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Question
X, Y and Z are partners sharing profits and losses in the ratio of 5 : 3 : 2. Z retired and on the date of his retirement, following adjustments were agreed upon:
(a) The value of Furniture is to be increased by ₹ 12,000.
(b) The value of stock to be decreased by ₹ 10,000.
(c) Machinery of the book value of ₹ 50,000 is to be depreciated by 10%.
(d) A Provision for Doubtful Debts @ 5% is to be created on debtors of book value of ₹ 40,000.
(e) Unrecorded Investment worth ₹ 10,000.
(f) An item of ₹ 1,000 included in bills payable is not likely to be claimed, hence should be written back.
Pass necessary Journal entries.
Solution
Revaluation Account
|
Dr. |
|
Cr. |
||||
|
Particulars |
Amount Rs |
Particulars |
Amount Rs |
|||
|
Stock A/c |
10,000 |
Furniture A/c |
12,000 |
|||
|
Machinery A/c |
5,000 |
Investments A/c |
10,000 |
|||
|
Provision for Doubtful Debts A/c |
2,000 |
Bills Payable A/c |
1,000 |
|||
|
Profit transferred to: |
|
|
|
|||
|
X’s Capital A/c |
3,000 |
|
|
|
||
|
Y’s Capital A/c |
1,800 |
|
|
|
||
|
Z’s Capital A/c |
1,200 |
6,000 |
|
|
||
|
|
23,000 |
|
23,000 |
|||
| Journal | |||||
| Date | Particulars | L.F. | Debit Amount (Rs) |
Credit Amount (Rs) |
|
| (a) | Furniture A/c | Dr. | 12,000 | ||
| To Revaluation A/c | 12,000 | ||||
| (Increase in value transferred to Revaluation Account) | |||||
| (b) | Revaluation A/c | Dr. | 10,000 | ||
| To Stock A/c | 10,000 | ||||
| (Decrease in Stock transferred to Revaluation Account) | |||||
| (c) | Revaluation A/c | Dr. | 5,000 | ||
| To Machinery A/c | 5,000 | ||||
| (Decrease in value of machinery transferred to Revaluation Account) | |||||
| (d) | Revaluation A/c | Dr. | 2,000 | ||
| To Provision for Doubtful Debts A/c | 2,000 | ||||
| (Increase in liabilities to Revaluation Account) | |||||
| (e) | Investments A/c | Dr. | 10,000 | ||
| To Revaluation A/c | 10,000 | ||||
| (Increase in value transferred to Revaluation Account) | |||||
| (f) | Bills Payable A/c | Dr. | 1,000 | ||
| To Revaluation A/c | 1,000 | ||||
| (Decrease in liabilities transferred to Revaluation Account) | |||||
| (g) | Revaluation A/c | Dr. | 6,000 | ||
| To X’s Capital A/c | 3,000 | ||||
| To Y’s Capital A/c | 1,800 | ||||
| To Z’s Capital A/c | 1,200 | ||||
| (Revaluation profit transferred to Partners’ Capital Accounts) | |||||
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
| General Reserve |
12,000 |
Bank | 7,600 | ||
| Sundry Creditors |
15,000 |
Debtors |
6,000 |
|
|
| Bills Payable |
12,000 |
Less: Provision for Doubtful Debts |
400 |
5,600 |
|
| Outstanding Salary | 2,200 | Stock | 9,000 | ||
| Provision for Legal Damages | 6,000 | Furniture | 41,000 | ||
| Capital A/cs: | Premises | 80,000 | |||
| Pankaj |
46,000 |
|
|||
| Naresh | 30,000 | ||||
| Saurabh |
20,000 |
96,000 |
|||
|
1,43,200 |
1,43,200 |
||||
Additional Information:
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(d)
| BALANCE SHEET as at 31st March, 2019 | |||||
| Liabilities | ₹ | Assets | ₹ | ||
| Capital A/cs: | Sundry Assets | 21,000 | |||
| X | 9,000 | ||||
| Y | 6,000 | 15,000 | |||
| Reserve | 3,000 | ||||
| Creditors | 3,000 | ||||
| 21,000 | 21,000 | ||||
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|
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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|
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 |
||||
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| Liabilities | Amount (₹) |
Assets | Amount (₹) |
||
| Sundry Creditors | 18,000 | Goodwill | 12,000 | ||
| Investments Fluctuation Reserve | 7,000 | Patents | 52,000 | ||
| Workmen Compensation Reserve | 7,000 | Machinery | 62,400 | ||
| Capital A/cs: | Investment | 6,000 | |||
| X | 1,35,000 | Stock | 20,000 | ||
| Y | 95,000 | Sundry Debtors | 24,000 | ||
|
Z |
74,000 | 3,04,000 | Less: Provision for Doubtful Debts | 4,000 | 20,000 |
| Loan to Z | 1,000 | ||||
| Cash at Bank | 600 | ||||
| Profit and Loss A/c | 1,50,000 | ||||
| Z's Drawings | 12,000 | ||||
| 3,36,000 | 3,36,000 | ||||
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Show Revaluation Account, Capital Accounts of Partners and the Balance Sheet of the new firm.
