A and B sharing profits and losses in the ratio of 3:2 decide to admit C for ⅓ rd share. On this date, their balance sheet disclosed the following items:- Investment fluctuationReserve ₹40000 Investment (at cost) ₹300000 Show the accounting treatment if the market value of investments is ₹290000. a) Capital accounts of A and B debited by ₹15000 in 2:3 ratio. b) Capital accounts of A and B credited by ₹30000 in 2:3 ratio c) Capital accounts of A and B credited by 30000 in 3:2 ratio d) None.
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(i) Calculation of new profit sharing ratio:
A's old share= 3/5
B's old share= 2/5
C is admitted for 1/8th share.
Remaining share= 1-[1/8]
= 7/8
A's new share= 3/5 * 7/8 = 21/40
B's new share= 2/5 * 7/8 = 14/40
C's share= 1/8 * 5/5= 5/40
New profit sharing ratio= 21:14:5
Explanation:
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