9. Partnership Account-II. Partnership Accounts-II.pdf · IPCC_34e_Accounts_Group-II_Partnership...

IPCC_34e_Accounts_Group-II_Partnership A/c’s-II_ Assignment Solutions __1

No.1 for CA/CWA & MEC/CEC MASTER MINDS

9. PARTNERSHIP ACCOUNTS - II

SOLUTIONS TO ASSIGNMENT PROBLEMS

PROBLEM NO. 1

Dr. Realisation Account Cr.

Particulars Amount Particulars Amount

To Debtors A/c 48,000 By Creditors A/c 48,000

To Stock A/c 60,000

To Fixtures A/c 24,000 By cash A/c (assets realized)

To Plant and machinery A/c 1,08,000 Plant and machinery 1,02,000

To Cash A/c (creditors) 45,600 Fixtures 18,000

To Cash A/c (sales tax) 4,200 Stock 84,000

To Cash A/c (realization expenses) 1,500 Debtors 44,400 2,48,400

To Profit on realization By Q capital A/c (unrecorded assets taken over)

4,800

P – 3960

Q – 3960

R – 1980 9900

3,01,200 3,01,200

Dr. Partner’s Capital Accounts Cr.

Particulars P Q R Particulars P Q R

To Realization A/c - 4,800 - By Balance b/d 1,20,000 48,000 24,000

To Cash A/c (b/f) 1,47,960 71,160 37,980 By Reserve fund 24,000 24,000 12,000

By Realization A/c (Profit)

3,960 3,960 1,980

1,47,960 75,960 37,980 1,47,960 75,960 37,980

Dr. Cash Account Cr.


To Balance b/d 60,000 By Realization A/c (Creditors) 45,600

To Realisation A/c 2,48,400 By Realization A/c (Expenses) 1,500

By Realization A/c (Sales tax) 4,200

By Partners capitals accounts

P 1,47,960

Q 71,160

R 37,980

3,08,400 3,08,400 Note: Unrecorded asset is a gain and credited to realization A/c. since it is taken over by Q, his capital A/c is debited. ♦ Hint given in the question is wrong.

Correct Ans : Profit on Realization P -3,960, Q- 3,960, R- 1,980, total of cash A/c is 3,08400


Ph: 9885125025/26 www.mastermindsindia.com

PROBLEM NO. 2

In the books of M/s X, Y & Z

Dr. Realization A/c Cr. Particulars Amount Particulars Amount

To Plant and Machinery 60,000 By Creditors A/c 70,000 To Furniture 10,000 By Bank O.D (W.N-2) 70,200 To motor cars A/c 40,000 By ‘X’ Loan A/c 22,550 To Stock 45,000 By D’s A/c (P.C) 90,000 To Sundry Debtors 60,000 To X’s Capital A/c (cost of dissolution)

2,800

To profit on Realisation: (3:2:1) X capital A/c– 34,950 x 3/6 17,475 Y capital A/c – 34,950 x 2/6 11,650 Z capital A/c – 34,000 x 1/6 5,825 2,52,750 2,52,750

Dr. Cash A/c Cr. Particulars Amount Particulars Amount

To D’s A/c 90,000 By X’s Capital A/c 59,100 To Z’s Capital A/c 6,833 By Y’s Capital A/c 37,733 96,833 96,833

Dr. Capital A/c Cr. Particulars X Y Z Particulars X Y Z

To Bal. b/d - - 12,658 By Balance b/d 38,825 26,083 - To Cash A/c (b/f) 59,100 37,733 - By Realization A/c 2,800 - -

By Realization A/c 17,475 11,650 5,825 By Cash A/c (b/f) - - 6,833 59100 37733 12658 59100 37733 12658

Dr. D’s A/c Cr. Particulars Amount Particulars Amount

To Realization 90,000 By Cash A/c 90,000 90,000 90.000

WORKING NOTE:

Dr. Trading and Profit & Loss of M/s X, Y, Z for the period ended 31.03.2003 Cr. Particulars Amount Particulars Amount

To Opening stock 55,000 By Sales 45,000

To Purchases 30,000 By Closing Stock 45,000

To gross profit c/d 5,000

90,000 90,000

To Salaries & Wages 12,000 By Gross Profit b/d 5,000

To General & Office expenses 6,000 By Capital A/c (Loss): (3:2:1)

