Page No 5.105:

Question 86:

Following is the Balance Sheet of Abha and Binay as at 31st March, 2014:


Liabilities		`	Assets		`
Creditors		13,000	Bank		15,000
Employees Provident Fund		8,000	Debtors	22,000
Workmen Compensation Fund		15,000	Less : Provision for Doubtful Debts	1,000	21,000
Capital A/cs:			Stock		10,000
Abha	55,000		Plant and Machinery		60,000
Binay	30,000	85,000	Goodwill		10,000
			Profit and Loss		5,000


		1,21,000			1,21,000

Chitra was admitted as a partner for 1/4th share in the profits of the firm. It was decided that:
(a) Bad Debts amounted to   ` 1,500 will be written off.
(b) Stock worth   ` 8,000 was taken over by Abha and Binay at Book Value in their profit-sharing ratio. The remaining stock was valued at   ` 2,500.
(c) Plant and Machinery and Goodwill were valued at   ` 32,000 and   ` 20,000 respectively.
(d) Chitra brought her share of goodwill in cash.
(e) Chitra will bring proportionate capital and the capitals of Abha and Binay will be adjusted in their profit-sharing ratio by bringing in or paying off cash as the case may be.
Prepare Revaluation Account and Partners' Capital Accounts.

Answer:

Revaluation Account
Dr.					Cr.
Particulars			Amount `		Particulars				Amount `
Bad debts			500		Stock				500
Plant and Machinery			28,000		Loss on Revaluation
					Abha’s Capital A/c		14,000
					Binay’s Capital A/c		14,000		28,000

			28,500						28,500

Partners’ Capital Accounts
Dr.										Cr.
Particulars	Abha	Binay	Chitra	Particulars		Abha		Binay		Chitra
Revaluation	14,000	14,000		Balance b/d		55,000		30,000
Goodwill	5,000	5,000		Bank						18,000
Profit and Loss	2,500	2,500		Premium for Goodwill		2,500		2,500
Stock	4,000	4,000		WCF		7,500		7,500
Balance c/d	39,500	14,500	18,000
	65,000	40,000	18,000			65,000		40,000		18,000
Bank	12,500			Balance c/d		39,500		14,500		18,000
Balance c/d (adjusted)	27,000	27,000	18,000	Bank				12,500
	39,500	27,000	18,000			39,500		27,000		18,000

Working Notes:

WN1 Calculation of Chitra's Capital

Chitra's Capital=Total Adjusted Capital of Abha and Binay×Reciprocal of Combined Profit Share×Chitra's Profit Share

Abha's Adjusted Capital =55,000+2,500+7,500-14,000-5,000-2,500-4,000= ` 39,500

Binay's Adjusted Capital=30,000+2,500+7,500-14,000-5,000-2,500-4,000= ` 14,500

Chitra's Capital=(39,500+14,500)×43×14= ` 18,000

WN2 Calculation of New Capital

New Capital=Total Adjusted Capital×Respective Partner's Profit Share

Abha's New Capital=(39,500+14,500)×12= ` 27,000

Binay's New Capital=(39,500+14,500)×12= ` 27,000

WN3 Calculation of Chitra's Share of Goodwill

Chitra's Share=Firm's Goodwill×Chitra's Profit Share

=20,000×14= ` 5,000

` 5,000 will be shared between Abha and Binay in sacrificing ratio 1:1

Page No 5.106:

Question 87:

Answer;

	Revaluation Account
	Dr.								Cr.
	Particulars				Amount `				Particulars						Amount `
	Plant and Machinery				35,000				Creditors						2,500
	Furniture and fixtures				6,500				Loss transferred to;
	Provision of doubtful debts				3,000				Raman’s Capital A/c(42,000×2/3)				28,000
									Rohit’s Capital A/c(42,000×1/3)				14,000		42,000

					44,500										44,500

	Partners’ Capital Accounts
	Dr.															Cr.
	Particulars			Abha		Binay		Chitra		Particulars		Abha		Binay		Chitra
	To Revaluation			28,000		14,000				By Balance b/d		140,000		1,00,000
	To Balance c/d			1,61,600		1,02,400
										By Premium		33,600		8,400
										By W.C.F.		16,000		8,000

				1,89,600		1,16,400						1,89,600		1,16,400
	To Balance c/d			1,61,600		1,02,400		1,32,000		Balance c/d		39,500		14,500
										Bank A/c				12,500		1,32,000
				1,61,600		1,02,400		1,32,000				1,61,600		1,02,400		1,32,000

Balance Sheet as on April 31, 2019
Liabilities			Amount `				Assets				Amount `
Creditors			1,57,500				Plant and Machiner Firniture and fixture				1,40,000 58,500
							Stock				47,000
worker compensation liabilities			16,000				Debtors 1,10,000 Less; Prov. For D.D. 10,000				1,00,000
Capital A/cs:							Cash at Bank				2,24,000
Raman		1,61,600					(50,000+1,32,000+42,000)
Rohit		1,02,400
Saloni		1,32,000	3,96,000

