Blog - Page 15 of 18 - RBL Academy

CALVETA Core issues related to the case: • To maintain the reputation it had earned over a period of time and a Fear of losing Calveta’s solid reputation as a leader in the health-care sector due to expansion of business into different segments. • Conflicting objectives of preserving the company culture and achieving aggressive growth simultaneously. • To have well versed employees in the organisation who can strongly follow the Antonio way of doing things in the organisation. • Conflicts and a sense of confusions in decisions related to expansion and diversification of business into other segments and acquisition of GSD. Financial Problems in Expansion of business beyond the SLF segment to hospital segment in order to double the revenue of the organisation. • Financial Problems in Expansion of business beyond the SLF segment to hospital segment in order to double the revenue of the organisation. • Losing of contracts and rising of Customers’ dissatisfaction due to frequent changes in management and account managers at different facility centers. Analysis of data for the root cause/s of the problem Preserving the company culture and achieving aggressive growth were conflicting objectives Frank knew that organization already showed signs of strain, “and his sister and more than one of her colleagues on Calveta’s executive team agreed that would rather save the culture than spread themselves too rapidly into new businesses. Despite the growth of an aging population, and despite Calveta’s impressive business growth, it seemed highly unlikely to Frank and the executive team that the company could double its revenues in five years unless it branched out beyond the SLF segment. And despite growth in the hospital sector, Hospitals were, in the aftermath of the 2008–2009 recession, facing cutbacks in equipment and service due to decreases in charitable donations, reduced government assistance, and declining patient-stay lengths. Calveta expected such cutbacks to result in hospital closings, possibly reducing the potential market size. Frank feared that Calveta’s solid reputation as a leader in the health-care sector might become threatened as its relative size shrank versus the competition. Considering the financial challenges of getting into the hospital segment, the upbeat angles seemed a bit pie-in-the-sky as Calveta shouldered little debt. Because the company had been able to fuel its growth through prudent cash flow management, it did not need to rely on debt to finance kitchen equipment and renovations. If Calveta chose to pursue growth through acquisition, however, its no-debt philosophy would almost certainly need to be set aside. Calveta’s unique culture also served as an impediment to growth through acquisition. Lost contracts typically resulted from changes in management at an SLF; only rarely did an SLF drop Calveta citing poor performance. For several years, Frank Calveta had heard about such defections, and he believed that the vice president of account management had been dealing with them effectively. But when he’d begun reading the company’s annual client satisfaction survey results from the perspective of the CEO’s chair, Frank recognized that client frustrations with employee progression policies had worsened. Frank felt that the organizational structure of the firm was partly to blame for the customer dissatisfaction. While he’d been CFO, Frank had expressed concern that the design of the organization might have gotten knocked out of alignment as the company grew, but little had been done as Jennifer, speaking as COO, had disagreed with Frank. But Upon reading the latest surveys, Frank decided to have another look at the company’s organizational chart. Frank also worried about a rising diversity in the skills of area and account managers. It was becoming harder to find operations managers who fully embraced Antonio’s Way which can pose a problem in maintaining core values of the organisation. Recent development in the organisation has posed a rising diversity in the skills of area and account managers and new joinees lacked the industry experience. As per Jenifer, GSD from Great Southwest don’t have the best reputation. They’ve had labor problems and substantial turnover in their management ranks. However, Frank was confident that maybe Calveta’s best managers could slowly move GSD’s culture toward Antonio’s Way. Probable solutions based on the root cause to solve the problems:- Looking into scenario and objectives of the organisation, Calveta must opt for expansion of its business in different business segments particularly hospital segment as they are leaders in health segments. As the statistical data also proved that there is a sharp increase in aging population and 75 % market remained untapped. So Calveta must exploit this opportunity and target to achieve the goal of doubling its revenue in five years. Though Company have had no debt in its financial structure but in order to ensure its growth and expansion plan they must lever its financial structure and take advantage of reputation of company in getting debts from the market. Instead of hiring fresh graduates, company should focus on hiring those candidates who are ready to work in ANTONIO’s way, a work culture set by the founder of the company and the company should train them accordingly in order to maintain in reputation in the market. The company should go for acquisition of GSD as this company can help in expansion of the business in great southwest, the place where Calveta is not operational. The problems of labor problems can be sorted out by hiring competent employees and training them to cater the needs of company.