To Interest on X’s loan 550 X – 13,550 x 3/6 6,775

(22,000x10%x3/12) Y – 13,550 x 2/6 4,517

C – 13,550 x 1/6 2,258

1,98,550 1,98,550



Balance Sheet of M/s X, Y, Z as on 31.03.2003

Liabilities Amount Assets Amount

X’s Capital 48,000 Plant & Machinery 60,000

(-) Drawings (2,400) Furniture & fittings 10,000

(-) Loss (6,775) 38,825 Motor car 40,000

Y’s Capital 33,000 Stock 45,000

(-) Drawings (2,400) Sundry Debtors (W.N-3) 60,000

(-) Net Loss (4,517) 26,083 Z’s Capital A/c 8,000

- (+) Drawings 2,400

(+) Net loss 2,258 12,658

Loan A/c X 22,000

(+) Interest 550 22,550

Trade creditors 70,000

Bank Overdraft 70,200

2,27,658 2,27,658

Working Note - 1

Dr. Creditors A/c Cr.


To Bank A/c (b/f) 40,000 By Balance b/d 80,000

To Balance c/d 70,000 By Purchases 30,000

1,10,000 1,10,000

Working Note – 2 Dr. Bank A/c Cr.


To Debtors 25,000 By Balance b/d 30,000

To Balance c/d 70,200 By Salaries & Wages A/c 12,000

By General & Office expenses 6,000

By Drawings A/c (3x3x800) 7,200

By Creditors A/c 40,000

95,200 95,200

By Balanced b/d 70,200

Working Note - 3

Dr. Debtors A/c Cr.


To Balance b/d 40,000 By Cash / Bank A/c (b/f) 25,000

To Sales 45,000 By Balance c/d 60,000

85,000 85,000



PROBLEM NO. 3


Particulars Amount Particulars Amount To Sundry Assets: By Creditors 15,700

Debtors 15,850 By Employee’s Provident Fund 6,300

Stock 25,200 By Bank A/c:

Prepaid Expenses 800 Joint Life Policy 4,500

Plant & Machinery 20,000 Debtors 10,800

Patents 8,000 69,850 Stock 15,600

To Bank – Creditors: (`15,700 - `3,200 - `400)

12,100

Plant and Machinery 12,000

To Bank A/c Employee’s (P.F) 6,300

Patents 60% of (`8,000 - `5,000) 1,800

44,700

To Bank A/c (expenses) 1,500 By Loss on realisation A/c (4:3:2:1)

A’s Capital A/c 9,220

B’s Capital A/c 6,915

C’s Capital A/c 4,610

D’s Capital A/c 2,305 23,050

89,750 89,750

Dr. Capital Accounts Cr.

Particulars A (`) B (`) C(`) D (`) Particulars A (`) B (`) C(`) D (`)

To Balance b/d - - 3,200 8,415 By Balance b/c 40,000 20,000 - -

To Realisation A/c 9,220 6,915 4,610 2,305 By Bank (Realisation loss) 9,220 6,915 4,610 -

To D’s Capital (Deficiency)

5,360

2,680

-

-

By Bank (Recovery) (10,720X0.25)

-

-

-

2,680

To Bank 34,640 17,320 - - By A’s Capital 2/3 - - - 5,360

By B’s Capital 1/3 - - - 2,680

By Bank A/c - - 3,200 -

49,220 26,915 7,810 10,720 49,220 26,915 7,810 10,720

Dr. Bank Account Cr.

Particulars ` Particulars `

To Balance b/d 535 By Realisation A/c 12,100

To Realisation A/c 44,700 By Realisation A/c 6,300

To A’s Capital A/c 9,220 By Realisation A/c 1,500

To B’s Capital A/c 6,915 By A’s Capital A/c 34,640

To D’s Capital A/c (10,720x25%) 2,680 By B’s Capital A/c 17,320

To C’s Capital A/c (4,610 + 3,200) 7,810

71,860 71,860

Working Note: Insolvent partner’s loss should be borne by solvent partners having credit balance. So, here D’s loss will be borne by A and B only as they are the solvent partners having credit balance. C will bring his share of loss in cash.



PROBLEM NO. 4

Dr. Realization Account Cr.


50,000 2,50,000 1,25,000

70,000 4,00,000 3,00,000

22,600 5,05,000

70,000

24,000

5,00,000 70,000

1,00,000 3,00,000

49,000 3,80,000 2,70,000 1,25,000

22,600

To Land To Buildings To Office Equipments To Computers To Debtors To Stock To Other Asset A/c To Bank A/c (Loan) (5,00,000 X 101%) To Bank A/c To profit on realisation: (4:4:1:1) F Kapil 9,600 S Kapil 9,600 R Dev 2,400 B Dev 2,400

18,16,600

By Loan from NBFC By Current Liabilities By Bank: Land (200% of B.V) Buildings (120% of B.V) Computers (70% of B.V) Debtors (95% of B.V) Stock (90% of B.V) Office Equipments Other Current Assets

18,16,600

Dr. Partners Capital Account Cr.

