Ahmedabad Region

STUDY MATERIAL

AHMEDABAD REGION

MINIMUM LEARNING PROGRAM

ACCOUNTANCY (055)

GANDHINAGAR CANTT.

PART A -60 MARKS

PARTNERSHIP AND COMPANY ACCOUNTS

CHAPTER – 1

ACCOUNTING FOR PARTNERSHIP FIRM - FUNDAMENTALS

1 MARK Questions

What do you understand by ‘Partner’, ‘firm’ and ‘firm’s name’?

Ans. The persons who have entered into a Partnership with one another are individually called ‘Partners’ and collectively ‘a firm’ and the name under which the business carried is called ‘the firm’s name’.

What is the minimum and maximum number of partners in all partnership?

Ans. Minimum 2 and Maxi 20 (In banking 10)

What is the status of partnership from an accounting viewpoint?

Ans. From an accounting viewpoint, partnership is a separate business entity. From the legal viewpoint, however, a Partnership , is not separate from the owners.

In the absence of Partnership deed , how are mutual relations of partners governed?

Ans. Through Partnership Act, 1932.

Give two circumstances in which the fixed capital of partners may change.

Ans. (i) When additional capital is introduced by the partners.

(ii) When a part of the capital is permanently withdrawn by the Partners.

List the items that may appear on the debit side and credit side of a Partners’ Fluctuating capital account.

Ans. On debit side: Drawing, interest on drawing, share of loss, closing credit balance of capital.

On credit side: Opening credit balance of capital, additional capital introduced, share of profit, interest on capital, salary to a Partner, commission to a Partner.

QUESTIONS: 4 &6 Marks

A and B are partners sharing profits in the ratio of 3:2 with capitals of Rs. 8,00,000 and Rs. 6,00,000 respectively. Interest on capital is agreed @ 5% p.a. B is to be allowed an annual salary of Rs. 60,000 which has not been withdrawn. During 2013-14, the profits of the year prior to calculation of interest on capital but after charging B’s salary amounted to Rs. 2,40,000. A provision of 5% of the profits is to be made in respect of Manager’s commission.

Prepare an account showing the appropriation of profit.

Solution:

P&L A/c

For the year ended 31st March 2014

Dr. Cr.

Particulars / Amount (Rs.) / Particulars / Amount (Rs.)
To Manager’s Commission
(3,00,000 X5/100)
To Profit tr. To P&L App. A/c / 15,000
2,85,000
3,00,000 / By Profit (Rs. 2,40,000+60,000) / 3,00,000

3,00,000

P & L Appropriation A/c

For the year ended 31st March 2014

Dr. Cr.

Particulars / Amount (Rs.) / Particulars / Amount (Rs.)
To B’s Salary
To Interest on Capital
A 40,000
B 30,000
To Profit tr. To
A’s capital 93,000
B’s capital 62,000 / 60,000
70,000
1,55,000

2,85,000 / By Net Profit transferred from P & L A/c / 2,85,000

2,85,000

X and Y are Partners sharing Profit and Loss in the ratio of 2:3 with a capital of Rs. 20,000 and Rs. 10,000 respectively. Show distribution of Profit/losses for the year ended 31st march 2014 by preparing relevant account in each of the alternative cases.

Case 1. If Partnership deed is silent as to the interest on capital and the profit for year ended is Rs. 2,000.

Case 2. If Partnership deed provides for the interest on capital @ 6% p.a. and loss for the year is Rs. 1,500.

Case 3. If Partnership deed provides for interest on capital @ 6% p.a. and trading profit is Rs. 2,100.

Solution:

Case 1.

P & L Appropriation A/c

For the year ended 31st March 2014

Dr. Cr.

Particulars / Amount (Rs.) / Particulars / Amount (Rs.)
To Profit transferred to
X’s capital 800
Y’s capital 1,200 / 2,000

2,000 / By Net Profit transferred from P & L A/c / 2,000

2,000

Case 2.

P & L Appropriation A/c

For the year ended 31st March 2014

Dr. Cr.

Particulars / Amount (Rs.) / Particulars / Amount (Rs.)
To loss for the year (Trading loss) / 1,500

1,500 / By loss transferred to
X’s Capital 600
Y’s Capital 900 / 1,500

1,500

Case 3.

P & L Appropriation A/c

For the year ended 31st March 2014

Dr. Cr.

