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Question
A, B and C who are presently sharing profits and losses in the ratio of 5 : 3 : 2 decide to share future profits and losses in the ratio of 2 : 3 : 5. Give the journal entry to distribute 'Investments Fluctuation Reserve' of ₹ 20,000 at the time of change in profit-sharing ratio, when investment (market value ₹ 95,000) appears in the books at ₹ 1,00,000.
Solution
Journal
|
Date |
Particulars |
L.F. |
Debit Amount (Rs) |
Credit Amount (Rs) |
|
|
|
Investment Fluctuation Reserve A/c |
Dr. |
|
5,000 |
|
|
|
To Investments A/c |
|
|
5,000 |
|
|
|
(Adjustment for decrease in the value of investments) |
|
|
|
|
|
|
Investment Fluctuation Reserve A/c |
Dr. |
|
15,000 |
|
|
|
To A’s Capital A/c |
|
|
|
7,500 |
|
|
To B’s Capital A/c |
|
|
|
4,500 |
|
|
To C’s Capital A/c |
|
|
|
3,000 |
|
|
(Adjustment of balance in Investment Fluctuation Reserve A/c in old ratio) |
|
|
||
Working Notes:
WN1 Calculation of Share of Investment Fluctuation Reserve
A's share = `15,000 xx 5/10 = 7,500`
B's share = `15,000 xx 3/10 = 4,500`
C's share = `15,000 xx 2/10 = 3,000`
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Assets | Amount (₹) |
|
| Trade Creditors | 30,000 | Cash in Hand | 15,000 | |
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
| Bills Payable |
12,000 |
Freehold Premises | 40,000 | ||
| Sundry Creditors | 28,000 | Machinery | 30,000 | ||
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|
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|
1,30,000 |
1,30,000 |
||||
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
| Creditors |
30,000 |
Cash in Hand | 18,000 | ||
| Bills Payable |
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Debtors |
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|
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12,000 |
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22,000 |
|
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| A |
40,000 |
|
Furniture | 30,000 | |
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| C |
30,000 |
1,10,000 |
Goodwill |
10,000 |
|
|
1,68,000 |
1,68,000 |
||||
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| Capital A/cs: | Building | 18,00,000 | ||
| A | 11,00,000 | Investments | 4,00,000 | |
| B | 11,40,000 | Stock | 6,00,000 | |
| C | 7,60,000 | 30,00,000 | Debtors | 10,00,000 |
| Workmen Compensation Reserve | 10,00,000 | Cash and Bank | 6,00,000 | |
| Creditors | 2,00,000 | |||
| Employees' Provident Fund | 2,00,000 | |||
| 44,00,000 | 44,00,000 | |||
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
|
Sundry Creditors |
2,50,000 |
Building |
2,60,000 |
||
|
Reserve Fund |
2,00,000 |
Investment |
1,10,000 |
||
| Capital A/cs: | Qureshi's Loan | 1,00,000 | |||
| Pooja | 1,50,000 | Debtors | 1,50,000 | ||
| Qureshi | 1,00,000 | 3,50,000 | Stock | 1,20,000 | |
| Ross | 1,00,000 | Cash | 60,000 | ||
|
8,00,000 |
8,00,000 |
||||
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| Liabilities | ₹ | Assets | ₹ | ||
| Capital A/cs: | Buildings | 2,00,000 | |||
| Virad | 3,00,000 | Machinery | 3,00,000 | ||
| Vishad | 2,50,000 | Patents | 1,10,000 | ||
| Roma | 1,50,000 | 7,00,000 | Stock | 1,00,000 | |
| Reserve Fund | 60,000 | Debtors | 80,000 | ||
| Creditors | 1,10,000 | Cash | 80,000 | ||
| 8,70,000 | 8,70,000 | ||||
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(i) Goodwill of the firm be valued at 212 years purchase of average profits for the last three years. The average profits were ₹ 1,50,000.
(ii) Interest on capital be provided at 10% p.a.
(iii) Profits for the 2013-14 be taken as having accrued at the same rate as that of the previous year which was ₹ 1,50,000.
Prepare Virad's Capital Account to be presented to his Executors as on 1st October, 2013.
A, B and C are partners in a firm sharing profits in the proportion of 3 : 2 : 1. Their Balance Sheet as at 31st March, 2018 stood as follows:
|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
|
Sundry Creditors |
2,70,000 |
Cash in Hand |
42,500 |
||
|
General Reserve |
1,20,000 |
Cash at Bank |
2,14,500 |
||
|
Capital A/cs: |
Debtors | 1,63,000 | |||
| A |
2,00,000 |
Stock | 17,500 | ||
| B | 1,20,000 | Investment | 1,32,500 | ||
| C |
80,000 |
4,00,000 |
Building | 2,10,000 | |
| B's Loan | 10,000 | ||||
|
7,90,000 |
7,90,000 |
||||
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(a) The capital to his credit at the time of his death and interest thereon @ 10% per annum.