Calveta Dining Service Inc.

Calveta Dining Service Inc. – A Recipe for Growth Case Study and its Solution Calveta Dining Service Inc. Case Study Solution Core issues related to the case: To maintain the reputation it had earned over a period of time and Read more…

By admin, 4 yearsJune 24, 2022 ago

1. Is the industry Google Alphabet in, an attractive industry? What does it take to remain competitive in this industry? With the advent of technology and increase in internet users, the industry in which Google Alphabet operates is not only attractive but also have potential to revolutionize the technology and internet world. Porter’s five force model and TOWS matrix analysis will help to understand factors that will help Google to remain competitive in the industry. 2. Identify and critically evaluate Google Alphabet’s resources and capabilities using relevant BB835 frameworks and concepts. In your answer you should use your evaluation of resources and capabilities to assess how Google Alphabet achieves competitive advantage in its industry. 3. What type of diversification strategy is Alphabet pursuing? Explain the organizational structure of Alphabet using its strategic business units? What is the rationale behind this structure and diversification strategy? Alphabet INC is a giant conglomerate and holding company for Google LLC and more than 200 companies which are subsidiaries to it. It has online, digital and moon shoot companies under its verticals which are independent from one another. From 2001 to 2020, the company has done more than 200 acquisitions. If we consider companies acquired, it appear to be unrelated diversification, however, when these companies are evaluated on the basis of their activities, most of them are generally to support Google search advertising which is the main activity of Alphabet Inc. Acquisition of Alphabet Inc proves to facilitate diversification strategy. These acquisitions are very specialized in social networking, intelligent home systems, robotics, communication, e-commerce, navigation, office software, and their core capabilities such as search engine, mobile OS, advertising or information technology (voice and image recognition). Diversification strategy of Alphabet Inc is twofold: Related diversification through product and service innovation and acquisition Related diversification in terms of acquiring and developing internet and technology based products and services to capture the global internet market such as cloud computing, Android OS, R &D in Artificial intelligence and so on. The main service of Alphabet Inc is Google online search and major revenue is generated through online advertisement. It has diversified into various internet related products and services such as Gmail, Google drive, Google my business, Google map, Google photos, YouTube; enterprise products such as Ad sense, Ad Word, Pay per click and other utility services such as Google translate, Google news, Google drive, Google map, Google language. It enabled the company to reach to a large number of internet users and make them dependent on its products and services. It helps the company to create consumer base of Google dependent internet users. It also enables the company to position itself as one stop solution venue for all internet related services. Chrome had 60 % market share in web browsing in 2017. Google map allows retailers to advertise their address and products through promoted place application. Unrelated diversification through company and product acquisitions for expansion From search engine business in 1998, Alphabet Inc. offers the widest ranges of products and services termed as other bets. Other Bets includes businesses like Access (Google Fiber), Calico, CapitalG, GV, Nest, Verily, Waymo, and X. Continuous investment in development and acquisition of products such as artificial intelligence, machine learning and robotic technology, health care, venture capital funding, energy, self driving car, drone delivery and R& D in many moon shot projects, consumer hardware, airborne wind turbine, learning thermostats, smoke alarms and many other business segments have led to diversification of Alphabet’s business into other technological segments and industries. First mover advantage is the main Alphabet competitive advantage in relation to the majority of these products and services. Acquisition of HTC Google will allow engineers to more tightly integrate hardware and software and differentiate its high end pixel phone from Apple I phone X. Acquisition of Android for smartphone OS held 85 % market share in 2017.