Particulars / Amount (Rs.) / Particulars / Amount (Rs.)
To Interest on Capital
X 1,200
Y 600
To Profit tr. To
X’s Capital 120
Y’s Capital 180 / 1,800
300
2,100 / By Profit & Loss A/c / 2,100
2,100

X and Y are partners in a firm. X is to get a commission of 10% of net profit before charging any commission. Y is to get a commission of 10% on net profit after charging all commission. Net profit for the year ended 31st March 2014 before charging any commission was Rs. 1,10,000. Find the commission of X and Y. Also show the distribution of profit.

ANS .P & L Appropriation A/c

For the year ended 31st March 2014

Dr. Cr.

Particulars / Amount (Rs.) / Particulars / Amount (Rs.)
To X’s commission A/c
(1,10,000 X 10/100)
To Y’s Commission
(1,10,000 – 11,000) X10/110
To Net Profit tr. To Capital A/c’s
X 45,000
Y 45,000 / 11,000
9,000
90,000 / By Profit before any commission / 1,10,000
1,10,000 / 1,10,000

A, B and C are Partners in a firm sharing Profit and Losses in the ratio 2:3:5. Their fixed capitals were 3,00,000; 6,00,000; and 1,20,000 respectively for the year 2014 interest on capital was credited to them @ 12% instead of 10%. Pass the necessary adjustment entry.

Solution:

Table showing Adjustment

Particulars / A / B / C / Total
Interest that should have been credited @ 10%
Interest already credited @ 12% / 30,000
36,000 / 60,000
72,000 / 12,000
14,400 / 1,02,000
1,22,400
(6,000) / (12,000) / (2,400) / (20,400)
By recovering the extra amount paid the share will increase and it will be credited in the ratio of 2:3:5 / (4,080) / (6,120) / (10,200)
Net effect / (1,920) / (5,880) / 7,800
A’s Current A/c Dr. 1,920
B’s Current A/c Dr. 5,880
To C’s Current A/c 7,800

X, Y and Z were partners in a firm sharing profit and losses in the ratio of 2:1:2. Their capitals were fixed at Rs. 6,00,000; Rs. 2,00,000 and Rs. 4,00,000 for the year 2014. Interest on capital was credited to them @ 9% instead of 10%p.a. the profit for the year before charging interest was Rs. 5,00,000.

Show your working note clearly and Pass necessary adjustment entry.

(Ans. Y’s current A/c Dr. 400, Z’s Current A/c Dr. 800, X ’s current A/c Cr. 1,200)

A, B and C are partners in a firm sharing profits and losses in the ratio of 2:3:5. Their fixed capitals were 15, 00,000, Rs.30, 00,000 and Rs.60, 00,000 respectively. For the year 2009 interest on capital was credited to them @ 12% instead of 10%. Pass the necessary adjustment entry.

Ans:

TABLE SHOWING ADJUSTMENT

PARTICULARS / A
Rs. / B
Rs. / C
Rs. / TOTAL
Rs.
Interest that should have been credited @ 10% / 1,50,000 / 3,00,000 / 6,00,000 / 10,50,000
Interest already credited @ 12% / 1,80,000 / 3,60,000 / 7,20,000 / 12,60,000
Excess credit in partners account / (30,000) / (60,000) / (1,20,000) / (2,10,000)
By recovering the extra amount paid the share of profits will increase and it will be credited in the ratio of 2:3:5 / 42,000 / 63,000 / 1,05,000 / 2,10,000
Net effect / +12,000 / +3,000 / -15,000 / Nil

Adjustment Entry:

C’s current A/c Dr. / 15,000
To A’s Current A/c / 12,000
To B’s Current A/c / 3,000
( For interest less charged on capital, now rectified)

A, B and C arte partners. They admit D and guarantee that his share of profit will not be less than Rs. 20,000. Profits to be shared 4:3:3:2 respectively. Total profits were Rs. 96,000. It was agreed that excess payable to D over his share will be borne by A,B and C in the ratio of 3:2:1. Calculate share of profit for each partner.

