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Page No 4.100:

Question 71:

X and Y are partners sharing profits  and losses equally. Their Balance  Sheet as on 31st March, 2018 is given below:  

 

Liabilities

Assets

Capital A/cs:

 

Land and Building
1,50,000

 X

1,50,000

 

Plant and Machinery 1,00,000

 Y

1,00,000

2,50,000
Furniture and Fittings 25,000
Current A/cs:                                        Stock  
75,000

 X

40,000

 

Debtors
75,000

 

 Y 30,000 70,000 Less: 5% Reserve for D. Debts 5,000 70,000

Creditors

  1,30,000 Bill Receivalbe
30,000
Bill Payable

 

50,000
Bank
50,000

 

 

 

 

 

 

5,00,000

 

5,00,000

 

 

 

 

Z is admitted as a new partner for 1/4th  share under the following terms :
(a) Z is to introduce  ₹  1,25,000  as capital .
(b)  Goodwill of the firm was valued at nil.
(c)  It is found that the creditors included a sum of ₹  7,500 which was not to be paid . But it was also found that there was a liability for compensation to Workmen amounting to ₹  10,000. 
(d) Provision for Doubtful Debts  is to be created  @ 10% on debtors.
(e)  In regard to the  Partners' Capital Accounts  present fixed capital  method is to be converted into fluctuating capital method .
(f) Bills of  ₹  20,000 accepted from creditors were not recorded in the books.
(g) X provides ₹  50,000 loan to the business carrying interest @ 10% p.a.  
You are required to prepare Revaluation Account , Partners' Capital Accounts, Bank Account and the  Balance Sheet of the new firm.

Answer:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Reserve for D. Debts

2,500

Creditors

7,500

Liability for WCF 10,000

Loss transferred to

 

   

  X’s Current A/c

2,500

   

  Y’s Current A/c

2,500

   

 

 

 

12,500

 

12,500

 

 

 

 

 

Partners’ Current Accounts

Dr.

                                                                                            Cr.

Particulars

X Y

Particulars

X Y

Revaluation A/c

2,500

2,500

Balance b/d

40,000

30,000

Balance c/d

37,500

27,500

     

 

40,000

30,000

 

40,000

30,000

 

 

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

X Y Z

Particulars

X Y Z
     

 

Balance b/d

1,50,000

1,00,000

 

 

 

 

 

Current A/c 37,500 27,500

 

Balance c/d

1,87,500 1,27,500

1,25,000

Bank

 

 

1,25,000

 

1,87,500 1,27,500

1,25,000

 

1,87,500 1,27,500

1,25,000

 

 

 

 

 

 

 

 

 

Balance Sheet
as on 1st April, 2018

Liabilities

Amount

Rs

Assets

Amount

Rs

Creditors (1,30,000 – 7,500 – 20,000)

1,02,500

Land and Building

1,50,000

Bills Payable (50,000 + 20,000)

70,000

Plant and Machinery

1,00,000

Capital A/cs:

 

Fixture and Fittings

25,000

X

1,87,500

 

Stock 75,000

Y

1,27,500

 

Bills Receivables

30,000

Z

1,25,000

4,40,000

Bank (50,000 + 1,25,000 + 50,000)

2,25,000

X's Loan

50,000

Debtors

75,000

 

Liability for WCF

10,000

Less: 10% Reserve for D. Debts

7,500

67,500

   

 

 

 

 

 

 

 

 

 

6,72,500

 

6,72,500

 

 

 

 

Page No 4.100:

Question 72:

Rajesh and Ravi are partners sharing profits in the ratio of  3: 2 . Their Balance Sheet at 31st March , 2018 stood as:

BALANCE SHEET
as at 31st March, 2018

Liabilities

Assets

Creditors

38,500

Cash

2,000

Outstanding Rent 4,000 Stock 15,000
Capital A/cs:   Prepaid Insurance 1,500

 

 

Debtors

9,400

 

 

         

 

   Less : Provision for D.D.

400

9,000

​Rajesh 29,000      
Ravi
15,000

44,000

 

 

    Machinery 19,000
    Building 35,000
    Furniture 5,000

 

86,500

 

86,500

 

 

 

 


Raman is admitted as a new partner introducing a capital of ₹  16,000. The new profit-sharing ratio is decided as 5 : 3 : 2 . Raman is unable  to bring in any cash  for goodwill . So it is decided to value  the goodwill on the  basis of Raman's share  in the profits  and the capital contributed  by him. Following revaluation s are made 
(a) Stock to depreciate by 5% ;
(b) Provision for Doubtful Debts is to be ₹  500;
(c) Furniture to depreciate  by 10% ;
(d) Building is valued at ₹  40,000.
Show necessary Ledger Accounts and Balance  Sheet of new firm.

Answer:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Stock

750

Building

5,000

Provision for D. Debts

500

 

 

 

Less: Old Provision

400

100

 

 

Furniture

500

 

 

 

 

 

 

Profit on Revaluation transferred to

 

 

 

Rajesh Capital

2,190

 

 

Ravi Capital

1,460

 

 

 

5,000

 

5,000

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

Rajesh

Ravi

Raman

Particulars

Rajesh

Ravi

Raman

 

 

 

 

Balance b/d

29,000

15,000

 

 

 

 

 

Revaluation

2,190

1,460

 

Balance c/d

31,190

16,460

16,000

Cash

 

 

16,000

(before and just went of

 

 

 

 

 

 

 

Goodwill)

 

 

 

 

 

 

 

 

31,190

16,460

16,000

 

31,190

16,460

16,000

Rajesh’s Capital

 

 

1,635

Balance c/d

31,190

16,460

16,000

Raman’s Capital

 

 

1,635

Raman’s Capital

1,635

1,635

 

Balance c/d

32,825

18,095

12,730

 

 

 

 

 

32,825

18,095

16,000

 

32,825

18,095

16,000

 

 

 

 

 

 

 

 

 

Balance Sheet

as on March 31, 2018 after Raman’s admission

Liabilities

Amount

Rs

Assets

Amount

Rs

Creditors

38,500

Cash (2,000 + 16,000)

18,000

Outstanding Rent

4,000

Stock (15,000 – 750)

14,250

Capital A/cs:

 

Prepaid Insurance

1,500

Rajesh

32,825

 

Debtors

9,400

 

Ravi

18,095

 

Less: Provision for D. Debts

500

8,900

Raman

12,730

63,730

Machinery

19,000

 

 

Building (35,000 + 5,000)

40,000

 

 

Furniture (5,000 – 500)

4,500

 

1,06,150

 

1,06,150

 

 

 

 


Working Notes-

WN1 Calculation of Sacrificing Ratio

Sacrificing Ratio = Old Ratio − New Ratio



WN2 Calculation of Goodwill
Actual Capital of all Partners before adjustment of goodwill = Rajesh’s Capital + Ravi’s Capital + Raman’s Capital
= 31,190 + 16,460 + 16,000
= Rs 63,650
Capitalised value on the basis of Raman’s share

Raman’s share of Goodwill


WN3 Adjustment of Raman’s share of goodwill
Rajesh and Ravi each Capital Accounts will be credited by

Journal

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

Raman’s Capital A/c

Dr.

 

3,270

 

To Rajesh’s Capital A/c

 

 

1,635

To Ravi’s Capital A/c

 

 

1,635

(Raman’s share of goodwill adjusted)

 

 

 

 

 

 

 


WN4 Distribution of Profit on Revaluation (in old ratio)



Page No 4.101:

Question 73:

A and B are partners in a firm sharing profits in the ratio of 3 : 2 . They admit C as a partner on 1st April, 2018 on  which date the Balance Sheet of the firm was:

 

Liabilities

Assets

Capital A/cs:

 

Building

50,000

A

60,000

 

Plant and Machinery

30,000

B

40,000

1,00,000

Stock

20,000

Creditors

 

20,000

Debtors

10,000

      Bank 10,000
         
         

 

 

1,20,000

 

1,20,000

 

 

 

 

 


You are required to prepare the Revaluation Account , Partners' Capital Accounts and Balance Sheet of the new firm after considering the following;
(a) C brings in ₹ 30,000 as capital for 1/4th share. He also brings ₹ 10,000 for his share of goodwill.
(b) Part of the Stock which had been included at cost of ₹ 2,000 had been badly damaged in storage and could  only expect to realise ₹ 400.
(c) Bank Charges had been overlooked  and amounted to ₹ 200 for the year 2017-18.
(d) Depreciation on Building of ₹ 3,000 had been omitted for the year 2017-18.
(e) A credit for goods for ₹ 800 had been omitted from both purchases and creditors although the goods had been correctly included in Stock.
(f) An expense of ₹ 1,200 for insurance premium was debited in the Profit and Loss Account of 2017-18 but ₹ 600 of this are related to the period after 31st March, 2018.

Answer:

Revaluation Account

Dr.

 

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Stock (2,000 – 400)

1,600

 

 

Bank (charges)

200

Prepaid Insurance

600

Building

3,000

 

 

Creditors

800

Loss transferred to

 

 

 

  A Capital

3,000

 

 

B Capital

2,000

 

5,600

 

5,600

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

 

 

 

 

 

Cr.

Particulars

A

B

C

Particulars

A

B

C

Revaluation

3,000

2,000

 

Balance b/d

60,000

40,000

 

 

 

 

 

Bank

 

 

30,000

 

 

 

 

Premium for Goodwill

6,000

4,000

 

Balance c/d

63,000

42,000

30,000

 

 

 

 

 

66,000

44,000

30,000

 

66,000

44,000

30,000

 

 

 

 

 

 

 

 

 

Balance Sheet

as on April 01, 2018 after C’s admission

Liabilities

Amount

Rs

Assets

Amount

Rs

Capital A/cs:

 

Building (50,000 – 3,000)

47,000

A

63,000

 

Plant and Machinery

30,000

B

42,000

 

Stock (20,000 – 1,600)

18,400

C

30,000

1,35,000

Debtors

10,000

Creditors (20,000 + 800)

20,800

Bank

49,800

 

 

Prepaid Insurance

600

 

1,55,800

 

1,55,800

 

 

 

 

 

Bank Account

Dr.

 

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Balance b/d

10,000

Revaluation (Bank charges)

200

C’s Capital

30,000

 

 

Premium for Goodwill   

10,000

Balance c/d

49,800

 

50,000

 

50,000

 

 

 

 


Working Notes:

WN1 Sacrificing Ratio
Old Ratio (A and B) 3 : 2
Sacrificing Ratio = 3 : 2

WN2 Distribution of Premium for Goodwill

Page No 4.101:

Question 74:

A and B are partners in a firm . The net profit of the firm is divided as follows : 1/2 to A , 1/3 to B and 1/6 carried to a Reserve . They admit  C as a partner on 1st April, 2018 on which date , the Balance Sheet of the firm was:


 

 

Liabilities

Assets

Capital A/cs:

 

Building

50,000

A

50,000

 

Plant and Machinery

30,000

B

40,000

90,000

Stock

18,000

Reserve

 

10,000

Debtors

22,000

Creditors   20,000 Bank 5,000
Outstanding Expenses   5,000    
         

 

 

1,25,000

 

1,25,000

 

 

 

 

 



Following are the required adjustments on admission of C :
(a)  C brings in ₹ 25,000 towards his capital.
(b) C also brings in ₹ 5,000 for 1/5 th share of goodwill.
(c) Stock is undervalued by 10%.
(d) Creditors include a contingent liability of ₹ 4,000 , which has been decided by the court at ₹ 3,200.
(e) In regard to the Debtors , the following Debts proved Bad or Doubtfullong dash
₹ 2,000 due from  Xlong dashbad to the full extent;
₹ 4,000 due from Ylong dashinsolvent , estate expected to pay  only 50%.
You are required to prepare Revaluation Account , Partners' Capital Accounts and Balance Sheet of the new firm.

Answer:

Revaluation Account

Dr.

 

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Bad Debts

2,000

Stock

2,000

Provision for Doubtful Debts

2,000

Creditors (4,000 – 3,200)

800

(4,000 × 50%)

 

 

 

 

 

Loss transferred to

 

 

 

   A Capital

720

 

 

   B Capital

480

 

4,000

 

4,000

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

 

 

 

 

 

Cr.

Particulars

A

B

C

Particulars

A

B

C

Revaluation

720

480

 

Balance b/d

50,000

40,000

 

 

 

 

 

Reserve

6,000

4,000

 

 

 

 

 

Bank

 

 

25,000

Balance c/d

58,280

45,520

25,000

Premium for Goodwill

3,000

2,000

 

 

59,000

46,000

25,000

 

59,000

46,000

25,000

 

 

 

 

 

 

 

 

 

Balance Sheet

as on April 01, 2018 after C’s admission

Liabilities

Amount

Rs

Assets

Amount

Rs

Capital A/cs:

 

Building

50,000

A

58,280

 

Plan and Machinery

30,000

B

45,520

 

Stock (18,000 × 100/90)

20,000

C

25,000

1,28,800

Debtors

22,000

 

Creditors (20,000 – 800)           

19,200

Less: Bad Debts

2,000

 

Outstanding Expenses

5,000

Less: Prov. for D. Debts

2,000

18,000

 

 

Bank (5,000 + 30,000)

35,000

 

1,53,000

 

1,53,000

 

 

 

 


Working Notes

WN1


WN2
Distribution of Reserve


WN3
Distribution of Premium for Goodwill



Page No 4.102:

Question 75:

Following is the Balance Sheet of the firm, Ashirvad, owned by A , B and C who share profits and losses of the business in the ratio of 3 : 2 :1 .
 

BALANCE SHEET as at 31st March, 2018

Liabilities

Assets

Capital A/cs:

 

Furniture

95,000

A

1,20,000

 

Business Premises

2,05,000

      B         1,20,000    Stock-in-Trade 40,000

C

1,20,000

3,60,000

Debtors

28,000

Sundry Creditors

 

20,000

Cash at Bank

15,000

Outstanding Salaries and wages   7,200 Cash in Hand 4,200
         
         

 

 

3,87,200

 

3,87,200

 

 

 

 

 



On 1st April, 2018, they admit D as a partner on the following conditions :

(a) D will bring in ₹ 1,20,000 as his capital and also ₹ 30,000 as goodwill premium for a quarter of the share in the future profits / losses of the firm.
(b) The values of the fixed assets  of the firm will be increased  by 10% before the admission  of D .
(c) Mohan, an old customer whose account was written off as bad debts , has promised to pay ₹ 3,000 in full settlement of his dues.
(d) The future profits and losses of the firm will be shared equally by all the partners .
Pass the necessary journal entries and Prepare Revaluation Account, Partners' Capital Accounts and opening Balance Sheet of the new firm

Note: There will be no entry for the promise made by Mohan, since it is an event and not a transaction. There is another view , ₹ 3,000 is to be considered as bad debts recovered . In this situation result will be as follows :
Gain( Profit) on Revaluation₹ 36,000; Capital A/cs: A₹ 1,66,000; B₹ 1,42,000; C₹ 1,16,000; D's Capital₹ 1,20,000; Balance Sheet Total₹ 5,72,000.

Answer:

Revaluation Account

Dr.

 

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

 

 

Fixed Assets:

 

 

 

Furniture

95,000 × 10%

9,500

Profit transferred to            

 

Business  Premises

2,05,000 × 10%

20,500

A Capital

15,000

 

 

B Capital

10,000

 

 

C Capital

5,000

 

 

 

 

 

 

 

30,000

 

30,000

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

 

 

 

 

 

 

 

Cr.

Particulars

A

B

C

D

Particulars

A

B

C

D

A’s Capital (Goodwill)

 

 

7,500

 

Balance b/d

1,20,000

1,20,000

1,20,000

 

B’s Capital (Goodwill)

 

 

2,500

 

Revaluation (Profit)

15,000

10,000

5,000

 

 

 

 

 

 

Cash

 

 

 

1,20,000

Balance c/d

1,65,000

1,40,000

1,15,000

1,20,000

Premium for Goodwill

22,500

7,500

 

 

 

 

 

 

 

C’s Capital (Goodwill)

7,500

2,500

 

 

 

1,65,000

1,40,000

1,25,000

1,20,000

 

1,65,000

1,40,000

1,25,000

1,20,000

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet

as on April 1, 2018, after D’s admission

Liabilities

Amount

Rs

Assets

Amount

Rs

Capital A/cs:

 

Furniture (95,000 + 9,500)

1,04,500

A

1,65,000

 

Business Premises (2,05,000+20,500)

2,25,500

B

1,40,000

 

Stock-in-Trade

40,000

C

1,15,000

 

Debtors

28,000

D

1,20,000

5,40,000

Cash at Bank

15,000

Sundry Creditors

20,000

Cash in hand (4,200 + 1,50,000)

1,54,200

Outstanding salaries and wages

7,200

 

 

 

5,67,200

 

5,67,200

 

 

 

 


Working Note:

WN1 Calculation of Sacrificing Ratio

Sacrificing Ratio = Old Ratio − New Ratio



WN2 Calculation of C’s gain in goodwill


WN3 Amount of Goodwill to be distributed between A and B (Sacrificing Partners)



WN4 Journal Entries for D’s Capital and distribution of goodwill
 

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

Cash A/c

Dr.

 

1,50,000

 

To D’s Capital A/c

 

 

1,20,000

To Premium for Goodwill A/c

 

 

30,000

(D brought Capital and share of Capital)

 

 

 

 

 

 

 

Premium for Goodwill

Dr.

 

30,000

 

C’s Capital A/c

Dr.