Particulars FK SK RD BD Particulars FK SK RD BD

- -

17,000 2,42,600

- -

17,000 3,42,600

- 42,500 8,500

1,61,400

87,400

- -

2,00,000 50,000 9,600

- - - -

2,00,000 1,50,000

9,600 - - - -

1,00,000 1,10,000

2,400 - - - -

- -

2,400 42,500 17,000 17,000 8,500

To Current A/c To BD A/c To BD A/c (2:2:1) To Bank A/c

2,59,600 3,59,600 2,12,400 87,400

By Balance b/d By Current A/c By Realization A/c By RD A/c By FK A/c By SK A/c By RD A/c

2,59,600 3,59,600 2,12,400 87,400


Particulars Amount Particulars Amount 75,000

12,46,600 5,05,000

70,000 1,61,400 2,42,600 3,42,600

To Balance b/d To Realization A/c

13,21,600

By Realization A/c (Loan) By Realization A/c By RD capital A/c By FK capital A/c By SK capital A/c

13,21,600

PROBLEM NO. 5

Dr. Realization Account Cr.


96,060 64,000 28,600 84,000

1,02,400

1,02,400 2,26,880

45,780

To Debtors To Stock To Machinery To Land and Buildings To Bank

3,75,060

By Creditors By Bank By loss on realisation: (b/f) A’s Capital 15,260 B’s Capital 15,260 C’s Capital 15,260

3,75,060



Dr. Partners’ Capital Account Cr.

Particulars A B C Particulars A B C

- 15,260 3,120

1,08,080

- 15,260 2,080

52,420

9,940 15,260

- -

60,000 21,200

30,000 15,260

- -

40,000 2,500

12,000 15,260

- -

20,000 -

- 3,120 2,080

-

To Current A/c of C To Realization A/c To C’s Capital A/c(3:2) To Bank A/c (b/f)

1,26,460 69,760 25,200

By Bal. (b/d) By Current A/c By Loan from Partners By Bank A/c By A’s Capital By B’s Capital 1,26,460 69,760 25,200



5,500 2,26,880

15,260 15,260

1,02,400 1,08,080

52,420

To Balance (b/d) To Realization A/c To A’s Capital A/c To B’s Capital A/c 2,62,900

By Realization A/c By A’s Capital A/c By B’s Capital A/c

2,62,900

♦ Hint given in the question is wrong. ♦ Correct Ans.: Final Realization to Partners – A: 1,08,080; B: 52,420)

PROBLEM NO. 6

In the Books of M/s LMS Statement of Piecemeal Distribution

(Under Higher Relative Capital method)

Capital A/c’s Particulars

Amount Available

`

Creditors

`

Bank Loan

`

L’s Loan

` L

`

M

`

S

`

Balance due 1st Instalment (including cash and bank balances)

5,00,000

2,00,000 5,00,000 10,00,000 15,00,000 10,00,000 5,00,000

Less: Liquidator’s Expenses and fee

(1,00,000)

4,00,000

Less: Payment of Creditors and repayment of Bank Loan in the ratio of 2:5

(4,00,000)

(1,14,286)

(2,85,714)

-

-

-

-

Balance Due - 85,714 2,14,286 10,00,000 15,00,000 10,00,000 5,00,000

2nd Instalment 15,00,000

Less: Payment to Creditors and repayment of bank loan in full settlement

(3,00,000)

(85,714)

(2,14,286)

12,00,000 - - 10,00,000 15,00,000 10,00,000 5,00,000

Less: Repayment of L’s Loan

(10,00,000) (10,00,000) - - -

2,00,000 15,00,000 10,00,000 5,00,000

Less: Payment to Mr. L towards relative higher capital (W.N.1)

(2,00,000)

(2,00,000)

-

-

Balance Due 13,00,000 10,00,000 5,00,000



3rd Instalment 15,00,000

Less: Payment to Mr. L towards higher relative capital (W.N.2)

(3,00,000) (3,00,000)

12,00,000 10,00,000

Less: Payment to Mr. L & Mr. M towards excess capital (W.N. 1& 2)

(10,00,000)

(5,00,000)

(5,00,000)

2,00,000 5,00,000 5,00,000

Less: Payment to all the partners equally

(2,00,000)

(66,667)

(66,667)

(66,666)

