A, B and C are partners sharing profits and losses in the ratio 5:3:2 . Their Balance Sheer as 31st March, 2017 stood as follows :Liabilities Rs. Assets Rs. Capital A/cs' :
A 2,50,000
B 2,50,000
C 2,00,000
7,00,000Land and Building 3,50,000 General Reserve 60,000 Machinery 2,40,000 Investments Fluctuation Reserve 30,000 Computers 70,000 Sundry Creditors 90,000 Investments (Market Value Rs. 90,000) 1,00,000 Sundry Debtors 50,000 Cash in Hand 10,000 Cash at Bank 55,000 Advertisement Suspense 5,000 8,80,000 8,80,000
They decide to share profits equally w.e.f. 1st April, 2017 . They also agreed that :
(i) Value of Land and Building be decreased by 5%
(ii) Value of Machinery be decreased by 5%
(iii) A Provision for Doubtful Debts be created @ 5% on Sundry Debtors.
(iv) A motor cycle valued at Rs. 20,000 was unrecorded and is now to be recorded in the books.
(v) Out of Sundry Creditors, Rs. 10,000 is not payable.
(vi) Goodwill is to be valued at 2 years' purchase of last 3 years profits. Profits being for 2016−17 - Rs. 50,000 (Loss) ; 2015−16 - Rs. 2,50,000 and 2014−15 - Rs. 2,50,000
(vii) C was to carry out the work for reconstituting the firm at a remuneration (including expenses) of Rs. 5,000 . Expenses came to Rs. 3,000.
Pass Journal entries and prepare Revaluation Account.
| Liabilities | Rs. | Assets | Rs. |
| Capital A/cs' : A 2,50,000 B 2,50,000 C 2,00,000 | 7,00,000 | Land and Building | 3,50,000 |
| General Reserve | 60,000 | Machinery | 2,40,000 |
| Investments Fluctuation Reserve | 30,000 | Computers | 70,000 |
| Sundry Creditors | 90,000 | Investments (Market Value Rs. 90,000) | 1,00,000 |
| Sundry Debtors | 50,000 | ||
| Cash in Hand | 10,000 | ||
| Cash at Bank | 55,000 | ||
| Advertisement Suspense | 5,000 | ||
| 8,80,000 | 8,80,000 |
(i) Value of Land and Building be decreased by 5%
(ii) Value of Machinery be decreased by 5%
(iii) A Provision for Doubtful Debts be created @ 5% on Sundry Debtors.
(iv) A motor cycle valued at Rs. 20,000 was unrecorded and is now to be recorded in the books.
(v) Out of Sundry Creditors, Rs. 10,000 is not payable.
(vi) Goodwill is to be valued at 2 years' purchase of last 3 years profits. Profits being for 2016−17 - Rs. 50,000 (Loss) ; 2015−16 - Rs. 2,50,000 and 2014−15 - Rs. 2,50,000
(vii) C was to carry out the work for reconstituting the firm at a remuneration (including expenses) of Rs. 5,000 . Expenses came to Rs. 3,000.
Pass Journal entries and prepare Revaluation Account.
Journal entries
Date
Particulars
Amt.(Dr.)
Amt.(Cr.)
1.
Revaluation A/c
Dr.
29500
To Land and Building A/c
17500
To Machinery A/c
12000
(being decrease in assets)
2.
Motor cycle A/c
Dr.
20000
To Revaluation A/c
20000
(being motor cycle now recorded in books
3.
Sundry creditors A/c
Dr.
10000
To Revaluation A/c
10000
(being decrease in value of creditors)
4.
Revaluation A/c
Dr.
5000
To Cash A/c (expenses)
3000
To C’s Capital A/c
2000
(being revaluation expenses and C’s remuneration recorded)
5.
Revaluation A/c
Dr.
2500
To Provision for debtors A/c
2500
(being provision on debtors created)
6.
A’s Capital A/c
Dr.
B’s Capital A/c
Dr.
C’s Capital A/c
Dr.
To Revaluation A/c
(being transfer of loss on revaluation in old ratio)
7.
A’s Capital A/c
Dr.
2500
B’s Capital A/c
Dr.
1500
C’s Capital A/c
Dr.
1000
To Advertisement Suspense A/c
5000
(being advertisement suspense written off)
8.
B’s Capital A/c
Dr.
13000
C’s Capital A/c
Dr.
52000
To A’s Capital A/c
65,000
(being adjustment for goodwill, general reserve and investment
fluctuation reserve)
Revaluation A/c
Particulars
Amount
Particulars
Amount
To Land and Buildings A/c
17500
By Motor cycle A/c
20000
To Machinery A/c
12000
By Sundry creditors A/c
10000
To Cash A/c
3000
By Partner’s Capital A/c:
7000
To C’s Capital A/c
2000
A (5/10) : 3500
To Provision for debtors A/c
2500
B (3/10) : 2100
C (2/10) : 1400
37000
37000
Workings:
1. Calculation of gain and sacrifice:
A: 1/3 -5/10 = (5/30)
B: 1/3 – 3/10 = 1/30
C: 1/3 – 2/10 = 4/30
2. Goodwill = [(50000) + 250000+ 250000] / 3
=
150000 x 2 = 300000
Journal entries
|
Date |
Particulars |
|
Amt.(Dr.) |
Amt.(Cr.) |
|
1. |
Revaluation A/c |
Dr. |
29500 |
|
|
|
To Land and Building A/c |
|
|
17500 |
|
|
To Machinery A/c |
|
|
12000 |
|
|
(being decrease in assets) |
|
|
|
|
2. |
Motor cycle A/c |
Dr. |
20000 |
|
|
|
To Revaluation A/c |
|
|
20000 |
|
|
(being motor cycle now recorded in books |
|
|
|
|
3. |
Sundry creditors A/c |
Dr. |
10000 |
|
|
|
To Revaluation A/c |
|
|
10000 |
|
|
(being decrease in value of creditors) |
|
|
|
|
4. |
Revaluation A/c |
Dr. |
5000 |
|
|
|
To Cash A/c (expenses) |
|
|
3000 |
|
|
To C’s Capital A/c |
|
|
2000 |
|
|
(being revaluation expenses and C’s remuneration recorded) |
|
|
|
|
5. |
Revaluation A/c |
Dr. |
2500 |
|
|
|
To Provision for debtors A/c |
|
|
2500 |
|
|
(being provision on debtors created) |
|
|
|
|
6. |
A’s Capital A/c |
Dr. |
|
|
|
|
B’s Capital A/c |
Dr. |
|
|
|
|
C’s Capital A/c |
Dr. |
|
|
|
|
To Revaluation A/c |
|
|
|
|
|
(being transfer of loss on revaluation in old ratio) |
|
|
|
|
7. |
A’s Capital A/c |
Dr. |
2500 |
|
|
|
B’s Capital A/c |
Dr. |
1500 |
|
|
|
C’s Capital A/c |
Dr. |
1000 |
|
|
|
To Advertisement Suspense A/c |
|
|
5000 |
|
|
(being advertisement suspense written off) |
|
|
|
|
8. |
B’s Capital A/c |
Dr. |
13000 |
|
|
|
C’s Capital A/c |
Dr. |
52000 |
|
|
|
To A’s Capital A/c |
|
|
65,000 |
|
|
(being adjustment for goodwill, general reserve and investment fluctuation reserve) |
|
|
|
Revaluation A/c
|
Particulars |
Amount |
Particulars |
Amount |
|
To Land and Buildings A/c |
17500 |
By Motor cycle A/c |
20000 |
|
To Machinery A/c |
12000 |
By Sundry creditors A/c |
10000 |
|
To Cash A/c |
3000 |
By Partner’s Capital A/c: |
7000 |
|
To C’s Capital A/c |
2000 |
A (5/10) : 3500 |
|
|
To Provision for debtors A/c |
2500 |
B (3/10) : 2100 |
|
|
|
|
C (2/10) : 1400 |
|
|
|
|
|
|
|
|
37000 |
|
37000 |
Workings:
1. Calculation of gain and sacrifice:
A: 1/3 -5/10 = (5/30)
B: 1/3 – 3/10 = 1/30
C: 1/3 – 2/10 = 4/30
2. Goodwill = [(50000) + 250000+ 250000] / 3
= 150000 x 2 = 300000