 

10,000

 

To A’s Capital A/c

 

 

30,000

To B’s Capital

 

 

10,000

(Gain goodwill distributed between A and B
in sacrificing ratio i.e. 3:1)

 

 

 

 

 

 

 



Page No 4.103:

Question 76:

A and B are partners in a firm sharing profits and losses in the ratio of 3 : 2 . Following is their Balance Sheet as at 31st March, 2018:


 

 

Liabilities

Assets

Capital A/cs:

 

Building

35,000

A

50,000

 

 Machinery

25,000

B

30,000

80,000

Stock

15,000

Creditors

 

20,000

Debtors

15,000

      Investments 5,000
      Bank 5,000
         

 

 

1,00,000

 

1,00,000

 

 

 

 

 



C is admitted as a partner on 1st April, 2018 on the following terms:
(a) C is to pay ₹ 20,000 as capital for 1/4th share. He also pays ₹ 5,000 as premium for goodwill.
(b) Debtors amounted to ₹ 3,000 is to be written off as bad and a Provision of 10% is created against Doubtful Debts on the remaining amount.
(c) No entry has been passed in respect of a debt of ₹ 300 recovered by A from a customer , which was previously written off as bad in previous year . The amount is to be paid by A.
(d) Investments are taken  over by B at their market value of ₹ 4,900 against cash payment .
You are required to prepare Revaluation Account, Partner's Capital  Accounts and new Balance Sheet

Answer:

Revaluation Account

Dr.

 

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Bad Debts

3,000

A's Capital A/c

300

Provision for Doubtful Debts

1,200

Loss transferred to         

 

Investment (5,000 – 4,900)

100

A Capital

2,400

 

 

B Capital

1,600

 

4,300

 

4,300

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

 

 

 

 

 

Cr.

Particulars

A

B

C

Particulars

A

B

C

Revaluation

2,400

1,600

 

Balance b/d

50,000

30,000

 

Revaluation

300

 

 

Bank

 

 

20,000

 

 

 

 

Premium for Goodwill

3,000

2,000

 

Balance c/d

50,300

30,400

20,000

 

 

 

 

 

53,000

32,000

20,000

 

53,000

32,000

20,000

 

 

 

 

 

 

 

 

 

Balance Sheet

as on April 01, 2018 after C’s admission

Liabilities

Amount

Rs

Assets

Amount

Rs

Capital A/cs:

 

Buildings

35,000

    A

50,300

 

Machinery

25,000

    B

30,400

 

Stock

15,000

   C

20,000

1,00,700

Debtors

15,000

 

Creditors

20,000

Less: Bad Debts

3,000

 

 

 

 

12,000

 

 

 

Less: 10% Provision for Doubtful Debts

1,200

10,800

 

 

Bank

34,900

 

1,20,700

 

1,20,700

 

 

 

 

 

Bank Account

Dr.

 

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Balance b/d

5,000

 

 

C’s Capital

20,000

 

 

Premium for Goodwill

5,000

 

 

Investments

4,900

Balance c/d

34,900

   

 

 

 

34,900

 

34,900

 

 

 

 


Working Notes:

WN1


WN2
Distribution of Premium for Goodwill


WN3
Sale of Investments

Bank A/c

Dr.

4,900

 

Revaluation A/c

Dr.

100

 

To Investment

 

5,000


WN4

Bad debt Recovered

A's Capital A/c        

Dr.

300

 

To Revaluation A/c

 

 

300

Page No 4.103:

Question 77:

X and Y are partners sharing profits and losses in the ratio of 3/4 and 1/4 . Their Balance Sheet as at 31st March, 2018 is:

 

 

Liabilities

Assets

Capital A/cs:

 

 Land and Building

1,25,000

X

1,50,000

 

Furniture

5,000

Y

80,000

2,30,000

Stock

1,00,000

Workmen Compensation Reserve

 

20,000

Sundry Debtors

80,000

Sundry Creditors   1,50,000 Bills Receivable 15,000
Bills Payable   37,500 Cash at Bank 1,00,000
      Cash in Hand 12,500

 

 

4,37,500

 

4,37,500

 

 

 

 

 



They admit Z into partnership on 1st April, 2018 on the following terms:
(a) Goodwill is to be valued at ₹ 1,00,000.
(b) Stock and Furniture to be reduced by 10%.
(c) A Provision for Doubtful Debts is to be created @ 5% on Sundry Debtors .
(d) The value of Land and Building  is to be appreciated by 20%.
(e) Z pays ₹ 50,000 as his capital for 1/5th share in the future profits.
You are required to show Revaluation Account , Partners' Capital Accounts and Balance Sheet of the new firm.


Note: Z's Share of Goodwill ₹ 20,000 (i.e, ₹ 1,00,000 × 1/5 ) can be adjusted through Z's Current A/c. In that situation, Partners' Capital A/cs: X₹ 1,87,875; Y​₹ 92,625; Z​₹ 50,000; Z's Current A/c (Dr.)​₹ 20,000; Balance Sheet Total​₹ 5,18,000.

Answer:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Stock

10,000

Land and Building

25,000

Furniture

500

   (1,25,000 × 20%)

 

Provision for D. Debts

4,000

 

 

Profit transferred to

 

 

 

X Capital

7,875

 

 

Y Capital

2,625

 

 

 

25,000

 

25,000

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

 

 

 

 

 

Cr.

Particulars

X

Y

Z

Particulars

X

Y

Z

X’s Capital

 

 

15,000

Balance b/d

1,50,000

80,000

 

Y’s Capital

 

 

5,000

Workmen’s Compensation Fund

15,000

5,000

 

 

 

 

 

Revaluation (Profit)

7,875

2,625

 

Balance c/d

1,87,875

92,625

30,000

Cash

 

 

50,000

 

 

 

 

Z’s Capital

15,000

5,000

 

 

1,87,875

92,625

50,000

 

1,87,875

92,625

50,000

 

 

 

 

 

 

 

 

 

Balance Sheet

as on April 01, 2018 after Z’s admission

Liabilities

Amount

Rs

Assets

Amount

Rs

Capital A/cs:

 

Land and Building (1,25,000 + 25,000)

1,50,000

  X

1,87,875

 

 

 

  Y

92,625

 

Office Furniture (5,000 – 500)

4,500

  Z

30,000

3,10,500

Stock (1,00,000 – 10,000)

90,000

Sundry Creditors                      

1,50,000

Sundry Debtors

80,000

 

Bills Payable

37,500

Less: 5% Provision for D. Debts

4,000

76,000

 

 

Cash at Bank

1,00,000

 

 

Cash in Hand (12,500 + 50,000)

62,500

 

 

Bills Receivable

15,000

 

4,98,000

 

4,98,000

 

 

 

 


Working Notes:

WN1: Sacrificing Ratio


WN2: Calculation of Partners' Share of Goodwill
Goodwill of the firm = 1, 00,000

 

 

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

Z’s Capital A/c

Dr.

 

20,000

 

 

To X’s Capital A/c

 

 

15,000

 

To Y’s Capital A/c

 

 

5,000

 

(Z’s share of goodwill changed from his
Capital Account)

 

 

 

 

 

 

 

 

 

Workmen’s Compensation Fund A/c

 

20,000

 

 

To X’s Capital A/c

 

 

15,000

 

To Y’s Capital

 

 

5,000

 

(Workmen’s Compensation Fund distributed)

 

 

 

 

 

 

 

 



Page No 4.104:

Question 78:

Deepika and Rajshree are partners in a firm sharing profits and losses in the ratio of 3 : 2 . On 31st March,2018 their Balance Sheet was:

 

Liabilities

Assets

Sundry Creditors

16,000

Cash in Hand

1,200

Public Deposits 61,000 Cash at Bank 2,800
Bank Overdraft 6,000 Stock 32,000
Outstanding Liabilities 2,000 Prepaid Insurance 1,000

Capital A/cs:

 

Sundry Debtors

28,000

 

 

         

 

   Less : Provision for D.D.

800

28,000

         

  Deepika

48,000

 












 

 

 

  Rajshree

40,000

88,000

Plant and Machinery

 

48,000

    Land and Building 50,000
    Furniture 10,000
       

 

1,73,000

 

1,73​,000

 

 

 

 

​​

On the above date , the partners decided to admit Anshu as a partner on the following terms:
(a) The new profit-sharing ratio of Deepika , Rajshree and Anshu will be 5 : 3 : 2 respectively.
(b) Anshu shall bring in ₹ 32,000 as his capital.
(c)  Anshu is unable to bring in any cash for his share of goodwill. Partners' therefore, decide to calculate the goodwill on the basis of Anshu's share in the profits and the capital contribution made by her to the firm.
(d) Plant and Machinery is to be valued at ₹ 60,000, Stock at ₹ 40,000 and the Provision for Doubtful Debts is to be maintained at ₹ 4,000. Value of Land and Building has appreciated by 20% . Furniture has been depreciated by 10%.
(e) There is and additional liability of ₹ 8,000 being outstanding salary payable to employees of the firm. This liability is not included in the outstanding liabilities , stated in the above Balance Sheet. Partners decide to show this liability  in the books of account of the reconstituted firm.
Prepare Revaluation Account , Partners' Capital Accounts and Balance Sheet of Deepika , Rajshree and Anshu.

Answer:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Reserve for D. Debts

4,000

 

Plant and Machinery

12,000

Less: Old Reserve

800

3,200

    (60,000 – 48,000)

 

 

 

 

 

Furniture          10,000 × 10% 1,000 Stock (40,000 – 32,000) 8,000

Outstanding salary

8,000

 

 

Profit transferred to  

 

Land and Building

10,000

   Deepika Capital

10,680

    (50,000 × 20%)

 

   Rajshree Capital

7,120

 

 

 

30,000

 

30,000

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

Deepika

Rajshree

Anshu

Particulars

Deepika

Rajshree

Anshu

Balance c/d

58,680

47,120

32,000

Balance b/d

48,000

40,000

 

(before adjustment of Goodwill)

 

 

 

 

 

 

 

 

 

 

 

Revaluation

10,680

7,120

 

 

 

 

 

Cash

 

 

32,000

 

58,680

47,120

32,000

 

58,680

47,120

32,000

 

 

 

 

 

 

 

 

Deepika

 

 

2,220

Balance b/d

58,680

47,120

32,000

Rajshree

 

 

2,220

Anshu’s Capital (Goodwill)

2,220

2,220

 

Balance c/d

60,900

49,340

27,560

 

 

 

 

 

60,900

49,340

32,000

 

60,900

49,340

32,000

 

 

 

 

 

 

 

 

 

Balance Sheet

as on March 31, 2018 after Anshu’s admission

Liabilities

Amount

Rs

Assets

Amount

Rs

Outstanding Salaries

8,000

Cash in Hand

1,200

Sundry Creditors

16,000

Cash at Bank

28,800

Public Deposits

61,000

Stock

40,000

Outstanding Liabilities                 

2,000

Prepaid Insurance

1,000

Capital A/cs:

 

Sundry Debtors

28,800

 

Deepika

60,900

 

Less: reserve for D. Debts

4,000

24,800

Rajshree

49,340

 

Plant and Machinery

60,000

Anshu

27,560

1,37,800

Land and Building

60,000

 

 

Furniture

9,000

 

2,24,800

 

2,24,800

 

 

 

 


Working Notes

WN1: Calculation of Sacrificing Ratio

Sacrificing Ratio = Old Ratio − New Ratio



WN2: Valuation of Goodwill
Capitalised value on the basis of Anshu’s share
Actual Capital of all partners before adjustment of Goodwill = 58,680 + 47,120 + 32,000
= Rs 1,37,800
Goodwill = Capitalised value − Actual Capital of all partners before adjustment of Goodwill
= 1,60,000 − 1,37,800
= Rs 22,200
Anshu’s share of Goodwill
Deepika and Rajshree each will entitle for Goodwill

Page No 4.104:

Question 79:

X and Y are partners sharing profits in the ratio of 2 : 1 . Their Balance Sheet as at 31st March, 2018 was:

 

Liabilities

Assets

Sundry Creditors

25,000

Cash/Bank

5,000

General Reserve 18,000 Sundry Debtors 15,000
Capital A/cs:   Stock 10,000

X

75,000

 

Investments

8,000

Y

62,000

1,37,000

Typewriter

5,000

 

   

Fixed Assets

1,37,000

         
         
         

 

 

1,80,000

 

1,80,000

 

 

 

 

 

They admit Z into partnership on the same date on the following terms;
(a) Z brings in ₹ 40,000  as his capital and he is given 1/4th share in profits.
(b) Z brings in ₹ 15,000 for goodwill, half of which is withdrawn by old partners .
(c) Investments are valued at ₹ 10,000 . X takes over Investments at this value.
(d) Typewriter is to be depreciated by 20% and Fixed Assets by 10%.
(e) An unrecorded stock of Stationery on  31st March,2018 is ₹ 1,000.
(f) By bringing in r withdrawing cash , the Capitals of X and Y are to be made proportionate to that of Z on their profit-sharing basis.
Pass journal entries , prepare Revaluation Account , Capital Accounts and new Balance Sheet of the firm.

Answer:

Journal

Date
2018

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

 

 

 

 

April 1

Revaluation A/c

Dr.

 

14,700

 

 

To Typewriter A/c

 

 

1,000

 

To Fixed Assets A/c

 

 

13,700

 

(Decrease in value of typewriter and fixed assets transferred to Revaluation Account)

 

 

 

 

 

 

 

 

April 1

Stationery A/c

Dr.

 

1,000

 

 

Investment A/c

Dr.

 

2,000

 

 

To Revaluation A/c

 

 

3,000

 

(Increase in stationery and investment transferred to Revaluation Account)

 

 

 

 

 

 

 

 

April 1

X’s Capital A/c

Dr.

 

7,800

 

 

Y’s Capital A/c

Dr.

 

3,900

 

 

To Revaluation A/c

 

 

11,700

 

(Revaluation loss transferred to X and Y’s
Capital Account in their old ratio)

 

 

 

 

 

 

 

 

April 1

Reserve Fund A/c

Dr.

 

18,000

 

 

To X’s Capital A/c

 

 

12,000

 

To Y’s Capital A/c

 

 

6,000

 

(Reserve Fund distributed)

 

 

 

 

 

 

 

 

April 1

Cash A/c

Dr.

 

55,000

 

 

To Z’s Capital A/c

 

 

40,000

 

To Premium for Goodwill A/c

 

 

15,000

 

(Z brought capital and share of goodwill)

 

 

 

 

 

 

 

 

April 1

Premium for Goodwill A/c

Dr.

 

15,000

 

 

To X’s Capital A/c

 

 

10,000

 

To Y’s Capital A/c

 

 

5,000

 

(Premium for Goodwill distributed between X and Y in their sacrificing ratio i.e 2:1)

 

 

 

 

 

 

 

 

April 1

X’s Capital A/c

Dr.

 

5,000

 

 

Y’s Capital A/c

Dr.

 

2,500

 

 

To Cash

 

 

7,500

 

(Half of the Premium for Goodwill withdrawn by X and Y)

 

 

 

 

 

 

 

 

April 1

X’s Capital A/c

Dr.

 

10,000

 

 

To Investments A/c

 

 

10,000

 

(X took over the Investment)

 

 

 

 

 

 

 

 

April 1

Cash A/c

Dr.

 

4,800

 

 

To X’s Capital A/c

 

 

4,800

 

(X’ brought cash to make up deficiency in capital)

 

 

 

 

 

 

 

 

April 1

Y’s Capital A/c

Dr.

 

26,600

 

 

To Cash A/c

 

 

26,600

 

(Y withdrew excess capital after all adjustments)

 

 

 

 

 

 

 

 

 

Cash/Bank Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Balance b/d

5,000

X’s Capital (Goodwill)

5,000

Z’s Capital

40,000

Y’s Capital (Goodwill)

2,500

Premium for Goodwill

15,000

Y’s Capital

26,600

X’s Capital

5,800

Balance c/d

31,700

 

65,800

 

65,800

 

 

 

 

 

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

 

 

 

 

Typewriter (5,000 × 20%)

1,000

Investment

2,000

Fixed Assets (1,37,000 × 10%)

13,700

Stationery

1,000

 

 

Loss transferred to

 

 

 

   X Capital

7,800

 

 

   Y Capital

3,900

 

14,700

 

14,700

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

X

Y

Z

Particulars

X

Y

Z

Revaluation

7,800

3,900

 

Balance b/d

75,000

62,000

 

Investment

10,000

 

 

Reserve Fund

12,000

6,000

 

Cash (withdraw of goodwill)

5,000

2,500

 

Cash

 

 

40,000

Balance c/d

74,200

66,600

40,000

Premium for Goodwill

10,000

5,000

 

 

97,000

73,000

40,000

 

97,000

73,000

40,000

Cash

 

26,600

 

Balance b/d

74,200

66,600

40,000

Balance c/d adjusted

80,000

40,000

40,000

Cash

5,800

 

 

 

80,000

66,600

40,000

 

80,000

66,600

40,000

 

 

 

 

 

 

 

 

 

Balance Sheet

as on March 31, 2018 after Z’s admission

Liabilities

Amount

Rs

Assets

Amount

Rs

Sundry Creditors

25,000

Cash

31,700

Capital A/cs:

 

Sundry Debtors

15,000

X

80,000

 

Stock

10,000

Y

40,000

 

Typewriter (5,000 – 1,000)

4,000

Z

40,000

1,60,000

Fixed Assets (1,37,000 – 13,700)

1,23,300

 

 

Stationery

1,000

 

 

 

 

 

1,85,000

 

1,85,000

 

 

 

 


Working Notes:

WN1: Sacrificing Ratio


WN2: Distribution of Revaluation Loss


WN3: Distribution of Premium for Goodwill


WN4: Adjustment of Capital
Total Capital of the firm on the basis of Z’s share

Total Capital of the firm

=

1,60,000

Less: Z’s Capital

=

  40,000

Combined Capital of X and Y

=

1,20,000

 

 

 



Page No 4.105:

Question 80:

A and B are in partnership sharing profits and losses in the proportion of 2/3rd and 1/3rd respectively . Their Balance Sheet as at 31st March, 2018 was: Cash ₹ 1,000; Sundry Debtors ₹ 15,000; Stock ₹ 22,000; Plant and Machinery ₹ 4,000; Sundry Creditors ₹ 2,000; Bank Overdraft ₹ 15,000; A's Capital ₹ 15,000; B's Capital ₹ 10,000. 
On 1st April, 2018 they admitted  into partnership on the following terms:
(a) C to purchase one-quarter of the goodwill for ₹ 3,000 and provide ₹ 10,000 as capital .
      C brings in necessary cash for goodwill and capital.
(b) Profits and Losses are to be shared in the proportion of one-half to A , one-quarter to B and one quarter to C .
(c) Plant and Machinery is to be reduced by 10% and ₹ 500 are to be provided for estimated Bad Debts. Stock is to be taken at a valuation of ₹ 24,940.
(d) By bringing in or withdrawing cash the capitals of A and B are to be made proportionate to that of C on their profit-sharing basis.
Prepare necessary Ledger Accounts in the books of the firm relating to the above arrangement and submit the opening Balance Sheet of the new firm.

