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Page No 4.37:

Question 1:

A and B are sharing profits and losses equally. With effect from 1st April, 2019, they agree to share profits in the ratio of 4 : 3. Calculate individual partner's gain or sacrifice due to the change in ratio.

Answer:

Old Ratio (A and B) = 1 : 1

New Ratio (A and B) = 4 : 3

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

 

A’s Gain = 1/14

B’s Sacrifice = 1/14

Page No 4.37:

Question 2:

X, Y and Z are sharing profits and losses in the ratio of 5 : 3 : 2. With effect from 1st April, 2019, they decide to share profits and losses in the ratio of 5 : 2 : 3. Calculate each partner's gain or sacrifice due to the change in ratio.

Answer:

Old Ratio (X, Y and Z) = 5 : 3 : 2

New Ratio (X, Y and Z) = 5 : 2 : 3

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

 

Z’s Gain = 1/10

Y’s Sacrifice = 1/10

Page No 4.37:

Question 3:

X, Y and Z are sharing profits and losses in the ratio of 5 : 3 : 2. With effect from 1st April, 2019, they decide to share profits and losses equally. Calculate each partner's gain or sacrifice due to the change in ratio.

Answer:

Old Ratio (X, Y and Z) = 5 : 3 : 2

New Ratio (X, Y and Z) = 1 : 1 : 1

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

 

Y’s Gain = 1/30

Z’s Gain = 4/30

X’s Sacrifice = 5/30

Page No 4.37:

Question 4:

A, B and C are partners sharing profits and losses in the ratio of 5 : 4 : 1. Calculate new profit-sharing ratio, sacrificing ratio and gaining ratio in each of the following cases:
Case 1. C acquires 1/5th share from A.
Case 2. C acquires 1/5th share equally form A and B.
Case 3. A, B and C will share future profits and losses equally.
Case 4. C acquires 1/10th share of A and 1/2 share of B.

Answer:

Calculation of New Profit Sharing RatioCase 1:A:B:C=5:4:1(Old Ratio)C acquires 15th from A A's sacrifice = 15 C's gain = 15A=51015=5210=310B=410C=110+15=1+210=310A:B:C=3:4:3Case 2:A:B:C=5:4:1(Old Ratio)C acquires 15th share equally from A A's sacrifice = 110B's sacrifice = 110C's gain = 15A=510110=5110=410B=410110=4110=310C=110+15=1+210=310A:B:C=4:3:3Case 3:A:B:C=5:4:1(Old Ratio)A:B:C=1:1:1(New Ratio)A=51013=151030=530(Sacrifice)B=41013=121030=230(Sacrifice)C=11013=31030=730(Gain)Case 4:A:B:C=5:4:1(Old Ratio)A's sacrifice to C=510×110=120B's sacrifice to C=410×12=420C's gain=120+420=520A=510120=10120=920B=410420=8420=420C=110+520=2+520=720A:B:C=9:4:7

Page No 4.37:

Question 5:

A, B and C shared profits and losses in the ratio of 3 : 2 : 1 respectively. With effect from 1st April, 2019, they agreed to share profits equally. The goodwill of the firm was valued at ₹ 18,000. Pass necessary Journal entries when: (a) Goodwill is adjusted through Partners' Capital Accounts; and (b) Goodwill is raised and written off.

Answer:

Calculation of Gain/Sacrifice made by the partners:

Particulars

A

B

C

Old Ratio

3/6

2/6

1/6

New Ratio

1/3

1/3

1/3

Gain/Sacrifice

1/6 (Sacrifice)

Nil

-1/6 (Gain)

 

Case a)

Journal

 

Date

Particular

L.F.

Debit Amount
(
₹)

Credit Amount
(
₹)

2019

April 1

 

C’s Capital A/c (18,000×1/6)

 

Dr.

 

 

3,000

 

 

To A’s Capital A/c (18,000×1/6)

   

3,000

 

(Being Adjustment for goodwill)

     

 

Case b)

Journal

 

Date

Particular

 

L.F.

Debit Amount
(
₹)

Credit Amount
(
₹)

2019

 

 

     

April 1

Goodwill A/c

Dr.

 

18,000

 

 

To A’s Capital A/c (18,000×3/6)

 

   

9,000

 

To B’s Capital A/c (18,000×2/6)

 

   

6,000

 

To C’s Capital A/c (18,000×1/6)

 

   

3,000

 

(Being goodwill raised in the books)

 

     

 

 

 

     

 

A’s Capital A/c (18,000×1/3)

Dr.

 

6,000

 

 

B’s Capital A/c (18,000×1/3)

Dr.

 

6,000

 

 

C’s Capital A/c (18,000×1/3)

Dr.

 

6,000

 

 

To Goodwill A/c

 

   

18,000

 

(Being goodwill so raised written off)

 

     

 

 



Page No 4.38:

Question 6:

X, Y and Z are partners sharing profits and losses in the ratio of 5 : 3 : 2. From 1st April, 2018, they decided to share profits and losses equally. The Partnership Deed provides that in the event of any change in the profit-sharing ratio, the goodwill should be valued at two years' purchase of the average profit of the preceding five years. The profits and losses of the preceding years ended 31st March, are:

 Year  2013-14 2014-15 2015-16  2016-17 2017-18
 Profits (₹)    70,000  85,000  45,000  35,000 10,000 (Loss)
You are required to calculate goodwill and pass journal entry.
 

