Page 107 - MA12

Model Test Papers M.13

Working Notes:
1. Unless agreed otherwise, gaining ratio of remaining or continuing partners is same as their old
profit-sharing ratio.
2. Rose’s share of Goodwill = 3/5 of ` 1,00,000 = ` 60,000, which will be contributed by Daisy and Lily in their
gaining ratio, i.e., 1 : 1.
3. Dr. ROSE’S CAPITAL ACCOUNT Cr.
Particulars ` Particulars `
To Investments A/c 2,00,000 By Balance b/d 3,50,000
To Goodwill A/c 36,000 By General Reserve A/c 13,500
To Bank A/c 1,00,000 By Investments Fluctuation Reserve A/c 27,000
To Rose’s Loan A/c 1,29,500 By Revaluation A/c (Gain) 15,000
By Daisy’s Capital A/c 30,000
By Lily’s Capital A/c 30,000
4,65,500 4,65,500

5. (a) ADJUSTMENT JOURNAL ENTRY
Date Particulars L.F. Dr. Cr.
` `
Strong’s Capital A/c ...Dr. 8,000
To Feeble’s Capital A/c 8,000
(Being the error rectified)
Working Notes:
1. STATEMENT SHOWING REQUIRED ADJUSTMENT
Particulars Strong‘s Capital A/c Weak‘s Capital A/c Feeble’s Capital A/c Firm
Dr. (`) Cr. (`) Dr. (`) Cr. (`) Dr. (`) Cr. (`) Dr. (`) Cr. (`)
Salary Payable to Strong & Weak ... 6,000 ... 6,000 ... ... 12,000 ...
Commission Payable to Feeble ... ... ... ... ... 8,000 8,000 ...
Share of Profit in ` 1,20,000 (i.e.,
` 1,40,000 – ` 12,000 – ` 8,000) ... 42,000 ... 50,000 ... 28,000 1,20,000 ...
(WN 2)
Profit of ` 1,40,000 already dis-
tributed in 2 : 2 : 1, now taken back 56,000 ... 56,000 ... 28,000 ... ... 1,40,000
56,000 48,000 56,000 56,000 28,000 36,000 1,40,000 1,40,000
Net Effect 8,000 Dr. ... 8,000 Cr. ...

2. DISTRIBUTION OF PROFITS
Particulars Strong Weak Feeble
Profit of ` 1,20,000 [i.e., ` 1,40,000 – ` 12,000 ` 1,20,000 × 3/8 ` 1,20,000 × 3/8 ` 1,20,000 × 2/8
(Salary of Strong and Weak) – ` 8,000 = ` 45,000 = ` 45,000 = ` 30,000
(Commission of Feeble)] will be divided between
Strong, Weak and Feeble in the ratio of 3 : 3 : 2

However, Weak’s minimum guaranteed profit is ` 50,000. So, there is a deficiency of ` 5,000.
Deficiency to be met by Strong and Feeble in 3 : 2 ` 5,000 × 3/5 ... ` 5,000 × 2/5
= ` 3,000 = ` 2,000
Adjusted Share of Profit ` 45,000 – ` 3,000 ` 45,000 + ` 3,000 + ` 30,000 – ` 2,000

= ` 42,000 ` 2,000 = ` 50,000 = ` 28,000