(b) His proportionate share of General Reserve.
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(d) Goodwill according to his share of profit to be calculated by taking twice the amount of profits of the last three years less 20%. The profit of the previous three years were: 1st Year: ₹ 82,000; 2nd year: ₹ 90,000; 3rd year ₹ 98,000.
(e) The investments were sold at par and his executors were paid out in full.
Prepare B's Capital Account and his Executors' Account.
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(a) Interest on capital will be calculated at the rate of 6% p.a.
(b) The executor of deceased partner shall be paid ₹ 24,000 for his share of goodwill.
(c) His share of Reserve Fund of ₹ 12,000, shall be paid to his executor.
(d) His share of profit till the date of death will be calculated on the basis of sales. It is also specified that the sales during the year 2011-12 were ₹ 4,00,000. The sales from 1st April, 2012 to 30th September, 2012 were ₹ 1,20,000. The profit of the firm for the year ending 31st March, 2012 was ₹ 2,00,000.
Prepare Chetan's Capital Account to be presented to his executor.
Akhil, Nikhil and Sunil were partners sharing profits and losses equally. Following was their Balance Sheet as at 31st March, 2018:
|
Liabilities |
₹ |
Assets |
₹ |
||
|
Trade Creditors |
40,000 |
Building |
2,00,000 |
||
|
General Reserve |
45,000 |
Plant and Machinery |
80,000 |
||
|
Capital A/cs: |
Stock | 35,000 | |||
| Akhil |
1,95,000 |
Debtors | 80,000 | ||
| Nikhil | 1,20,000 | Cash at Bank | 85,000 | ||
| Sunil |
80,000 |
3,95,000 |
|||
|
4,80,000 |
4,80,000 |
||||
Sunil died on 1st August, 2018. The Partnership Deed provided that the executor of a deceased partner was entitled to:
(a) Balance of Partners' Capital Account and his share of accumulated reserve.
(b) Share of profits from the closure of the last accounting year till the date of death on the basis of the profit of the preceding completed year before death.
(c) Share of goodwill calculated on the basis of three times the average profit of the last four years.
(d) Interest on deceased partner's capital @ 6% p.a.
(e) ₹ 50,000 to be paid to deceased's executor immediately and the balance to remain in his Loan Account.
Profits and Losses for the preceding years were: 2014-15 − ₹ 80,000 Profit; 2015-16 − ₹ 1,00,000 Loss; 2016-17 − ₹ 1,20,000 Profit; 2017-18 − ₹ 1,80,000 Profit.
Pass necessary Journal entries and prepare Sunil's Capital Account and Sunil's Executor Account.
The Balance Sheet of X, Y and Z as at 31st March, 2018 was:
|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
|
Bills Payable |
2,000 |
Cash at Bank |
5,800 |
||
|
Employees' Provident Fund |
5,000 |
Bills Receivable |
800 |
||
|
Workmen Compensation Reserve |
6,000 |
Stock | 9,000 | ||
| General Reserve | 6,000 | Sundry Debtors | 16,000 | ||
| Loans | 7,100 | Furniture | 2,000 | ||
|
Capital A/cs: |
Plant and Machinery | 6,500 | |||
| X | 22,750 | Building | 30,000 | ||
| Y |
15,250 |
Advertising Suspense | 6,000 | ||
| Z |
12,000 |
50,000 |
|||
|
76,100 |
76,100 |
||||
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| Liabilities | ₹ | Assets | ₹ | |
| Capital A/cs: | Fixed Assets | 9,00,000 | ||
| Ram | 4,00,000 | Current Assets | 5,20,000 | |
| Mohan | 4,50,000 | |||
| Sohan | 2,50,000 | |||
| Hari | 2,00,000 | 13,00,000 | ||
| Workmen Compensation Reserve | 1,20,000 | |||
| 14,20,000 | 14,20,000 | |||
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BALANCE SHEET OF SURESH, RAMESH, MAHESH AND Ganesh
as on 1st April, 2016
| Liabilities | Amount (₹) |
Assets | Amount (₹) |
|
| Capital A/cs: | Fixed Assets | 6,00,000 | ||
| Suresh | 1,00,000 | Current Assets | 3,45,000 | |
| Ramesh | 1,50,000 | |||
| Mahesh | 2,00,000 | |||
| Ganesh | 2,50,000 | 7,00,000 | ||
| Sundry Creditors | 1,70,000 | |||
| Workmen Compensation Reserve | 75,000 | |||
| 9,45,000 | 9,45,000 | |||
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