Answer:

Journal

Date
2018

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

April 1

Y’s Capital A/c

Dr.

 

3,000

 

 

Z’s Capital A/c  

Dr.

 

12,000

 

 

To X’s Capital A/c

 

 

 

15,000

 

(Amount of goodwill adjusted on change in profit sharing ratio)

 

 

 

 

 

 

 

 

Working Notes:

WN 1 Calculation of Sacrificing (or Gaining) Ratio

Old Ratio (X, Y and Z) = 5 : 3 : 2

New Ratio (X, Y and Z) = 1 : 1 : 1

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

WN 2 Calculation of Goodwill

WN 3 Adjustment of Goodwill

Page No 4.38:

Question 7:

Mandeep, Vinod and Abbas are partners sharing profits and losses in the ratio of 3 : 2 : 1. From 1st April, 2019 they decided to share profits equally. The Partnership Deed provides that in the event of any change in profit-sharing ratio, goodwill shall be valued at three years' purchase of average profit of last five years. The profits and losses of past five years are:
Profit − Year ended 31st March, 2015 − ₹ 1,00,000; 2016 − ₹ 1,50,000; 2018 − ₹ 2,00,000; 2019 − ₹ 2,00,000.
Loss − Year ended 31st March, 2017 − ₹ 50,000.
Pass the Journal entry showing the working.

 

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

(₹)

Credit

Amount

(₹)

2019

 

 

 

 

 

April 1

Abbas’s Capital A/c

Dr.

 

60,000

 

 

     To Mandeep’s Capital A/c

 

 

 

60,000

 

(Adjustment entry made for change in ratio)

 

 

 

 

 

Working Notes:

WN1: Calculation of Sacrifice or Gain

Mandeep :Vinod :Abbas=3:2:1(Old Ratio)Mandeep :Vinod :Abbas=1:1:1(New Ratio)Sacrificing (or Gaining Ratio) = Old Ratio - New RatioMandeep's share=3613=326=16(Sacrifice)Vinod's share=2613=226=0Abbas's share=1613=126=16(Gain)


WN2: Valuation of Goodwill

Goodwill=Average Profit×No. of years' Purchase               =1,20,000×3=Rs 3,60,000

Average Profit=Total Profits of past years givenNumber of years                        =1,00,000+1,50,000+2,00,000+2,00,00050,0005=Rs 1,20,000

WN3: Adjustment of  Goodwill



Amount debited to Abbas's Capital A/c=3,60,000×16=Rs 60,000 (share of gain)Amount credited to Mandeep's Capital A/c=3,60,000×16=Rs 60,000 (share of sacrifice)

Page No 4.38:

Question 8:

X, Y and Z are partners sharing profits and losses in the ratio of 5 : 3 : 2, decided to share future profits and losses equally with effect from 1st April, 2019. On that date, the goodwill appeared in the books at â‚¹ 12,000. But it was revalued at â‚¹ 30,000. Pass Journal entries assuming that goodwill will not appear in the books of account.

Answer:

Journal

Date
 

Particulars

L.F.

Debit

Amount

(₹)

Credit

Amount

(₹)

2019
April  1


X’s Capital A/c


Dr.

 


6,000

 

 

Y’s Capital A/c

Dr.

 

3,600

 

 

Z’s Capital A/c 

Dr.

 

2,400

 

 

To Goodwill A/c

 

 

 

12,000

 

(Goodwill written off)

 

 

 

 

 

 

 

 

2019

Y’s Capital A/c

Dr.

 

1,000

 

April 1

Z’s Capital A/c

Dr.

 

4,000

 

 

To X’s Capital A/c

 

 

5,000

 

(Amount of goodwill adjusted on change in profit sharing ratio)

 

 

 

 

 

 

 

 

Working Notes:

WN 1 Calculation of Sacrificing (or Gaining) Ratio

Old Ratio (X, Y and Z) = 5 : 3 : 2

New Ratio (X, Y and Z) = 1 : 1 : 1

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

WN 2 Writing off of Old Goodwill

WN 3 Adjustment of Goodwill

Page No 4.38:

Question 9:

A and B are partners in a firm sharing profits in the ratio of 2 : 1. They decided with effect from 1st April, 2018, that they would share profits in the ratio of 3 : 2. But, this decision was taken after the profit for the year ended 31st March, 2019 of ₹ 90,000 was distributed in the old ratio.
The profits for the year ended 31st March, 2017 and 2018 were â‚¹ 60,000 and â‚¹ 75,000 respectively. It was decided that Goodwill Account will not be opened in the books of the firm and necessary adjustment be made through Capital Accounts which on 31st March, 2019 stood at â‚¹ 1,50,000 for A and â‚¹ 90,000 for B.
Pass necessary Journal entries and prepare Capital Accounts. 

Answer:

Journal

Date
 

Particulars

L.F.

Debit

Amount

(₹)

Credit

Amount

(₹)

2018
April 1


A’s Capital A/c


Dr.