Books of A,B and C

Profit and Loss appropriation account for the year ending………

Particulars / Rs. / Particulars / Rs.
To profit transferred to:
A’s Capital a/c
(Rs.96,000x4/12) 32,000
Less: Deficiency borne 2,000
B’s Capital A/c
(96,000x3/12) 24,000
Less: Deficiency borne 1,333
C’s Capital A/C
(Rs.96,000x3/12) 24,000
Less: Deficiency borne 667
D’s Capital A/C
(Rs.96,000x2/12) 16,000
Add: Deficiency recovered
from the Capitals of:
A 2,000
B 1,333
C 667 / 32,000
22,667
23,333
20,000 / By Profit & Loss A/c / 96,000

(6)

CHAPTER – 2

GOODWILL: NATURE & VALUATION

(3 MARKS QUESTIONS)

A business has earned average profit of Rs. 4,00,000 during the last few years and the normal rate of return in similar business is 10%. Find out the value of goodwill by

(i)Capitalisation of Super Profit

(ii)Super profit method if the goodwill is valued at 3years’ purchase of super profits.

The assets of the business were Rs. 40,00,000 and its external liabilities Rs. 7,20,000.

(Ans. 2,16,000)

Capital of the firm Sharma and Verma is Rs. 4,00,000 and the market rate of interest is 15%. Annual salary to partners is Rs. 2,400 each. The profit for the last three years were Rs. 1,20,000, Rs. 1,44,000 and Rs. 1,68,000. Goodwill is tovalued at 2 years’ purchase of last 3 years average super profit. Calculate the Goowill of the firm.

(Hint Rs. 72,000)

On Ist Jan 2014 an existing firm has Asset of Rs. 1,50,000 including cash of Rs. 10,000. Its creditors amounted to Rs. 10,000 on that date. The firm had a Reserve of Rs. 20,000 while Partner’s Capital Accounts showed a balance of Rs. 1,20,000. If Normal Rate of Return is 20% and goodwill of the firm is valued at Rs. 4,8000 at four years’ purchase of super profit, find the average profit per year of the existing firm.

(Ans Average profit – Rs. 40,000)

Calculate value of goodwill on the basis of three year purchase of average profit of the preceding five years which were as follows:

Years ended31.3.20144,00,000

Years ended31.3.20137,50,000

Years ended31.3.20129,00,000

Years ended31.3.20112,00,000 (loss)

Years ended31.3.20106,50,000

Hint: (Goodwill = 1,5,00,000)

CHAPTER-3

ADMISSION OF PARTNER

PRACTICAL PROBLEMS: (3 MARKS)

A, B and C were partners in a firm sharing profits in 3:2:1. They admitted D for 10% profits. Calculate the new profit sharing ratio. ( Ans: 9:6:3:2).
X and Y are partners sharing profits in 5:3 ratio admitted Z for 1/10th share which he acquired equally for X and Y. Calculate new profit sharing ratio.(Ans. 23:13:4).
Radha and Rukmani are partners in a firm sharing profits in 3:2 ratio. They admitted Gopi as a new partner. Radha surrendered 1/3rd of her share in favour of Gopi and Rukmani surrendered 1/4th of her share in favour of Gopi. Calculate new profit sharing ratio.(Ans. 4:3:3)
A and B are partners in a firm sharing profits in the ratio of 3:2. They admit C into partnership for 1/5th share of profits in the firm. The goodwill of the firm is valued at Rs. 1,00,000. He is unable to bring in his share of goodwill. What will be the journal entries?

Solution: Goodwill of the firm = Rs 1,00,000

C’s share of goodwill = 1,00,000 X 1/5 = Rs. 20,000

JOURNAL

Date / Particulars / L.F. / Dr.(Rs.) / Cr.(Rs.)
C’s Capital A/c Dr.
To A’s Capital A/c
To B’s Capital A/c / 20,000 / 12,000
8,000

(8 MARKS)

P and Q were partners sharing profits in the ratio of 3:2. Their balance sheet on March 31st 2014 are as follows:

Liabilities / Amount (Rs.) / Assets / Amount (Rs.)
Creditors
Bills Payable
Bank overdraft
Reserve
P’s Capital
Q’s Capital / 20,000
3,000
17,000
15,000
70,000
60,000 / Cash
Debtors 20,500
Less: Provision for bad debts 300
Stock
Plant
Buildings
Motor Vehicles / 14,800
20,200
20,000
40,000
70,000
20,000
1,85,000 / 1,85,000

They agreed to admit Mishra for 1/4th share from 1.4.2014 subject to the following terms:

(a)P to bring in capital equal to 1/4th of the total capital of P and Q after all adjustments including premium for goodwill.

(b)Buildings to be appreciated by Rs. 14,000 and stock to be depreciated by Rs. 6,000.

