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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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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

(₹)

2019
April 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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