 


6,000

 

 

To B’s Capital A/c

 

 

6,000

 

(Adjustment of profit for 2018-19 on change in profit sharing ratio)

 

 

 

 

 

 

 

 

April 1

B’s Capital A/c

Dr.

 

9,000

 

 

To A’s Capital A/c

 

 

9,000

 

(Adjustment of goodwill made on change in profit sharing ratio)

 

 

 

 

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

 

 

 

Cr.

Particulars

A

B

Particulars

A

B

B's Capital A/c

6,000

Balance b/d

1,50,000

90,000

(Adjustment of profit)

 

 

A's Capital A/c

6,000

A's Capital A/c

9,000

(Adjustment Profit)

 

 

(Adjustment of Goodwill)

 

 

B's Capital A/c

9,000

Balance c/d

1,53,000

87,000

(Adjustment of Goodwill)

 

 

 

1,59,000

96,000

 

1,59,000

96,000

 

 

 

 

 

 

Working Notes:

WN 1 Calculation of Sacrificing (or Gaining) Ratio

Old Ratio (A and B) = 2 : 1

New Ratio (A and B) = 3 : 2

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

WN 2 Adjustment of Profit for 2016-17

WN 3 Calculation of New Goodwill

Goodwill=Profit of 2014-15 +Profit of 2015-16               =60,000+75,000=Rs 1,35,000

WN 4
Adjustment of Goodwill

Page No 4.38:

Question 10:

Jai and Raj are partners sharing profits in the ratio of 3 : 2. With effect from 1st April, 2019, they decided to share profits equally. Goodwill appeared in the books at â‚¹ 25,000. As on 1st April, 2019, it was valued at â‚¹ 1,00,000. They decided to carry goodwill in the books of the firm.
Pass the Journal entry giving effect to the above.

Answer:

Journal
Date
Particulars
L.F.
Debit
Amount
(₹)
Credit
Amount
(₹)
2019
Apr.1
 
Raj’s Capital A/c

Dr.
 

7,500
 
 
  To Jai’s Capital A/c
 
 
 
7,500
 
(Adjustment for goodwill)
 
 
 
 

Working Notes:

Calculation of Gaining/Sacrificing Ratio
 

Sacrificing Ratio = Old Ratio ─ New Ratio

Jai=35-12=110(sacrifice)Raj=25-12=110(gain)

Goodwill to be adjusted = 1,00,000 ─ 25,000 = 75,000

Jai's Share=75,000×110=7,500 (credit, since sacrificing)Raj's Share=75,000×110=7,500 (debit, since gaining)

Page No 4.38:

Question 11:

X and Y are partners in a firm sharing profits and losses in the ratio of 3 : 2. With effect from 1st April, 2019, they decided to share future profits equally. On the date of change in the profit-sharing ratio, the Profit and Loss Account showed a credit balance of â‚¹ 1,50,000. Record the necessary Journal entry for the distribution of the balance in the Profit and Loss Account immediately before the change in the profit-sharing ratio.  

Answer:

Journal

Date
 

Particulars

L.F.

Debit

Amount

(₹)

Credit

Amount

(₹)

2019
April 1


Profit & Loss A/c


Dr.

 


1,50,000

 

 

  To X’s Capital A/c

 

 

 

90,000

 

  To Y’s Capital A/c

 

 

 

60,000

 

(Adjustment of balance in P&L A/c in old ratio)

 

 

 

 

Working Notes:

WN1 Calculation of Share of Profit and Loss A/c

X's share=1,50,000×35=90,000Y's share=1,50,000×25=60,000

 



Page No 4.39:

Question 12:

and B are partners in a firm sharing profits in the ratio of 4 : 1. They decided to share future profits in the ratio of 3 : 2 w.e.f. 1st April, 2019. On that day, Profit and Loss Account showed a debit balance of â‚¹ 1,00,000. Pass Journal entry to give effect to the above.

Answer:

Journal

Date
 

Particulars

L.F.

Debit

Amount

(₹)

Credit

Amount

(₹)

2019

 

 

 

 

 

April 1

A’s Capital A/c

Dr.

 

80,000

 

 

 B’s Capital A/c

Dr.

 

20,000

 

 

    To Profit & Loss  A/c

 

 

 

1,00,000

 

(Profit & Loss  distributed)

 

 

 

 

 

 

 

 

 

 

 

Page No 4.39:

Question 13:

X, Y and Z are sharing profits and losses in the ratio of 5 : 3 : 2. They decide to share future profits and losses in the ratio of 2 : 3 : 5 with effect from 1st April, 2019. They also decide to record the effect of the following accumulated profits, losses and reserves without affecting their book values by passing a single entry .

   Book Values (₹)
 General Reserve  6,000
 Profit and Loss A/c (Credit) 24,000
 Advertisement Suspense A/c 12,000
Pass an Adjustment Entry.

Answer:

Journal


Date
 

Particulars

L.F.

Debit

Amount

(₹)

Credit

Amount

(₹)

2019
April 1


Z’s Capital A/c


Dr.