Case Study Solution

ALPHABET’S GOOGLE Strategy

ALPHABET’S GOOGLE Porter’s Five Force, VRIO Framework, TWOS Strategy, Value Chain, organisational structure, Strategic Business units, rationale behind Alphabet structure and its diversification strategy Based on the Industry Analysis: Task 1 (20 marks, 500 words) Is the industry Google Alphabet in, Read more…

By admin, 4 yearsJune 24, 2022 ago

1. “Everyone is jumping onto it right now, but the underlying supply hasn’t changed. We’re staying away from it,” said Albinder Dhindsa, co-founder and CEO of grocery retailer, Grofers. What do you think are the complexities associated with hyperlocal grocery delivery business model? Discuss in detail. (20 marks) 2. “Pandemic gives hyperlocal model a new lease of life”. Do you think this boost in business will be short lived or will it create an everlasting impact on the hyperlocal ecommerce business scenario? (20 marks) 3. Compare Bigbasket and Grofers supply chain capabilities. Which do you think is superior in meeting market requirements and is more sustainable? Justify your answer with suitable reasoning. (20 marks) 4. COVID-19 is a black swan event but supply chain disruptions around the world are a common phenomenon. Produce a detailed discussion on how businesses can prepare themselves to minimize the impact of future supply chain disruptions. Compare the advantages and disadvantages of local vs global sourcing. (30 marks)

Case Study Solution

Grofer’s Supply Chain

Big basket & Grofer’s Supply Chain, Covid 19 a black swan, complexities in hyper local grocery delivery model, local versus global sourcing

By admin, 4 yearsJune 24, 2022 ago

Class 12 Accounts

AS- 3 Cash Flow Statement

AS- 3 Cash Flow Statement notes, CFS format, Cash Flow from Operating, Financing & Investing Activity, Change in Working Capital, Cash & Cash equivalent & CFS Specimen

By admin, 4 yearsJune 23, 2022 ago

Ratio Analysis Ratio means comparison of quantitative relationship between two common variables that expresses how much bigger one is than the other. Accounting ratio analysis is a scientific and effective tool of evaluating operating and financial position of a company by determining and interpreting quantitative relationship among variables of financial statement. Types of Accounting Ratio Broadly Accounting ratio has been classified into four categories: 1. Liquidity ratio These ratios are calculated to measure the firm’s ability to meet short term obligations. 2. Solvency ratio It is calculated to assess long term financial position of the company and ability to pay off long term obligations. 3. Turnover or Activity ratio These ratios help to assess how efficiently a company is utilizing its resources. 4. Profitability ratio These ratios help to assess business ability to generate profit out of sales and expenses incurred on generation sales. Types of Liquidity ratio I. Current ratio = Current Asset ÷ Current Liability (2:1 is ideal) II. Liquid ratio/ Quick ratio/ Acid Test Ratio = Liquid or quick asset ÷ Current Liability (1:1 is ideal) Note: Current Asset = Current Investment + Inventories (excluding spares & loose tools)+Net Trade receivables (Trade Receivable - Provision for doubtful debts and discount on debtors) +Cash & Cash equivalent+Short term loans & advances+Other current assets such as Prepaid expenses, Accrued income, Interest receivable, advance tax Current liability = Short term borrowing +Trade payables+Short term provisions+Other current liability such as Outstanding expense, Income received in advance. Liquid Asset = Current asset – Inventory – Prepaid expense Working Capital = Current Asset – Current Liability Types of Solvency ratios I. Debt to Equity Ratio = Long term Debt or Non Current liability ÷ Equity or Shareholders’ fund II. Total asset to debt ratio = Total asset ÷ Non Current liability or Long term debt III. Proprietary ratio = Shareholders’ fund or proprietors’ fund ÷ Total asset IV. Interest Coverage ratio = Earning or Profit before interest and tax ( EBIT or PBIT) ÷ Interest on long term Debt (NCL)* Note: Non-Current liability (NCL) or Long term debt = Long term borrowing such as Debentures, Long term loans + Deferred tax liability + Long term provisions such as Long Term Provision for Gratuity, Leave Encashment, Provision workmen compensation towards VRS etc + Other long term liabilities Or NCL = Total asset (Excluding Non Trade Investment) – Shareholders’ fund – Current liability Or NCL = Capital Employed – Shareholders’ Fund Capital Employed = NCL + Shareholders’ Fund Or Capital Employed = Total Asset(Excluding Non Trade Investment) – Current Liability Noncurrent asset (NCA) = Tangible asset less depreciation+ Intangible asset less amortization or Depreciation + Capital work in progress + Non Current Investment (Excluding Non Trade Investment) + Long term Loans & Advances + Deferred Tax Asset + Intangible Assets under Development + Other Non current Asset Total Asset = Non Current Asset (NCA) + Current Asset Net Asset or Shareholders’ fund (SHF) Or Proprietors’ Fund = Share capital + Reserve & Surplus + Money received against share warrant + Share application pending allotment Or SHF = Total asset – NCL ¬¬– Current liability (CL) Or SHF = NCA + Working capital – NCL Net Asset Or SHF = Total Asset – Total Liability Working Capital = Current Asset – Current Liability Note: Always remember, Non Trade Investment is not included while Calculating Total Asset of a Company. Depreciation or Amortization is subtracted From Tangible Asset & Intangible asset to calculate Total Asset. When accumulated Depreciation is given in the question, we should not subtract it from Fixed Asset (Tangible & Intangible) as it is already adjusted in Fixed Assets.