(c)Provision for Bad debts on Debtors to be raised to Rs. 1,000.

(d)A provision be made for Rs. 1,800 for outstanding legal charges.

(e)P’s share of goodwill/premium was calculated at Rs. 10,000.

Prepare Revaluation Account, Partner’s Capital Accounts and the Balance Sheet of the new firm on R’s admission.

Solution:Revaluation A/c

Dr.Cr.

Particulars / Rs. / Particulars / Rs.
To Stock A/c
To provision for Legal Charges A/c
To Provision for Doubtful Debts A/c
ToProfittransferred to Capitals:
P 3,300
Q 2,200 / 6,000
1,800
700
5,500 / By Buildings A/c / 14,000
14000 / 14,000

Partner’s Capital A/c

Dr.Cr.

Particulars / P / Q / R / Particulars / P / Q / R
To balance c/d / 88,300 / 72,200 / 40,125 / By Balance b/d
By Cash
By Prem. for gw A/c
By Revaluation A/c
By Reserves / 70,000
6,000
3,300
9,000 / 60,000
4,000
2,200
6,000 / 40,125
88,300 / 72,200 / 40,125 / 88,300 / 72,200 / 40,125

Balance Sheet

As on April1, 2014

Dr.Cr.

Liabilities / Rs. / Particulars / Rs.
Bills Payables
Creditors
Provision for Legal Expenses
Bank Overdraft
Capital Accounts
P 88,300
Q 72,200
R 40,125 / 3,000
20,000
1,800
17,000
2,00,625 / Cash in Hand
Debtors 20,500
Less:Pro. D. debts 1,000
Stock
Motor Vehicles
Plant
Buildings / 64,925
19,500
14,000
20,000
40,000
84,000
242,425 / 242,425

Working Notes:

Calculation of Mishra’s Capital:

Sum of capitals of Jain and Gupta Rs. 88,300+Rs. 72,200=Rs. 1,60,500

Mishra’s capital = ¼(1,60,500) = Rs. 40,125

(i)Cash Account = Opening Balance + Goodwill + Mishra’s Capital

= 14,800+10,000+40,125=Rs. 64,925

On 31.3.14, the Balance sheet of W and R sho shared profits in 3:2 ratio was as follows:

Liabilities / Amount / Assets / Amount
Creditors
Profit and loss A/c
Capital Accounts:
W 80,000
R 60,000 / 40,000
30,000
1,40,000 / Cash
SundryDebtors 40,000
Less: Provision 14,00
Stock
Plant and Machinery
Patents / 10,000
38,600
50,000
70,000
41,400
2,10,000 / 2,10,000

On this date, B was admitted as a partner on the following conditions:

(a)B will get 4/15th share of profits.

(b)B had to bring Rs. 60,000 as his capital to which amount other partners capitals shall have to be adjusted.

(c)He would pay cash for his share fo goodwill which would be based on 2 1/2years purchase of average profits of past 4 years.

(d)The assets would be revalued as under:

Sundry debtors book value less 5% provision for bad debts. Stock at Rs. 40,000, plant and Machinery at Rs. 80,000.

(e)The profits of the firm for the years 2011, 2012, 2013 were Rs. 40,000, 28,000 and Rs. 34,000 respectively.

Prepare Revaluation A/c, Partner’s Capital A/c and the Balance Sheet of the new firm.

Solution:

Revaluation A/c

Dr.Cr.

Particulars / Amount / Particulars / Amount
To prov. For Bad debts A/c
To Stock A/c / 600
10,000 / By Plant and Machinery A/c
BY Capitals A/c
W 360
R 240 / 10,000
600
10,600 / 10,600

Partner’s Capital A/c

Dr.Cr.

Particulars / W / R / B / Particulars / W / R / B
To Rev. A/c
To Bal. c/d / 360
110840 / 240
80560 / 60000 / By Balance b/d
BY Cash A/c
By P&L A/c
By Prem for G/w / 80000
18000
13200 / 60000
12000
8800 / 60000
111200 / 80800 / 60000 / 111200 / 80800 / 60000
To Cash
To Bal. c/d / 11840
99000 / 14560
66000 / 60000 / By Balance b/d / 110840 / 80560 / 60000
110840 / 80560 / 60000 / 110840 / 80560 / 60000