 


5,400

 

 

To X’s Capital A/c

 

 

 

5,400

 

(Adjustment for General Reserve, Profit and Loss A/c and Advertisement Suspense account is made on change in profit sharing ratio)

 

 

 

 

 

 

 

 

Working Notes:

WN 1

WN 2 Calculation of Sacrificing (or Gaining) Ratio

Old Ratio (X, Y and Z) = 5 : 3 : 2

New Ratio (X, Y and Z) = 2 : 3 : 5

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

Page No 4.39:

Question 14:

A, B and C who are presently sharing profits and losses in the ratio of 5 : 3 : 2 decide to share future profits and losses in the ratio of 2 : 3 : 5. Give the Journal entry to distribute 'Workmen Compensation Reserve' of â‚¹ 1,20,000 at the time of change in profit-sharing ratio, when:
(i) no information is given; (ii) there is no claim against it.

Answer:

(i) & (ii)

Journal

Date

Particulars

L.F.

Debit

Amount

(₹)

Credit

Amount

(₹)

 

 

 

 

 

 

 

Workmen Compensation Reserve A/c

Dr.

 

1,20,000

 

 

      To A’s Capital A/c

 

 

 

60,000

 

      To B’s Capital A/c

 

 

 

36,000

 

      To C’s Capital A/c

 

 

 

24,000

 

(Workmen Compensation Reserve distributed)

 

 

 

 

 

Note:

In the both the cases, Workmen Compensation Reserve should be distributed in old ratio i.e., 5:3:2.

Page No 4.39:

Question 15:

X, Y and Z who are presently sharing profits and losses in the ratio of 5 : 3 : 2 decide to share future profits and losses in the ratio of 2 : 3 : 5. Give the journal entry to distribute 'Workmen Compensation Reserve' of â‚¹ 1,20,000 at the time of change in profit-sharing ratio, when there is a claim of ₹ 80,000 against it.

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

(Rs)

Credit

Amount

(Rs)

 

Workmen Compensation Reserve A/c

Dr.

 

1,20,000

 

 

  To X’s Capital A/c

 

 

 

20,000

 

  To Y’s Capital A/c

 

 

 

12,000

 

  To Z’s Capital A/c

 

 

 

8,000

    To Workmen Compensation Claim A/c       80,000

 

(Adjustment of balance in Workmen Compensation Reserve A/c in old ratio)

 

 

 

 

Working Notes:

WN1 Calculation of Share of Workmen Compensation Reserve
X's share=40,000×510=20,000Y's share=40,000×310=12,000Z's share=40,000×210=8,000

Page No 4.39:

Question 16:

X, Y and Z who are sharing profits in the ratio of 5 : 3 : 2, decide to share profits in the ratio of 2 : 3 : 5 with effect from 1st April, 2019. Workmen Compensation Reserve appears at ₹ 1,20,000 in the Balance Sheet as at 31st March, 2019 and Workmen Compensation Claim is estimated at ₹ 1,50,000. Pass Journal entries for the accounting treatment of Workmen Compensation Reserve. 

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

(₹)

Credit

Amount

(₹)

2019
April 1

 

 

 

 

 

 

Workmen Compensation Reserve A/c

Dr.

 

1,20,000

 

 

Revaluation A/c

Dr.

 

30,000

 

 

    To Provision for Workmen Compensation Claim A/c

 

 

 

1,50,000

 

(Provision created and shortfall charged to Revaluation A/c)

 

 

 

 

 

 

 

 

 

 

 

X’s Capital A/c

Dr.

 

15,000

 

 

Y’s Capital A/c

Dr.

 

9,000

 

 

Z’s Capital A/c

Dr.

 

6,000

 

 

    To Revaluation A/c

 

 

 

30,000

 

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

 

 

 

 

Page No 4.39:

Question 17:

A, B and C who are presently sharing profits and losses in the ratio of 5 : 3 : 2 decide to share future profits and losses in the ratio of 2 : 3 : 5. Give the journal entry to distribute 'Investments Fluctuation Reserve' of â‚¹ 20,000 at the time of change in profit-sharing ratio, when investment (market value â‚¹ 95,000) appears in the books at â‚¹ 1,00,000.

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

(Rs)

Credit

Amount

(Rs)

 

Investment Fluctuation Reserve A/c

Dr.

 

5,000

 

 

  To Investments A/c

 

 

5,000

 

(Adjustment for decrease in the value of investments)

 

 

 

 

 

 

 

 

 

 

Investment Fluctuation Reserve A/c

Dr.

 

15,000

 

 

  To A’s Capital A/c

 

 

 

7,500

 

  To B’s Capital A/c

 

 

 

4,500

 

  To C’s Capital A/c

 

 

 

3,000

 

(Adjustment of balance in Investment Fluctuation Reserve A/c in old ratio)

 

 

 

 

Working Notes:
WN1 Calculation of Share of Investment Fluctuation Reserve
A's share=15,000×510=7,500B's share=15,000×310=4,500C's share=15,000×210=3,000

Page No 4.39:

Question 18:

Nitin, Tarun and Amar are partners sharing profits equally and decide to share profits in the ratio of 2 : 2 : 1 w.e.f. 1st April, 2019. The extract of their Balance Sheet as at 31st March, 2019 is as follows:

Liabilities ₹   Assets ₹ 
Investments Fluctuation Reserve 60,000 Investments (At Cost) 4,00,000

Pass the Journal entries in each of the following situations:
(i) When its Market Value is not given;
(ii) When its Market Value is ₹ 4,00,000;
(iii) When its Market Value is ₹ 4,24,000;
(iv) When its Market Value is ₹ 3,70,000;
(v) When its Market Value is ₹ 3,10,000.