Class 12 Accounts

Financial Accounting Ratios

Financial Accounting Ratios & types of Accounting Ratio – Liquidity ratio, Profitability ratio, Turnover or Activity ratio, Solvency ratio

By admin, 4 yearsJune 23, 2022 ago

Redemption of Debentures: It refers to repayment of amount of Debentures to Debentureholders for discharge of its Liability towards Debentures. Points to be considered at the time of Redemption: Debentures are normally redeemed on maturity date, However, it can be redeemed before maturity by Draw of lots, Purchase from Open Market for Cancellation or by Conversion into Shares or New Debentures; If Article of Association of Company authorises it and if the terms and conditions of Debentures permit it. Debentures can be redeemed either at Par or Premium as per the terms of issue. In case of Purchase from Open Market for Cancellation, money paid for Purchase of Debentures is the amount of Redemption. Sources of Redemption: 1. Out of Capital: No transfer of adequate Fund to Debenture Redemption Reserve (DRR). However, Rule 18 (7) of Companies (Share Capital & Debentures) Rules of Indian Companies Act 2013; Every Company other than Companies exempted from creating DRR, to transfer at least 25 % of Nominal Value of total Redeemable Debentures of a particular Class to DRR out of Surplus available for Payment as Dividend to Shareholders. 2. Out of Profit: Redemption solely out of Profits. 100 % Nominal value of total Redeemable Debentures are transferred to DRR out of Surplus available for Payment as Dividend to Shareholders. 3. Out of Profit & Capital Both: Redemption of Debentures Partially out of Profit & Partially out of Capital. In this case, Company is not required to transfer 100 % of Face value of Debentures to DRR. At least 25 % is required to be transferred to DRR. Notes: Following points are noteworthy with respect to creation of DRR: If Question is silent Create DRR of 25 % of Face Value of Debentures If Redemption is out of Profit  Transfer 100 % of Face Value of Debentures to DRR. If amount of DRR is given in the question If less than 25 %, value of Debentures is given in the Question, Transfer Balance amount in order to make it 25 %. If more than 25 % is given in the question, transfer that value to DRR. Debenture Redemption Reserve (DRR) Amount set aside out of amount available for Payment as Dividend to Shareholders of the Company. DRR is created on Non Convertible Debentures or Non Convertible part of Debentures in case of Partially Converted Debentures. Adequate Amount is required to be credited to DRR before Redemption begins. Exemptions to Create DRR as Per Indian Companies Act, 2013: 1. All India Financial Institutions & Other Financial Institutions Controlled by RBI. 2. Banking Companies and 3. National Housing Bank. Disclosure of DRR in Balance Sheet: In Equity & Liability Part of Balance Sheet under the Head “Shareholders’ Fund” and Sub Head “Reserve & Surplus”. Debenture Redemption Investment (DRI) Along with DRR, Companies are required to invest 15 % in Specified Securities on or before 30 April of Current year, of Total Face value of Debentures to be redeemed by the next year. For Example X LTD is going to redeem 10000 Debentures of Rs 100 by 31 March 2018, then it has to invest 15 % of redeemable value in Specified Securities on or before 30 April, 2017. Specified Security means: Deposits with any Scheduled Bank, Unencumbered Securities of Central or State Government, Unencumbered Securities as per Section 20 Of Indian Trust Act. 1882 & Unencumbered Bonds issued by any other Company as per Section 20 of Indian Trust Act. 1882. DRI is made by those Companies who are required to create DRR. Companies exempted to create DRR are also exempted to make DRI. Methods of Redemption of Debentures 1. On Maturity in Lump Sum 2. On Installments by Draw of Lots 3. By Purchase From Open Market 4. By Conversion