Answer:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Plant and Machinery (4,000 × 10%)

400

Stock (24,940 – 22,000)    

2,940

Provision for Bad Debts

500

 

 

Profit transferred to

 

 

 

A Capital

1,360

 

 

B Capital

680

 

 

 

2,940

 

2,940

 

 

 

 

 
Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

A

B

C

Particulars

A

B

C

 

 

 

 

Balance b/d

15,000

10,000

 

 

 

 

 

Cash

 

 

10,000

 

 

 

 

Premium for Goodwill

2,000

1,000

 

Balance c/d

18,360

11,680

10,000

Revaluation

1,360

680

 

 

18,360

11,680

10,000

 

18,360

11,680

10,000

Cash

 

1,680

 

Balance c/d

18,360

11,680

10,000

Balance c/d

20,000

10,000

10,000

Cash

1,640

 

 

(Adjusted)

 

 

 

 

 

 

 

 

20,000

11,680

10,000

 

20,000

11,680

10,000

 

 

 

 

 

 

 

 

 

Balance Sheet

as on April 01, 2018 after C’s admission

Liabilities

Amount

Rs

Assets

Amount

Rs

Sundry Creditors

2,000

Cash

13,960

Bank Overdraft

15,000

Sundry Debtors

15,000

 

Capital A/cs:                               

 

Less: Prov. for Bad Debts

500

14,500

A

20,000

 

Stock

24,940

B

10,000

 

Plant and Machinery

3,600

C

10,000

40,000

 

 

 

 

 

 

 

 

57,000

 

57,000

 

 

 

 

 

Cash Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Balance b/d

1,000

B’s Capital

1,680

C’s Capital

10,000

 

 

Premium for Goodwill    

3,000

 

 

A’s Capital

1,640

Balance c/d                    

13,960

 

 

 

 

 

15,640

 

15,640

 

 

 

 


Working Notes

WN1: Sacrificing Ratio


WN2: Distribution of Premium for Goodwill


WN3: Distribution of Revaluation Profit


WN4: Adjustment of Capitals (in new ratio)

Page No 4.105:

Question 81:

A and B were partners in a firm sharing profits in 3 : 1 ratio. They admitted C as a partner for 1/4th share in the future profit. C was to bring ₹ 60,000 for his capital. The Balance Sheet of A and B as at 1st April,2018, the date on which C was admitted , was:

 

Liabilities

Assets

Capital A/cs:

 

Land and Building

40,000

A

50,000

 

Plant ad Machinery

70,000

     B  80,000  1,30,000 Stock    30,000
General Reserve   10,000 Debtors     35,000  

Creditors

  70,000

Less: Prov. for Doubtful Debts

1,000

34,000

 

 

Investments

26,000

 

 

Cash

10,000

 

2,10,000

 

2,10,000

 

 

 

 

 

The other terms agreed upon were:
(a) Goodwill of the firm was valued at ₹ 24,000.
(b) Land and Building were valued at ₹ 65,000 and Plant and Machinery at ₹ 60,000.
(c) Provision for Doubtful Debts was found in excess by ₹ 400.
(d) A liability of ₹ 1,200 included in Sundry Creditors was not likely to arise.
(e) The capitals of the partners be adjusted on the basis of C's contribution of capital to the firm.
(f)   Excess of shortfall , if any, be transferred to Current Accounts.
Prepare Revaluation Account , Partners' Capital Accounts and Balance Sheet of the new firm.

Answer:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs.

Particulars

Amount

Rs.

Plant and Machinery
(70,000 – 60,000)

10,000

Land and Building
(65,000 – 40,000)

25,000

Profit transferred to

 

Provision for Doubtful Debts

400

A Capital

12,450

Creditors

1,200

B Capital

4,150

 

 

 

 

 

 

 

26,600

 

26,600

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

A

B

C

Particulars

A

B

C

 

 

 

 

Balance b/d

50,000

80,000

 

 

 

 

 

General Reserve

7,500

2,500

 

 

 

 

 

Revaluation (Profit)

12,450

4,150

 

 

 

 

 

Cash

 

 

60,000

Balance c/d

74,450

88,150

60,000

C's Current A/c

4,500

1,500

 

 

74,450

88,150

60,000

 

74,450

88,150

60,000

 

 

 

 

 

 

 

 

B’s Current A/c

 

43,150

 

Balance b/d

74,450

88,150

60,000

Balance c/d (Adjusted)

1,35,000

45,000

60,000

A’s Current A/c

60,550

 

 

 

1,35,000

88,150

60,000

 

1,35,000

88,150

60,000

 

 

 

 

 

 

 

 

 

Balance Sheet

as on April 01, 2018 after C’s admission

Liabilities

Amount

Rs.

Assets

Amount

Rs.

Creditors (70,000 – 1,200)

68,800

Land and Building

65,000

Capital A/cs:

 

Plant and Machinery

60,000

A

1,35,000

 

Stock

30,000

B

45,000

 

Debtors

35,000

 

C

60,000

2,40,000

Less: Prov. for Doubtful Debts

600

34,400

B’s Current A/c

43,150

Investments

26,000

 

 

Cash

70,000

 

 

A’s Current A/c

60,550

 

 

C's Current A/c

6,000

 

3,51,950

 

3,51,950

 

 

 

 


Working Notes:

WN1


WN2 

As C has not brought his share of goodwill in cash, hence, his share shall be debited to his current account.

WN3 Distribution of Revaluation Profit


WN4 Adjustment of Capital
 

Total Capital of the firm after C’s admission

=

60,000 × 4

=

2,40,000

Less: C’s Capital

 

 

=

60,000

Combined Capital of A and B

 

 

=

1, 80,000



WN5

Cash Account

Dr.

 

Cr.

Particulars

Amount

Rs.

Particulars

Amount

Rs.

Balance b/d

10,000

Balance c/d

70,000

C’s Capital 60,000

(Balancing Figure)

 

 

70,000

 

70,000

 

 

 

 



Page No 4.106:

Question 82:

The Balance Sheet of X, Y and Z who share profits and losses in the ratio of 3 : 2 ; 1 , as o 1st April, 2018 is as follows:                      

 

Liabilities

Assets

Capital A/cs:     Y's Current Account 7,000
  X  1,75,000   Land and Building 1,75,000

  Y

1,50,000

 

Plant and Machinery

67,500

  Z

1,25,000

4,50,000

Furniture

80,000

Current A/cs:

 

 

Investments

36,500

X

4,000

 

Bills Receivable

17,000

Z

6,000

10,000

Sundry Debtors

43,500

 

 

 

 

General Reserve 15,000 Stock 1,37,000
Profit and Loss A/c 7,000 Bank 43,500
Creditors 80,000    
Bills Payable 45,000    
       

 

6,07,000

 

6,07,000

 

 

 

 

 
On the above date , W is admitted as a partner on the following terms:
(a) W will bring ₹ 50,000 as his capital and get 1/6th share in the profits.
(b) He will bring necessary amount for his share of goodwill premium . Goodwill of the firm is valued at ₹ 90,000.
(c) New profit-sharing ratio will be 2 : 2 : 1 : 1.
(d) A liability of ₹ 7,004 will be created against bills receivable discounted earlier but now dishonored.
(e) The value of stock , furniture and investments is reduced by 20% , whereas the value of Land and Building and Plant and Machinery will be appreciated by 20% and 10% respectively.
(f) Capital Accounts of the partners will be adjusted on the basis of W's Capital through their Current Accounts.
Prepare Revaluation Account , Partners' Current Accounts and Capitals Accounts.

Answer:

 

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Stock

27,400

Land and Building

35,000

Furniture

16,000

Plant and Machinery

6,750

Investments

7,300

Loss transferred to:

 

   

X

4,475

 

 

 

Y

2,983

 

 

 

Z

1,492

8,950

 

50,700

 

50,700

 

 

 

 

 

Partners’ Current Account

Dr.

Cr.

Particulars

X Y Z

Particulars

X Y Z

Balance b/d

 

7,000

 

Balance b/d

4,000

 

6,000

Revaluation (Loss)

4,475

2,983

1,492

General Reserve

7,500

5,000

2,500

 

 

 

 

Profit and Loss A/c

3,500

2,333

1,167

Balance c/d

100,525

47,350

83,175

Premium for Goodwill

15,000

 

 

 

 

 

 

Capital A/c

75,000

50,000

75,000

 

1,05,000

57,333

84,667

 

1,05,000

57,333

84,667

 

 

 

 

 

 

 

 

 

Partners’ Capital Account

Dr.

Cr.

Particulars

X Y Z W

Particulars

X Y Z W

Current A/c

75,000

50,000

75,000

 

Balance b/d

1,75,000

1,50,000

1,25,000

 

 

 

 

 

 

Cash A/c

 

 

 

50,000

Balance c/d

1,00,000

1,00,000

50,000

50,000

 

 

 

 

 

 

1,75,000

1,50,000

1,25,000

50,000

 

1,75,000

1,50,000

1,25,000

50,000

 

 

 

 

 

 

 

 

 

 

 

Working Notes:

WN1Calculation of Sacrificing Ratio

Old Ratio=3 : 2 : 1New Ratio=2 : 2 : 1 : 1Sacrificing Ratio=Old Ratio-New RatioX=36-26=16Y=26-26=NilZ=16-16=NilHere, only X has sacrificed.

 

WN2 Distribution of Goodwill

W's Share of Goodwill=90,000×16=Rs 15,000As only X has sacrificed his share, therefore, he will get Rs 15,000

 

WN3 Adjustment of Capital

TotalCapital of the firm=W's Capital×Reciprocal of his share                                        =50,000×61=Rs 3,00,000New Profit Sharing Ratio=2 : 2 : 1 : 1X's New Capital=3,00,000×26=Rs 1,00,000Y's New Capital=3,00,000×26=Rs 1,00,000Z's New Capital=3,00,000×16=Rs 50,000W's New Capital=3,00,000×16=Rs 50,000

Page No 4.106:

Question 83:

Shikhar and Rohit were partners in a firm sharing profits in the ratio of 7 : 3. On 1st April, 2013, they admitted Kavi as a new partner for 1/4th share in profits of the firm. Kavi brought ₹ 4,30,000 as his capital and ₹ 25,000 for his share of goodwill premium. The Balance Sheet of Shikhar and Rohit as on 1st April, 2013 was as follows:  

BALANCE SHEET OF SHIKHAR AND ROHIT as at 1st April, 2013
Liabilities Assets
Capital A/cs:   Land and Building 3,50,000
Shikhar 8,00,000   Machinery 4,50,000
Rohit 3,50,000 11,50,000 Debtors 2,20,000  
General Reserve   1,00,000 Less: Provision 20,000 2,00,000
Workmen's Compensation Fund    1,00,000 Stock 3,50,000
 Creditors 1,50,000 Cash 1,50,000
       
  15,00,000   15,00,000
       

It was agreed that:
(a) the value of Land and Building will be appreciated by 20%.
(b) the value of Machinery will be depreciated by 10%.
(c) the liabilities of Workmen's Compensation Fund were determined at ₹ 50,000.
(d) capitals of Shikhar and Rohit will be adjusted on the basis of Kavi's capital and actual cash to be brought in or to be paid off as the case may be.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the new firm.

Answer:

Revaluation Account
Dr. Cr.
Particulars Amount
Rs
Particulars Amount
Rs
Machinery 45,000 Land and Building               70,000
Profit transferred to:      
  Shikhar’s Capital A/c 17,500      
  Rohit’s Capital A/c 7,500 25,000    
       
  70,000   70,000
       
 
Partners’ Capital Accounts
Dr.   Cr.
Particulars
Shikhar
Rohit
Kavi
Particulars
Shikhar
Rohit
Kavi
        Balance b/d 8,00,000 3,50,000  
Balance c/d           9,40,000 4,10,000 4,30,000 General Reserve 70,000 30,000  
        Workmen’s Compensation
Fund
35,000 15,000  
        Cash A/c     4,30,000
        Premium for Goodwill 17,500 7,500  
        Revaluation A/c (Profit) 17,500 7,500  
               
  9,40,000 4,10,000 4,30,000   9,40,000 4,10,000 4,30,000
Cash A/c 37,000 23,000   Balance b/d 9,40,000 4,10,000 4,30,000
Balance c/d 9,03,000 3,87,000 4,30,000        
  9,40,000 4,10,000 4,30,000   9,40,000 4,10,000 4,30,000
               
 
Balance Sheet
as on April 01, 2013 after Kavi’s admission
Liabilities
Amount
Rs
Assets
Amount
Rs
Liability for Workmen’s              
Compensation 
50,000 Land and Building 4,20,000
Creditors 1,50,000 Machinery 4,50,000  
Capitals:     Less: Depreciation @10% 45,000 4,05,000
  Shikhar 9,03,000   Debtors 2,20,000  
  Rohit 3,87,000     Less: Provision 20,000 2,00,000
  Kavi 4,30,000 17,20,000 Stock 3,50,000
    Cash 5,45,000
  19,20,000   19,20,000
       

Calculation of Profit Sharing Ratio:


WN1: Distribution of Goodwill brought in by Kavi:


WN2: Distribution of Workmen’s Compensation Fund


WN3: Distribution of General Reserve:


WN4: Adjustment of Capital:



Page No 4.107:

Question 84:

Raghu and Rishu are partners sharing profits in the ratio 3 : 2. Their Balance Sheet as at 31st March, 2009 was as follows: 

BALANCE SHEET OF RAGHU AND RISHU
as at 31st March, 2009

Liabilities

Assets

Creditors

86,000

Cash in Hand 77,000
Employees' Provident Fund

10,000

Debtors

42,000

 

Investments Fluctuation Reserve

4,000

Less: Provision for Doubtful Debts

7,000

35,000

Capital A/cs:   Investments   21,000
Raghu

1,19,000

 

Buildings 98,000
Rishu

1,12,000

2,31,000

Plant and Machinery

1,00,000

 

 

 

 

 

 

3,31,000

 

3,31,000

 

 

 

 


Rishabh was admitted on that date for 1/4th share of profit on the following terms:
(a) Rishabh will bring ₹ 50,000 as his share of capital.
(b) Goodwill of the firm is valued at ₹ 42,000 and Rishabh will bring his share of goodwill in cash.
(c) Buildings were appreciated by 20%.
(d) All Debtors were good.
(e) There was a liability of ₹ 10,800 included in Creditors which was not likely to arise.
(f) New profit-sharing ratio will be 2 : 1 : 1.
(g) Capital of Raghu and Rishu will be adjusted on the basis of Rishabh's share of capital and any excess or deficiency will be made by withdrawing or bringing in cash by the concerned partners as the case may be.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the new firm.

Answer:

Revaluation Account

Dr.

 

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Profit on Revaluation transferred to-

 

Building

19,600

  Raghu’s Capital A/c

22,440

 

Provision for Doubtful Debts (Old)

7,000

  Rishu’s Capital A/c

14,960

37,400

Liability for Creditors

10,800

 

37,400

 

37,400

 

 

 

 

           
Partners’ Capital Account

Dr.

 

 

 

 

 

 

Cr.

Particulars

Raghu

Rishu

Rishabh

Particulars

Raghu

Rishu

Rishabh

 

 

 

 

Balance b/d

1,19,000

1,12,000

 

Cash A/c (Bal. Fig.)

48,040

84,860

 

Cash A/c

 

 

50,000

Balance c/d

1,00,000

50,000

50,000

Investment Fluctuation
Fund

2,400

1,600

 

 

 

 

 

Premium for Goodwill

4,200

6,300

 

 

 

 

 

Revaluation A/c (Profit)

22,440

14,960

 

 

 

 

 

 

 

 

 

 

1,48,040

1,34,860

50,000

 

1,48,040

1,34,860

50,000

 

 

 

 

 

 

 

 

                       

Balance Sheet

as on March 31, 2009

Liabilities

Amount

Rs

Assets

Amount

Rs

Creditors

86,000

 

Cash (WN4)

4,600

  Less: Liability

(10,800)

75,200

Debtors

42,000

Employees Provident Fund   

10,000

Investments

21,000

Capital A/cs:

 

Buildings (98,000 + 19,600)

1,17,600

Raghu

1,00,000

 

Plant and Machinery

1,00,000

Rishu

50,000

 

 

 

Rishabh

50,000

2,00,000

 

 

 

 

 

 

 

2,85,200

 

2,85,200

 

 

 

 

 

Working Notes:

WN 1Calculation of Sacrificing Ratio
Old Ratio = 3 : 2
New Ratio = 2 : 1 : 1
Sacrificing Ratio = Old ratio – New Ratio

WN 2Share of Rishabh’s Share of Goodwill
Value of Firm’s Goodwill = 42,000

WN 3Adjustment of Capital
Total Capital of New Firm =  Rishabh’s Capital × Reciprocal of Rishabh’s Share
Capital of Rishabh = Rs 50,000

WN 4 Cash Account

Cash Account

Dr.

