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Balance Sheet Of X And Y, Who Share Profits and Losses as 5 : 3, as at 1st April, 2019 Is: - CBSE (Arts) Class 12 - Accountancy

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

Question

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.

Solution

Revaluation Account

 Dr. Cr. Particulars Amount (₹) Particulars Amount (₹) Profit transferred to: Machinery 7,000 X’s Capital A/c 5,000 Stock 1,000 Y’s Capital A/c 3,000 8,000 8,000 8,000

Partners’ Capital Account

 Dr. Cr. Particulars X Y Particulars X Y Advertisement Suspense A/c 500 300 Balance b/d 52,000 54,000 Goodwill A/c 5,000 3,000 General Reserve A/c 3,000 1,800 X’s Capital – 3,000 WCF 2,500 1,500 (Adjustment of Goodwill) Revaluation A/c (Profit) 5,000 3,000 Y’s Capital A/c 3,000 – Balance c/d 60,000 54,000 (Adjustment of Goodwill) 65,500 60,300 65,500 60,300

Balance Sheet

as on April 01, 2019 (after Change in Profit Sharing Ratio)

 Liabilities Amount (₹) Assets Amount (₹) X’s Capital 58,500 Machinery (38,000 + 7,000) 45,000 Z’s Capital 55,500 Furniture 15,000 Sundry Creditors 5,000 Sundry Debtors 33,000 Employees’ Provident Fund 1,000 Stock (7,000 + 1,000) 8,000 Workmen’s Compensation Reserve 6,000 Bank 25,000 1,26,000 1,26,000

Working Notes:

WN 1 Calculation of Sacrificing (or Gaining) Ratio

Old Ratio (X and Y) = 5 : 3

New Ratio (X and Y) = 3 : 5

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

X's share = 5/8 - 3/8 = 2/8 (sacrifice)

Y's share = 3/8 - 5/8 = -2/8 (gain)

WN 2 Calculation of New Goodwill

Goodwill = Average Profit × Number of Year′s Purchase

= 6,000 × 2 = Rs 12,000

Average profit = (7,500 + 4,000 + 6,500)/3 = Rs 6,000

∴Goodwill = 6,000 × 2 = Rs 12,000

WN 3 Adjustment of Goodwill

X will be credited by 12,000 xx 2/8 = "Rs"  3,000

Y will be debited by 12,000 xx 2/8 = "Rs"  3,000

Journal

 Date Particulars L.F. Debit Amount (₹) Credit Amount (₹) Workmen’s Compensation Reserve A/c Dr. 10,000 To Workmen’s Compensation Claim A/c 6,000 To X’s Capital A/c 2,500 To Y’s Capital A/c 1,500 (Workmen’s compensation claim distributed among partners in their old ratio i.e. 5 : 3) X’s Capital A/c Dr. 5,000 Y’s Capital A/c Dr. 3,000 To Goodwill A/c 8,000 (Goodwill written off among partners in their old ratio) X’s Capital A/c Dr. 500 Y’s Capital A/c Dr. 300 To Advertisement Suspense A/c 800 (Advertisement Suspense written off among partners in their old ratio) General Reserve A/c Dr. 4,800 To X’s Capital A/c 3,000 To Y’s Capital A/c 1,800 (General Reserve distributed among partners in their old ratio) Revaluation A/c Dr. 8,000 To X’s Capital A/c 5,000 To Y’s Capital A/c 3,000 (Revaluation profit distributed among partners in their old ratio) Y’s Capital A/c Dr. 3,000 To X’s Capital A/c 3,000 (Adjustment of goodwill made)
Is there an error in this question or solution?

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Solution Balance Sheet Of X And Y, Who Share Profits and Losses as 5 : 3, as at 1st April, 2019 Is: Concept: Retirement and Death of a Partner - Calculation of New Profit Sharing Ratio.
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