Answer:

Journal

Date
 

Particulars

L.F.

Debit

Amount

(₹)

Credit

Amount

(₹)

2019

 

 

 

 

 

April 1

Investment Fluctuation Reserve A/c

Dr.

 

60,000

 

 

   To Nitin’s Capital A/c

 

 

 

20,000

 

   To Tarun’s Capital A/c

 

 

 

20,000

 

   To Amar’s Capital A/c

 

 

 

20,000

 

(Investment Fluctuation Reserve distributed)

 

 

 

 

 

 

 

 

 

 

 

Investment Fluctuation Reserve A/c

Dr.

 

60,000

 

 

   To Nitin’s Capital A/c

 

 

 

20,000

 

   To Tarun’s Capital A/c

 

 

 

20,000

 

   To Amar’s Capital A/c

 

 

 

20,000

 

(Investment Fluctuation Reserve distributed)

 

 

 

 

 

 

 

 

 

 

 

Investment Fluctuation Reserve A/c

Dr.

 

60,000

 

 

   To Nitin’s Capital A/c

 

 

 

20,000

 

   To Tarun’s Capital A/c

 

 

 

20,000

 

   To Amar’s Capital A/c

 

 

 

20,000

 

(Investment Fluctuation Reserve distributed)

 

 

 

 

 

 

 

 

 

 

 

Investments A/c

Dr.

 

24,000

 

 

    To Revaluation A/c

 

 

 

24,000

 

(Investments revalued)

 

 

 

 

 

 

 

 

 

 

 

Revaluation A/c

Dr.

 

24,000

 

 

   To Nitin’s Capital A/c

 

 

 

8,000

 

   To Tarun’s Capital A/c

 

 

 

8,000

 

   To Amar’s Capital A/c

 

 

 

8,000

 

(Revaluation profit transferred to Partners’ Capital A/c)

 

 

 

 

 

 

 

 

 

 

 

Investment Fluctuation Reserve A/c

Dr.

 

60,000

 

 

   To Investment A/c

 

 

 

30,000

 

   To Nitin’s Capital A/c

 

 

 

10,000

 

   To Tarun’s Capital A/c

 

 

 

10,000

 

   To Amar’s Capital A/c

 

 

 

10,000

 

(Investment Fluctuation Reserve distributed)

 

 

 

 

 

 

 

 

 

 

 

Investment Fluctuation Reserve A/c

Dr.

 

60,000

 

 

Revaluation A/c

Dr.

 

30,000

 

 

     To Investment A/c

 

 

 

90,000

 

(Decrease in investments set off against IFR and balance debited to Revaluation A/c)

 

 

 

 

 

 

 

 

 

 

 

Nitin’s Capital A/c

Dr.

 

10,000

 

 

Tarun’s Capital A/c

Dr.

 

10,000

 

 

Amar’s Capital A/c

Dr.

 

10,000

 

 

      To Revaluation A/c

 

 

 

30,000

 

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

 

 

 



Page No 4.40:

Question 19:

X and Y are partners sharing profits in the ratio of 2 : 1. On 31st March, 2019, their Balance Sheet showed General Reserve of â‚¹ 60,000. It was decided that in future they will share profits and losses in the ratio of 3 : 2. Pass necessary Journal entry in each of the following alternative cases:
(i) When General Reserve is not to be shown in the new Balance Sheet.
(ii) When General Reserve is to be shown in the new Balance Sheet.

Answer:

(i) If they do not want to show General Reserve in the new Balance Sheet

Journal

Date
 

Particulars

L.F.

Debit

Amount

(₹)

Credit

Amount

(₹)

2019
April 1


General Reserve A/c


Dr.

 


60,000

 

 

  To X’s Capital A/c

 

 

 

40,000

 

  To Y’s Capital A/c

 

 

 

20,000

 

(Adjustment of balance in General Reserve A/c in old ratio)

 

 

 

 


Working Notes:

WN1 Calculation of Share of General Reserve

X's share=60,000×23=40,000Y's share=60,000×13=20,000

 

(ii) If they want to show General Reserve in the new Balance Sheet

Journal

Date
 

Particulars

L.F.

Debit

Amount

(₹)

Credit

Amount

(₹)

2019
April 1


Y’s Capital A/c


Dr.

