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A And B Are Partners Sharing Profits in the Ratio of 4 : 3. Their Balance Sheet as at 31st March, 2019 Stood As:​ - CBSE (Arts) Class 12 - Accountancy

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ConceptRetirement and Death of a Partner - Calculation of New Profit Sharing Ratio

Question

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.

Solution

Journal

 Date Particulars L.F. Debit Amount (₹) Credit Amount (₹) 2019April 1 A’s Capital A/c Dr. 4,000 To B’s Capital A/c 4,000 (Adjustment of General Reserve on change in profit sharing ratio)

Partners’ Capital Accounts

 Dr. Cr. Particulars A B Particulars A B B’s Capital A/c 4,000 – Balance b/d 2,40,000 1,20,000 (Adjustment of General Reserve) Revaluation (Profit) 18,000 13,500 Balance c/d 2,54,000 1,37,500 A’s Capital A/c – 4,000 (Adjustment of General Reserve) 2,58,000 1,37,500 2,58,000 1,37,500

Balance Sheet
as on 01st April, 2019

 Liabilities Amount (₹) Assets Amount (₹) Sunday Creditors (28,000 –3,700) 24,300 Cash 20,000 General Reserve 42,000 Sundry Debtors 1,20,000 Capital Account Less: Provision for Doubtful Debts (7,200) 1,12,800 A 2,54,000 Stock 1,90,000 B 1,37,500 3,91,500 Fixed Assets (1,50,000 – 15,000) 1,35,000 4,57,800 4,57,800

Working Notes:

WN 1 Calculation of Sacrificing (or Gaining) Ratio

Old Ratio (A and B) = 4 : 3

New Ratio (A and B) = 2 : 1

Sacrificing (or Gaining) Ratio = Old Ratio − New Ratio

A's share = 4/7 -2/3 = (12-14)/21= -2/21(gain)

B's share = 3/7 -1/3 = (9-7)/21= -2/21(Sacrifice)

WN 2 Adjustment of General Reserve

Amount to be debited to A's capital = 42,000 xx 2/21 = "Rs" 4,000

Amount to be credited to B's capital = 42,000 xx 2/21 = "Rs" 4,000

WN 3

Revaluation Account

 Dr. Cr. Particulars Amount (₹) Particulars Amount (₹) Fixed Assets 15,000 Stock 50,000 Provision for Doubtful Debts (1,20,000 × 6%) 7,200 Creditors 3,700 Profit transferred to: A’s Capital A/c 18,000 B’s Capital A/c 13,500 31,500 53,700 53,700
Is there an error in this question or solution?

APPEARS IN

Solution A And B Are Partners Sharing Profits in the Ratio of 4 : 3. Their Balance Sheet as at 31st March, 2019 Stood As:​ Concept: Retirement and Death of a Partner - Calculation of New Profit Sharing Ratio.
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