			5,69,500								5,69,500

Working note;

WN-1

Calculation of old and sacrificing ratio

Old ratio Raman: Rohit=2:1

Raman surrenders to Saloni=2/3×2/5=4/15

Rohit surrenders to Saloni=1/3×1/5=1/15

New share of -

Raman=2/3-4/15=10-4/15=6/15

Rohit=1/3-1/15=5-1/15=4/15

Saloni=4/15+1/15+5/15

Therefore new ratio of Raman, Rohit and Saloni =6:4:5

Sacrificing ratio= old – new

Raman=2/3-6/15=10-6/15=4/15

Rahit=1/3-4/15=5-4/15=1/15

WN-1

Calculation of Capital of Raman and Rohit=1,61,600+1,02,400=2,64,000

Share of Raman and Rohit=6/15+4/15=6+4/15=10/15

Therefore, Capital of Raman , Rohit and Saloni=2,64,000×15/10=3,96,000

Saloni’s capital=3,96,000×5/15=1,32,000

Page No 5.106:

Question 88:

A, B and C are partners sharing profits and losses in the ratio of 2 : 3 : 5. On 31st March, 2019, their Balance Sheet was:


Liabilities		Amount `	Assets	Amount `
Creditors		64,000	Cash	18,000
Bills Payable		22,000	Bills Receivable	14,000
General Reserve		14,000	Stock	44,000
Capital A/cs:			Debtors	42,000
A	36,000		Machinery	94,000
B	44,000		Goodwill	20,000
C	52,000	1,32,000
		2,32,000		2,32,000

They admit D into partnership on the following terms:
(a) Machinery is to be depreciated by 15%.
(b) Stock is to be revalued at   ` 48,000.
(c) It is found that the Creditors included a sum of   ` 12,000 which was not to be paid.
(d) Outstanding Rent is   ` 1,900.
(e) D is to bring in   ` 6,000 as goodwill and sufficient capital for 2/5th share.
(f) The partners decided to use 10% of the profits every year in providing drinking water in schools, where required.
Prepare Revaluation Account, Partners' Capital Accounts, Cash Account and Balance Sheet of the new firm.

Answer:

	In the books of A, B, C and D
Dr.	Revaluation A/c				Cr.
Particulars		Amount `	Particulars	Amount `
To Machinery A/c		14,100	By Stock A/c	4,000
To Outstanding Rent A/c		1,900	By Creditors A/c	12,000

		16,000		16,000

Dr.	Partner’s Capital A/c									Cr.
Particulars		A `	B `	C `	D `	Particulars	A `	B `	C `		D `
To Goodwill A/c		4,000	6,000	10,000		By balance b/d	36,000	44,000	52,000
						By Bank A/c (WN2)					88,000
To balance c/d		36,000	44,000	52,000	88,000	By Premium for Goodwill A/c	1,200	1,800	3,000
						By General Reserve A/c	2,800	4,200	7,000

		40,000	50,000	62,000	88,000		40,000	50,000	62,000		88,000

Working Notes:

1. Calculation of New profit-sharing ratio

D’s Share of Profits	=	2/5
Remaining Profits	=	(1 –2/5) = 3/5
A’s New Share of Profits	=	(3/5 × 2/10) = 6/50
B’s New Share of Profits	=	(3/5 × 3/10) = 9/50
C’s New Share of Profits	=	(3/5 × 5/10) = 15/50
A : B : C : D	=	6 : 9 : 15 : 20

2. Calculation of D’s Capital
Total Adjusted Capital of the Old Partners = A’s Capital + B’s Capital + C’s Capital = ` (36,000 + 44,000 + 52,000) = ` 1,32,000 Combined New Share of the Old Partners = (6/50 + 9/50 + 15/50) = 30/50 or 3/5

Total Capital of the new firm	=	(Adjusted Capital of the Old Partners × Reciprocal of Combined New Share of the Old Partners)
	=	` (1,32,000 × 5/3) = ` 2,20,000
D’s Capital	=	(Total Capital of the new firm × His Share of Profits)
	=	` (2,20,000 × 2/5) = ` 88,000

Balance Sheet
as at 31^st March, 2020
Liabilities		Amount `	Assets		Amount `
Capitals A/cs:			Cash (18,000 + 88,000 + 6,000)		1,12,000
A	36,000		Bills Receivable		14,000
B	44,000		Stock		48,000
C	52,000		Debtors		42,000
D	88,000	2,20,000	Machinery	94,000
Creditors		52,000	Less: Depreciation	14,100	79,900
Bills Payable		22,000
Outstanding Rent		1,900

		2,95,900			2,95,900

Page No 5.107:

Question 89:

L, M and N were partners in a firm sharing profits in the ratio of 3 : 2 : 1. Their Balance Sheet on 31st March, 2015 was as follows:


Liabilities		`	Assets	`
Creditors		1,68,000	Bank	34,000
General Reserve		42,000	Debtors	46,000
Capital's A/cs: L	1,20,000		Stock	2,20,000
M	80,000		Investments	60,000
N	40,000	2,40,000	Furniture	20,000
			Machinery	70,000

		4,50,000		4,50,000

On the above date, O was admitted as a new partner and it was decided that:
(i) The new profit-sharing ratio between L, M, N and O will be 2 : 2 : 1 : 1.
(ii) Goodwill of the firm was valued at   ` 1,80,000 and O brought his share of goodwill premium in cash.
(iii) The market value of investments was   ` 36,000.
(iv) Machinery will be reduced to   ` 58,000.
(v) A creditor of   ` 6,000 was not likely to claim the amount and hence was to be written off.
(vi) O will bring proportionate capital so as to give him 1/6th share in the profits of the firm.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of the new firm.

