Question

1..A and B are partners in a firm sharing profits in equal ratio. On 31st March 2015
their Balance Sheet as on 31st March 2018 was as follows: -
Balance Sheet
Liabilities Rs. Assets Rs.
Trade Payables
Provisions for doubtful debts
Contingency Reserve
Gagan’s 12% loan
Capital accounts:
A 3,90,000
B 3,00,000
Provident fund
Investment Fluctuation reserve
Workmen Compensation Reserve
15,000
1,500
10,000
1,50,000
6,90,000
10,000
9,000
14,500
Cash at Bank
Goodwill
Debtors
Bills Receivable
Stock
12% Investments (1-1-2018)
Land and Building
Profit and Loss Account
Preliminary Expenses
Furniture
36,900
25,000
1,15,000
50,000
1,85,000
1,00,000
2,70,000
5,100
10,000
1,03,000
9,00,000 9,00,000
On the above date C was admitted as new partner in the firm for 1/4 share in future profits
which she acquire from A and B in 5:3 ratio. Partnership deed provides following terms: -
 C shall bring 2,95,000 as his capital, and he brings only 60% from his share of goodwill
in cash.
 A provision for bad & doubtful debts create on trade receivables @ 5%.
 Fixed assets were depreciate by 8%.
 Stock was overvalued by 4000 and market value of the investment is 90,000.
 Liability arise against provident fund is 10,500.
 Goodwill of the firm was valued at 2 times of super profits. Firm earns average profits
of past few years 37,000, normal rate of return on capital employed in similar business
is 10%. Total assets of the firm are 4,25,000 (

Answer 1

Answer:

(i) C- Rs. 55,880

Fixed cost per unit = Rs. 3,60,000 / 15,000 units = Rs. 24

Profit under absorption costing = Rs. 1,01,000

Adjustment of fixed manufacturing overhead costs of increased inventory = 1,880 units × Rs. 24

= Rs. 45,120

Profit under marginal costing = Rs. 1,01,000 – Rs. 45,120 = Rs. 55,880

(ii) C – Monopoly position.

(iii) A - 5,80,000

Using production related budgets, units to produce equals budgeted sales + desired ending finished

goods inventory + desired equivalent units in ending W-I-P inventory – beginning finished goods

inventory – equivalent units in beginning W-I-P inventory. Therefore, in this case, units to produce

is equal to 5,00,000 + 1,50,000 + 60,000 – 80,000 – 50,000 = 5,80,000.

(iv) B - Rs. 300 lakhs

Margin of safety = Profit/ P/V Ratio

= 30/0.40 = Rs. 75 lakhs

0.25 of sales = Rs. 75 lakhs

Hence, Sales = 75/0.25 = Rs. 300 lakhs

(v) A – The same as good production