 

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Balance b/d

77,000

Raghu’s Capital         

48,040

Rishabh’s Capital

50,000

Rishu’s Capital

84,860

Premium for Goodwill   

10,500

Balance c/d

4,600

 

1,37,500

 

1,37,500

 

 

 

 

 

Page No 4.107:

Question 85:

Following is the Balance Sheet of Abha and Binay as at 31st March, 2014:

 
Liabilities Assets
Creditors 13,000 Bank 15,000
Employees Provident Fund 8,000 Debtors 22,000  
Workmen Compensation Fund           15,000 Less : Provision for Doubtful Debts 1,000 21,000
Capital A/cs:     Stock 10,000
Abha 55,000   Plant and Machinery 60,000

Binay

30,000 85,000 Goodwill   10,000
    Profit and Loss 5,000
       
       
  1,21,000   1,21,000
       

Chitra was admitted as a partner for 1/4th share in the profits of the firm. It was decided that:
(a) Bad Debts amounted to ₹ 1,500 will be written off.
(b) Stock worth ₹ 8,000 was taken over by Abha and Binay at Book Value in their profit-sharing ratio. The remaining stock was valued at ₹ 2,500.
(c) Plant and Machinery and Goodwill were valued at ₹ 32,000 and ₹ 20,000 respectively.
(d) Chitra brought her share of goodwill in cash.
(e) Chitra will bring proportionate capital and the capitals of Abha and Binay will be adjusted in their profit-sharing ratio by bringing in or paying off cash as the case may be.
Prepare Revaluation Account and Partners' Capital Accounts.

Answer:

Revaluation Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Bad debts

500

Stock

500

Plant and Machinery

28,000

Loss on Revaluation

 

 

 

Abha’s Capital A/c

14,000

 

 

 

Binay’s Capital A/c

14,000

28,000

 

 

 

 

 

28,500

 

28,500

 

 

 

 


Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

Abha

Binay

Chitra

Particulars

Abha

Binay

Chitra

Revaluation

14,000

14,000

 

Balance b/d

55,000

30,000

 

Goodwill

5,000

5,000

 

Bank    

18,000

Profit and Loss

2,500

2,500

 

Premium for Goodwill

2,500

2,500

 

Stock 4,000 4,000   WCF 7,500 7,500  

Balance c/d

39,500

14,500

18,000

 

 

 

 

 

65,000

40,000

18,000

 

65,000

40,000

18,000

Bank

12,500

 

 

Balance c/d

39,500

14,500

18,000

Balance c/d (adjusted)

27,000

27,000

18,000

Bank

 

12,500

 

 

39,500

27,000

18,000

 

39,500

27,000

18,000

 

 

 

 

 

 

 

 


Working Notes:

WN1 Calculation of Chitra's Capital

Chitra's Capital=Total Adjusted Capital of Abha and Binay×Reciprocal of Combined Profit Share×Chitra's Profit ShareAbha's Adjusted Capital=55,000+2,500+7,500-14,000-5,000-2,500-4,000=Rs 39,500Binay's Adjusted Capital=30,000+2,500+7,500-14,000-5,000-2,500-4,000=Rs 14,500Chitra's Capital=(39,500+14,500)×43×14=Rs 18,000

WN2 Calculation of New Capital

New Capital=Total Adjusted Capital×Respective Partner's Profit ShareAbha's New Capital=(39,500+14,500)×12=Rs 27,000Binay's New Capital=(39,500+14,500)×12=Rs 27,000


WN3 Calculation of Chitra's Share of Goodwill

Chitra's Share=Firm's Goodwill×Chitra's Profit Share                          =20,000×14=Rs 5,000Rs 5,000 will be shared between Abha and Binay in sacrificing ratio 1:1 



Page No 4.108:

Question 86:

L, M and N were partners in a firm sharing profits in the ratio of 3 : 2 : 1. Their Balance Sheet on 31st March, 2015 was as follows:

 
Liabilities Assets
Creditors 1,68,000 Bank 34,000
General Reserve 42,000 Debtors 46,000
Capital's A/cs: L 1,20,000   Stock 2,20,000
  M 80,000   Investments      60,000
  N 40,000 2,40,000 Furniture 20,000
      Machinery 70,000
         
    4,50,000   4,50,000
         

On the above date, O was admitted as a new partner and it was decided that:
(i) The new profit-sharing ratio between L, M, N and O will be 2 : 2 : 1 : 1.
(ii) Goodwill of the firm was valued at ₹ 1,80,000 and O brought his share of goodwill premium in cash.
(iii) The market value of investments was ₹ 36,000.
(iv) Machinery will be reduced to ₹ 58,000.
(v) A creditor of ₹ 6,000 was not likely to claim the amount and hence was to be written off.
(vi) O will bring proportionate capital so as to give him 1/6th share in the profits of the firm.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of the new firm.

Answer:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Investments

24,000

Creditors

6,000

Machinery

12,000

Loss on Revaluation

 

 

 

  L’s Capital A/c

15,000

 

 

 

  M’s Capital A/c

10,000

 

 

 

  N’s Capital A/c

5,000

30,000

   

 

 

 

36,000

 

36,000

 

 

 

 

             

 

Partners’ Capital Account

Dr.

Cr.

Particulars

L

M

N

O

Particulars

L

M

N

O

Reval. A/c

15,000

10,000

5,000

 

Balance b/d

1,20,000

80,000

40,000

 

Balance c/d

1,56,000

84,000

42,000

56,400

Gen. Reserve

21,000

14,000

7,000

 

 

 

 

 

 

Premium for G/w

30,000

   

 

 

 

 

 

 

Cash A/c

 

 

 

56,400

 

 

 

 

 

 

 

 

 

 

 

1,71,000

94,000

47,000

56,400

 

1,71,000

94,000

47,000

56,400

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet

as on March 31, 2015

Liabilities

Amount

(Rs)

Assets

Amount (Rs)

Creditors

1,62,000

Bank (34,000+56,400+30,000)

1,20,400

Capitals:

 

Debtors

46,000

     L

1,56,000

 

Stock

2,20,000

     M

84,000

 

Investments

36,000

     N

42,000

 

Furniture

20,000

     O

56,400

3,38,400

Machinery

58,000

 

5,00,400

 

5,00,400

 

Working Notes:
 

WN1: Calculation of Sacrificing Ratio



WN2: Adjustment of Goodwill



WN3 Calculation of O’s Proportionate Capital

Page No 4.108:

Question 87:

A and B are partners in a firm sharing profits and losses in the ratio 3 : 1. They admit C for 1/4th share on 31st March, 2014 when their Balance Sheet was as follows:

 
Liabilities Assets
Employees Provident Fund 17,000 Cash 6,100
Workmen Compensation Reserve      6,000 Stock 15,000
Investment Fluctuation Reserve 4,100 Debtors 50,000  
Capital's A/cs:     Less : Provision for Doubtful Debts 2,000 48,000
A 54,000        

B

35,000 89,000 Investments   7,000
    Goodwill 40,000
       
  1,16,100   1,16​,100
       

The following adjustments were agreed upon:
(a) C brings in ₹ 16,000 as goodwill and proportionate capital.
(b) Bad debts amounted to ₹ 3,000.
(c) Market value of investment is ₹ 4,500.
(d) Liability on account of Workmen Compensation Reserve amounted to ₹ 2,000.
Prepare Revaluation Account and Partners' Capital Accounts.

Answer:

Revaluation Account

Dr.

Cr.

Particulars

Amount

(₹)

Particulars

Amount

(₹)

Bad debts

1,000

   
   

Loss on Revaluation

 

 

 

A's Capital A/c

750

 

 

 

B’s Capital A/c

250

1,000

 

 

 

 

 

1,000

 

1,000

 

 

 

 


Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

A

B

C

Particulars

A

B

C

Revaluation

750

250

 

Balance b/d

54,000

35,000

 

Goodwill

30,000

10,000

 

Bank    

23,200

     

 

Premium for Goodwill

12,000

4,000

 

        WCF 3,000 1,000  

Balance c/d

39,450

30,150

23,200

IFF

1,200

400

 

 

70,200

40,400

23,200

 

70,200

40,400

23,200

 

 

 

 

 

 

 

 


Working Notes:

WN1 Calculation of C's Capital

C's Capital=Total Adjusted Capital of A and B×Reciprocal of Combined Profit Share×C's Profit ShareA's Adjusted Capital=54,000+12,000+3,000+1,200-750-30,000=Rs 39,450B's Adjusted Capital=35,000+4,000+1,000+400-250-10,000=Rs 30,150C's Capital=(39,450+30,150)×43×14=Rs 23,200
Notes:
1. Premium for Goodwill Rs 16,000 will be distributed between A and B in sacrificing ratio i.e. 3 : 1.
2. Excess WCF of Rs 4,000 will be shared in old ratio among old partners.
3. Excess IFF of Rs 1,600 will be shared in old ratio among old partners.



Page No 4.109:

Question 88:

Pradeep and Dhanraj were partners in a firm sharing profits in the ratio of 3 : 1 . Their Balance Sheet on 31st March, 2018 was:

 

Liabilities

Assets

Creditors 30,000 Cash 4,000

Bills Payable

1,000

Debtors

50,000

 

Reserve Fund

         

16,000

Less : Provision for D.D.

5,000

45,000

Outstanding Salary   3,000 Stock 30,000

 

 

 

 











 

 

 

 Capital A/cs:     Bils Receivable 10,000
 Pradeep 60,000   Patents 1,000

 Dhanraj               

20,000

80,000

Machinery

 

40,000

       
       

 

1,30,000

 

1,30,000

 

 

 

 

They admitted Leander as a new partner on this date . New profit-sharing ratio is agreed as 3 : 2 ; 3 . Leander brings in proportionate capital after the following adjustments:
(a) Leander brings ₹ 16,000 as his share fo goodwill.
(b) Provisions for Doubtful Debts is to be reduced by ₹ 2,000.
(c) There is an old Typewriter valued at ₹ 2,400. It does not appear in the books of the firm . It is now to be recorded.
(d) Patents are valueless.
Prepare Revaluation Account , Capital Accounts and opening  Balance Sheet of Pradeep , Dhanraj and Leander.

Answer:

Revaluation Account

Dr.

 

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Patents

1,000

Provision for Doubtful Debts

2,000

Profit on transferred to      

 

Typewriter

2,400

   Pradeep Capital

2,550

 

 

   Dhanraj Capital

850

 

 

 

4,400

 

4,400

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

Pradeep

Dhanraj

Leander

Particulars

Pradeep

Dhanraj

Leander

 

 

 

 

Balance b/d

60,000

20,000

 

Balance c/d

90,550

24,850

 

Reserve Fund

12,000

4,000

 

(after adjustments)

 

 

 

Revaluation

2,550

850

 

 

 

 

 

Premium for Goodwill

16,000

 

 

 

90,550

24,850

 

 

90,550

24,850

 

 

 

 

 

Balance c/d

90,550

24,850

 

 

 

 

 

Cash

 

 

69,240

Balance c/d

90,550

24,850

69,240

 

 

 

 

 

90,550

24,850

69,240

 

90,550

24,850

69,240

 

 

 

 

 

 

 

 

 

Balance Sheet

as on March 31, 2018 after Leander’s admission

Liabilities

Amount

Rs

Assets

Amount

Rs

Creditors

30,000

Debtors

50,000

 

Bills Receivable

1,000

Less: Prov. for D. Debts

3,000

47,000

Outstanding Salary                    

3,000

Stock

30,000

Capital A/cs:

 

Bills Receivable

10,000

Pradeep

90,550

 

Machinery

40,000

Dhanraj

24,850

 

Typewriter

2,400

Leander

69,240

1,84,640

Cash

89,240

 

 

 

 

 

 

2,18,640

 

2,18,640

 

 

 

 


Working Notes

WN1

Leander acquires his share of profit from Pradeep only. Therefore, amount for goodwill brought by Leander will be taken by Pradeep alone.

WN2
Distribution of Revaluation Profit


WN3
Distribution of Reserve Fund


WN4
Calculation of Leander’s Capital
Combined Capital of Pradeep and Dhanraj after all adjustments = 90,550 + 24,850 = 1, 15,400
Combined share of profit of Pradeep and Dhanraj = 1 − Leander share

Total Capital of the firm on the basis of combined capital of Pradeep and Dhanraj


WN5

Cash Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Balance b/d

4,000

 

 

Leander’s Capital

69,240

 

 

Premium for Goodwill

16,000

Balance c/d

89,240

 

 

 

 

 

89,240

 

89,240

 

 

 

 

Page No 4.109:

Question 89:

Mohan and Sohan are in partnership sharing profits in the proportion of 3/5th and 2/5th respectively. Their Balance Sheet as at 31st March, 2018 was:

 

Liabilities

Assets

Mohan's Capital

2,000

 

Plant

650

Sohan's Capital      1,000  3,000 Cash    650
Creditors   400 Debtors    1,000  

 

   

Less: Provision for D.D

400

600

 

 

Stock

1,500

 

 

 

 

 

3,400

 

3,400

 

 

 

 

 

They decide to admit Rohan to a 1/3rd share upon the terms that he is to pay into the business ₹ 1,000 as Goodwill and sufficient Capital to give him a 1/3rd share of the total capital of the new firm. It was agreed that the Provision for Doubtful Debts be reduced to ₹ 100 and the Stock be revalued at ₹ 2,000 and that the Plant be reduced to ₹ 500.
You are required to record the above in the Ledger of the firm and show Balance Sheet of the new partnership.

Answer:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Plant (650 – 500)

150

Reserve for Doubtful Debts

300

Profit transferred to

 

(400 – 100)

 

Mohan Capital

390

Stock

500

Sohan Capital

260

 

 

 

800

 

800

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

Mohan

Sohan

Rohan

Particulars

Mohan

Sohan

Rohan

 

 

 

 

Balance b/d

2,000

1,000

 

Balance c/d

2,990

1,660

 

Revaluation

390

260

 

(after adjustments)

 

 

 

Premium for Goodwill

600

400

 

 

2,990

1,660

 

 

2,990

1,660

 

 

 

 

 

Balance b/d

2,990

1,660

 

Balance c/d

2,990

1,660

2,325

Cash

 

 

2,325

 

2,990

1,660

2,325

 

2,990

1,660

2,325

 

 

 

 

 

 

 

 

 

Balance Sheet

as on March 31, 2018 after Rohan’s admission

Liabilities

Amount

Rs

Assets

Amount

Rs

Capital A/cs:                             

 

Cash

3,975

Mohan

2,990

 

Debtors

1,000

 

Sohan

1,660

 

Less: Reserve for D. Debts

100

900

Rohan

2,325

6,975

Stock

2,000

Creditors

400

Plant

500

 

 

 

 

 

7,375

 

7,375

 

 

 

 


Working Notes

WN1


WN2
Distribution of Premium for Goodwill


WN3
Distribution of Revaluation Profit


WN4
Calculation Rohan’s Capital
Combined Capital of Mohan and Sohan after all adjustments = 2,990 + 1,660 = Rs 4,650
Total Capital of the firm on the basis of combined capital of Mohan and Sohan


WN5

Cash Account

Dr.

 

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Balance b/d

650

 

 

Rohan’s Capital

2,325

 

 

Premium for Goodwill

1,000

Balance c/d

3,975

 

3,975

 

3,975

 

 

 

 

Page No 4.109:

Question 90:

Following is the Balance Sheet of X and Y as at 31st March, 2018 . Z is admitted as a partner on that date when the position of X and Y was:

 

Liabilities

Assets

X's Capital

10,000

 

Cash in Hand                            

9,000

Y's Capital
8,000  18,000 Debtors    11,000
Creditors   12,000 Stock   12,000
General Reserve   16,000 Building   8,000
Workmen Compensation Reserve   4,000 Machinery   10,000

 

 

 

 

 

50,000

 

50,000

 

 

 

 

 

X and Y share profits in the proportion of 3 : 2 . The following terms of admission are agreed upon :
(a) Revaluation of assets : Building ₹ 18,000; Stock ₹ 16,000.
(b) The liability on Workmen Compensation Reserve is determined at ₹ 2,000.
(c) Z brought as his share of goodwill ₹ 10,000 in cash.
(d) Z was to bring in further cash as would make his capital equal to 20% of the combined capital of X and  after above revaluation and adjustments are carried out .
(e) The further profit-sharing proportions were: X2/5th, Y2/5th and Z1/5th.
Prepare new Balance Sheet of the firm and Capital Accounts of the Partners'

Answer:

Revaluation Account

Dr.

 

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Profit transferred to

 

Building (18,000 – 8,000)

10,000

   X Capital

8,400

Stock (16,000 – 12,000)

4,000

   Y Capital

5,600

 

 

 

14,000

 

14,000

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

X

Y

Z

Particulars

X

Y

Z

 

 

 

 

Balance b/d

10,000

8,000

 

 

 

 

 

General Reserve

9,600

6,400

 

 

 

 

 

Workmen’s Compensation Fund

1,200

800

 

Balance c/d

39,200

20,800

 

Revaluation (Profit)

8,400

5,600

 

 

 

 

 

Premium for Goodwill

10,000

 

 

 

39,200

20,800

 

 

39,200

20,800

 

 

 

 

 

Balance b/d

39,200

20,800

 

 

 

 

 

Cash

 

 

12,000

Balance c/d

39,200

20,800

12,000

 

 

 

 

 

39,200

20,800

12,000

 

39,200

20,800

12,000

 

 

 

 

 

 

 

 

 

Balance Sheet

as on March 31, 2018 after Z’s admission

Liabilities

Amount

Rs

Assets

Amount

Rs

Capital A/cs:

 

Cash in Hand

31,000

X

39,200

 

Debtors

11,000

Y

20,800

 

Stock

16,000

Z

12,000

72,000

Building

18,000

Creditors

12,000

Machinery

10,000

Outstanding Workmen’s Compensation Claim

2,000

 

 

 

 

 

 

 

86,000

 

86,000

 

 

 

 


Working Notes

WN1: Sacrificing Ratio

Only X is sacrificing 1/5 portion of profit in favour of Z. Therefore, amount of Premium for Goodwill will be taken by X only.

WN2: Treatment of Workmen Compensation Fund
 

Particulars

L.F.

Debit

Amount
Rs

Credit

Amount
Rs

Workmen’s Compensation Fund A/c

Dr.

 

4,000

 

   To Outstanding Workmen’s Compensation Claim A/c

 

 

 

2,000

   To X’s Capital A/c

Dr.