Class 12 Accounts

Accounting for Redemption of Debenture

Accounting for Redemption of Debentures, Debenture Redemption Reserve, Debenture Redemption Investment, Sources & Methods of Redemption of Debentures

By admin, 4 yearsJune 23, 2022 ago

Debentures It is a financial instrument, issued by Companies to raise Funds from the Market that acknowledges Payment of Interest on regular intervals and Repayment of Principle on maturity of the instrument to its holders. It includes Debentures, Stock, Bonds or any other Instrument of a Company that evidences debt on it. It can be redeemable (having maturity period) or Irredeemable (No maturity period.) (Explanation of Types of Debentures has been ignored intentionally.) Accounting Treatment & Disclosures in relation to Discount or Loss on Issue of Debentures Discount or Loss on Issue of Debentures is a capital loss which can be written off against 1. Security Premium Reserve or 2. Profit & Loss A/C A Company can write off Discount or Loss on Issue of Debentures in two ways: 1. In first Year itself either from Security Premium Reserve A/C or P&L A/C. 2. Writing Off amount of Discount or Loss on Issue of Debentures in equal Installments every year over the maturity period of Debentures. For Example Company issues 1000 Debentures of Rs. 100 at 10 % Discount and to be redeemable after 5 years at 20 % Premium. Loss on issue is to written off in 5 equal installments over 5 Years maturity period.

Class 12 Accounts

Accounting For Issue of Debentures

Accounting for issue of debentures at Par, Premium, Discount, as collateral security, Writing off Discount/ Loss on issue, redemption & Interest on Debentures

