, O was admitted as a new partner and it was decided that:
(i) The new profit-sharing ratio between L, M, N and O will be 2 : 2 : 1 : 1.
(ii) Goodwill of the firm was valued at 1,80,000 and O brought his share of goodwill premium in cash.
(iii) The market value of investments was 36,000.
(iv) Machinery will be reduced to 58,000.
(v) A creditor of 6,000 was not likely to claim the amount and hence was to be written off.
(vi) O will bring proportionate capital so as to give him 1/6th share in the profits of the firm.
Prepare Revaluation Account, Partners’ Capital Accounts and the Balance Sheet of the new firm.

 

 

 

The solution of Question 96 Chapter 5 of +2-A: –

Revaluation Account
Particular
Amount Particular Amount
To Investments A/c   24,000 By Creditors A/c   6,000
To Machinery A/c   12,000      
      Loss on Revaluation    
      L’s Capital 15,000  
      M’s Capital 10,000  
      N’s Capital 5,000 30,000
    36,000     36,000

 

Partners’ Capital Account
Particulars L M N O
To Loss on Revaluation A/c 15,000 10,000 5,000  
         
         
         
To Balance c/d 1,56,000 84,000 42,000 56,400
  1,71,000 94,000 47,000 56,400

 

Particulars

L M N O
By Balance B/d 1,20,000 80,000 40,000  
By Bank A/c (WN2) 56,400
By Premium for Goodwill A/c 30,000
By General Reserve A/c 21,000 14,000 7,000
         
  1,71,000 94,000 47,000 56,400

 

 

Balance Sheet
Liabilities
Amount Assets Amount
Creditors   1,62,000 Bank (34,000+56,400+30,000) 1,20,400
      Debtors   46,000
      Stock   2,20,000
Capital A/cs:     Investments   36,000
L 1,56,000   Furniture   20,000
M 84,000   Machinery   58,000
N 42,000        
O 56,400 3,38,400      
    5,00,400     5,00,400

 

Working Note:-

Calculation of Sacrificing Ratio
Sacrificing Ratio = Old Ratio – New Ratio

L’s Sacrificing Ratio = 3 2
6 6
  = 3 – 2
6
  = 1
  6

 

M’s Sacrificing Ratio = 2 2
6 6
  = 2 – 2
6
  = 0
  6

 

N’s Sacrificing Ratio = 1 1
6 6
  = 1 – 1
6
  = 0
  6

Adjustment of Goodwill

O’s Share of Goodwill = 1,80,000 X 1
6
  = 30,000    

30,000 will be credited to L’s Capital A/c, as he is the only sacrificing Partner

 

Calculation of O’s Proportionate Capital

Adjustment of Old Capital of L = 1,20,000 + 21,000 + 30,000 – 15,000
  = 1,56,000
Adjustment of Old Capital of M = 80,000 + 14,000 – 10,000
  = 84,000
Adjustment of Old Capital of N = 40,000 + 7,000 – 5,000
  = 72,000
Total Adjustment Capital = 1,56,000 + 84,000 + 72,000
  = 2,82,000


O’s Proportionate Capital = Total Adjusted Capital X O’s Profit Share X Reciprocal of combined new Share of Old Partner

O’s Share of Goodwill = 2,82,000 x 1 x 5
6 5
  = 56,400        

 

 

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 96 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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