Balance Due 4,33,333 4,33,333 4,33,334

4th Instalment 30,00,000

Less: Payment to all the partners equally

(30,00,000) (10,00,000) (10,00,000) (10,00,000)

Realisation profit credited to Partners

5,66,667 5,66,667 5,66,666

5th Instalment 30,00,000

Less: Payment to all partners equally

(30,00,000)

10,00,000

10,00,000

10,00,000

Realisation profit credited to partners

15,66,667

15,66,667

15,66,666

Working Notes:

(i) Scheme of payment of surplus amount of `2,00,000 out of second Instalment:

Capital A/c’s Particulars

L ` M ` S `

Balance (i) 15,00,000 10,00,000 5,00,000

Profit sharing ratio (ii) 1 1 1

Capital taking S’s capital (iii) 5,00,000 5,00,000 5,00,000

Excess Capital (iv) = (i) – (iii) 10,00,000 5,00,000

Profit Sharing Ratio 1 1

Excess capital taking M’s Excess Capital as base (v) 5,00,000 5,00,000

Higher Relative Excess (iv) – (iv) 5,00,000

So, Mr. L should get `5,00,000 first which will bring down his capital account balance from `15,00,000 to `10,00,000. Accordingly, surplus amounting to `2,00,000 will be paid to Mr. L towards higher relative capital.

(ii) Scheme of payment of `15,00,000 realised in 3rd Instalment:

- Payment of `3,00,000 will be made to Mr. L to discharge higher relative capital. This makes the higher capital of both Mr. L and Mr. M `5,00,000 as compared to capital of Mr. S.

- Payment of `5,00,000 each of Mr. L & Mr. M to discharge the higher capital.

- Balance `2,00,000 equally to L, M and S, i.e., `66,667 `66,667 and `66,666 respectively.

♦ Assumption: We are assuming that first realisation amount includes opening cash & bank balance of Rs. 2,00,000/-.

Copy Rights Reserved

To MASTER MINDS, Guntur



Problem No. 7

Statement showing Realisation and Distribution of Cash Payments (Maximum Loss Method)

Particulars Realisation `

Creditors `

Partners’ Loan `

Partners’ Capital

` 1. After taking into account cash balance and

amount set aside for expenses 1,000 1,000 - -

2. 3,000 1,000 2,000 -

3. 3,900 - 3,000 900

4. 6,000 - - 6,000

Including saving in expenses 20,100 - - 20,100

34,000 2,000 5,000 27,000

To ascertain the amount distributable out of each instalment realised among the partners, the following table will be constructed: Statement of Distribution on Capital Account (Maximum Loss Method) (1) Calculation to determine the mode of distribution of `900

Particulars Total `

A `

B `

C `

Balance 42,000 15,000 18,000 9,000

Less: Possible loss, should remaining assets prove to be worthless ( 2:2:1)

(41,100)

(16,440)

(16,440)

(8,220)

+900 -1,440 +1,560 +780

Deficiency of A’s capital written off against those of B and C in the ratio of their capital, 18,000 : 9,000 (Garner vs. Murray)

(960) (480)

Manner in which the first `900 should be distributed +600 +300

(2) Distribution of `6,000

Balance after making payment of amount shown in step (1) 41,100 15,000 17,400 8,700

Less: Possible loss, assuming remaining assets to be valueless (2:2:1)

(35,100) (14,040) (14,040) (7,020)

Balance available and to be distributed 6,000 960 3,360 1,680

(3) Distribution of `20,100

Balance after making payment of amount shown in step (2) 35,100 14,040 14,040 7,020

Less: Possible loss, assuming remaining assets

to be valueless ( 2:2:1) (15,000) (6,000) (6,000) (3,000)

Manner of distribution of `20,100 20,100 8,040 8,040 4,020

Summary:

Balance capital 42,000 15,000 18,000 9,000

Total amounts paid 27,000 9,000 12,000 6,000

Loss 15,000 6,000 6,000 3,000



PROBLEM NO. 8 Calculation of Purchase Consideration:

Particulars A & CO. B & CO.

1,10,000 4,10,300

11,000 1,40,800 5,06,000

1,100

88,000

- -

2,37,600 2,47,500

- 11,79,200 (3,38,800)

(15,840) (1,96,900)

5,73,100 (57,200) (10,560)

-

Assets: Goodwill Land & Buildings Fixture Debtors Stock Cash in hand

Total (A) (-) Creditors (-) Loans (-) Bank OD

Total (B) Purchase consideration (A - B)

5,51,540 6,27,660

67,760 5,05,340

Total Purchase consideration 11,33,000

Dr. Realization A/c Cr.