By admin, 4 yearsJune 22, 2022 ago

Share Capital Funds raised by company by issue of shares. Two types: Equity Share A share that provides voting rights to its holders, belong to owners of the company, carries maximum risk and return, in which dividend is not fixed and on winding up of the company the holders of these shares receive only what is left after paying off all the liabilities and obligations of the company including Preference Shareholder repayment. Preference Share A share which carries a preferential right to get fixed dividend over equity shares to its holders and repayment of capital before holders of equity share capital. It does not carry voting right. Classification of Share Capital Authorised or Nominal Capital Maximum amount of share capital that a company can raise as per Memorandum of Association. Issued Capital That part of authorised capital .which has been issued by company to raise funds from time to time. Subscribed capital That part of issued capital which has been subscribed by public. Called Up capital That part of Subscribed capital which has been called up by company to be paid by subscribers. Paid up capital That part of Subscribed capital which has been paid by subscribers. Note: Minimum 90 % subscription of issued capital is required as per Indian Companies Act, 2013. Otherwise, Company has to take back its issue. Disclosure of Share Capital in Company’s Position Statement / Balance Sheet Extract of Position Statement / Balance Sheet as on … I. Equity & Liabilities Shareholders’ Funds A. Share capital B. Reserve & Surplus C. Money received against Share Warrants II. Current Liability Other Current Liability Current Asset Cash & Cash Equivalent Notes to Accounts: A. Share Capital Authorised capital …Equity Shares of Rs.…each ….preference shares of Rs…..each Issued Capital …Equity Shares of Rs.…each ….preference shares of Rs…..each Subscribed Capital Subscribed & Fully Paid up …Equity Shares of Rs.…each ….preference shares of Rs…..each Subscribed but not Fully Paid up …Equity Shares of Rs.…each Less: Calls in Arrears ….preference shares of Rs…..each Less: Calls in Arrears Add: Forfeited Equity Shares Add: Forfeited Preference Share B. Other Current Liability Calls in Advance C. Reserve & Surplus Security Premium Reserve Capital Reserve D. Cash & Cash Equivalent Cash in hand & Bank Accounting of Share Capital Shares can be issued either for cash or for consideration other than cash. Issue of Shares for cash: Two methods Shares Payable in Lump sum It means when payment of shares is received in one instilment. Shares Payable in Installments: Payment of shares is received in installments. First installment comes with application known as application money, Second- allotment, third -First call, fourth - Second call and so on. Last installment is also called as Final call. Accounting Entries for issue of Shares Payable in Lump sum issued at Par 1. On receipt of application money Bank A/c ….....................….Dr To Share Application A/c 2. on allotment of Shares Share Application A/c……….Dr To Share Capital A/c Accounting Entries for issue of Shares Payable in Lump sum issued at Premium 1. On receipt of application money Bank A/c ….....................….Dr (Total Application money including Premium) To Share Application A/c 2. on allotment of Shares Share Application A/c……….Dr (Total Application money including Premium) To Share Capital A/c (with Nominal/ Face value) To Security Premium Reserve A/c (with Premium amount) Accounting Entries for issue of Shares Payable in Installments Issued at Par 1. On receipt of application money Bank A/c ….....................….Dr To Share Application A/c 2. on allotment of Shares Share Application A/c……….Dr To Share Capital A/c (with nominal/ face value) 3. Amount due on allotment Share allotment A/c……..Dr To Share Capital A/c 4. On receipt of allotment money Bank A/c………………………Dr To Share Allotment A/c 5. On First call being Due First Call A/c…………….Dr To Share Capital A/c 6. On receipt of First Call Bank A/c ……………….Dr To First Call A/c 7. On Second & Final Call being Due Second & Final Call A/c……….Dr To Share Capital A/c 8. On receipt of Second & Final Call Bank A/c ……………..Dr To Second & Final Call A/c Accounting Entries for issue of Shares Payable in Installments Issued at Premium: Case I. When premium is received at the time of application along with application money: 1. On receipt of application money Bank A/c ….....................….Dr (Total Application money including Premium) To Share Application A/c 2. on allotment of Shares Share Application A/c……….Dr (Total Application money including Premium) To Share Capital A/c (with nominal/ face value) To Security Premium Reserve A/c (with Premium amount) Note: All other Entries for allotment, First call and final call will remain similar as to the case of Shares issued at Par. Case II. When premium is receivable at the time of Allotment: 1. On receipt of application money Bank A/c ….....................….Dr To Share Application A/c 2. on allotment of Shares Share Application A/c……….Dr To Share Capital A/c (with nominal/ face value) 3. Amount due on allotment including Security Premium Share allotment A/c……..Dr To Share Capital A/c To Security Premium Reserve A/c 4. On receipt of allotment money including Security Premium Bank A/c………………………Dr To Share Allotment A/c Note: If question is silent with regard to receipt of Security Premium, it is assumed that it is due with allotment money. All other Entries for First call and final call will remain similar as to the case of Shares issued at Par. Case III. When premium is receivable at the time of Application, Allotment and all Calls: 1. On receipt of application money Bank A/c ….....................….Dr (Total Application money including Premium) To Share Application A/c 2. on allotment of Shares Share Application A/c……….Dr (Total Application money including Premium) To Share Capital A/c (with nominal/ face value) To Security Premium Reserve A/c (with Premium amount) 3. Amount due on allotment including Security Premium Share allotment A/c……..Dr To Share Capital A/c To Security Premium Reserve A/c 4. On receipt of allotment money including Security Premium Bank A/c………………………Dr To Share Allotment A/c 5. On First call being Due including Security Premium First Call A/c…………….Dr To Share Capital A/c To Security Premium Reserve A/c 6. On receipt of First Call including Security Premium Bank A/c ……………….Dr To First Call A/c 7. On Second & Final Call being Due including Security Premium Second & Final Call A/c……….Dr To Share Capital A/c To Security Premium Reserve A/c 8. On receipt of Second & Final Call including Security Premium Bank A/c ……………..Dr To Second & Final Call A/c

Class 12 Accounts

Accounting for Share Capital

notes on Accounting for Issue, Forfeiture, Reissue, under & over subscription and Pro rata Allotment of Share Capital