Balance Sheet

As on 31st March 2014

Liabilities / Amount / Assets / Amount
Creditors
Capitals
W 99,000
R 66,000
B 60,000 / 40,000
2,25,000 / Cash
SundryDebtors40,000
Less: Prov. 2,000
Stock
Plant and Machinery
Patents / 65,600
38,000
40,000
80,000
41,400
2,65,000 / 2,65,000

Working Notes:

(i)Let total profit = 1

B’s share = 4/15

Remaining profit = 1 – 4/15 = 11/15

W’s share = 11/15X3/5 = 33/75

R’s share = 11/15X2/5 = 22/75

B’s share = 4/15=20/75

New profit sharing ratio of W, R and B

= 33/75: 22/75:20/75

= 33:22:20

(ii)Year Profit

201140,000

201228,000

201334,000

201430,000

______

Total1,32,000

______

Average Profit = 1,32,000/4

= 33,000

Goodwill = Average Profit X Number of Years Purchase

= 33,000 X 5/2

= 82,500

(iii)B’s capital for 4/15th share = Rs. 60,000

(iv)Total capital of firm 60,000 X 15/4 = 2,25,000

2,25,000-60,000 = 1,65,000

W’s capital = 1,65,000 X 3/5 = 99,000

R’s capital = 1,65,000 x 2/5 = 33,000

Distribute 2,25,000 in 33:22:20.

RETIREMENT AND DEATH OF A PARTNER

QUESTIONS: (1 MARK)

PRACTICAL PROBLEMS

Aparna, Manisha and Sonia are partners sharing profits in the ratio of 3:2:1. Manisha retires and goodwill of the firm is valued at Rs. 1,80,000. Aparna and Sonia decided to share future in the ratio of 3:2. Pass necessary Journal entries.

Journal

Aparna’s Capital A/c Dr. 18,000

Sonia’s Capital A/cDr.42,000

To Manisha’s Capital A/c60,000

(Goodwill credited to Manisha’s capital and debited to continuing partners’ capitals in the gaining ratio) (3)

The Balance Sheet of A, B and C on 31st December 2007 was as under :

BALANCE SHEET as at 31.12.2007

Liabilities Amount Rs.AssetsAmount Rs.
A’s Capital40,000Buildings20,000
B’s Capital30,000Motor Car18,000
C’s Capital20,000Stock20,000
General Reserve17,000Investments1,20,000
Sundry Creditors1,23,000Debtors40,000
Patents12,000
2,30,0002,30,000

The partners share profits in the ratio of 8 : 4 : 5. C retires from the firm on the same date subject to the following term S and conditions:

i) 20% of the General Reserve is to remain as a reserve for bad and doubtful debts.

ii) Motor)r Car is to be decreased by 5%.

iii) Stock is to be revalued at Rs.17, 500.

iv) Goodwill is valued at’ 2 ½ years purchase of the average profits of last 3 years.

Profits were; 2001: Rs.11,000; 200l: Rs. 16,000 and 2003: Rs.24,000.

C was paid in July, A and B borrowed the necessary amount from the Bank on the security of Motor Car and stock to payoff C.

Prepare Revaluation Account, Capital Accounts and Balance Sheet of A and B.

Ans.2 SOLUTION

REVALUATION ACCOUNT

ParticularsRs.ParticularsRs.
To Motor Cars A/C900 By Loss transferred to
To Stock A/C2,500 A’s Capital A/c Rs.1,600
B’s Capital A/c Rs.800
C’s Capital A/c 1,000 3400
3,400 3,400

PARTNERS CAPITAL ACCOUNT

ParticularsARs.B Rs.C Rs.ParticularsA Rs.B Rs. C Rs.
To C’s Capital A/c8,3344,166-By Balance b/d40,00030,00020,000
To Revaluation A/c (Loss)1,6008001,000By General Res. A/c6,4003,2004,000
To Bank A/c--35,500By A’s Capital A/c- -8,334
To Balance c/d36,46628,234-By B’s Capital A/c--4,166
46,40033,20036,50046,400 33,20036,500
By Balance b/d36,46628,234-

BALANCE SHEET OF A AND B

LiabilitiesRs.AssetsRs.
Sundry creditors1,23,000Building20,000
Bank Loan35,500Motor Card17,100
Capital A36,466Stock17,500
B28,23464,700Investment1,20,000 Debtors 36,600
Patents12,000
2,23,2002,23,200

Q.3A, Band C were partners in a firm sharing profits equally: Their Balance Sheet on.31.12.2007 stood as:

BALANCE SHEET AS AT 31.12.07

LiabilitiesRs.AssetsRs.
A Rs. 30,000Goodwill18,000
B Rs. 30,000Cash38,000
C Rs. 25,00085,000Debtors. 43,000
Bills payable20,000Less: Bad Debt provision 3,00040,000
Creditors18,000Bills Receivable25,000
Workers Compensation Fund8,000Land and Building60,000
Employees provide4nt Fund60,000Plant and Machinery40,000
General Reserve30,000
2,21,0002,21,000

It was mutually agreed that C will retire from partnership and for this purpose following terms were agreed upon.

i)Goodwill to be valued on 3 years’ purchase of average profit of last 4 years which were 2004 : Rs.50,000 (loss); 2005 : Rs. 21,000; 2006: Rs.52,000; 2007 : Rs.22,000.

ii)The Provision for Doubtful Debt was raised to Rs. 4,000.

iii)To appreciate Land by 15%.

iv)To decrease Plant and Machinery by 10%.

v)Create provision of Rs.;600 on Creditors.

vi)A sum of Rs.5,000 of Bills Payable was not likely to be claimed.

vii) The continuing partners decided to show the firm’s capital at 1,00,000 which would be in their new profit sharing ratio which is 2:3. Adjustments to be made in cash

Make necessary accounts and prepare the Balance Sheet of the new partners.

Ans.3

REVALUATION ACCOUNT

ParticularsRs.ParticularsRs.
To Provision for Debts A/c1,000By Land A/c9,000
To Plant & Machinery A/c4,000By Provision on Creditors A/c600
To Profit transferred toBy Bills Payable A/c5,000
A’s Capital A/c Rs. 3,200
B’s Capital A/c Rs. 3,200
C’s Capital A/c Rs. 3,200 9,600
14,60014,600

PARTNER’S CAPITAL ACCOUNTS

ParticularsARs.BRs.CRs.ParticularsA Rs.B Rs.C Rs.
To Goodwill A/c 6,0006,0006,000By Balance b/d 30,00030,00025,000
To C’s Capital A/c 2,2509,000-By General Reserve 10,00010,00010,000
To C’s Loan A/c --46,116By Workmen A/c 2,6672,6672,666
Compensation Fund
To Balance c/d 40,00060,000-By Revalu A/c (profit)3,2003,2003,200
By A’s Capital A/c --2,250
By B’s Capital A/c --9,000
By Cash A/c (Deficiency) 2,383 29,133 -
48,25075,00052,11648,25075,00052,116
By Balance b/d 40,00060,000-

BALANCE SHEET
as at 31.12.07

LiabilitiesRs.AssetsRs.
Bills Payable 15,000Debtors 43,000
Creditors 17,400Less: Provision 4,00039,000
Employees Provident Fund 60,000Bills Receivables 25,000
C’s Loan 46,116Land & Buildings 69,000
A’s Capital40000Plant & Machinery36,000
B’S Capital600001,00,000Cash69,516
2,38,5162,38,516

Himanshu, Gagan and Naman are partners sharing profits and losses in the ratio of 3:2:1 on March 31, 2007, Naman retires

The various assets and liabilities of the firm on the date were as follows:

Cash Rs. 10,000, Building Rs. 1,00,000, Plant and Machinery Rs. 40,000, Stock Rs. 20,000, Debtors Rs. 20,000 and Investments Rs. 30,000.

The following was agreed upon between the partners on Naman’s retirement:

(i)Building to be appreciated by 20%.

(ii)Plant and Machinery to be depreciated by 10%.

(iii)A provision of 5% on debtors to be created for bad and doubtful debts.

(iv)Stock was to be valued at Rs.18,000 and Investment at Rs. 35,000.

Record the necessary Journal entries to the above effect and prepare the revaluation account.

(Ans. Revaluation A/c = Rs. 18,000)

The terms were:

(a)Goodwill of the firm was valued at Rs. 13,000.

(b)Expenses owing to be brought down to Rs. 3,750.

(c)Machinery and Loose Tools are to be valued at 10% less than their book value.

(d)Factory premises are to be revalued at Rs. 24,300.

Prepare :

Revaluation account.
Partner’s capital accounts and
Balance Sheet of the firm after retirement of Sheela.