4,10,300 11,000

3,78,400 7,53,500

1,100

1,98,000

3,96,000 26,400

1,96,900 11,33,000

To Lands & Buildings To Fixture To Debtors To Stock To Cash To profit on realisation: Partners Capitals: A – 99,000 B – 99,000

17,52,300

By Creditors By Loans By Bank OD By Purchasing Company

17,52,300

Dr. Partners Capital A/c Cr.

Particulars A B Particulars A B

5,22,500 1,55,100

1,05,160 3,50,240

5,78,600 99,000

3,56,400 99,000

To Amount of shares in A Ltd. To Amount of shares in B Ltd.

6,77,600 4,55,400

By Balance b/d By Realization A/c

6,77,600 4,55,400 Statement showing discharge of purchase consideration to Partners

Particulars A B

Capital Balances Shares in A Ltd. Shares in B Ltd.

6,77,600 (5,22,500)

1,55,100 (b/f)

4,55,400 1,05,160 (b/f)

(3,50,240)





Balance sheet of A Ltd. as on 31.12.2003

Particulars Note No Amount

1.

2.

EQUITY AND LIABILITIES: 1. Share holder funds a. Share capital 2. Non-current Liabilities Long term borrowings 3. Current liabilities Trade payables

Total

1 2 3

6,65,500

2,20,000

3,38,800 12,24,300

ASSETS: 1. Non-current Assets a. Fixed assets i) Tangible Assets ii) Intangible Assets (Goodwill) b. Other Non-current Assets (Formation Exp.) 2. Current Assets a. Inventory b. Trade receivables c. Cash and Cash Equivalents

Total

5 9

4,21,300 1,10,000

14,300

5,06,000 1,40,800

31,900 12,24,300

Notes to Balance Sheet: 1. Share capital a. Equity share capital (6,27,660 + 22,000) = 6,49,660 (Out of 6,49,660, 6,00,000 amount of shares issued

for a consideration other than cash) b. Preference share capital = 15,840 6,65,500 2. Long term borrowings Mortgage loan (land and buildings) = 2,20,000 3. Trade payables = 3,38,800 5. Tangible Assets Land & Buildings = 4,10,300 Plant & Machinery = 11,000 4,21,300 9. Cash and Cash equivalents Opening Balance 1,100 Add: Cash received for shares 22,000 Add: Loan mortgage 2,20,000 Less: Bank OD (1,96,900) Less: Formation Exp. (14,300) = 31,900





PROBLEM NO. 9

In the books of Black & Green Dr. Realization A/c Cr.

Particulars Amount Particulars Amount To Balance at Bank 42,000 By Creditors 64,000

To Investments 15,000 By Mints & Co. A/c (W.N-1) 3,16,600

To Debtors 71,000 By Black Capital (investments) 12,000

To Stock 59,000

To Vehicles 25,000

To Freeholds 75,000

To Fixtures 18,000

To Capital A/c’s (profit)

Black – 87,600 x 8/15 = 46,720

Green – 87,600 x 7/15 = 40,880 87,600

3,92,600 3,92,600

Dr. Capital A/c Cr. Particulars Black Green Particulars Black Green

To Realization 12,000 - By Balance b/d 1,20,000 1,05,000

To Mints & Co. A/c(b/f) 1,64,720 1,51,880 By Current A/c 10,000 6,000

By Realization 46,720 40,880

1,76,720 1,51,880 1,76,720 1,51,880 Dr. Tints & Co. A/c Cr.

Particulars Amount Particulars Amount To Realization A/c 3,16,600 By Black’s Capital 1,64,720 By Green’s Capital 1,51,880 3.16,600 3,16,600

In the Books of Brown and Grey

Dr. Realization A/c Cr.

Particulars Amount Particulars Amount To Balance at bank (1,00,000+31,000)

1,31,000 By Creditors A/c

56,000

To Debtors 65,000 By Tins & Co. A/c (W.N-1) 2,63,400

To Stock 67,000 By loss on realisation A/c(3:2)

To Vehicles 17,000 Brown Capital A/c 6,360

To Freeholds 50,000 Grey capital A/c 4,240 10,600

3, 30,000 3, 30,000

Dr. Capital A/c Cr.

Particulars Brown Grey Particulars Brown Grey To Realisation A/c 6,360 4,240 By Balance b/d 1,10,000 78,000

To Tints & Co. 1,55,240 1,08,160 By profit on sale of fixtures (3:2)



(1,00,000-14,000) 51,600 34,400

1,61,600 1,12,400 1,61,600 1,12,400

Working Note - 1 Dr. Tints & Co. A/c Cr.