 

 

1,200

To Y’s Capital A/c

 

 

800

(Outstanding Workmen’s Compensation charged from the fund and remaining fund transferred to partner’s capital in their old ratio)

 

 

 

 

 

 

 


WN3: Calculation of Z’s Capital
Combined Capital of X and Y after all adjustments = 39,200 + 20,800 = Rs 60,000
Z’s Capital

WN4: Calculation of Cash Balance
 

Cash Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Balance b/d

9,000

 

 

Z’s Capital

12,000

 

 

Premium for Goodwill

10,000

Balance c/d

31,000

 

31,000

 

31,000

 

 

 

 



Page No 4.110:

Question 91:

A and B are partners sharing profits in the ratio of 3 : 2 . They admit C as a new partner from 1st April, 2018 . They have decided to share future profits in the ratio of 4 : 3 : 3 . The Balance Sheet  as at 31st March, 2018 is given below:

 

Liabilities

Assets

A's Capital

1,76,000

 

Goodwill

34,00

B's Capital      2,54,000  4,30,000 Land and Building    60,000
Workmen Compensation Reserve   20,000 Investment ( Market value ₹ 45,000)     50,000
Investments Fluctuation Reserve    10,000 Debtors    1,00,000  

Employee's Provident Fund

  34,000

Less: Provision for D.D

10,000

90,000

 C's Loan

3,00,000

Stock

3,00,000

 

 

Bank Balance

2,50,000

    Advertising Suspense A/c 10,000
       

 

 

 

 

 

 

 

 

 

7,94,000

 

7,94,000

 

 

 

 


Terms of C's admission are as follows:(i) C contributes proportionate capital and 60% of his share of goodwill in cash.(ii) Goodwill is to be valued at 2 years' purchase of super profit of last three completed years. Profits for the years ended 31st March were:2016long dash₹ 4,80,000; 2017long dash​₹ 9,30,000; 2018long dash​₹ 13,80,000.The normal profit is ​₹ 5,30,000 with same amount of capital invested in similar industry.(iii) Land and Building was found undervalued by ​₹ 1,00,000.(iv) Stock was found undervalued by ​₹ 31,000.(v) Provision for Doubtful Debts is to be made equal to 5% of the debtors(vi) Claim on account of Workmen Compensation is ​₹ 11,000 .Prepare Revaluation Account , Partners' Capital Accounts and Balance Sheet .

Answer:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

 

 

 

 

Stock

31,000

Land & Building

1,00,000

Profit transferred to:

 

Provision for Doubtful Debts

5,000

A’s Capital A/c                                               

44,400

 

 

 

B’s Capital A/c                                                      

29,600

74,000

 

 

 

 

 

 

 

1,05,000

 

1,05,000

 

 

 

 

             

                    

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

A

B

C

Particulars

A

B

C

Goodwill

20,400

13,600

 

Balance b/d

1,76,000

2,54,000

 

Advertisement Suspense A/c

6,000

4,000

 

Bank A/c

 

 

3,06,000

Balance c/d

3,62,400

3,51,600

3,06,000

Premium for Goodwill A/c

96,000

48,000

 

 

 

 

 

C’s Current A/c

64,000

32,000

 

 

 

 

 

Revaluation A/c

44,400

29,600

 

 

 

 

 

IFR

3,000

2,000

 

 

 

 

 

WCR

5,400

3,600

 

 

 

 

 

 

 

 

 

 

3,88,800

3,69,200

3,06,000

 

3,88,800

3,69,200

3,06,000

 

 

 

 

 

 

 

 

                   

 

Bank Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Balance b/d

2,50,000

Balance c/d

7,00,000

C’s Capital

3,06,000

 

 

Premium for Goodwill

1,44,000

 

 

 

7,00,000

 

7,00,000

 

 

 

 

           

 

Balance Sheet

as on 1st April, 2018 after C’s admission

Liabilities

Amount

Rs

Assets

Amount

Rs

Workmen Compensation Reserve

11,000

Land & Building

1,60,000

Employees Provident Fund

34,000

Bank A/c

7,00,000

C ‘s Loan

3,00,000

Investment

45,000

Capital

 

Stock

2,69,000

A

3,62,400

 

C ‘s Current A/c

96,000

B

3,51,600

 

Debtors

1,00,000

 

C

3,06,000

10,20,000

Less : Provision for Doubtful Debts

5,000

95,000

 

 

 

 

 

13,65,000

 

13,65,000

 

 

 

 

 

Working Notes:

WN1: Calculation of Sacrifice or Gain

A :B=3:2 (Old Ratio)A :B :C=4:3 :3 (New Ratio)Sacrificing (or Gaining) Ratio = Old Ratio - New RatioA's share=35410=6410=210B's share=25310=4310=110A:B=2:1


WN:2 Calculation of Goodwill

Goodwill=Super Profit×No. of Years' Purchase               =4,00,000×2=Rs 8,00,000C's share of Goodwill=8,00,000×310=Rs 2,40,000 Goodwill brought in cash = 2,40,000×60100= Rs 1,44,000Average Profit=Total Profits of past years givenNumber of Years                        =27,90,0003=Rs 9,30,000Normal Profit=Capital Employed×Normal Rate of Return100                      =Rs 5,30,000Super Profit=Average Profit-Normal Profit                    =9,30,000-5,30,000=Rs 4,00,000


WN:3 Calculation of C’s Capital
Combined Capital A and B's Capital for 710th=3,62,400 + 3,51,600 = Rs 7,14,000So, C's Capital = 7,14,000×107×310=Rs 3,06,000

 

Page No 4.110:

Question 92:

Kalpana and Kanika were partners in a firm sharing profits in the ratio of 3 : 2 . On 1st April, 2018 , they admitted Karuna as a new partner for 1/5th share in the profits of the firm . The Balance Sheet of the Kalpana and Kanika as on 1st April, 2018 was as follows:

 

Liabilities

Assets

Capital A/cs:

 

Land and Building               

2,10,000

Kalpana

4,80,000

 

Plant

2,70,000

Kanika 2,10,000  6,90,000 Stock    2,10,000
General Reserve   60,000 Debtors   1,32,000  

Workmen's Compensation Fund

  1,00,000

Less: Prov

12,000

1,20,000

 Creditors

90,000

Cash

26,000

 

 

 

1,30,000

 

 

 

 

 

9,40,000

 

9,40,000

 

 

 

 

  ​

It was agreed that;
(a) the value of Land and Building will be appreciated by 20% .
(b) the value of plant be increased by ​₹ 60,000.
(c) Karuna will bring ​₹ 80,000 for her share of goodwill premium.
(d) the liabilities of Workmen's Compensation Fund were determined at ​₹ 60,000.
(e) Karuna will bring in cash as capital to the extent of 1/5th share of the total capital of the new firm.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the new firm.

Answer:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Revaluation Profit

 

Land and Building A/c           

42,000

  Kalpana’s Capital A/c

61,200

 

Plant A/c

60,000

  Kanika’s Capital A/c

40,800

1,02,000

 

 

 

 

 

 

 

1,02,000

 

1,02,000

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

Kalpana

Kanika

Karuna

Particulars

Kalpana

Kanika

Karuna

 

 

 

 

Balance b/d

4,80,000

2,10,000

 

 

 

 

 

Cash

 

 

2,43,000

Balance c/d  

6,49,200

3,22,800

2,43,000

General Reserve

36,000

24,000

 

 

 

 

 

Workmen Compensation Fund

24,000

16,000

 

 

 

 

 

Revaluation A/c

61,200

40,800

 

 

 

 

 

Premium for Goodwill

48,000

32,000

 

 

 

 

 

 

 

 

 

 

6,49,200

3,22,800

2,43,000

 

6,49,200

3,22,800

2,43,000

 

 

 

 

 

 

 

 

 

Balance Sheet

as on April 01, 2018 after Karuna’s admission

Liabilities

Amount

Rs

Assets

Amount

Rs

Creditors

90,000

Cash in Hand

4,53,000

Capitals:

 

Debtors

1,32,000

 

  Kalpana

6,49,200

 

  Less: Provision for debtors

12,000

1,20,000

  Kanika

3,22,800

 

Stock

2,10,000

  Karuna

2,43,000

12,15,000

Land and Building

2,52,000

Liability for Workmen Compensation

60,000

Plant

3,30,000

 

13,65,000

 

13,65,000

 

 

 

 


Working Notes:

WN1 Calculation of New share

Karuna is admitted for 1/5th share
Let the total share of the firm be 1
Remaining share =1-15=45
This remaining share will be shared among old partners in their old ratio i.e. 3 : 2
Kalpana's Share =45×35=1225
Kanika's Share =45×25=825
New Ratio = 12 : 8 : 5

Calculation of Sacrificing Ratio

Sacrificing Ratio = Old Ratio – New Ratio

Kalpana=35-1225=325Kanika=25-825=225
Sacrificing Ratio = 3 : 2

WN2 Calculate of Karuna's Capital
Adjusted Capital of Kalpana = 6.49,200
Adjusted Capital of Kanika = 3,22,800
Total Adjusted Capital = 9,72,000 (6,49,200+3,22,800)
                        



Page No 4.85:

Question 1:

X,Y and Z are partners sharing profits and losses in the ratio of 5 : 3 : 2. They admit A into partnership and give him 1/5th share of profits. Find the new profit-sharing ratio.

Answer:

A is admitted for 1/5 share of profit

Let the combined share of profit for all partners after A’s admission be = 1

Combined share of X, Y and Z after A’s admission =1 − A’s share

New Ratio = Old Ratio × Combined share of X, Y and Z

Page No 4.85:

Question 2:

Ravi and Mukesh are sharing profits in the ratio of 7 : 3. They admit Ashok for 3/7th share in the firm which he takes 2/7th from Ravi and 1/7th from Mukesh. Calculate new profit-sharing ratio.

Answer:

Ashok admits for share of profit

Ravi sacrifices in favour of Ashok =

Mukesh sacrifices in favour of Ashok =

New Ratio = Old Ratio − Sacrificing Ratio

Page No 4.85:

Question 3:

A and B are partners sharing profits and losses in the proportion of 7 : 5. They agree to admit C, their manager, into partnership who is to get 1/6th share in the profits. He acquires this share as 1/24th from A and 1/8th from B. Calculate new profit-sharing ratio. 

Answer:

C admits for 1/6 share of profit

A sacrifices his share of profit in favour of C

B sacrifices his share of profit in favour of C

New Ratio = Old Ratio − Sacrificing Ratio

Page No 4.85:

Question 4:

A, B and C were partners in a firm sharing profits in the ratio of 3 : 2 : 1. They admitted D as a new partner for 1/8th share in the profits, which he acquired 1/16th from B and 1/16th from C. Calculate the new profit-sharing ratio of A, B, C and D

Answer:

Page No 4.85:

Question 5:

Bharati and Astha were partners sharing profits in the ratio of 3 : 2. They admitted Dinkar as a new partner for 1/5th share in the future profits of the firm which he got equally from Bharati and Astha. Calculate the new profit-sharing ratio of Bharati, Astha and Dinkar.

Answer:

Calulation of New Profit Sharing RatioBharti :Astha=3:2 (Old Ratio)Dinkar=15Bharti's sacrifice=15×12=110Astha's sacrifice=15×12=110Bharti's new share=35110=6110=510Astha's new share=25110=4110=310Dinkar's new share=15×22=210Bharti :Astha :Dinkar=5:3:2 (New Ratio)

Page No 4.85:

Question 6:

X and Y are partners in a firm sharing profits and losses in the ratio of 3 : 2. Z is admitted as partner with 1/4 share in profit. Z acquires his share from X and Y in the ratio of 2 : 1. Calculate new profit-sharing ratio.

Answer:

Old Profit Sharing Ratio amongst Partners (X and Y) is 3 : 2
Z is admitted for 1/4th Share in Profits
Sacrificing Ratio of X and Y is 2 : 1





Page No 4.85:

Question 7:

R and S are partners sharing profits in the ratio of 5 : 3. T joins the firm as a new partner. R gives 1/4th of his share and S gives 1/5th of his share to the new partner. Find out new profit-sharing ratio.

Answer:

Sacrificing Ratio = Old Ratio × Surrender Ratio

New Ratio = Old Ratio − Sacrificing Ratio

∴New Profit Sharing Ratio = 75 : 48 : 37

 

Page No 4.85:

Question 8:

Kabir and Farid are partners in a firm sharing profits and losses in the ratio of 7 : 3. Kabir surrenders 2/10th from his share and Farid surrenders 1/10th from his share in favour of Jyoti; the new partner. Calculate new profit-sharing ratio and sacrificing ratio.

Answer:

Calculation of New Ratio

Old Ratio of Kabir and Farid 7 : 3


Kabir sacrifices his share of profit in favour of Jyoti=210

Farid sacrifices his share of profit in favour of Jyoti =110

Jyoti's Share=210+110=310

New Ratio = Old Share − Share Sacrificed

Kabir's New Share=710-210=510Farid's New Share=310-110=210

New Profit Sharing Ratio = 5 : 2 : 3

Calculation of Sacrificing Ratio

Since, Kabir and Farid are sacrificing 2/10 share and 1/10 share respectively, therefore the sacrificing ratio becomes 2 : 1.

Page No 4.85:

Question 9:

Find New Profit-sharing Ratio:
(i) R and T are partners in a firm sharing profits in the ratio of 3 : 2. S joins the firm. R surrenders 1/4th of his share and T 1/5th of his share in favour of S.
(ii) A and B are partners. They admit C for 1/4th share. In future, the ratio between A and B would be 2 : 1. 
(iii) A and B are partners sharing profits and losses in the ratio of 3 : 2. They admit C for 1/5th share in the profit. C acquires 1/5th of his share from A and 4/5th share from B
(iv) X, Y and Z are partners in the ratio of 3 : 2 : 1. W joins the firm as a new partner for 1/6th share in profits. Z would retain his original share.
(v) A and B are equal partners. They admit C and D as partners with 1/5th and 1/6th share respectively.
(vi) A and B are partners sharing profits/losses in the ratio of 3 : 2 . C is admitted for 1/4th share. A and B decide to share equally in future.

Answer:

(i)

S’s Share = R’s Sacrifice + S’s Sacrifice

(ii)

C admits for 1/4th share of profit

Let the combined share of A, B and C be = 1

Combined share of A and B

New Ratio = Combined share of A and B

(iii)

C admits for share of profit

 

New Ratio = Old Ratio − Sacrificing Ratio

(iv)

W admits for share of profit

Let combined share of all partner after W’s admission be = 1

Combined share X and Y in the new firm

New Ratio = Old Ratio × Combined share of X and Y

(v)

C admits for share

D admits for share

Let combined share of all partner after C and D’s admission be = 1

Combined share of profit of A and B after C and D’s admission

New Ratio = Old Ratio × Combined share of A and B

(vi)

C admits for  share of profit

Let the combined share of all partners after C’s admission be = 1

Combined share of A and B after C’s admission



Page No 4.86:

Question 10:

X and Y were partners sharing profits in the ratio of 3 : 2. They admitted P and Q as new partners. X surrendered 1/3rd of his share in favour of P and Y surrendered 1/4th of his share in favour of Q. Calculate new profit-sharing ratio of X, Y, P and Q

Answer:

Sacrificing Ratio = Old Ratio × Surrender Ratio

New Ratio = Old Ratio − Sacrificing Ratio

P’s share = X’s Sacrifiece

Q’s share = Y’s Sacrifice

Page No 4.86:

Question 11:

Rakesh and Suresh are sharing profits in the ratio of 4 : 3. Zaheer joins and the new ratio among Rakesh, Suresh and Zaheer is 7 : 4 : 3. Find out the sacrificing ratio.

Answer:

Sacrificing Ratio = Old Ratio − Sacrificing Ratio

Page No 4.86:

Question 12:

A, B and C are partners sharing profits in the ratio of 4 : 3 : 2. D is admitted for 1/3rd share in future profits. What is the sacrificing ratio?

Answer:

D is admitted for share of profit

Let the combined share of profit of A, B C and D be = 1

Combined share of A, B and C after D’s admission = 1 − D’s shares

New Ratio = Old Ratio × combined share of A, B and C

Sacrificing Ratio = Old Ratio − New Ratio

Page No 4.86:

Question 13:

A and B are partners sharing profits in the ratio of 3 : 2. C is admitted as a partner. The new profit-sharing ratio among A, B and C is 4 : 3 : 2. Find out the sacrificing ratio.

Answer:

Sacrificing Share = Old Ratio − New Ratio

 

Page No 4.86:

Question 14:

A, B, C and D are in partnership sharing profits and losses in the ratio of 36 : 24 : 20 : 20 respectively. E joins the partnership for 20% share and A, B, C and D in future would share profits among themselves as 3/10 : 4/10 : 2/10 : 1/10. Calculate new profit-sharing ratio after E's admission .

Answer:

E is admitted for share

Let combined share of profit of all partners after E’s admission = 1

Combined share of A, B, C and D after E’s admission = 1 − E’s Share

New Ratio = Combined of A, B, C and D × Agreed Share of A, B, C and D

Page No 4.86:

Question 15:

X and Y are partners sharing profits and losses in the ratio of 3 : 2. They admit Z into partnership. X gives 1/3rd of his share while Y gives 1/10th from his share to Z. Calculate new profit-sharing ratio and sacrificing ratio.

Answer:

Old Ratio of X and Y is 3 : 2.

X's sacrifice=13×35=315Y's sacrifice=110Sacrificing Ratio=315:110or  2 :1

New Ratio = Old Share − Share Sacrificed

X's new share=35-315=615Y's new share=25-110=310Z's share=315+110=930New Ratio=615:310:930=4 :3 : 3

Page No 4.86:

Question 16:

A, B and are partners sharing profits in the ratio of 2 : 2 : 1. D is admitted as a new partner for 1/6th share. C will retain his original share. Calculate the new profit-sharing ratio and sacrificing ratio. 

Answer:

Calculation of New Profit Sharing Ratio

*Since nothing is mentioned about the sacrifice made by the existing partners, it is assumed that A and B sacrifice in their old ratio.

