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Question
The Balance Sheet of X, Y and Z who were sharing profits in the ratio of 5 : 3 : 2 as at 31st March, 2019 is as follows:
| Liabilities | ₹ | Assets | ₹ | |
| Creditors | 50,000 | Cash at Bank | 40,000 | |
| Employees' Provident Fund | 10,000 | Sundry Debtors | 1,00,000 | |
| Profit and Loss A/c | 85,000 | Stock | 80,000 | |
| Capital A/cs: | Fixed Assets | 60,000 | ||
| X | 40,000 | |||
| Y | 62,000 | |||
| Z | 33,000 | 1,35,000 | ||
| 2,80,000 | 2,80,000 | |||
X retired on 1st April, 2019 and Y and Z decided to share profits in future in the ratio of 3 : 2 respectively.
The other terms on retirement were:
(a) Goodwill of the firm is to be valued at ₹ 80,000.
(b) Fixed Assets are to be depreciated to ₹ 57,500.
(c) Make a Provision for Doubtful Debts at 5% on Debtors.
(d) A liability for claim, included in Creditors for ₹ 10,000, is settled at ₹ 8,000.
The amount to be paid to X by Y and Z in such a way that their Capitals are proportionate to their profit-sharing ratio and leave a balance of ₹ 15,000 in the Bank Account.
Prepare Profit and Loss Adjustment Account and Partners' Capital Accounts.
Solution
Revaluation Account
|
Dr. |
Cr. |
|||
|
Particulars |
Amount (₹) |
Particulars |
Amount (₹) |
|
|
Fixed Assets A/c (60,000 – 57,500) |
2,500 |
Creditors (10,000 – 8,000) |
2,000 |
|
|
Provision for Doubtful Debts |
5,000 |
Loss on Revaluation transferred to: |
|
|
|
|
|
X |
2,750 |
|
|
|
|
Y |
1,650 |
|
|
|
|
Z |
1,100 |
5,500 |
|
|
7,500 |
|
7,500 |
|
Partners’ Capital Accounts
|
Dr. |
Cr. |
||||||
|
Particulars |
X |
Y |
Z |
Particulars |
X |
Y |
Z |
|
Revaluation A/c (Loss) |
2,750 |
1,650 |
1,100 |
Balance b/d |
40,000 |
62,000 |
33,000 |
|
X’s Capital A/c |
– |
24,000 |
16,000 |
Profit & Loss A/c |
42,500 |
25,500 |
17,000 |
|
Balance c/d |
1,19,750 |
61,850 |
32,900 |
Y’s Capital A/c |
24,000 |
– | – |
|
|
|
|
|
Z’s Capital A/c |
16,000 |
– | – |
|
|
1,22,500 |
87,500 |
50,000 |
|
1,22,500 |
87,500 |
50,000 |
|
Bank A/c |
1,19,750 |
– | – |
Balance b/d |
1,19,750 |
61,850 |
32,900 |
|
Balance c/d |
– |
1,18,500 |
79,000 |
Bank A/c |
– |
56,650 |
46,100 |
|
|
1,19,750 |
1,18,500 |
79,000 |
|
1,19,750 |
1,18,500 |
79,000 |
Working Notes
WN 1 Calculation of Gaining Ratio
Old Ratio (X, Y and Z) = 5:3:2
New Ratio (Y and Z) = 3:2
Gaining Ratio = New Ratio – Old Ratio
`"Y's share" = 3/5 - 3/10 = 3/10`
`"Z's share" = 2/5 - 2/10 = 2/10`
Hence, gaining ratio is 3 : 2.
WN2 Adjustment of Goodwill
Total Goodwill of the Firm = 80,000
`"X's share in goodwill" = 5/10 xx 80,000`
= `40,000`
To be borne by Gaining partners in their Gaining Ratio i.e. 3:2
`"Y's share" = 40,000 xx 3/5 = 24,000`
`"Z's share" = 40,000 xx 2/5 = 16,000`
WN3 Adjustment of Capital
X’s Capital before adjustment = 1,19,750
Y’s Capital before adjustment = 61,850
Z’s Capital before adjustment = 32,900
`"New profit sharing Ratio" = 3 : 2`
`"Y's share in new capital" = 3/5 xx 1,97,500 = 1,18,500`
`"Z's share in new capital" = 2/5 xx 1,97,500 = 79,000`
|
Particulars |
Y |
Z |
|
New Capital Balance |
1,18,500 |
79,000 |
|
Adjusted Old Capital Balance |
61,850 |
32,900 |
|
Cash brought in by the Partner |
56,650 |
46,100 |
WN4
Cash at Bank A/c
|
Dr. |
Cr. |
||
|
Particulars |
Amount (₹) |
Particulars |
Amount (₹) |
|
Balance b/d |
40,000 |
Creditors |
8,000 |
|
Y’s Capital A/c |
56,650 |
X’s Capital A/c |
1,19,750 |
|
Z’s Capital A/c |
46,100 |
Balance c/d |
15,000 |
|
|
1,42,750 |
|
1,42,750 |
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
| Creditors |
24,140 |
Cash at Bank | 3,300 | ||
| Capital A/cs: |
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Sundry Debtors |
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|
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|
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|
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|
Land and Building | 15,000 | |||
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|
|
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||
|
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||||
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
| Creditors |
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|
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|
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|
| Less: Provision |
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|||
|
|
|
Cash |
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||
|
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||||
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
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12,000 |
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|
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|
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|
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|
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|
Liabilities |
₹ |
Assets |
₹ |
||
|
Creditors |
11,000 |
Building |
20,000 |
||
|
Reserves |
6,000 |
Machinery |
30,000 |
||
| A's Loan A/c | 5,000 | Stock | 10,000 | ||
|
Capital A/cs: |
Patents | 11,000 | |||
| A |
25,000 |
Debtors | 8,000 | ||
| B | 25,000 | Cash | 8,000 | ||
| C |
15,000 |
65,000 |
|||
|
87,000 |
87,000 |
||||
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(ii) Patents be valued at ₹ 8,000; Machinery at ₹ 28,000; and Building at ₹ 25,000.