Particulars Amount Particulars Amount To Realization 2,63,400 By Brown’s capital 1,55,240

By Grey’s capital 1,08,160

2,63,400 2,63,400

In the Books of new Partnership Firm Balance Sheet of Tints & Co. as on 01.01.03


Capital A/c’s: Balance at bank

Black – 1,50,000 (42,000 + 1,31,000) - 80,000 93,000

Green – 1,25,000 Debtors (Less provisions) (71,000+65,000-4,000-5,000)

1,27,000

Brown – 1,25,000 Stock (57,000 + 62,000) 1,19,000

Grey – 1,00,000 5,00,000 Vehicles (23,000 + 15,000) 38,000

Creditors 1,17,000 Freeholds 95,000

Goodwill (75,000 + 50,000) 1,25,000

Fixtures 20,000

6,17,000 6,17,000

Dr. Capital A/c Cr.

Particulars Black Green Brown Grey Particulars Black Green Brown Grey

To Cash 14,720 26,880 30,240 8,160 By Sundry Assets

1,64,720 1,51,880 1,55,240 1,08,160

To Bal. c/d 5L(6:5:5:4)

1,50,000 1,25,000 1,25,000 1,00,000

1,64,720 1,51,880 1,55,240 1,08,160 1,64,720 1,51,880 1,55,240 1,08,160

By Bal. b/d 1,50,000 1,25,000 1,25,000 1,00,000

Working Note: 1 Computation of Purchase consideration:

Particulars Block & Green Brown & Gray Bank 42,000 1,31,000

(1,00,000+31,000) Investments - - Debtors 71,000 65,000 Stocks 57,000 62,000 Vehicles 23,000 15,000 Fixtures 20,000 - Freeholds 95,000 - Goodwill 75,000 50,000 (-) Provisions for doubtful debts 4,000 5,000 (-) Creditors (after discount) 62,400 54,600 P.C 3,16,600 2,63,400



PROBLEM NO. 10

In the books of M/s XYZ & C Journal Entries

Particulars Debit Credit

Buildings A/c Dr. Machinery A/c Dr. Furniture A/c Dr. Debtors A/c Dr. Cash at Bank A/c Dr. Cash in hand A/c Dr. Stock A/c Dr. Due from Y Co. A/c Dr. Advances A/c Dr. Goodwill A/c Dr. To Creditors A/c To Due to X & CO To Bank loan A/c To X’s capital A/c To Y’s capital A/c To Z’s capital A/c (Being incorporation of assets & liabilities of Mrs. R & CO and Mrs. Y & CO at agreed values)

2,00,000 8,50,000

52,000 7,20,000 2,40,000

60,000 5,20,000 2,00,000 1,20,000 1,82,000

4,72,000 2,00,000 1,60,000 8,17,500

11,40,500 3,54,000

X Capital A/c Dr. Y Capital A/c Dr. Z Capital A/c Dr. To Goodwill A/c (Being goodwill written off)

91,000 60,667 30,333

1,82,000

Due to X & Co A/c Dr. To Due from Y & Co A/c (Being inter firm owings cancelled)

2,00,000 2,00,000

Cash A/c Dr. To X’s capital A/c To Z’s capital A/c (Being necessary cash bought in by X & Z)

3,69833 3,38,500

31,333

Y’s capital A/c Dr. To Cash A/c (Being excess balance paid to Y)

3,69,833 3,69,833

Balance Sheet of Mrs. X, Y, Z & CO as on 31.03.2003


10,65,500 7,10,000 3,55,500 4,72,000 1,60,000

2,00,000 8,50,000

52,00 5,20,000 7,20,000 2,40,000

60,000 1,20,000

Capitals A/c’s: X Y Z Creditors Bank Loan

27,62,500

Buildings Machinery Furniture Stock Debtors Cash Bank Advances

27,62,500



Working Notes: 1

Computation of capital contributions X, Y, Z in the forms of X & Co and Y & Co.

X & CO(3:1) Y & CO (2:1) Particulars

X Y Y Z

4,80,000 75,000

2,62,500

3,20,000 25,000 87,500

4,00,000 2,00,000 1,08,000

2,00,000 1,00,000

54,000

Capital A/c Balances Reserves Realization profit

8,17,500 4,32,500 7,08,000 3,54,000

11,40,500

Working Notes: 2 - profit on Realisation

Particulars X & Co. Y & Co.