 


4,000

 

 

  To X’s Capital A/c

 

 

 

4,000

 

(Adjustment of balance in General Reserve A/c in sacrificing/gaining ratio)

 

 

 

 

Working Notes:

WN1 Calculation of Gain/Sacrfice


Sacrificing Ratio=Old Ratio-New RatioX=23-35=115(sacrifice)Y=13-25=-115(gain)

WN2 Calculation of Compensation by Y to X

Amount to be compensated=60,000×115=4,000

 

Page No 4.40:

Question 20:

Bhavya and Sakshi are partners in a firm, sharing profits and losses in the ratio of 3 : 2. On 31st March, 2018 their Balance Sheet was as under:

BALANCE SHEET OF BHAVYA AND SAKSHI
as at 31st March, 2018
Liabilities Amount
(₹)
Assets Amount
(₹)
Sundry Creditors   13,800 Furniture 16,000
General Reserve   23,400 Land and Building 56,000
Investment Fluctuation Fund   20,000 Investments 30,000
Bhavya's Capital   50,000 Trade Receivables 18,500
Sakshi's Capital 40,000 Cash in Hand 26,700
  1,47,200     1,47,200 
       

The partners have decided to change their profit sharing ratio to 1 : 1 with immediate effect. For the purpose, they decided that:
(i) Investments to be valued at â‚¹ 20,000.
(ii) Goodwill of the firm be valued at â‚¹ 24,000.
(iii) General Reserve not to be distributed between the partners.
You are required to pass necessary Journal entries in the books of the firm. Show workings.

​

Answer:

In the books of Bhavya and Sakshi

Journal

Date

Particulars

 

L.F.

Debit
Amount

(₹)

Credit
Amount

(₹)

2018

 

 

 

 

 

March 31

Investment Fluctuation Fund A/c

Dr.

 

20,000

 

 

  To Investments A/c

 

 

 

10,000

 

  To Bhavya’s Capital A/c

 

 

 

6,000

 

  To Sakshi’s Capital A/c

 

 

 

4,000

 

(Being depreciation in the value of investment provided for and excess amount distributed)

 

 

 

 

 

 

 

 

 

 

March 31

Sakshi’s Capital A/c (24,000×1/10)

Dr.

 

2,400

 

 

To Bhavya’s Capital A/c (24,000×1/10)

 

 

 

2,400

 

(Being adjustment for goodwill due to change in profit-sharing ratio)

 

 

 

 

 

 

 

 

 

 

March 31

Sakshi’s Capital A/c (23,400×1/10)

Dr.

 

2,340

 

 

To Bhavya’s Capital A/c (23,400×1/10)

 

 

 

2,340

 

(Being adjustment for general reserve not distributed)

 

 

 

 

Working Notes:

Particulars

Bhavya

Sakshi

Old Ratio

3/5

2/5

New Ratio

1/2

1/2

Gain/Sacrifice

(3/5 – 1/2)= 1/10 (Sacrifice)

(2/5 – 1/2)= (-1/10) (Gain)

Page No 4.40:

Question 21:

X, Y and Z share profits as 5 : 3 : 2. They decide to share their future profits as 4 : 3 : 3 with effect from 1st April, 2019. On this date the following revaluations have taken place:

   Book Values (₹) Revised Values (₹)
Investments  22,000 25,000
Plant and Machinery  25,000 20,000
Land and Building  40,000 50,000
Outstanding Expenses  5,600 6,000
Sundry Debtors  60,000 50,000
Trade Creditors  70,000 60,000
Pass necessary adjustment entry to be made because of the above changes in the values of assets and liabilities. However, old values will continue in the books . 

Answer:

Journal

Date
 

Particulars

L.F.

Debit

Amount

(₹)

Credit

Amount

(₹)

2019
April 1


Z’s Capital A/c


Dr.

 


760

 

 

To X’s Capital A/c

 

 

 

760

 

(Adjustment of revaluation profit made)

 

 

 

 

 

 

 

 

Working Notes:

WN 1 Calculation of Net Profit or Loss on Revaluation

Particulars Amount
(₹)

Increase in Investment

3,000 (Cr.)

Decrease in Plant and Machinery

(5,000) (Dr.)

Increase in Land and Building

10,000 (Cr.)

Increase in Outstanding Expenses

(400) (Dr.)

Decrease in Sunday Debtors

(10,000) (Dr.)

Decrease in Trade Creditors

10,000 (Cr.)

Profit on Revaluation

7,600 (Cr.)

 

 

WN 2 Calculation of Sacrificing (or Gaining) Ratio

Old Ratio (X, Y and Z) = 5 : 3 : 2

New Ratio (X, Y and Z) = 4 : 3 : 3

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

 

WN 3 Adjustment of Revaluation Profit



Page No 4.41:

Question 22:

Ashish, Aakash and Amit are partners sharing profits and losses equally. The Balance Sheet as at 31st March, 2019 was as follows:

 

Liabilities

Amount
(₹)

Assets

Amount
(₹)

Sundry Creditors 75,000 Cash in Hand 24,000
General Reserve 90,000 Cash at Bank 1,40,000
Capital A/cs:   Sundry Debtors

80,000

  Ashish

3,00,000

  Stock 1,40,000
  Aakash 3,00,000   Land and Building 4,00,000
  Amit

2,75,000

8,75,000 Machinery 2,50,000
      Advertisement Suspense 6,000
         
    10,40,000   10,40,000
   

 

 

 


​The partners decided to share profits in the ratio of 2 : 2 : 1 w.e.f. 1st April, 2019. They also decided that:
(i) Value of stock to be reduced to â‚¹ 1,25,000.
(ii) Value of machinery to be decreased by 10%.
(iii) Land and Building to be appreciated by â‚¹ 62,000.
(iv) Provision for Doubtful Debts to be made @ 5% on Sundry Debtors.
(v) Aakash was to carry out reconstitution of the firm at a remuneration of â‚¹ 10,000. 
Pass necessary Journal entries to give effect to the above.