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Find New Profit-sharing Ratio:
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Find New Profit-sharing Ratio:
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Case 4. C acquires 1/10th share of A and 1/2 share of B.
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| Profits (₹) | 70,000 | 85,000 | 45,000 | 35,000 | 10,000 (Loss) |
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Pass the Journal entry showing the working.
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A and B are partners in a firm sharing profits in the ratio of 4 : 1. They decided to share future profits in the ratio of 3 : 2 w.e.f. 1st April, 2019. On that day, Profit and Loss Account showed a debit balance of ₹ 1,00,000. Pass Journal entry to give effect to the above.
X, Y and Z share profits as 5 : 3 : 2. They decide to share their future profits as 4 : 3 : 3 with effect from 1st April, 2019. On this date the following revaluations have taken place:
| Book Values (₹) | Revised Values (₹) | |
| Investments | 22,000 | 25,000 |
| Plant and Machinery | 25,000 | 20,000 |
| Land and Building | 40,000 | 50,000 |
| Outstanding Expenses | 5,600 | 6,000 |
| Sundry Debtors | 60,000 | 50,000 |
| Trade Creditors | 70,000 | 60,000 |
Pass necessary adjustment entry to be made because of the above changes in the values of assets and liabilities. However, old values will continue in the books .
A, B and C are sharing profits and losses in the ratio of 2 : 2 : 1. They decided to share profit w.e.f. 1st April, 2019 in the ratio of 5 : 3 : 2. They also decided not to change the values of assets and liabilities in the books of account. The book values and revised values of assets and liabilities as on the date of change were as follows:
| Book values (₹) | Revised values (₹) | |
| Machinery | 2,50,000 | 3,00,000 |
| Computers | 2,00,000 | 1,75,000 |
| Sundry Creditors | 90,000 | 75,000 |
| Outstanding Expenses | 15,000 | 25,000 |
Pass an adjustment entry.
A and B are partners sharing profits in the ratio of 4 : 3. Their Balance Sheet as at 31st March, 2019 stood as:
| Liabilities | Amount (₹) |
Assets | Amount (₹) |
|
| Sundry Creditors | 28,000 | Cash | 20,000 | |
| Reserve | 42,000 | Sundry Debtors | 1,20,000 | |
| Capital A/cs: | Stock | 1,40,000 | ||
| A | 2,40,000 | Fixed Assets | 1,50,000 | |
| B | 1,20,000 | 3,60,000 | ||
| 4,30,000 | 4,30,000 | |||
They decided that with effect from 1st April, 2019, they will share profits and losses in the ratio of 2 : 1. For this purpose they decided that:
(i) Fixed Assets are to be reduced by 10%.
(ii) A Provision for Doubtful Debts of 6% be made on Sundry Debtors.
(iii) Stock be valued at ₹ 1,90,000.
(iv) An amount of ₹ 3,700 included in Creditors is not likely to be claimed .
Partners decided to record the revised values in the books. However, they do not want to disturb the Reserve. You are required to pass Journal entries, prepare Capital Accounts of Partners and the revised Balance Sheet.
Balance Sheet of X and Y, who share profits and losses as 5 : 3, as at 1st April, 2019 is:
| Liabilities | Amount (₹) |
Assets | Amount (₹) |
| X's Capital | 52,000 | Goodwill | 8,000 |
| Y's Capital | 54,000 | Machinery | 38,000 |
| General Reserve | 4,800 | Furniture | 15,000 |
| Sundry Creditors | 5,000 | Sundry Debtors | 33,000 |
| Employees' Provident Fund | 1,000 | Stock | 7,000 |
| Workmen Compensation Reserve | 10,000 | Bank | 25,000 |
| Advertisement Suspense A/c | 800 | ||
| 1,26,800 | 1,26,800 |
On the above date, they decided to change their profit-sharing ratio to 3 : 5 and agreed upon the following:
(a) Goodwill be valued on the basis of two years' purchase of the average profit of the last three years. Profits for the years ended 31st March, are: 2016-17 − ₹ 7,500; 2017-18 − ₹ 4,000; 2018-19 − ₹ 6,500.
(b) Machinery and Stock be revalued at ₹ 45,000 and ₹ 8,000 respectively.
(c) Claim on account of workmen compensation is ₹ 6,000.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of the new firm.
At the time of admission of a new partner, Which adjustments are required:
Ravi, Vijay and Sujay were partners sharing profits in the ratio of `1/2 : 1/3 : 1/6`.
Vijay decided to retire, his share being taken up by the remaining partners in the ratio 1 : 4.
On Vijay’s retirement, a loss of ₹ 12,000 was determined upon revaluation of assets and liabilities.
You are required to:
- Calculate the new profit-sharing ratio of the remaining partners.
- Pass the journal entry to write off the loss on revaluation of assets and liabilities.
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?