Building (2,00,000 – 1,00,000) Machinery (4,50,000 – 3,00,000) & (4,00,000-3,20,000) Goodwill as per given profit on Realisation partner’s capital A/c:

X Y Z

1,00,000 1,50,000 1,00,000 3,50,000

2,62,500

87,500 -

- 80,000 82,000

1,62,000

- 1,08,000

54.000

Working Notes: 3 Adjustments of Capital:

Particulars X Y Z

8,17,500 (91,000)

7,26,500

11,40,500 (60,667)

10,79,833

3,54,000 (30,333)

3,23,667

21,30,000

(X) 3/6 (Y) 2/6 (Z) 1/6

Capital Account Balances Less: Goodwill written off (as per new ratio 3:2:1)

Desired Capital (21,30,000 as per 3:2:1) Actual Capital

Balance cash to be brought in / withdrawn

10,65,000 7,26,500

3,38,500

7,10,000 10,79,833

(3,69,833)

3,55,000 3,23,667

31,333

♦ Hint given in the question is wrong.

PROBLEM NO. 11


Particulars Amount (`) Particulars Amount

(`) To Land and building 2,46,000 By Sundry creditors 36,000 To Furniture and fixtures 65,000 By Mortgage loan 1,10,000 To Stock 1,00,000 By Cash account To Debtors 72,500 By Land and building 2,30,000 To Cash A/c (expenses on dissolution) 7,800 By Furniture & fixtures 42,000 To Cash A/c (creditors `36,000 + `18,000) 54,000 By Stock 72,000 To Cash A/c (Mortgage loan) 1,10,000 By Debtors 65,000



By Partners’ capital A/c (Loss 4:3:2:1)

P = 40,120 Q = 30,090 R = 20,060 S = 10,030

1,00,300 6,55,300 6,55,300

Dr. Partners’ Capital Accounts Cr.

P Q R S P Q R S Particulars

` ` ` ` Particulars

` ` ` `

To Balance b/d - - 25,000 18,000 By Balance b/d 1,68,000 1,08,000 - -

To Realization A/c (Loss)

40,120 30,090 20,060 10,030 By General Reserve

38,000 28,500 19,000 9,500

To R’s Capital A/c (Deficiency) 12,636 8,424 - - By Capital

Reserve 10,000 7,500 5,000 2,500

To Cash A/c (b/f) 2,03,364 1,35,576 - - By Cash A/c (realization loss)

40,120 30,090 - 10,030

By P’s Capital A/c - - 12,636 -

By Q’s Capital A/c

- - 8,424 -

By Cash A/c (b/f)

- - - 6,000

2,56,120 1,74,090 45,060 28,030 2,56,120 1,74,090 45,060 28,030

Note: P, Q and S brought cash to make good, their share of the loss on realization. However, in actual practice they will not be bringing any cash, only a notional entry will be made.

Dr. Cash Account Cr.

Particulars Amount (`) Particulars Amount

(`)

To Balance b/d 15,500 By Realization A/c:

To Realization A/c: Expenses on dissolution 7,800

Land and building 2,30,000 Creditors (36,000 + 18,000) 54,000

Furniture & fixtures 42,000 Mortgage loan 1,10,000

Stock 72,000 By P’s capital A/c 2,03,364

Debtors 65,000 By Q’s capital A/c 1,35,576

To P, Q, S’s capital A/c’s (40,120 + 30,090 + 10,030)

80,240

To S’s Capital A/c 6,000

5,10,740 5,10,740

Working Note: As per Garner Vs. Murray rule, solvent partners have to bear the loss due to insolvency of a partner in their capital ratio. Calculation of Capital Ratio of Solvent Partners

Particulars P (`) Q (`) S (`)

Opening capital 1,68,000 1,08,000 (18,000)

Add: General reserve 38,000 28,500 9,500

Capital reserve 10,000 7,500 2,500

2,16,000 1,44,000 (6,000)



Though S is a solvent partner yet he cannot be called upon to bear loss on account of insolvency of R because his capital account has a debit balance.

Therefore, capital ratio of P & Q = 216 : 144 = 3:2

Deficiency of R = `{(25,000 + 20,060) – 19,000 + 5,000)} = `45,060 - `24,000 = `21,060.

Deficiency of R will be shared by P & Q in the capital ratio of 3 : 2 i.e.

P = ` 21,060 x 3/5 = `12,636

Q = `21,060 x 2/5 = ` 8,424

PROBLEM NO. 12

Journal entries in the books of firm Particulars Debit Credit

a. Profit & Loss adjustment A/c Dr. To Stock A/c (1,800 x 20%) To Investment A/c (12,500 x 10%)

4,850 3,600 1,250

Profit & Loss Adjustment A/c Dr. To Book Debts A/c (2,500 x 10%)

250 250

b.