(iii) Profit for the year 2017-18 be taken as having accrued at the same rate as that of the previous year.
(iv) Interest on capital be provided @ 10% p.a.
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Prepare A's Capital Account and A's Executors' Account as on 1st October, 2018.
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(a) Interest on capital will be calculated at the rate of 6% p.a.
(b) The deceased partner's share in the goodwill of the firm will be calculated on the basis of 2 years' purchase of the average profit of last three years. The profits of the firm for the last three years were ₹ 90,000; ₹ 1,00,000 and ₹ 1,10,000 respectively.
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Prepare Kavita's Capital Account to be presented to his legal representative.
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
|
Creditors |
2,00,000 |
Building |
2,00,000 |
||
|
Employees' Provident Fund |
1,50,000 |
Machinery |
3,00,000 |
||
|
General Reserve |
36,000 |
Furniture | 1,10,000 | ||
| Investment Fluctuation Reserve | 14,000 | Investment (Market value ₹ 86,000) | 1,00,000 | ||
|
Capital A/cs: |
Debtors | 80,000 | |||
| X |
3,00,000 |
Cash at Bank | 1,90,000 | ||
| Y | 2,50,000 | Advertisement Suspense | 1,20,000 | ||
| Z |
1,50,000 |
7,00,000 |
|||
|
11,00,000 |
11,00,000 |
||||
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| Year | 2014-15 | 2015-16 | 2016-17 | 2017-18 |
| Profits (₹) | 1,70,000 | 1,80,000 | 1,90,000 | 1,80,000 |
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| Book Values (₹) | |
| General Reserve | 6,000 |
| Profit and Loss A/c (Credit) | 24,000 |
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| Liabilities | Amount (₹) |
Assets | Amount (₹) |
|
| Sundry Creditors | 40,000 | Cash at Bank | 40,000 | |
| Outstanding Expenses | 15,000 | Sundry Debtors | 2,10,000 | |
| General Reserve | 75,000 | Stock | 3,00,000 | |
| Capital A/cs: | Furniture | 60,000 | ||
| X | 4,00,000 | Plant and Machinery | 4,20,000 | |
| Y | 3,00,000 | |||
| Z | 2,00,000 | 9,00,000 | ||
| 10,30,000 | 10,30,000 | |||
From 1st April, 2019, they agree to alter their profit-sharing ratio as 4 : 3 : 2. It is also decided that:
(a) Furniture be taken at 80% of its value.
(b) Stock be appreciated by 20%.
(c) Plant and Machinery be valued at ₹ 4,00,000.
(d) Outstanding Expenses be increased by ₹ 13,000.
Partners agreed that altered values are not to be recorded in the books and they also do not want to distribute the General Reserve.
You are required to pass a single Journal entry to give effect to the above. Also, prepare Balance Sheet of the new firm.
Choose the appropriate alternative from the given options:
Harit and Leela are partners in firm sharing profits and losses in the ratio of 2 : 3. Yash was admitted as a new partner for 1/5th share in the profits of the firm. Yash acquires his share from Leela. The new profit sharing ratio of Harit, Leela, and Yash will be :
Atul and Neera were partners in firm sharing profits in the ratio of 3: 2. They admitted Mitali as a new partner. Goodwill of the firm was valued at ₹ 2,00,000. Mitali brings her share of a goodwill premium of ₹ 20,000 in cash, which is entirely credited to Atul's Capital Account. Calculate the new profit sharing ratio.
P, Q, and R were partners in firm sharing profits in the ratio of 1 : 1: 2. On 31st March 2018, their balance sheet showed a credit balance of ₹ 9,000 in the profit and loss account and a Workmen Compensation Fund of ₹ 64,000. From 1st April 2018, they decided to share profits in the ratio of 2: 2: 1. For this purpose, it was agreed that:
(a) Goodwill of the firm was valued at ₹ 4,00,000.
(b) A claim on account of workmen compensation of ₹ 30,000 were admitted.
Pass necessary journal entries on the reconstitution of the firm.
At the time of admission of a new partner, Which adjustments are required:
Bakul, Champak and Darshan were partners in the firm sharing profits in the ratio of 5:4:1. The profit of the firm for the year ending on March 31, 2019, was Rs. 1,00,000. Champak dies on June 30, 2019. What is Champak's share of profit for the period from April 1 to June 30, 2019?
At the time of retirement, the amount remaining in Investment Fluctuation Reserve after meeting the fall in the value of Investments is:
A and B were partners. They shared profits as A-`1/2`, B-`1/3` and carried to reserve `1/6`. B died. The balance of reserve on the date of B's death was ₹ 30,000. B's share of a reserve will be:
