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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.

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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

WN 2 Calculation of New Goodwill

Goodwill = Average Profit × Number of Years Purchase = 6,000 × 2 = Rs 12,000

Goodwill = 6,000 × 2 = Rs 12,000

WN 3 Adjustment of Goodwill

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)


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