Page 104 - MA12

M.10 Management Accounting (Section B)—ISC XII

Working Notes:
1. Unless agreed otherwise, sacrificing ratio of old partners will be same as their old profit-sharing ratio.
2. Calculation of New Profit-sharing Ratio:
1
Let, Total Profit = 1; Chandan’s Share =
2
1 1
Remaining Profit = -1 = , which will be shared by Arun and Barun in their old profit-sharing, i.e.,
2 : 3. Thus, 2 2

2 1 2 3 1 3 1 5
Arun’s New Share = ¥ = ; Barun’s New Share = ¥ = ; Chandan’s Share = or
5 2 10 5 2 10 2 10
2 3 5
Hence, New Profit-sharing Ratio of Arun, Barun and Chandan = : : = 2 :3:5.
10 10 10
3. Total Capital of the New firm and Capitals of Partners in New Firm:
2
Total Capital of New firm on the basis of Chandan’s Capital = ` 5,00,000 × = ` 10,00,000
1
2 3
Arun’s Capital = ` 10,00,000 × = ` 2,00,000; Barun’s Capital = ` 10,00,000 × = ` 3,00,000;
10 10
Chandan’s Capital = ` 5,00,000.

4. ‘All Debtors are Good’ means Provision for Doubtful Debts is no longer required and hence should be
credited to Revaluation Account.
3. (a)
JOURNAL OF SMART CO.
Date Particulars L.F. Dr. (`) Cr. (`)

Own Debentures A/c ((500 × ` 95) + (100 × ` 98) + ` 400) ...Dr. 57,700
To Bank A/c 57,700
(Being the purchase of own 600 debentures)

9% Debentures A/c (600 × ` 100) ...Dr. 60,000
Premium on Redemption of Debentures A/c (600 × ` 5) ...Dr. 3,000
To Own Debentures A/c 57,700
To Gain (Profit) on Cancellation of Own Debentures A/c 5,300
(Being the cancellation of 600; 9% Debentures of ` 100 each redeemable
at 105%) (Note)
Gain (Profit) on Cancellation of Own Debentures A/c ...Dr. 5,300
To Capital Reserve A/c 5,300
(Being the gain (profit) on cancellation of own debentures
transferred to Capital Reserve)

Note: When the debentures are redeemable at premium, gain or loss on cancellation of own debentures
should be calculated after taking into consideration the premium payable on redemption of
debentures. In such a case Premium on Redemption of Debentures Account will be debited along with
9% Debentures Account.