Question

Which is the example Capital Reserve
A profit on revaluation of fixed assets
B debenture redemption of fixed assets.
C investment fluatuation reserve
D workmen compensation reserve

Answer 1

Answer:

Liabilities (Rs.) Assets (Rs.)

Creditors

Employees Provident Fund

Workmen Compensation Reserve

Capital A/cs:

X              70,000

Y              31,000  

15,000

10,000

5,800

1,01,000 Cash at Bank

Sundry Debtors                                                20,000

Less: Provision for Doubtful Debts          

            600

Stock

Fixed Assets

Profit and Loss A/c 5,000

19,400

25,000

80,000

2,400

1,31,800  1,31,800

They admit Z into partnership with 1/8  

th

 share in profits on this date. Z brings Rs.20,000 as his capital. Rs.12,000 for goodwill in cash. Z acquires share entirely from X. Following revaluation are also made.

(a) Employees Provident Fund liability is to be increased by Rs.5,000.

(b) All Debtors are good. Therefore, no provision is required on Debtors.

(c) Stock includes Rs.3,000 for obsolete items.

(d) Creditors are to be paid Rs.1,000 more.

(e) Fixed Assets are to be revalued at Rs.70,000.

Prepare Journal entries, necessary account and new Balance Sheet. Also calculate new profit-sharing ratio.

December 26, 2019

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Shafaque Nienu

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ANSWER

(i)                                     REVALUATION ACCOUNT

Dr.                                                                                                                     Cr.

Particulars Amount  Particulars  Amount  

To Employee provident fund a/c 5000  By Provision for Doubtful Debts /ac 600  

To Fixed Assets a/c 10000  By Loss transferred to:

- X's Capital a/c

- Y's Capital a/c  

11500

6900

To Stock a/c 3000      

To Creditors a/c 1000      

 19000   19000  

(ii)                                   PARTNER'S CAPITAL A/C

Dr.                                                                                                                 Cr.

Particulars X  Y  Z  Particulars  X  Y  Z  

To Revaluation a/c  11500  6900    By Balance b/d 70000  31000    

To Profit and loss a/c 1500  900    By Cash a/c     20000  

To Balance c/d 72625  25375  20000  By Workmen Compensation Fund a/c 3625  2175    

     By Premium for Goodwill a/c 12000      

 85625  33175 20000    85625 33175 20000  

(iii)                                         BALANCE SHEET

Liabilities Amount  Assets  Amount  

Capital a/cs:

- X

- Y

- Z  

72625

25375

20000 Cash at Bank(5000+20000+12000)  37000

Creditors 16000  Debtors

20000  

Provident Fund

15000  Fixed Assets 70000  

   Stock (25000-3000) 22000  

   

 149000   149000  

Working Note:

Calculation of New profit sharing ratio:

Old ratio= 5:3

Z is admitted for 1/8th share

Z acquired entire share from X.

X's new share= 5/8-1/8

                      = 4/8

New profit sharing ratio= 4:3:1