Pankaj, Naresh and Saurabh are partners sharing profits in the ratio of 3:2:1. Naresh retired from the firm due to his illness. On that date the Balance sheet of the firm was as follows:

Balance sheet as on March 31st 2013

Liabilities / Amount / Assets / Amount
General Reserve
Sundry Creditors
Bills Payable
Outstanding Salary
Provision for legal damages
Capitals
Pankaj 46,000
Naresh 30,000
Saurabh 20,000 / 12,000
15,000
12,000
2,200
6,000
96,000 / Bank
Debtors 6,000
Less: Provision for D.debts 4,00
Stock
Furniture
Premises / 7,600
5,600
9,000
41,000
80,000
1,43,200 / 1,43,200

Additional Information:

(i)Premises have appreciated by 20% ,Stock depreciated by 10% and provision for doubtful debts was to be made 5% on debtors. Further, provision for legal damages is to be made for Rs. 1,200 and furniture to be brought up to Rs. 45,000.

(ii)Goodwill of the firm be valued at RS. 42,000.

(iii)Rs.26,000 from Naresh’s Capital Account be transferred to his loan account and balance be paid through bank; if required, necessary loan may be obtained from bank.

(iv)New profit sharing ratio of Pankaj and Saurabh is decided to be 5:1.

Give the necessary ledger accounts and Balance Sheet of the firm after Naresh’s retirement.

(Ans. Revaluation A/c – Rs. 18,000; Balance Sheet – 1,54,000)

Find out missing figures of the following financial statements of Partnership firm.

(Chapter-5-Retirement/Death of a Partner)

Revaluation Account
Particualrs / AmountRs. / Particulars / AmountRs.
To Provision for Doubtful Debts A/c / 10,000 / By Computer Account / 24,000
To warranty Claim A/c / (a) / By Land and Building / 1,00,000
To Provision for outstanding Repairs A/c / 30,000
To Profit transferred to :
A’s Capital A/c (b)
B’s Capital A/c (c)
C’s Capital A/c (d) / (e)
1,24,000 / 1,24,000
Partners’ Capital Accounts
Particulars / A / B / C / Particulars / A / B / C
To B’s Capital / (i) / Nil / (j) / By Balance B/d / (f) / (g) / (h)
(Goodwill) / By capital a/cs:
To Bank / Nil / 1,00,000 / Nil / A / 90,000
To B’s Loan A/c / Nil / 6,40,000 / Nil / C / 30,000
To Bal C/d / 8,40,000 / Nil / 2,80,000 / By Revaluation A/c / 30,000 / 20,000 / 10,000
9,30,000 / 7,40,000 / 3,10,000
Balance Sheet after retirement
Liabilities / AmountRs. / Assets / AmountRs.
Creditors / 2,16,000 / Cash at Bank / 56,000
Provision for outstanding repairs / (m) / Debtors 2,00,000
Warranty claim / 24,000 / Less: Provision for Bad Debts (k) / (l)
B’s Loan / 6,40,000 / Stock / 1,80,000
Capital A/cs / Computer / 24,000
A 8,40,000 / Machinery / 4,80,000
C 2,80,000 / 11,20,000 / Land and Building 10,00,000
Less : Appreciation 1,00,000 / 11,00,000
20,30,000 / 20,30,000

Ans. (a) 24,000 (b)30,000 (c)20,000 (d)10,000 (e)60,000 (f)9,00,000 (g)6,00,000 (h)3,00,000 (i)90,000(j)30,000(k) 10,000(l)1,90,000(m)30,000.

DEATH OF A PARTNER

A,B and C were partners in a firm. C died on 28th Feb 2014. His share of profit from the closure of the last accounting year till the date of death was to be calculated on the basis of the average profit of three complete years before death, profit for 2011 2012 and 2013 were Rs. 1400 and Rs. 1600 and Rs. 1800 respectively.

Calculate C’s share of profit till his death.

Ans:- Average profit =14,000 +16,000 +18,000

=48,000/3 = 16000

Estimate profit till the date of death = 16,000 X = 2666.66

C’s share of estimated profit = 2666.66 x = 888.8

If profit till the date of death are to be ascertained A B and sharing profit in the ratio of 2:2:1

B died on 31st March 2014,Accounting are closing on December sales for the year 2013 amounted to Rs. 9,00,000 , sales of Rs. 3,00,000 amounted between the period from 1 Jan 2014 to 31 March 2014. The profit for the year 2013 amounted to Rs. 90,000.