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​A, B And C Are Partners Sharing Profits and Losses in the Ratio of 5 : 3 : 2. Their Balance Sheet as at 31st March, 2019 Stood as Follows: - CBSE (Arts) Class 12 - Accountancy

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Question

​A, B and C are partners sharing profits and losses in the ratio of 5 : 3 : 2. Their Balance Sheet as at 31st March, 2019 stood as follows:

Liabilities

Amount

(₹)

Assets

Amount

​(₹)

Capital A/cs:   Land and Building 3,50,000
 A 2,50,000   Machinery 2,40,000
 B 2,50,000   Computers 70,000
 C 2,00,000 7,00,000 Investments (Market value ₹ 90,000) 1,00,000
General Reserve   60,000 Sundry Debtors 50,000
Investments Fluctuation Reserve   30,000 Cash in Hand 10,000
Sundry Creditors   90,000 Cash at Bank 55,000
      Advertisement Suspense 5,000
    8,80,000   8,80,000


They decided to share profits equally w.e.f. 1st April, 2019. They also agreed that:
(i) Value of Land and Building be decreased by 5%.
(ii) Value of Machinery be increased by 5%.
(iii) A Provision for Doubtful Debts be created @ 5% on Sundry Debtors.
(iv) A Motor Cycle valued at ₹ 20,000 was unrecorded and is now to be recorded in the books.
(v) Out of Sundry Creditors, ₹ 10,000 is not payable.
(vi) Goodwill is to be valued at 2 years' purchase of last 3 years profits. Profits being for 2018-19 − ₹ 50,000 (Loss); 2017-18 − ₹ 2,50,000 and 2016-17 − ₹ 2,50,000.
(vii) C was to carry out the work for reconstituting the firm at a remuneration (including expenses) of ₹ 5,000. Expenses came to ₹ 3,000.
Pass Journal entries and prepare Revaluation Account.

Solution

Journal

Date

Particulars

L.F.

Debit

Amount

(₹)

Credit

Amount

(₹)

2019

 

 

 

 

 

April 1

General Reserve A/c

Dr.

 

60,000

 

 

      To A’s Capital A/c

 

 

 

30,000

 

      To B’s Capital A/c

 

 

 

18,000

 

      To C’s Capital A/c

 

 

 

12,000

 

(Reserve distributed)

 

 

 

 

 

A’s Capital A/c

Dr

 

2,500

 

 

B’s Capital A/c

Dr.

 

1,500

 

 

C’s Capital A/c

Dr.

 

1,000

 

 

     To Advertisement Suspense A/c

 

 

 

5,000

 

(Advertisement Suspense distributed)

 

 

 

 

 

Investment Fluctuation Reserve A/c

Dr.

 

30,000

 

 

   To Investment A/c

 

 

 

10,000

 

   To A’s Capital A/c

 

 

 

10,000

 

   To B’s Capital A/c

 

 

 

6,000

 

   To C’s Capital A/c

 

 

 

4,000

 

(Investment Fluctuation Reserve distributed)

 

 

 

 

 

Machinery A/c

Dr.

 

12,000

 

 

Motor Cycle  A/c

Dr.

 

20,000

 

 

Creditors  A/c

Dr.

 

10,000

 

 

     To Revaluation A/c

 

 

 

42,000

 

(Assets revalued)

 

 

 

 

 

Revaluation A/c

 

 

25,000

 

 

     To Land & Building A/c

 

 

 

17,500

 

     To Provision for Doubtful Debts A/c

 

 

 

2,500

 

     To Bank A/c (Remuneration)

 

 

 

5,000

 

(Assets revalued)

 

 

 

 

 

Revaluation A/c

 

 

17,000

 

 

      To A’s Capital A/c

 

 

 

8,500

 

      To B’s Capital A/c

 

 

 

5,100

 

      To C ’s Capital A/c

 

 

 

3,400

 

(Profit on revaluation transferred to Partners’ Capital A/c)

 

 

 

 

 

B’s Capital A/c

Dr.

 

10,000

 

 

C ’s Capital A/c

Dr.

 

40,000

 

 

     To A’s Capital A/c

 

 

 

50,000

 

(Goodwill adjusted)

 

 

 

 

 

Revaluation A/c

Dr.

 

Cr.

Particulars

Amount

(₹)

Particulars

Amount

(₹)

Land & Building A/c

17,500

Machinery A/c

   12,000

Provision for Doubtful Debts A/c

2,500

Motor Cycle  A/c

20,000

Bank A/c (Remuneration)

5,000

Creditors  A/c

10,000

Profit transferred to:

 

 

 

A                                                         

8,500

 

 

 

B                                                         

5,100

 

 

 

C                                                         

3,400

17,000

 

 

 

42,000

 

42,000

Working Notes:

WN1: Calculation of sacrifice or gain

A : B : C = 5 : 3 : 2 (Old ratio)

A : B : C = 1 : 1 : 1 (new ratio)

sacrificing (or gaining ratio) = old ratio - new ratio

A's share = `5/10 - 1/3 = (15-10)/30 = 5/10` (sacrifice)

B's share = `3/10 - 1/3 = (9-10)/30 = -1/30` (gain)

C's share = `2/10 - 1/3 = (96-10)/30 = -4/30` (gain)

WN2: Valuation of Goodwill

Goodwill = Average profit x No. of years purchase

               = 1,50,000 x 2

               = Rs 3,00,000

WN3: Adjustment of Goodwill

Amount credited to A's apital A/c = `3,00,000 xx 5/30 = "Rs"  50,000`

Amount debited to B's capital A/c = `3,00,000 xx 1/30 = "Rs"  10,000`

Amount debited to C's capital A/c = `3,00,000 xx 4/30 = "Rs"  40,000`

 

  Is there an error in this question or solution?

APPEARS IN

Solution ​A, B And C Are Partners Sharing Profits and Losses in the Ratio of 5 : 3 : 2. Their Balance Sheet as at 31st March, 2019 Stood as Follows: Concept: Retirement and Death of a Partner - Calculation of New Profit Sharing Ratio.
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