Answer:

Journal

Date
 

Particulars

L.F.

Debit

Amount

(₹)

Credit

Amount

(₹)

2019

 

 

 

 

 

April 1

General Reserve A/c

Dr.

 

90,000

 

 

      To Ashish’s Capital A/c

 

 

 

30,000

 

      To Akash’s Capital A/c

 

 

 

30,000

 

      To Amit’s Capital A/c

 

 

 

30,000

 

(Reserve distributed)

 

 

 

 

 

 

 

 

 

 

April 1

Ashish’s Capital A/c

Dr.

 

2,000

 

 

Akash’s Capital A/c

Dr.

 

2,000

 

 

Amit’s Capital A/c

Dr.

 

2,000

 

 

     To Advertisement Suspense A/c

 

 

 

6,000

 

(Advertisement Suspense distributed)

 

 

 

 

 

 

 

 

 

 

April 1

Revaluation A/c

Dr.

 

54,000

 

 

     To Stock A/c

 

 

 

15,000

 

     To Machinery A/c

 

 

 

25,000

 

     To Provision for Doubtful Debts A/c

 

 

 

4,000

 

     To Akash’s Capital A/c (Remuneration)

 

 

 

10,000

 

(Assets revalued)

 

 

 

 

 

 

 

 

 

 

April 1

Land & Building A/c

Dr.

 

62,000

 

 

    To Revaluation A/c

 

 

 

62,000

 

(Assets revalued)

 

 

 

 

 

 

 

 

 

 

April 1

Revaluation A/c

Dr.

 

8,000

 

 

      To Ashish’s Capital A/c

 

 

 

2,666

 

      To Akash’s Capital A/c

 

 

 

2,666

 

      To Amit’s Capital A/c

 

 

 

2,667

 

(Profit made)

 

 

 

 

 

 

 

 

 

 

Page No 4.41:

Question 23:

​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 â‚¹ 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 â‚¹ 20,000 was unrecorded and is now to be recorded in the books.
(v) Out of Sundry Creditors, â‚¹ 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 â‚¹ 5,000. Expenses came to â‚¹ 3,000.
Pass Journal entries and prepare Revaluation Account.

Answer:

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 RatioA's share=51013=151030=530(Sacrifice)B's share=31013=91030=130(Gain)C's share=21013=61030=430(Gain)


WN2: Valuation of Goodwill

Goodwill=Average Profit×No. of years' Purchase               =1,50,000×2=Rs 3,00,000

WN3: Adjustment of Goodwill
Amount credited to A's Capital A/c=3,00,000×530=Rs 50,000Amount debited to B's Capital A/c=3,00,000×130=Rs 10,000Amount debited to C's Capital A/c=3,00,000×430=Rs 40,000


 



Page No 4.42:

Question 24:

AB and C are sharing profits and losses in the ratio of 2 : 2 : 1. They decided to share profit w.e.f. 1st April, 2019 in the ratio of 5 : 3 : 2. They also decided not to change the values of assets and liabilities in the books of account. The book values and revised values of assets and liabilities as on the date of change were as follows:
​

  Book values (₹)  Revised values (₹)
Machinery 2,50,000 3,00,000
Computers 2,00,000 1,75,000
Sundry Creditors 90,000 75,000
Outstanding Expenses 15,000 25,000

Pass an adjustment entry.

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

(₹)

Credit

Amount

(₹)

2019

 

 

 

 

 

April 1

A’s Capital A/c (30,000×110=3,000)

Dr.

 

3,000

 

 

    To B’s Capital A/c

 

 

 

3,000

 

(Adjustment entry made for change in ratio)

 

 

 

 

 

 

 

 

 

 

 

Working Notes:

WN1: Calculation of Sacrifice or Gain

A:B:C=2:2:1(Old Ratio)A:B:C=5:3:2(New Ratio)Sacrificing (or Gaining Ratio) = Old Ratio - New RatioA's share=25510=4510=110(Gain)B's share=25310=4310=110(Sacrifice)C's share=15210=2210=0


WN2: Calculation of Profit or Loss on Revaluation

Revaluation A/c

Dr.

 

Cr.