Answer:

Revaluation Account
Dr.					Cr.
Particulars	Amount `	Particulars		Amount `
Investments	24,000	Creditors		6,000
Machinery	12,000	Loss on Revaluation
		L’s Capital A/c	15,000
		M’s Capital A/c	10,000
		N’s Capital A/c	5,000	30,000

	36,000			36,000

Partners’ Capital Account
Dr.									Cr.
Particulars	L	M	N	O	Particulars	L	M	N	O
Reval. A/c	15,000	10,000	5,000		Balance b/d	1,20,000	80,000	40,000
Balance c/d	1,56,000	84,000	42,000	56,400	Gen. Reserve	21,000	14,000	7,000
					Premium for G/w	30,000
					Cash A/c				56,400

	1,71,000	94,000	47,000	56,400		1,71,000	94,000	47,000	56,400

Balance Sheet as on March 31, 2015
Liabilities		Amount `	Assets	Amount `
Creditors		1,62,000	Bank (34,000+56,400+30,000)	1,20,400
Capitals:			Debtors	46,000
L	1,56,000		Stock	2,20,000
M	84,000		Investments	36,000
N	42,000		Furniture	20,000
O	56,400	3,38,400	Machinery	58,000
		5,00,400		5,00,400

Working Notes:

WN1: Calculation of Sacrificing Ratio
Sacrificing Ratio =Old ratio- new ratio

L= 3/6-2/6=1/6

M=2/6-2/6=Nil

N=1/6-1/6=- Nil

WN2: Adjustment of Goodwill
O‘s of goodwill=1,80,000×1/6=30,000

30,000 will be credited to L’s capital because he is only sacrifice.

WN3 Calculation of O’s Proportionate Capital

Adjusted old capital of L =

Adjusted old capital of M =

Adjusted old capital of N =

O’s proportion capital=Total adjusted capital×O’s profit share × reciprocal combined new share of old partners

=2,82,000×1/6×6/5=56,400

Page No 5.107:

Question 90:

A and B are partners in a firm sharing profits and losses in the ratio 3 : 1. They admit C for 1/4th share on 31st March, 2014 when their Balance Sheet was as follows:


Liabilities		`	Assets		`
Employees Provident Fund		17,000	Cash		6,100
Workmen Compensation Reserve		6,000	Stock		15,000
Investment Fluctuation Reserve		4,100	Debtors	50,000
Capital's A/cs:			Less : Provision for Doubtful Debts	2,000	48,000
A	54,000
B	35,000	89,000	Investments		7,000
			Goodwill		40,000

		1,16,100			1,16,100

The following adjustments were agreed upon:
(a) C brings in   ` 16,000 as goodwill and proportionate capital.
(b) Bad debts amounted to   ` 3,000.
(c) Market value of investment is   ` 4,500.
(d) Liability on account of Workmen Compensation Reserve amounted to   ` 2,000.
Prepare Revaluation Account and Partners' Capital Accounts.

Answer:

Revaluation Account
Dr.					Cr.
Particulars			Amount `		Particulars				Amount `
Bad debts			1,000
					Loss on Revaluation
					A's Capital A/c		750
					B’s Capital A/c		250		1,000

			1,000						1,000

Partners’ Capital Accounts
Dr.										Cr.
Particulars	A	B		C	Particulars	A		B		C
Revaluation	750	250			Balance b/d	54,000		35,000
Goodwill	30,000	10,000			Bank					23,200
					Premium for Goodwill	12,000		4,000
					WCF	3,000		1,000
Balance c/d	39,450	30,150		23,200	IFF	1,200		400
	70,200	40,400		23,200		70,200		40,400		23,200

Working Notes:

WN1 Calculation of C's Capital

C's Capital=Total Adjusted Capital of A and B×Reciprocal of Combined Profit Share×C's Profit ShareA's Adjusted Capital

=54,000+12,000+3,000+1,200-750-30,000= ` 39,450

B's Adjusted Capital=35,000+4,000+1,000+400-250-10,000= ` 30,150

C's Capital=(39,450+30,150)×43×14= ` 23,200
Notes:
1. Premium for Goodwill   ` 16,000 will be distributed between A and B in sacrificing ratio i.e. 3 : 1.
2. Excess WCF of   ` 4,000 will be shared in old ratio among old partners.
3. Excess IFF of   ` 1,600 will be shared in old ratio among old partners.