 

Calculation of Sacrificing Ratio

Page No 4.86:

Question 17:

A and B are in partnership sharing profits and losses as 3 : 2. C is admitted for 1/4th share. Afterwards D enters for 20 paise in the rupee. Compute profit-sharing ratio of A, B, C and D after D's admission.

Answer:

C’s admitted for share of profit

Let the combined share of profit of all partners be = 1

Combined share of A and B after C’s admission = 1 − C’s share

New Ratio = Old Ratio × Combined share of A and B

Profit sharing ratio after C’s admission will become old ratio to determine the ratio after D’s admission

D is admitted for share of profit

Let combined share of all partners after D’s admission = 1

Combined share of A, B and C after D’s admission = 1 − D’s share

New Ratio = Old Ratio × Combined share of A, B, and C

Page No 4.86:

Question 18:

P and Q are partners sharing profits in the ratio of 3 : 2. They admit R into partnership who acquires 1/5th of his share from P and 4/25th share from Q. Calculate New Profit-sharing Ratio and Sacrificing Ratio.

Answer:

Calulation of New Profit Sharing RatioP:Q=3:2 (Old Ratio)R acquires 15th of his share from PAnd, Remaining 45th(115) of his share from Q.If 45th share of R=425R's share=425×54=525P's sacrifice=15×15=125Q's sacrifice=425P's new share=35125=15125=1425Q's new share=25425=10425=625R's new share=15×55=525P:Q:R=14:6:5Sacrificing Ratio=1:4

Page No 4.86:

Question 19:

A and B are partners sharing profits and losses in the ratio of 2 : 1 . They take C as a partner for 1/5th share. The Goodwill Account appears in the books at its full value ₹ 15,000. C is to pay proportionate amount as premium for goodwill which he pays to A and B privately.
Pass necessary entries.

Answer:

Journal Entry

Date

Particulars

L.F.

Debit Amount

(Rs)

Credit Amount

(Rs)

 

A’s Capital A/c

Dr.

 

10,000

 

 

B’s Capital A/c

Dr.

 

5,000

 

 

To Goodwill A/c

 

 

15,000

 

(Goodwill written-off between
A and B in the old ratio of 2:1)      

 

 

 


Note- Goodwill brought in by C is not recorded in the books of the firm as the amount for goodwill is privately paid to A and B.

Working Note: Goodwill Written-off

Page No 4.86:

Question 20:

A and B are partners sharing profits and losses in the ratio of 2 : 5. They admit C on the condition that he will bring ₹ 14,000 as his share of goodwill to be distributed between A and B. C's share in the future profits or losses will be 1/4th. What will be the new profit-sharing ratio and what amount of goodwill brought in by will be received by A and B

Answer:

C is admitted for share

Let the combined share of A, B and C be = 1

Combined share of A and B after C’s admission = 1 − C’s share

New Ratio = Old Ratio × Combined share of A and B

Distribution of C’s share of Goodwill

C’s share of Goodwill = Rs 14,000



Page No 4.87:

Question 21:

A and B are partners in a firm sharing profits and losses in the ratio of 3 : 2. A new partner C is admitted. A surrenders 1/5th of his share and B surrenders 2/5th of his share and B surrenders 2/5th of his share in favour of C. For the purpose of C's admission, goodwill of the firm is valued at ₹ 75,000 and C brings in his share of goodwill in cash which is retained in the firm's books. Journalise the above transactions.

Answer:

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

Cash A/c

Dr.

 

21,000

 

 

To Premium for Goodwill A/c

 

 

 

21,000

 

(C brought Premium for Goodwill)

 

 

 

 

 

 

 

 

 

 

 

Premium for Goodwill A/c

Dr.

 

21,000

 

 

To A’s Capital A/c

 

 

 

9,000

 

To B’s Capital A/c

 

 

 

12,000

 

(Premium for Goodwill brought by C distributed

between A and B in sacrificing ratio i.e. 3:4)

 

 

 

 

 

 

 

 

 


C’s share = A’s sacrifice + B’s sacrifice



New Ratio is 12:6:7

C’s will bring Premium for Goodwill

Distribution of Premium for Goodwill-

Page No 4.87:

Question 22:

Give Journal entries to record the following arrangements in the books of the firm:
(a) B and C are partners sharing profits in the ratio of 3 : 2. D is admitted paying a premium (goodwill) of ₹ 2,000 for 1/4th share of the profits, shares shares of B and C remain as before.
(b) B and C are partners sharing profits in the ratio of 3 : 2. D is admitted paying a premium of ₹ 2,100 for 1/4th share of profits which he acquires 1/6th from B and 1/12th from C.

Answer:

(a)

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

 

 

 

 

 

Cash A/c

Dr.

 

2,000

 

 

To Premium for Goodwill A/c

 

 

 

2,000

 

(D brought Premium for Goodwill)

 

 

 

 

 

 

 

 

 

 

 

Premium for Goodwill A/c

Dr.

 

2,000

 

 

To B’s Capital A/c

 

 

 

1,200

 

To C’s Capital A/c

 

 

 

800

 

(Premium for Goodwill distributed

between B and C in sacrificing ratio i.e. 3:2)

 

 

 

 

 

 

 

 

 


Working Note:

Distribution of premium for Goodwill-

(b)

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

Cash A/c

Dr.

 

2,100

 

 

To Premium for Goodwill A/c

 

 

 

2,100

 

(D brought his share of goodwill in cash)

 

 

 

 

 

 

 

 

 

 

 

Premium for Goodwill A/c

Dr.

 

2,100

 

 

To B’s Capital A/c

 

 

 

1,400

 

To C’s Capital A/c

 

 

 

700

 

(Premium for Goodwill brought distributed

between B and C in sacrificing Ratio i.e. 2:1)

 

 

 

 

 

 

 

 

 


Working Note:

WN1

WN2

Distribution of Premium for Goodwill-

Page No 4.87:

Question 23:

B and C are in partnership sharing profits and losses as 3 : 1. They admit D into the firm, D pays premium of ₹ 15,000 for 1/3rd share of the profits. As between themselves, B and C agree to share future profits and losses equally. Draft Journal entries showing appropriations of the premium money.

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

 

 

 

 

 

Cash A/c

Dr.

 

15,000

 

 

To Premium for Goodwill A/c

 

 

 

15,000

 

(D brought his share of goodwill in cash)

 

 

 

 

 

 

 

 

 

 

 

Premium for Goodwill A/c

Dr.

 

15,000

 

 

To B’s Capital A/c

 

 

 

15,000

 

(Premium for goodwill transferred to B’s Capital)

 

 

 

 

 

 

 

 

 

 

C’s Capital A/c

Dr.

 

3,750

 

 

To B’s Capital A/c

 

 

 

3,750

 

(Goodwill charged from C’s Capital Account due
to his gain in profit sharing)

 

 

 

 

 

 

 

 

 


WN1

Calculation of Sacrificing Ratio:

Let combined share of all partners after D’s admission be = 1

B and C each share of profit after D’s admission will be

WN2

C is gaining in new the firm. Hence, C’s gain in goodwill will be debited to his capital and given to B (sacrificing partner).

Page No 4.87:

Question 24:

M and J are partners in a firm sharing profits in the ratio of 3 : 2. They admit R as a new partner. The new profit-sharing ratio between M, J and R will be 5 : 3 : 2. R brought in ₹ 25,000 for his share of premium for goodwill. Pass necessary Journal entries for the treatment of goodwill.

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

 

 

 

 

 

Cash A/c

Dr.

 

25,000

 

 

To Premium for Goodwill A/c

 

 

 

25,000

 

(C brought his share of goodwill in cash)

 

 

 

 

 

 

 

 

 

 

 

Premium for Goodwill A/c

Dr.

 

25,000

 

 

To M’s Capital A/c

 

 

 

12,500

 

To J’s Capital A/c

 

 

 

12,500

 

(C’s share of Goodwill distributed in M and
J in their sacrificing Ratio)

 

 

 

 

 

 

 

 

 


Working Notes:

WN1

Calculating of Sacrificing Ratio

WN2

Distribution of R’s share of Goodwill-

Page No 4.87:

Question 25:

A and B are in partnership sharing profits and losses in the ratio of 5 : 3. C is admitted as a partner who pays ₹ 40,000 as capital and the necessary amount of goodwill which is valued at ₹ 60,000 for the firm. His share of profits will be 1/5th which he takes 1/10th from A and 1/10th from B.
Give Journal entries and also calculate future profit-sharing ratio of the partners.

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

Cash A/c

Dr.

 

52,000

 

 

To C’s Capital A/c

 

 

 

40,000

 

To Premium for Goodwill A/c

 

 

 

12,000

 

(C brought Capital and his share of goodwill in cash)

 

 

 

 

 

 

 

 

 

 

Premium for Goodwill A/c

Dr.

 

12,000

 

 

To A’s Capital A/c

 

 

 

6,000

 

To B’s Capital A/c

 

 

 

6,000

 

(C’s share of Goodwill distributed in A and B)

 

 

 

 

 

 

 

 

 


Working Notes-

WN1

WN2

Calculation of new profit sharing Ratio

WN3

Distribution of C’s share of Goodwill (in Sacrificing Ratio)

Page No 4.87:

Question 26:

A and B are partners sharing profits and losses in the ratio of 7 : 5. They admit C, their Manager, into partnership who is to get 1/6th share in the business. C brings in ₹ 10,000 for his capital and ₹ 3,600 for the 1/6th share of goodwill which he acquires 1/24th from A and 1/8th from B. Profits for the first year of the new partnership was ₹ 24,000. Pass necessary Journal entries for C's admission and apportion the profit between the partners.

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

 

 

 

 

 

Cash A/c

Dr.

 

13,600

 

 

To C’s Capital A/c

 

 

 

10,000

 

To Premium for Goodwill A/c

 

 

 

3,600

 

(C brought capital and his share of goodwill)

 

 

 

 

 

 

 

 

 

 

Premium for Goodwill A/c

Dr.

 

3,600

 

 

To A’s Capital A/c

 

 

 

900

 

To B’s Capital A/c

 

 

 

2,700

 

(C’s share of goodwill transferred to A and B in their

sacrificing ratio i.e. 3:1)

 

 

 

 

 

 

 

 

 

 

Profit and Loss Appropriation A/c

Dr.

 

24,000

 

 

To A’s Capital A/c

 

 

 

13,000

 

To B’s Capital A/c

 

 

 

7,000

 

To C’s Capital A/c

 

 

 

4,000

 

(Profit after C’s admission distributed)

 

 

 

 

 

 

 

 

 

 


Working Note:

WN1

WN2

Distribution of C’s share of Goodwill (in sacrificing ratio)

WN3

Calculation of New Profit Sharing Ratio

WN4

Distribution of Profit earned after C’s admission (in new ratio)

Page No 4.87:

Question 27:

X and Y are partners sharing profits in the ratio of 3 : 1. Z is admitted as a partner for which he pays ₹ 30,000 for goodwill in cash. X, Y and Z  decide to share the future profits in equal proportion. You are required to pass a single Journal entry to give effect to the above arrangement.

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

 

 

 

 

 

Cash A/c

Dr.

 

30,000

 

 

To Premium for Goodwill A/c

 

 

 

30,000

 

(X brought his share of goodwill)

 

 

 

 

 

 

 

 

 

 

Premium for Goodwill A/c

Dr.

 

30,000

 

 

Y’s Capital A/c

Dr.

 

7,500

 

 

To X’s Capital A/c

 

 

 

37,500

 

(Y and Z share of gain in goodwill transferred
to X’s Capital Account)

 

 

 

 

 

 

 

 

 


Working Notes:

WN1

Calculation of Sacrificing Ratio

WN2

Goodwill of the firm on the basis of Z’s share

X will get as a goodwill = Z’s share of Goodwill + Y’s gain in Goodwill

= 30,000 + 7,500

= Rs 37,500

Page No 4.87:

Question 28:

A and B are partners in a firm sharing profits and losses in the ratio of 3 : 2. They admit C into partnership for 1/5th share. C brings ₹ 30,000 as capital and ₹ 10,000 as goodwill. At the time of admission of C, goodwill appeared in the Balance Sheet of A and B at ₹ 3,000. New profit-sharing ratio of the partners will be 5 : 3 : 2. Pass necessary Journal entries.

Answer:

Journal Entries

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

A’s Capital A/c

Dr.

 

1,800

 

 

B’s Capital A/c

Dr.

 

1,200

 

 

To Goodwill A/c

 

 

 

3,000

 

(Goodwill written-off)

 

 

 

 

 

 

 

 

 

 

 

Cash A/c

Dr.

 

40,000

 

 

To C’s Capital A/c

Dr.

 

 

30,000

 

To Premium for Goodwill A/c

 

 

 

10,000

 

(C brought capital and his share of goodwill in cash)

 

 

 

 

 

 

 

 

 

 

Premium for Goodwill

Dr.

 

10,000

 

 

To A’s Capital A/c

 

 

 

5,000

 

To B’s Capital A/c

 

 

 

5,000

 

(Premium for Goodwill distributed)

 

 

 

 

 

 

 

 

 

 


Sacrificing Ratio = Old Ratio − New Ratio

Distribution of Premium for Goodwill C’s share of Goodwill)

Goodwill written-off

Page No 4.87:

Question 29:

Anu and Bhagwan were partners in a firm sharing profits in the ratio of 3 : 1. Goodwill appeared in the books at ₹ 4,40,000. Raja was admitted to the partnership. The new profit-sharing ratio among Anu, Bhagwan and Raja was 2 : 2 : 1.
Raja brought ₹ 1,00,000 for his capital and necessary cash for his goodwill premium. Goodwill of the firm was valued at ₹ 2,50,000.
Record necessary Journal entries in the books of the firm for the above transactions.

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

(Rs)

Credit

Amount

(Rs)

 

Anu’s Capital A/c

Dr.

 

3,30,000

 

 

Bhagwan’s Capital A/c

Dr.

 

1,10,000

 

 

  To Goodwill A/c

 

 

 

4,40,000

 

(Old goodwill written off in old ratio)

 

 

 

 

 

 

 

 

 

 

 

Cash A/c

Dr.

 

1,50,000

 

 

  To Raja’s Capital A/c

 

 

 

1,00,000

 

  To Premium for Goodwill A/c

 

 

 

50,000

 

(Capital and goodwill brought in by Raju)

 

 

 

 

 

 

 

 

 

 

 

Premium for Goodwill A/c

Dr.

 

50,000

 

 

Bhagwan’s Capital A/c 320×2,50,000

Dr.

 

37,500

 

 

  To Anu’s Capital A/c 720×2,50,000

 

 

 

87,500

 

(Premium for goodwill adjusted)

 

 

 

 

Working Notes:

WN1 Calculation of Share in Old Goodwill

Anu's share=4,40,000×34=3,30,000Bhagwan's share=4,40,000×14=1,10,000

WN2 Calculation of Raja's Share of Goodwill

Raja's Share of Goodwill=Firm's Goodwill×Raja's Profit Share                                            =2,50,000×15=50,000

WN3 Calculation of Sacrificing Ratio

Sacrificing Ratio=Old Share-New ShareAnu's=34-25=720(sacrifice)Bhagwan's=14-25=-320(gain)



Page No 4.88:

Question 30:

X and Y are partners in a firm  sharing profits in the ratio of 3 : 2  . On 1st April, 2018, they admit Z as a new partner for 1/4th share in the profits . Z contributed following assets towards his capital and for his share of goodwill:
Stock ₹ 60,000 ; Debtors ₹  80,000; Land ₹  1,00,000 , Plant and Machinery ₹  40,000. On the date of admission of Z , the goodwill of the firm was valued at ₹  6,00,000.
Pass necessary journal entries in the books of the firm on Z's admission.

Answer:

Journal

Date
2018

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

 

 

 

 

April 1

Stock A/c

Dr.

 

60,000

 

 

Debtors A/c

Dr.

 

80,000

 

 

Land A/c

Dr.

 

1,00,000

 

 

Plant and Machinery A/c

Dr.

 

40,000

 

 

To Z’s Capital A/c

 

 

1,30,000

 

To Premium for Goodwill A/c

 

 

1,50,000

 

(Z brought assets for his share of goodwill and Capital)

 

 

 

 

 

 

 

 

April 1

Premium for Goodwill A/c

Dr.

 

1,50,000

 

 

  To X’s Capital A/c

 

 

90,000

 

  To Y’s Capital A/c

 

 

60,000

 

(Z’s share of Goodwill distributed between X and Y in sacrificing ratio)

 

 

 

 

 

 

 

 


Working Notes:

WN1

WN2

Distribution of Z’s Goodwill

Page No 4.88:

Question 31:

A and B are partners in a business sharing profits and losses in the ratio of 1/3rd and 2/3rd. On 1st April, 2018, their capitals are ₹  8,000 and ₹  10,000 respectively. On that date , they admit C in partnership and give him 1/4th share in the future profits . C brings in ₹  8,000 as his capital and ₹  6,000 as goodwill. The amount of goodwill is immediately withdrawn  by the old partners in cash . Draft the journal entries and show the Capital Accounts of all the Partners. Calculate proportion in which partners would share profits and losses in future.

Answer:

Journal

Date
2018

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

 

 

 

 

April 1

Cash A/c

Dr.

 

14,000

 

 

To C’s Capital A/c

 

 

8,000

 

To Premium for Goodwill A/c

 

 

6,000

 

(C brought capital and his share of goodwill)

 

 

 

 

 

 

 

 

April 1

Premium for Goodwill A/c

Dr.

 

6,000

 

 

To A’s Capital A/c

 

 

2,000

 

To B’s Capital A/c

 

 

4,000

 

(C’s share of goodwill distributed between
A and B in sacrificing ratio i.e. 1:2)

 

 

 

 

 

 

 

 

 

A’s Capital A/c

Dr.

 

2,000

 

 

B’s Capital A/c

Dr.

 

4,000

 

 

To Cash A/c

 

 

6,000

 

(Amount of goodwill withdrawn by A and B)

 

 

 

 

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

 

 

 

 

 

Cr.

