Question

A, B and C are partners sharing profits and losses in the ratio of 5 : 3 : 2. A was unable to devote time to business due to his other commitments. Hence adjustments were required in the agreed terms of partnership. They decided to share future profits in the ratio of 2 : 5 : 3. Following balances appeared in their books:                                                                                   ₹ Advertisement Suspense A/c (Dr.)                       15,000 Workmen Compensation Reserve                        90,000 Investment Fluctuation Reserve                           60,000 Investments at Cost                                           5,00,000 It was agreed that: Goodwill should be valued at three years' purchase of super profits. Firm's average profits are ₹ 1,00,000. Capital invested in the business is ₹ 8,00,000 and normal rate of return is 10%. Claim on account of Workmen's Compensation has been estimated at ₹ 80,000.

Based on the above information, choose the correct option:

If Investments are valued at ₹ 4,00,000, then in respect of investments ______.

Options

• Debit A by ₹ 50,000; B by ₹ 30,000 and C by ₹ 20,000

• Debit A by ₹ 20,000; B by ₹ 12,000 and C by ₹ 8,000

• Debit A by ₹ 8,000; B by ₹ 20,000 and C by ₹ 12,000

• Debit B by ₹ 8,000; C by ₹ 4,000 and Credit A by ₹ 12,000

Answer 1

If Investments are valued at ₹ 4,00,000, then in respect of investments debit B by ₹ 8,000; C by ₹ 4,000 and credit A by ₹ 12,000.