Question

Divya and Pooja are partners in a firm, sharing profits and losses in the ratio of 3:2. On 31st March 2015, their Balance Sheet was as under:

BALANCE SHEET OF DIVYA AND POOJA

as at 31st March,2015

$\begin{array}{cccc}\text{Capital and Liabilites}& \text{Rs}& \text{Assets}& \text{Rs}\\ \text{Sundry Creditors}& 9,800& \text{Goodwill}& 16,000\\ \text{General Reserve}& 23,400& \text{Land and Building}& 20,000\\ \text{Profit and Loss A/c}& 4,000& \text{Investments}& 66,000\\ \text{Investment Fluctuation Fund}& 12,600& \text{Sundry Debtors}& 18,600\\ \text{Capital A/cs:}& & \text{Bils Receivables}& 7,400\\ \text{Divya}60,000& & \text{Cash in Hand}& 11,100\\ \text{Pooja}\underset{–}{40,000}& 1,00,000& \text{Advertisement Suspense A/c}& 10,700\\ & \underset{–}{\overline{1,49,800}}& & \underset{–}{\overline{1,49,800}}\end{array}$

The partners decided that with effect from 1st April, 2015, they would share profits and losses equally.

For this purpose, they decided that:

(a) Investments to be valued at Rs 60,000

(b) Goodwill to be valued at Rs 24,000

(c) General Reserve not be distributed between the partners.

You are required to:

(i) Pass journal entries

(ii) Prepare the revised Balance Sheet of the firm.

Answer 1

JOURNAL

$\begin{array}{ccccc}\text{Date}& \text{Particulars}& \text{L.F}& \text{Dr.(Rs)}& \text{Cr.(Rs)}\\ & \text{Profit and Loss A/c}Dr& & 4,000& \\ & \text{To Divya's Capital A/c}& & & 2,400\\ & \text{To Pooja's Capital A/c}& & & 1,600\\ & \text{(Profit distributed in the old ratio)}& & & \\ & \underset{–}{}& & & \\ & \text{Investment Fluctuation Fund A/c}Dr.& & 12,600& \\ & \text{To Investments A/c}& & & 6,000\\ & \text{To Divya Capital A/c}& & & 3,960\\ & \text{To Pooja Capital A/c}& & & 2,640\\ & \text{(Loss on investments written off from Investment}& & & \\ & \text{Fluctuation Fund)}& & & \\ & \underset{–}{}& & & \\ & \text{Divay Capital A/c}Dr.& & 9,600& \\ & \text{Pooja Capital A/c}Dr.& & 6,400& \\ & \text{To Goodwill A/c}& & & 16,000\\ & \text{(Purchased Goodwill written off)}& & & \\ & \underset{–}{}& & & \\ & \text{Divay Capital A/c}Dr.& & 6,420& \\ & \text{Pooja Capital A/c}Dr.& & 4,280& \\ & \text{To Advertisement Suspense A/c}& & & 10,700\\ & \text{(Advertisement suspense A/c written off)}& & & \\ & \underset{–}{}& & & \\ & \text{Pooja Capital A/c (Note 1)}Dr.& & 4,740& \\ & \text{To Divya Capital A/c}& & & 4,740\\ & \text{(Adjustment for General Reserve and Goodwill)}& & & \end{array}$

BALANCE SHEET OF DIVYA AND POOJA

as at 1st April, 2015

$\begin{array}{cccc}\text{Capital and Liabilites}& \text{Rs}& \text{Assets}& \text{Rs}\\ \text{Sundry Creditors}& 9,800& \text{Land and Building}& 20,000\\ \text{General Reserve}& 23,400& \text{Investments}& 60,000\\ \text{Capital A/cs:}& & \text{Sundry Debtors}& 18,600\\ \text{Divya}& 55,080& \text{Bills Receivables}& 7,400\\ \text{Pooja}& 28,820& \text{Cash in Hand}& 11,100\\ & \underset{–}{\overline{1,17,100}}& & \underset{–}{\overline{1,17,100}}\end{array}$

Working Note:

$\begin{array}{ccc}1.& \text{Net Adjustment to be made:}& Rs\\ & \text{General Reserve}& 23,400\\ & \text{Goodwill}& 24,000\\ & & \underset{–}{\overline{47,400}}\end{array}$

Sacrifice or Gain:

Old Ratio 3:2; New Ratio 1:1

Divya $=\frac{3}{5}-\frac{1}{2}=\frac{6-5}{10}=\frac{1}{10}$ Sacrifice

Pooja $=\frac{2}{5}-\frac{1}{2}=\frac{4-5}{10}=\frac{1}{10}$ Gain

Since Divya has sacrificed, she will be credited from $\frac{1}{10}$ of Rs 47,400 =Rs 4,740

Since Pooja ha gained, she will be debited from $\frac{1}{10}$ of Rs 47,400 =Rs 4,740