Particulars

A

B

C

Particulars

A

B

C

Cash

2,000

4,000

 

Balance b/d

8,000

10,000

 

 

 

 

 

Cash

 

 

8,000

 

 

 

 

Premium for Goodwill

2,000

4,000

 

Balance c/d       

8,000

10,000

8,000

 

 

 

 

 

10,000

14,000

8,000

 

10,000

14,000

8,000

 

 

 

 

 

 

 

 


Calculation of New (Future) Ratio

C is admitted for share of profit

Let combined share of all partners after C’s admission be = 1

Combined share of A and B after C’s admission = 1 − C’s share

Distribution of Premium for Goodwill

Page No 4.88:

Question 32:

A and B were partners in a firm sharing profits and losses in the ratio of 3 : 2. They admitted C as a new partner for 3/7th share in the profit and the new profit-sharing ratio will be 2 : 2 : 3. C brought ₹ 2,00,000 as his capital and ₹ 1,50,000 as premium for goodwill. Half of their share of premium was withdrawn by A and B from the firm. Calculate sacrificing ratio and pass necessary Journal entries for the above transactions in the books of the firm.

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

 

 

 

 

 

Cash A/c

Dr.

 

3,50,000

 

 

To C’s Capital A/c

 

 

2,00,000

 

To Premium for Goodwill A/c

 

 

1,50,000

 

(C brought capital and Premium for Goodwill)

 

 

 

 

 

 

 

 

 

Premium for Goodwill A/c

Dr.

 

1,50,000

 

 

To A’s Capital A/c

 

 

1,10,000

 

To B’s Capital A/c

 

 

40,000

 

(Premium for Goodwill distributed)

 

 

 

 

 

 

 

 

 

A’s Capital A/c

Dr.

 

55,000

 

 

B’s Capital A/c

Dr.

 

20,000

 

 

To Cash A/c

 

 

75,000

 

(Half of the goodwill withdrawn by A and B)

 

 

 

 

 

 

 

 


Calculation of Sacrificing Ratio

Working Notes-

WN1

Distribution of Premium for Goodwill

WN2

Amount of Premium for Goodwill withdrawn

Page No 4.88:

Question 33:

and B are partners sharing profits in the ratio of 2 : 1. They admit C for 1/4th share in profits. C brings in ₹ 30,000 for his capital and ₹ 8,000 out of his share of ₹ 10,000 for goodwill. Before admission, goodwill appeared in books at ₹ 18,000. Give Journal entries to give effect to the above arrangement.

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

 

 

 

 

 

A’s Capital A/c

Dr.

 

12,000

 

 

B’s Capital A/c

Dr.

 

6,000

 

 

To Goodwill A/c

 

 

18,000

 

(Goodwill written-off)

 

 

 

 

 

 

 

 

 

Cash A/c

Dr.

 

38,000

 

 

To C’s Capital A/c

 

 

30,000

 

To Premium for Goodwill

 

 

8,000

 

(C brought Capital and goodwill)

 

 

 

 

 

 

 

 

 

Premium for Goodwill A/c

Dr.

 

8,000

 

 

C’s Capital A/c

Dr.

 

2,000

 

 

To A’s Capital A/c

 

 

6,667

 

To B’s Capital

 

 

3,333

 

(C’s share of goodwill distributed between
A and B in Sacrificing Ratio)

 

 

 

 

 

 

 

 


Working Notes:

WN1 Writing-off of Goodwill

A’s Capital Account will be debited by

B’s Capital Account will be debited by

WN2 Distribution of C’s share of Goodwill

Page No 4.88:

Question 34:

and B are partners sharing profits and losses in the ratio of 3 : 2. They admit C as partner in the firm for 1/4th share in profits which he takes 1/6th from A and 1/12th from B. C brings in only 60% of his share of firm's goodwill. Goodwill of the firm has been valued at ₹ 1,00,000. Pass necessary journal entries to record this arrangement.

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

(Rs)

Credit

Amount

(Rs)

 

 

 

 

 

 

 

Bank A/c

Dr.

 

15,000

 

 

     To Premium for Goodwill A/c

 

 

 

15,000

 

(Goodwill brought in cash)

 

 

 

 

 

 

 

 

 

 

 

 Premium for Goodwill A/c

Dr.  

 

15,000

 

 

     To A’s Capital A/c

 

 

 

10,000

 

     To B’s Capital A/c

 

 

 

5,000

 

(Goodwill distributed between A & B in sacrificing ratio)

 

 

 

 

 

 

 

 

 

 

 

C’s Capital A/c

Dr

 

10,000

 

 

     To A’s Capital A/c

 

 

 

6,667

 

     To B’s Capital A/c

 

 

 

3,333

 

(Goodwill adjusted)

 

 

 

 

 

 

 

 

 

 

Working Notes:

WN1: Calculation of Sacrificing Ratio

A's sacrifice =16×22=212B's sacrifice =112 Sacrificing Ratio between A and B = 2:1


WN2: Calculation of share in goodwill of new partner

C's share in goodwill=1,00,000×14=Rs 25,000Goodwill brought in cash Rs 15,000(25,000×60%)Remaining goodwill of Rs 10,000 will be adjusted through C's Capital A/c


 



Page No 4.89:

Question 35:

On the admission of Rao, goodwill of Murty and Shah is valued at ₹ 30,000. Rao is to get 1/4th share of profits. Previously Murty and Shah shared profits in the ratio of 3 : 2. Rao is unable to bring amount of goodwill. Give Journal entries in the books of Murty and Shah when:
(a) there is no Goodwill Account and
(b) Goodwill appears in the books at ₹ 10,000.

Answer:

WN1: Calculation of Rao’s share of Goodwill

WN2: Adjustment of Rao’s share of Goodwill

(a) Where there is no Goodwill Account

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

 

 

 

 

 

Rao’s Capital A/c

Dr.

 

7,500

 

 

To Murty’s Capital A/c

 

 

4,500

 

To Shah’s Capital A/c

 

 

3,000

 

(Rao’s share of goodwill charged
from his capital account and distributed between
Murty and Shah in sacrificing ratio i.e., 3:2)

 

 

 

 

 

 

 

 

(b) Goodwill appears at Rs 10,000

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

 

 

 

 

 

Murty’s Capital A/c

Dr.

 

6,000

 

 

Shah’s Capital A/c

Dr.

 

4,000

 

 

To Goodwill A/c

 

 

10,000

 

(Goodwill written-off at the time of Rao’s
admission in old ratio)

 

 

 

 

 

 

 

 

 

Rao’s Capital A/c

Dr.

 

7,500

 

 

To Murty’s Capital A/c

 

 

4,500

 

To Shah’s Capital A/c

 

 

3,000

 

(Rao’s share of goodwill charged from his
Capital Account and distributed between
Murty and Shah in sacrificing ratio i.e., 3:2)

 

 

 

 

 

 

 

 

Page No 4.89:

Question 36:

A and B are partners sharing profits in the ratio of 3 : 2. Their books show goodwill at ₹ 2,000. C is admitted as partner for 1/4th share of profits and brings in ₹ 10,000 as his capital but is not able to bring in cash for his share of goodwill ₹ 3,000. Draft Journal entries.

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

 

 

 

 

 

A’s Capital A/c

Dr.

 

1,200

 

 

B’s Capital A/c

Dr.

 

800

 

 

To Goodwill A/c

 

 

2,000

 

(Goodwill written-off at the time of
C’s admission)

 

 

 

 

 

 

 

 

 

Cash A/c

Dr.

 

10,000

 

 

To C’s Capital A/c

 

 

10,000

 

(Capital brought by C)

 

 

 

 

 

 

 

 

 

C’s Capital A/c

Dr.

 

3,000

 

 

To A’s Capital A/c

 

 

1,800

 

To B’s Capital A/c

 

 

1,200

 

(C’s share of capital charged from his capital distributed between A and B in their sacrificing ratio)

 

 

 

 

 

 

 

 


Working Notes:

Writing off of goodwill already in the books (JE 1)

Page No 4.89:

Question 37:

A, B and C are in partnership sharing profits and losses in the ratio of 5 : 4 : 1 respectively. Two new partners D and E are admitted. The profits are now to be shared in the ratio of 3 : 4 : 2 : 2 : 1 respectively. D is to pay ₹ 90,000 for his share of Goodwill but E has insufficient cash to pay for Goodwill. Both the new partners introduced ₹ 1,20,000 each as their capital. You are required to pass necessary Journal entries.

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

(Rs)

Credit

Amount

(Rs)

 

 

 

 

 

 

 

Bank A/c

Dr

 

3,30,000

 

 

   To D’s Capital A/c

 

 

 

1,20,000

 

   To E’s Capital A/c

 

 

 

1,20,000

 

   To Premium for Goodwill A/c

 

 

 

90,000

 

(Capital and Goodwill brought in cash)

 

 

 

 

 

 

 

 

 

 

 

C’s Capital A/c

Dr.

 

36,000

 

 

E’s Capital A/c

Dr.

 

45,000

 

 

Premium for Goodwill A/c

Dr.

 

90,000

 

 

     To A’s Capital A/c

 

 

 

1,35,000

 

     To B’s Capital A/c

 

 

 

36,000

 

(Goodwill adjusted)

 

 

 

 

 

 

 

 

 

 

Working Notes:

WN1: Calculation of Sacrificing Ratio

A :B :C=5:4:1 (Old Ratio)A :B :C :D :E=3:4:2:2:1 (New Ratio)Sacrificing (or Gaining) Ratio = Old Ratio - New RatioA's share =510312=301560=1560 (Share of sacrifice)B's share =410412=242060=460 (Share of sacrifice)C's share =110212=61060=460 (Share of gain)


WN2: Adjustment of Goodwill
D's share in goodwill for 212 th share=90,000Total goodwill of the firm = 90,000×122=Rs 5,40,000E's share in goodwill = 5,40,000×112=Rs 45,000C's share in goodwill = 5,40,000×460=Rs 36,000

Page No 4.89:

Question 38:

Mohan and Sohan were partners in a firm sharing profits and losses in the ratio of 3 : 2 . They admitted Ram for 1/4th share on 1st April, 2018. It was agreed that goodwill of the firm will be valued at 3 years' purchase of the average profit of last 4 years which were ₹ 50,000 for 2014-15, ₹ 60,000 for 2015-16, ₹ 90,000 for 2016-17 and ₹ 70,000 for 2017-18. Ram did not bring his share of goodwill premium in cash. Record the necessary journal entries in the books of the firm on Ram's admission when:
(a) Goodwill appears in the books at ₹ 2,02,500.
(b) Goodwill appears in the books at ₹ 2,500.
(c) Goodwill appears in the books at ₹ 2,02,000. 

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

(₹)

Credit

Amount

(₹)

(a)

Mohan’s Capital A/c

Dr.

 

1,21,500

 

 

Sohan’s Capital A/c

Dr.

 

81,000

 

 

To Goodwill A/c

 

 

 

2,02,500

 

(Old goodwill written-off in old ratio)

 

 

 

 

 

 

 

 

 

 

 

Ram’s Capital A/c

Dr.

 

50,625

 

 

To Mohan’s Capital A/c

 

 

 

30,375

 

To Sohan’s Capital A/c

 

 

 

20,250

 

(Premium not brought debited to Ram and credited to sacrificing partners)

 

 

 

 

 

 

 

 

 

 

(b)

Mohan’s Capital A/c

Dr.

 

1,500

 

 

Sohan’s Capital A/c

Dr.

 

1,000

 

 

To Goodwill A/c

 

 

 

2,500

 

(Old goodwill written-off in old ratio)

 

 

 

 

 

 

 

 

 

 

 

Ram’s Capital A/c

Dr.

 

50,625

 

 

To Mohan’s Capital A/c

 

 

 

30,375

 

To Sohan’s Capital A/c

 

 

 

20,250

 

(Premium not brought debited to Ram and credited to sacrificing partners)

 

 

 

 

 

 

 

 

 

 

(c)

Mohan’s Capital A/c

Dr.

 

1,23,000

 

 

Sohan’s Capital A/c

Dr.

 

82,000

 

 

To Goodwill A/c

 

 

 

2,05,00

 

(Old goodwill written-off in old ratio)

 

 

 

 

 

 

 

 

 

 

 

Ram’s Capital A/c

Dr.

 

50,625

 

 

To Mohan’s Capital A/c

 

 

 

30,375

 

To Sohan’s Capital A/c

 

 

 

20,250

 

(Premium not brought debited to Ram and credited to sacrificing partners)

 

 

 

 


Working Notes:

WN1: Calculation of Goodwill

Goodwill=Average Profits×Number of YearsPurchaseAverage Profits=Total ProfitsNumber of Years=50,000+60,000+90,000+70,0004=2,70,0004=Rs 67,500Goodwill=67,500×3=Rs 2,02,500Ram's share=2,02,500×14=50,625
Note: Since no information is given about the share of sacrifice, it is assumed that the old partners are sacrificing in their old profit sharing ratio.

Page No 4.89:

Question 39:

Anil and Sunil are partners in a firm with fixed capitals of ₹ 3,20,000 and ₹ 2,40,000 respectively. They admitted Charu as a new partner for 1/4th share in the profits of the firm on 1st April, 2012. Charu brought ₹ 3,20,000 as her share of capital.
Calculate value of goodwill and record necessary Journal entries.

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit Amount

Rs

 

Bank A/c

Dr.

 

3,20,000

 

 

  To Charu’s Capital A/c

 

 

 

3,20,000

 

(Capital brought in by Charu)

 

 

 

 

           

 

Charu’s Current A/c

Dr.

 

1,00,000

 

 

   To Anil’s Current A/c

 

 

 

50,000

 

   To Sunil’s Current A/c

 

 

 

50,000

 

(Charu’s share of goodwill adjusted through current accounts)

 

 

 

 


Working Notes: Calculation of Hidden Goodwill


 



Page No 4.90:

Question 40:

A and B are partners in a firm with capital of ₹ 60,000 and ₹ 1,20,000 respectively. They decide to admit C into the partnership for 1/4th share in the future profits. C is to bring in a sum of ₹ 70,000 as his capital. Calculate amount of goodwill.

Answer:

Actual Capital of the firm after admission of C = A’s Capital + B’s Capital + C’s Capital

= 60,000 + 1, 20,000 + 70,000 = Rs 2, 50,000

Page No 4.90:

Question 41:

Bhuwan and Shivam were partners in a firm sharing profits in the ratio of 3 : 2. Their capitals were ₹ 50,000 and ₹ 75,000 respectively. They admitted Atul on 1st April, 2018 as a new partner for 1/4th share in future profits. Atul brought ₹ 75,000 as his capital. Calculate the value of goodwill of the firm and record necessary Journal entries for the above transactions on Atul's admission.

Answer:

The journal entries are as follows:
 

Journal

Date
2018

Particulars

L.F.

Debit

Amount

(Rs)

Credit

Amount

(Rs)

 

 

 

 

 

 

April 1

Bank/Cash A/c

Dr.

 

75,000

 

 

  To Atul’s Capital A/c

 

 

 

75,000

 

(for capital brought on Atul’s admission)

 

 

 

 

 

 

 

 

 

 

April 1

Atul’s Capital A/c

Dr.

 

25,000

 

 

  To Bhuwan’s Capital A/c

 

 

 

15,000

 

  To Shivam’s Capital A/c

 

 

 

10,000

 

(for goodwill distributed in sacrificing ratio of 3:2)

 

 

 

 

 

 

 

 


Here, Atul is entered into partnership for 1/4th share in future profits. He contributes Rs 75,000 towards his share of capital.

Taking Atul’s capital as the base, we can calculate the firm’s capital as
Firm's Capital = New Partner's Capital × Reciprocal of his share
i.e., = 75,000 × 4 = Rs 3,00,000
However, the total capital as at that date is Rs  2,00,000 (i.e. 50,000 + 75,000 + 75,000)
So, the difference of 1,00,000 is hidden goodwill.
Atul’s share in goodwill = 1/4th of 1,00,000 = Rs 25,000

Note: In this case, as no information is provided for the share sacrificed by the old partners, so it is assumed that the old partners are sacrificing in their old profit share.

Page No 4.90:

Question 42:

X and Y are partners with capitals of ₹ 50,000 each. They admit Z as a partner for 1/4th share in the profits of the firm. Z brings in ₹ 80,000 as his share of capital. The Profit and Loss Account showed a credit balance of ₹ 40,000 as on date of admission of Z.
Give necessary journal entries to record the goodwill.

Answer:

Total Capital of the firm after Z’s admission = X’s Capital + Y’s Capital + undistributed Profit +

Z’s Capital

= 50,000 + 50,000 + 40,000 + 80,000

= Rs 2,20,000

Page No 4.90:

Question 43:

Asin and Shreyas are partners in a firm. They admit Ajay as a new partner with 1/5th share in the profits of the firm. Ajay brings ₹ 5,00,000 as his share of capital. The value of the total assets of the firm was ₹ 15,00,000 and outside liabilities were valued at ₹ 5,00,000 on that date. Give necessary Journal entry to record goodwill at the time of Ajay's admission. Also show your workings. 

Answer:

Journal  

Date

Particulars

L.F.

Debit

Amount

Rs

Credit Amount

Rs

 

Ajay’s Capital A/c

Dr.

 

2,00,000

 

 

To Asin’s Capital A/c

 

 

 

1,00,000

 

To Shreya’s Capital A/c

 

 

 

1,00,000

 

(Ajay’s share of goodwill distributed among
the old partners in their sacrificing ratio 1:1.)

