Please solve this question by using memorandum revaluation account method instead of normal revaluation method so that the assets and liabilities in the new balance sheet is unaltered. PREPARE MEMORANDUM REVALUATION ACCOUNT, PARTNERS' CAPITAL A/C AND NEW BALANCE SHEET. Kindly post full length solution and not a 1 liner answer
Answers
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Answer:
(a) M acquires his share of profit in the profit sharing ratios of the partners:
(i) JOURNAL
1. Reserve a/c... Dr. 100000
To J's Capital a/c 60000
To K's Capital a/c 40000
(Being reserve distributed among the partners)
2. Cash a/c... Dr. 400000
To M's Capital a/c 300000
To Premium for Goodwill a/c 100000
(Being capital and premium for goodwill brought in by M)
3. Premium for goodwill a/c.... Dr. 100000
To J's Capital a/c 60000
To K's Capital a/c 40000
(Being premium for goodwill distributed among the partners in the sacrificing ratio)
Explanation:
LIABILITIES AMOUNT ASSETS AMOUNT
J's Capital 235000 Cash 600000
K's Capital 215000 Other Assets 150000
M's Capital 300000
750000 750000
Calculation of new profit sharing ratio:
Old ratio= 3:2
M is admitted for 1/2 share in profits
Remaining share= 1/2
J's new ratio= 3/5 * 1/2
= 3/10
K's new ratio= 2/5 * 1/2
= 2/10
New profit sharing ratio= 3:2:5
(b) M acquires his share in equal proportion from the partners
(i) JOURNAL
1. Reserve a/c... Dr. 100000
To J's Capital a/c 60000
To K's Capital a/c 40000
(Being reserve distributed among the partners)
2. Cash a/c... Dr. 400000
To M's Capital a/c 300000
To Premium for Goodwill a/c 100000
(Being capital and premium for goodwill brought in by M)
3. Premium for goodwill a/c.... Dr. 100000
To J's Capital a/c 50000
To K's Capital a/c 50000
(Being premium for goodwill distributed among the partners in the sacrificing ratio of 1:1)
BALANCE SHEET
LIABILITIES AMOUNT ASSETS AMOUNT
J's Capital 235000 Cash 600000
K's Capital 215000 Other assets 150000
M's Capital 300000
750000 750000
Calculation of new profit sharing ratio:
Old ratio= 3:2
M is admitted for 1/2 share in profits
J's sacrifice= 1/2 * 1/4= 1/8
K's sacrifice= 1/2* 1/4= 1/8
J's new ratio= 3/5-1/8
= 19/40
K's new ratio= 2/5- 1/8
= 11/40
New profit sharing ratio= 19:11:20
(c) M acquires his share in the ratio of 3:1
(i) JOURNAL
1. Reserve a/c... Dr. 100000
To J's Capital a/c 60000
To K's Capital a/c 40000
(Being reserve distributed among the partners)
2. Cash a/c... Dr. 400000
To M's Capital a/c 300000
To Premium for Goodwill a/c 100000
(Being capital and premium for goodwill brought in by M)
3. Premium for goodwill a/c.... Dr. 100000
To J's Capital a/c 75000
To K's Capital a/c 25000
(Being premium for goodwill distributed among the partners in the sacrificing ratio of 3:1)
BALANCE SHEET
LIABILITIES AMOUNT ASSETS AMOUNT
J's Capital
235000 Cash (200000+400000) 600000
K's Capital 215000 Other assets 150000
M's Capital 300000
750000 750000
Calculation of new profit sharing ratio:
Old ratio= 3:2
M is admitted for 1/2 share in profits
J's sacrifice= 1/2 * 3/4= 3/8
K's sacrifice= 1/2* 1/4= 1/8
J's new ratio= 3/5-3/8
= 9/40
K's new ratio= 2/5- 1/8
= 11/40
New profit sharing ratio= 9:11:20