how is the capital adjustment done here
X, Y and Z are partners with a profit sharing ratio of 3:1:1. 'Z' decided to retire and to use the final settlement amount for the construction of a overhead tank in a village to provide water to the people. On Z's retirement, the capital balances after all adjustments for goodwill, reserve etc., amounted to : X = 3,50,000 ; Y=4,00,000; Z=2,80,000. There was a machine which was not recorded in the books. It is now valued at Rs. 1,00,000. 'Z' agreed to take it at that valye. Balance settlement to be made to 'Z' was brought in by 'X' and 'Y' in such a way that their capitals are in proportion to their new profit sharing ratio which is 3:2. Showing your working clearly, pass journal entries for the above transactions and identify the value involved.
Dear Student,
Amount Payable to Z = 2,80,000
Agreed Value of Machine = 1,00,000 (taken over by Z)
Balance Amount Payable = 1,80,000
Total Capital (after all adjustments) = 3,50,000 + 4,00,000 + 1,80,000 = 9,30,000
X's New Capital > X's Existing Capital (X will bring in Rs 2,08,000)
Y's New Capital < Y's Existing Capital (Y will withdraw Rs 28,000)
Values Involved:
- Development of Remote Area
- Care and Empathy for the People
| Journal | |||||
| Date | Particulars | L.F. | Debit Amount (Rs) |
Credit Amount (Rs) |
|
| Z’s Capital A/c | Dr. | 1,00,000 | |||
| To Machinery A/c | 1,00,000 | ||||
| (Machinery taken over by Z) | |||||
| Cash/Bank A/c | Dr. | 2,08,000 | |||
| To X’s Capital A/c | 2,08,000 | ||||
| (Cash brought in by X) | |||||
| Y’s Capital A/c | Dr. | 28,000 | |||
| To Cash/Bank A/c | 28,000 | ||||
| (Cash withdrawn by Y) | |||||
Amount Payable to Z = 2,80,000
Agreed Value of Machine = 1,00,000 (taken over by Z)
Balance Amount Payable = 1,80,000
Total Capital (after all adjustments) = 3,50,000 + 4,00,000 + 1,80,000 = 9,30,000
X's New Capital > X's Existing Capital (X will bring in Rs 2,08,000)
Y's New Capital < Y's Existing Capital (Y will withdraw Rs 28,000)
Values Involved:
- Development of Remote Area
- Care and Empathy for the People