R’s Capital A/c Dr. To Book Debts A/c

2,250 2,250

Unrecorded assets: Vehicles A/c Dr. To Profit & Loss Adjustment A/c

3,000

3,000

c.

R’s Capital A/c Dr. To Vehicles A/c

3,000 3,000

d. R’s Capital A/c Dr. To Profit & Loss Adjustment A/c (Salary Refund)

3,000 3,000

e. R’s Capital A/c (5:4) Dr. To P’s Capital A/c To Q’s Capital A/c

9,000 5,000 4,000

f. Cash A/c Dr. To Investments A/c

12,000 12,000

g. Investments A/c Dr. To P’s Capital A/c To Q’s Capital A/c

750 375 375

In the Books of P, Q & R Dr. Profit & Loss Adjustment A/c Cr.

Particulars Amount Particulars Amount 3,600 1,250

250

900

3,000 3,000

To Stock To Investment To Book Debts To Partners Capital: P – 300 Q – 300 R – 300

6,000

By Vehicles A/c By R’s Capital A/c (50% of 1 year salary)

6,000



Dr. Partners Capital A/c Cr.

Particulars P Q R Particulars P Q R

61,250

50,250

2,250 3,000 3,000 9,000

14,750

50,000 1,700 5,000

375

3,875 300

40,000 1,700 4,000

375

3,875 300

30,000 1,700

300

To Book Debts To Vehicles To P & L Adj. A/c To P & Q Capital To Cash To Balance c/d

61,250 50,250 32,000

By Balance b/d By P & L A/c By R Capital By investment (12,000-11,500) By Cash (3,500+375) By P & L A/c

61,250 50,250 32,000

Balance sheet of Mrs. P & Q as on 31.12.03


1,11,500 7,000 8,000 7,900

7,000

14,400 5,000

32,000 40,000 28,000 8,000

Capital A/c’s: P 61,250 Q 50,250 Creditors Staff security Deposit Staff provident fund

1,34,400

Cash [2000 + 12,000 + 7,750 – 14,250] Stock [18,000 – 3,600] Book debt [7500 – 250 – 2,250] Factory Sec – P Factory Sec – Q Vehicles FDR of staff security

1,34,400 Working note:

Computation of amount brought in by P & Q: Amount payable to R = 14,750 (+) Minimum cash balance = 7,000 21,750 (-) Available cash (2000 + 12,000) (14,000) 7,750

Balance Sheet of P & Q Ltd as on 01.01.2014

Particulars Note No Amount

EQUITY & LIABILITIES: Share holders fund Share capital Non-current liabilities: Other non-current liabilities Current Liabilities: Trade payables

Total

1

2,00,000

15,900

7,000 2,22,900

ASSETS: Non-Current Assets: Fixed Assets Tangible Assets Non-current investments Other non-current investment [F.D.R] Current Assets:

2

1,25,000

8,000



Inventory Trade receivables [Debtors] Cash & Cash equivalents Other current assets

Total

3 4

14,400 5,000

63,500 7,000

2,22,900

Notes to accounts:

Particulars `

1. Share capital Equity share capital issued and subscribed & paid up 20,000 equity shares of Rs. 10 each fully paid (Out of the above 11,500 shares issued to P&Q , 3,000 shares are issued to R&S for consideration other than cash.) 2. Tangible assets Factory 32,000 Plant & Machinery (WN: 2) 65,000 Vehicles 28,000 3. cash & cash Equivalents Opening balance(WN:1) 7,000 Equity Share Capital 58,500 Less: dismantling charges (2,000) 4. other Current Assets: Loss on sale of factor 5,000 Dismantling charges 2,000

2,00,000

1,25,000

63,500

7,000

Working note: 1 Dr. Cash A/c. Cr.

Particulars Amount (`) Particulars Amount(`) To Balance c/d. 2,000 By R Capital A/c 14,750 To Investments A/c 12,000 To P’s capital A/c 3,875 To Q’s Capital A/c 3,875 7,750 By Balance C/d 7,000 21,750 21,750

Working note: 2 Dr. Plant & Machinery A/c. Cr.

Particulars Amount (`) Particulars Amount(`) To Balance c/d. 40,000 By loss on sale 7,000 To cash A/c 2,000 To cash A/c 30,000 By Balance C/d 65,000 72,000 72,000

THE END



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