Particulars

Amount

(₹)

Particulars

Amount

(₹)

Computers A/c

25,000

Machinery A/c

50,000

Outstanding expenses A/c

10,000

Creditors A/c

15,000

Profit on Revaluation

30,000

 

 

 

 

 

 

 

65,000

 

65,000

 

 

 

 

Page No 4.42:

Question 25:

​X, Y and Z are partners sharing profits and losses in the ratio of 7 : 5 : 4. Their Balance Sheet as at 31st March, 2019 stood as:

 
Liabilities Amount (₹) Assets Amount (₹)
Capital A/cs:   Sundry Assets 7,00,000
 X 2,10,000      
 Y 1,50,000      
 Z 1,20,000 4,80,000    
General Reserve   65,000    
Profit and Loss A/c   25,000    
Creditors   1,30,000    
         
    7,00,000   7,00,000
         

Partners decided that with effect from 1st April, 2019, they will share profits and losses in the ratio of 3 : 2 : 1. For this purpose, goodwill of the firm was valued at â‚¹ 1,50,000. The partners neither want to record the goodwill nor want to distribute the General Reserve and profits.
Pass a Journal entry to record the change and prepare Balance Sheet of the constituted firm.

Answer:

Journal

Date
 

Particulars

L.F.

Debit

Amount

(₹)

Credit

Amount

(₹)

2019
April 1


X’s Capital A/c  


Dr.

 

15,000

 

 

Y’s Capital A/c

Dr.

 

5,000

 

 

To Z’s Capital A/c

 

 

20,000

 

(Adjustment made for Goodwill, General Reserve and Profit and Loss Account on change in profit sharing ratio)

 

 

 

 

 

 

 

 

 

Balance Sheet
as on 01st April, 2019

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Capital A/c s:

 

Sunday Assets

7,00,000

X

1,95,000

 

 

 

Y

1,45,000

 

 

 

Z

1,40,000

4,80,000

 

 

General Reserve

65,000

 

 

Profit and Loss A/c

25,000

 

 

Creditors

1,30,000

   
  7,00,000   7,00,000

 

 

 

 

Working Notes:

WN 1 Calculation of Sacrificing (or Gaining) Ratio

Old Ratio (X, Y and Z) = 7 : 5 : 4

New Ratio (X, Y and Z) = 3 : 2 : 1

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

WN 2 Adjustment of General Reserve, Profit and Loss Account and Goodwill

Total Amount for Adjustment = General Reserve + Profit and Loss Account + Goodwill

= 65,000 + 25,000 + 1,50,000 = Rs 2,40,000

WN 3

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

X

Y

Z

Particulars

X

Y

Z

Z's Capital A/c

15,000

5,000

Balance b/d

2,10,000

1,50,000

1,20,000

 

 

 

 

X's Capital A/c

15,000

 

 

 

 

Y's Capital A/c

5,000

Balance c/d

1,95,000

1,45,000

1,40,000

 

 

 

 

 

2,10,000

1,50,000

1,40,000

 

2,10,000

1,50,000

1,40,000

 

 

 

 

 

 

 

 

Page No 4.42:

Question 26:

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

   
Liabilities
Amount
(₹)
Assets
Amount
​(₹)
Creditors 50,000 Land 50,000
Bills Payable 20,000 Building 50,000
General Reserve 30,000 Plant 1,00,000
Capital A/cs:   Stock 40,000
 A 1,00,000   Debtors 30,000
 B 50,000   Bank 5,000
 C  25,000 1,75,000    
  2,75,000   2,75,000
       

​ From 1st April, 2015, A, B and C decided to share profits equally. For this it was agreed that:
(i) Goodwill of the firm will be valued at â‚¹ 1,50,000.
(ii) Land will be revalued at â‚¹ 80,000 and building be depreciated by 6%.
(iii) Creditors of â‚¹ 6,000 were not likely to be claimed and hence should be written off.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the reconstituted firm.

Answer:

Revaluation Account

Dr.

Cr.

Particulars

Amount

(Rs)

Particulars

Amount

(Rs)

Building A/c

3,000

Land A/c

30,000

Revaluation Profit

 

Creditors A/c

6,000

A

16,500

 

 

 

B

11,000

 

 

 

C

5,500

33,000

 

 

 

 

 

 

 

36,000

 

36,000

 

 

 

 

 

Partners’ Capital Account

Dr.

Cr.

Particulars

A

B

C

Particulars

A

B

C

A’s Capital A/c

 

 

25,000

Balance b/d

1,00,000

50,000

25,000

Balance c/d

1,56,500

71,000

10,500

R/v Profit

16,500

11,000

5,500

 

 

 

 

General Reserve

15,000

10,000

5,000

 

 

 

 

C’s Capital A/c

25,000

 

 

 

1,56,500

71,000

35,500

 

1,56,500

71,000

35,500

 

 

 

 

 

 

 

 

 

 

Balance Sheet

as on March 31, 2015 

Liabilities

Amount

(Rs)

Assets

Amount

(Rs)

Capital A/c

 

Land

50,000

 

A

1,56,500

 

Add: Increase

30,000

80,000

B

71,000

 

Building

50,000

 

C

10,500

2,38,000

Less: Dep.

3,000

47,000

 

 

Plant

1,00,000

Creditors

50,000

 

Bank

5,000

Less: Written-off

6,000

44,000

Stock

40,000

Bills Payable

20,000

Debtors

30,000

 

 

 

 

 

3,02,000

 

3,02,000

 

 

 

 

 

Working Notes

 
​



Page No 4.43:

Question 27:

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 â‚¹ 1,90,000.
(iv) An amount of â‚¹ 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.

Answer:

Journal

Date
 

Particulars

L.F.

Debit

Amount

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