By admin, 4 yearsJune 22, 2022 ago

4. ADMISSION OF A PARTNER According to Section 31 of Indian Partnership Act, 1932, New Partner shall be admitted in the Firm only when all existing partners agree to admission of new partner or it is agreed otherwise by partners in Partnership Deed. Change in Profit Sharing Ratio Change in Profit Sharing Ratio takes place at the time of Reconstitution of Firm. In this chapter Admission of new Partner will lead to change in Profit Sharing Ratio of a Partner in existing firm. Since, New or Incoming Partner acquires his/her share from old Partners; therefore, we need to determine New Profit Sharing Ratio and also Sacrificing Ratio. New Profit Sharing Ratio New Profit Sharing Ratio is the ratio in which all Partners, including new Partner, share future profits and losses of the Firm. New Partner acquires share from Old Partners through different ways. There are different cases related to acquisition of Shares by New Partner from Old Partners Case 1. When New or Incoming Partner acquires his share from Old or Existing Partners in their Old Profit Sharing Ratio: Situation I. When Profit Share of New Partner is given, but sacrifice made by Old Partners are not given: NPSR is calculated as follows: Subtract New Partner’s Ratio from 1 and Divide remaining share among Old Partners in their OPSR. Example: A & B Profit Sharing Ratio is 2:3. New Partner C enters into Partnership for 1/5th Share. In this case NPSR will be calculated as follows: 1 – 1/5 = 4/5 New Ratio of A = 4/5 × 2/5 =8/25 New Ratio of B = 4/5 × 3/5 =12/25 Ratio of C = 1/5 = 1/5 ×5/5 = 5/25 So, NPSR of A: B: C = 8:12:5 Ratio of Old Partners remain same as is evident from example A:B = 8:12 = 2:3 Situation II. When Share of New Partner is given and also New Profit Sharing Ratio of Old Partner is given. Subtract New Partner’s Ratio from 1 and Divide remaining share among Old Partners in their NPSR. Example: New Partner C enters into Partnership for 1/5th Share. Future Profit Sharing Ratio or NPSR of A & B is 2:3. In this case NPSR will be calculated as follows: 1 – 1/5 = 4/5 New Ratio of A = 4/5 × 2/5 =8/25 New Ratio of B = 4/5 × 3/5 =12/25 Ratio of C = 1/5 = 1/5 ×5/5 = 5/25 So, NPSR of A: B: C = 8:12:5 Situation III. When New or Incoming Partner acquires his share from old or existing Partners equally. Deduct sacrifice made by old Partner to get NPSR of each Old Partner. Example: New Partner C enters into Partnership for 1/5th Share, which he took equally from A & B. Old Profit Sharing Ratio of A & B is 2:3. In this case NPSR will be calculated as follows: Share Surrendered by A= 1/2 × 1/5 = 1/10 Share Surrendered by B= 1/2 × 1/5 = 1/10 New Ratio of A = 2/5 – 1/10 = 3/10 New Ratio of B = 3/5 – 1/10= 5/10 Ratio of C = 1/5 = 1/5 ×2/2 = 2/210 So, NPSR of A: B: C = 3:5:2 Case 2. When New or Incoming Partner acquires his shares from Old or Existing Partners in a particular ratio Deduct sacrifice made by old Partner to get NPSR of each Old Partner. Example: New Partner C enters into Partnership for 1/5th Share, which he took from A & B in the ratio of 2:3. Old Profit Sharing Ratio of A & B is 2:1. In this case NPSR will be calculated as follows: Share Surrendered by A= 2/5 × 1/5 = 2/25 Share Surrendered by B= 3/5 × 1/5 = 3/25 New Ratio of A = 2/3 – 2/25 = 44/75 New Ratio of B = 1/3 – 3/25= 16/75 Ratio of C = 1/5 = 1/5 ×15/15 = 15/75 So, NPSR of A: B: C = 44:16:15

Class 12 Accounts

Admission Of Partner

Accounting Treatment of existing goodwill & Hidden Goodwill, calculation of new profit sharing ratio in different cases, New Partner

By admin, 4 yearsJune 22, 2022 ago

Class 12 Accounts

Change in Profit Sharing Ratio

Investment Fluctuation Reserve Reconstitution of the Firm Sacrificing Ratio & Gaining Ratio Accounting Treatment of Goodwill Accounting Treatment of Reserves & Accumulated Profits or Losses

By admin, 4 yearsJune 22, 2022 ago