 

 

 

 

 

 

 

 

 

 


Working Notes:

Calculation of Goodwill brought in by Ajay

Value of firm’s goodwill = Capitalised value of the firm – Net worth

Capitalised value of the firm= Share of Ajay's capital × Reciprocal of Ajay's share                                                 = 5,00,000 ×51=Rs 25,00,000Net worth of the new firm = Total assets - Outside liabilities + Ajay's capital                                          = 15,00,000 - 5,00,000 + 5,00,000= Rs 15,00,000Value of firm's goodwill = Capitalised value of firm - Net worth of the new firm                                     =25,00,000 - 15,00,000 = Rs 10,00,000Ajay's share of goodwill = 10,00,000 × 15=Rs 2,00,000

Page No 4.90:

Question 44:

Verma and Sharma are partners in a firm sharing profits and losses in the ratio of 5 : 3. They admitted Ghosh as a new partner for 1/5th share of profits. Ghosh is to bring in ₹ 20,000 as capital and ₹ 4,000 as his share of goodwill premium. Give the necessary Journal entries:
(a) When the amount of goodwill is retained in the business.
(b) When the amount of goodwill is fully withdrawn.
(c) When 50% of the amount of goodwill is withdrawn.
(d) When goodwill is paid privately.

Answer:

Journal Entries
S.No.
Particulars
L.F.
Debit Amount Rs
Credit Amount Rs
Case (a)
       
 
Cash A/c
Dr.
 
24,000
 
 
To Ghosh's Capital A/c
     
20,000
 
To Premium for Goodwill A/c
     
4,000
 
(Capital and Goodwill his share broughtby Ghosh)
       
           
 
Premium for Godwill A/c
Dr.
 
4,000
 
 
To Verma's Capital A/c
     
2,500
 
To Sharma's Capital A/c
     
1,500
 
(Goodwill brought by Ghosh credited to Old Partnersin Sacrificing ratio)
     
         
Case (b)
Cash A/c
Dr.
 
24,000
 
 
To Ghosh Capital A/c
     
20,000
 
To Premium for Goodwill A/c
     
4,000
 
(Capital and Goodwill brought by Ghosh for (1/5)share of profit)
       
         
 
Premium for Goodwill A/c
Dr.
 
4,000
 
 
To Verma's Capital A/c
     
2,500
 
To Sharma's Capital A/c
     
1,500
 
(Goodwill brought by Ghosh credited in Old Partner in Sacrificing Ratio)
     
         
 
Verma's Capital A/c
Dr.
 
2,500
 
 
Sharma's Capital A/c
Dr.
 
1,500
 
 
To Cash A/c
     
4,000
 
(Amount of Premium for Goodwill withdrawn byOld Partners)
     
         
Case (c)
Cash A/c
Dr.
 
24,000
 
 
To Ghosh's Capital A/c
     
20,000
 
To Premium for Goodwill A/c
     
4,000
  (Capital and Goodwill brought by Ghosh for (1/5)share of profit)        
         
 
Premium for Goodwill A/c
Dr.
 
4,000
 
 
To Verma's Capital A/c
     
2,500
 
To Sharma's Capital A/c
     
1,500
 
(Premium for Goodwill credited to Old Partner's Capital Account in sacrificing ratio)
     
         
 
Verma's Capital A/c
Dr.
 
1,250
 
 
Sharma's Capital A/c
   
750
 
 
To Cash A/c
     
2,000
 
(Half of the amount of premium for goodwill withdrawn by Old partners)
     
         
Case (d) No entry: Goodwill was not brought into firm      

Page No 4.90:

Question 45:

Disha and Divya are partners in a firm sharing profits in the ratio of 3 : 2 respectively. The fixed capital of Disha is ₹ 4,80,000 and of Divya is ₹ 3,00,000. On 1st April, 2018 they admitted Hina as a new partner for 1/5th share in future profits . Hina brought ₹ 3,00,000 as her capital . Calculate value of goodwill of the firm and record necessary journal entries on Hina's admission.

Answer:

Journal  

Date
2018

Particulars

L.F.

Debit

Amount

Rs

Credit Amount

Rs

April 1

Bank A/c

 Dr.

 

3,00,000

 

 

   To Hina’s Capital A/c

 

 

 

3,00,000

 

(Capital brought in by Hina)

 

 

 

 

April 1

Hina’s Current A/c

Dr.

 

84,000

 

 

To Disha’s Current A/c

 

 

 

50,400

 

To Divya’s Current A/c

 

 

 

33,600

 

(Hina’s Share of Goodwill adjusted
through current accounts)

 

 

 

 

 

 

 

 

 

 


Working Note:

Calculation of Hidden Goodwill

Page No 4.90:

Question 46:

E and F were partners in a firm sharing profits in the ratio of 3 : 1 . They admitted G as a new partner on 1st April, 2018 for 1/3rd share. It was decided that E, F and G will share future profits equally . G brought ₹ 50,000 in cash and machinery worth ₹ 70,000 for his share of profit as premium of goodwill. Pass necessary journal entries in the books of the firm.

Answer:

Journal

Date
2018

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

April 1

Cash A/c

Dr.

 

50,000

 

 

Machinery A/c

Dr.

 

70,000

 

 

To Premium for Goodwill A/c

 

 

1,20,000

 

(G brought cash Rs 50,000 and Machinery
Rs 70,000 for his share of Goodwill)

 

 

 

 

 

 

 

 

April 1

Premium for Goodwill A/c

Dr.

 

1,20,000

 

 

To E’s Capital A/c

 

 

1,20,000

 

(G share of goodwill transferred to E’s Capital Account)

 

 

 

 

 

 

 

 

April 1

F’s Capital A/c

Dr.

 

30,000

 

 

To E’s Capital A/c

 

 

30,000

 

(F’s share of gain in goodwill charged from his capital and transferred to E’s capital)

 

 

 

 

 

 

 

 


Working Notes:

WN1

WN2

Calculation of F’s share of gain in goodwill

G’s share of Goodwill = 50,000 + 70,000 = Rs 1, 20,000

Goodwill of the firm on the basis of G’s share

F’s share of gain in goodwill



Page No 4.91:

Question 47:

Mr. A commenced business with a capital of ₹ 2,50,000 on 1st April, 2013. During the five years ended 31st March, 2018, the following profits and losses were made:
31st March, 2014−Loss ₹ 5,000
31st March, 2015−Profit ​₹ 13,000
31st March, 2016−Profit ₹ 17,000
31st March, 2017−Profit ​₹ 20,000
31st March, 2018−Profit ₹ 25,000
During this period he had drawn ₹ 40,000 for his personal use. On 1st April, 2018, he admitted B into partnership on the following terms:
B to bring for his half share in the business, capital equal to A's Capital on 31st March, 2018 and to pay for the one-half share of goodwill of the business, on the basis of three times the average profit of the last five years. Prepare the statement showing what amount B should invest to become a partner and pass entries to record the transactions relating to admission.

Answer:

Capital as on April 01, 2013

2, 50,000

Less: Loss in 2014

(5,000)

Add: Profit in 2015

13,000

Add: Profit in 2016

17,000

Add: Profit in 2017

20,000

Add: Profit in 2018

25,000

 

3,20,000

Less: Drawings

(40,000)

A’ Capital as on March 31, 2018

2,80,000

 

 


Calculation of Goodwill

B’s Capital = A’s Capital as on March 31, 2016 = Rs 2,80,000
 

Journal

Date
2018

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

April 1

Cash A/c

Dr.

 

3,01,000

 

 

To B’s Capital A/c

 

 

2,80,000

 

To Premium for Goodwill A/c

 

 

21,000

 

(B brought capital and goodwill)

 

 

 

 

 

 

 

 

April 1

Premium for Goodwill A/c

Dr.

 

21,000

 

 

To A’s Capital A/c

 

 

21,000

 

(B’s share of goodwill transferred to
A’s Capital Account)

 

 

 

 

 

 

 

 

Page No 4.91:

Question 48:

Pass entries in the firm's journal for the following on admission of a partner:
(i) Machinery be reduced by ₹ 16,000 and Building be appreciated by ₹ 40,000.
(ii) A provision be created for Doubtful Debts @ 5% of Debtors amounting to ₹ 80,000.
(iii) Provision for warranty claims be increased by ₹ 12,000.
 

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

(Rs)

Credit

Amount

(Rs)

 

 

 

 

 

 

(i)

Revaluation A/c 

Dr.

 

16,000

 

 

     To Machinery A/c

 

 

 

16,000

 

(Value of machinery decreased)

 

 

 

 

 

 

 

 

 

 

 

Building A/c

Dr.  

 

40,000

 

 

    To Revaluation A/c 

 

 

 

40,000

 

(Value of building increased)

 

 

 

 

 

 

 

 

 

 

(ii)

Revaluation A/c 

 

 

 

 

 

     To Provision for Doubtful Debts A/c

Dr

 

4,000

 

 

(Provision created on debtors)

 

 

 

4,000

 

 

 

 

 

 

(iii)

Revaluation A/c 

Dr.

 

12,000

 

 

     To Provision for Warranty Claims A/c

 

 

 

12,000

 

(Liability  recorded)

 

 

 

 

 

 

 

 

 

Page No 4.91:

Question 49:

Pass entries in firm's Journal for the following on admission of a partner:
(i) Unrecorded Investments worth ₹ 20,000.
(ii) Unrecorded liability towards suppliers for ₹ 5,000.
(iii) An item of ₹ 1,600 included in Sundry Creditors is not likely to be claimed and hence should be written back.

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

(Rs)

Credit

Amount

(Rs)

 

 

 

 

 

 

(i)

Investment A/c

Dr.

 

20,000

 

 

    To Revaluation A/c 

 

 

 

20,000

 

(Investments recorded)

 

 

 

 

 

 

 

 

 

 

(ii)

Revaluation A/c 

Dr.  

 

5,000

 

 

     To Creditors A/c

 

 

 

5,000

 

(Liability  recorded)

 

 

 

 

 

 

 

 

 

 

(iii)

Creditors  A/c

 

 

 

 

 

    To Revaluation A/c 

Dr

 

1,600

 

 

(Liability decreased)

 

 

 

1,600

 

 

 

 

 

 

Page No 4.91:

Question 50:

X and Y are partners in a firm sharing profits in the ratio of 3 : 2. They admitted Z as a partner and fixed the new profit-sharing ratio as 3 : 2 : 1. At the time of admission of Z, Debtors and Provision for Doubtful Debts appeared at ₹ 50,000 and ₹ 5,000 respectively all debtors are good. Pass the necessary Journal entries.

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

(Rs)

Credit

Amount

(Rs)

 

 

 

 

 

 

(i)

Provision for Doubtful Debts A/c

Dr.

 

5,000

 

 

     To Revaluation A/c 

 

 

 

5,000

 

(Provision on Debtors reduced)

 

 

 

 

­

 

 

 

 

 

(ii)

Revaluation A/c 

Dr.  

 

5,000

 

 

   To X’s Capital A/c

 

 

 

3,000

 

   To Y’s Capital A/c

 

 

 

2,000

 

(Profit on Revaluation transferred to Partners’ Capital A/c)

 

 

 

 

 

 

 

 

 

Page No 4.91:

Question 51:

X and Y are partners in a firm sharing profits in the ratio of 3 : 2. They admitted Z as a partner for 1/4th share. At the time of admission of Z, Stock (Book Value ₹ 1,00,000) is to be reduced by 40% and Furniture (Book Value ₹ 60,000) is to be reduced to 40%. Pass the necessary Journal entries.

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

(Rs)

Credit

Amount

(Rs)

 

 

 

 

 

 

 

Revaluation A/c 

Dr.

 

76,000

 

 

    To Stock A/c 

 

 

 

40,000

 

    To Furniture A/c

 

 

 

36,000

 

(Value of assets decreased)

 

 

 

 

 

 

 

 

 

 

 

 X’s Capital A/c

Dr.

 

45,600

 

 

 Y’s Capital A/c

Dr.

 

30,400

 

 

   To Revaluation A/c 

 

 

 

76,000

 

(Loss on Revaluation transferred to Partners’ Capital A/c)

 

 

 

 

 

 

 

 

 



Page No 4.92:

Question 52:

X and Y are partners sharing profits in the ratio of 3 : 2. They admitted as a partner for 1/4th share of profits. At the time of admission of Z,  Investments appeared at ₹ 80,000. Half of the investments to be taken by X and Y in their profit-sharing ratio at book value. Remaining investments were valued at ₹ 50,000. Pass the necessary Journal entries.

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

(Rs)

Credit

Amount

(Rs)

 

 

 

 

 

 

 

X’s Capital A/c

Dr.

 

24,000

 

 

Y’s Capital A/c

Dr.

 

16,000

 

 

    To Investments A/c

 

 

 

40,000

 

(Half of the investments taken over by X and Y)

 

 

 

 

 

 

 

 

 

 

 

Investment A/c

Dr.

 

10,000

 

 

    To Revaluation A/c

 

 

 

10,000

 

(Value of investments increased)

 

 

 

 

 

 

 

 

 

 

 

Revaluation A/c 

Dr.

 

10,000

 

 

      To X’s Capital A/c

 

 

 

6,000

 

      To Y’s Capital A/c

 

 

 

4,000

 

(Profit on revaluation transferred to Partners’ Capital A/c)

 

 

 

 

 

 

 

 

 

Page No 4.92:

Question 53:

X and Y are partners in a firm sharing profits in the ratio of 3 : 2. They admitted as a partner for 1/4th share of profits. At the time of admission of Z, Debtors and Provision for Doubtful Debts appeared at ₹ 76,000 and ₹ 8,000 respectively. ₹ 6,000 of the debtors proved bad. A provision of 5% is to be created on Sundry Debtors for doubtful debts. Pass the necessary Journal entries.

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

(Rs)

Credit

Amount

(Rs)

 

 

 

 

 

 

 

Bad Debts A/c

Dr.

 

6,000

 

 

     To Debtors A/c

 

 

 

6,000

 

(Bad debts incurred)

 

 

 

 

 

 

 

 

 

 

 

Provision for Doubtful Debts A/c

 Dr

 

6,000

 

 

     To Bad Debts A/c

 

 

 

6,000

 

(Bad debts adjusted)

 

 

 

 

 

 

 

 

 

 

 

Revaluation A/c  (WN 1)

Dr.

 

1,500

 

 

    To Provision for Doubtful Debts A/c

 

 

 

1,500

 

(Provision created)

 

 

 

 

 

 

 

 

 

 

 

X’s Capital A/c 

Dr.

 

900

 

  Y’s Capital A/c Dr.   600  

 

      To Revaluation A/c

 

 

 

1,500

 

(Loss on revaluation transferred to Partners’ Capital A/c)

 

 

 

 

 

 

 

 

 

 

Working Notes:

WN1: Calculation of Provision for Doubtful Debts
Provision to be created = (76,000 - 6,000)×5100=Rs 3,500Old Provision = Rs 2,000New Provision to be created = 3,500 - 2,000 = 1,500

Page No 4.92:

Question 54:

X, Y and Z are partners sharing profits ands losses in the ratio of 6 : 3 : 1 . They decide to take W into partnership with effect from 1st April, 2018 . The new profit-sharing ratio between X, Y , Z and W will be 3 : 3 : 3 : 1 . They also decide to record the effect of the following revaluations without affecting the book values of the assets and liabilities by passing a single adjustment entry:

  Book Value(₹ ) Revised Value(₹ )
Plant and Machinery 3,50,000 3,40,000
Land and Building 5,00,000 5,50,000
Trade Creditors 1,00,000 90,000
Outstanding Expenses 85,000 1,00,000

Pass necessary adjustment entry.

Answer:

Journal

Date
2018

Particulars

L.F.

Debit

Amount

(Rs)

Credit

Amount

(Rs)

 

 

 

 

 

 

April 1

Z’s Capital A/c

Dr.

 

7,000

 

 

W’s Capital A/c

Dr.

 

3,500

 

 

    To X’s Capital A/c

 

 

 

10,500

 

(Adjustment entry made)

 

 

 

 

 

 

 

 

 

 

Working Notes:

WN 1: Gain/Loss on Revaluation

Gain/Loss = Land & Building + Trade Creditors
Plant & Machinery − Outstanding Expenses
Gain/Loss = 50,000 + 10,000 − 10,000 − 15,000 = 35,000

WN2: Calculation of Sacrifice or Gain


X :Y : Z = 6:3:1 (Old Ratio)X :Y :Z :W = 3:3:3:1 (New Ratio)Sacrificing (or Gaining) ratio = Old Ratio - New RatioX's share = 610310=6310=310 (Sacrifice)Y's share = 310310=3310=0Z's share = 110310=1310=210 (Gain)W's share = 110 (Gain)

WN 3: Adjustment of Revaluation Profit
Amount credited in X's Capital A/c = 35,000×310=​ Rs 10,500Amount debited in Z's Capital A/c = 35,000×210=​ Rs 7,000Amount debited in W's Capital A/c = 35,000×110= ​Rs 3,500

Page No 4.92:

Question 55:

At the time of admission of a partner C, assets and liabilities of A and B were revalued as follows:
(a) A Provision for Doubtful Debts @10% was made on Sundry Debtors (Sundry Debtors ₹ 50,000).
(b) Creditors were written back by ₹ 5,000.
(c) Building was appreciated by 20% (Book Value of Building ₹ 2,00,000).
(d) Unrecorded Investments were valued at ₹ 15,000.
(e) A Provision of ₹ 2,000 was made for an Outstanding Bill for repairs.
(f) Unrecorded Liability towards suppliers was ₹ 3,000.
Pass necessary Journal entries.

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

 

 

 

 

 

Creditors A/c

Dr.

 

5,000

 

 

Building A/c

Dr.

 

40,000

 

 

Investments A/c

Dr.

 

15,000

 

 

To Revaluation A/c

 

 

60,000

 

(Increase in assets and decrease in liabilities
transferred to Revaluation Account)

 

 

 

 

 

 

 

 

 

Revaluation A/c

Dr.

 

10,000

 

 

To Provision for Doubtful Debts A/c

 

 

5,000

 

To Reserve for outstanding Repairs Bill A/c

 

 

2,000

 

To Creditors A/c

 

 

3,000

 

(Increase in liabilities, decrease in assets and creation of reserves and provisions transferred to Revaluation Account)

 

 

 

 

 

 

 

 

 

Revaluation A/c

Dr.

 

50,000

 

 

To Old Partners’ Capital A/c

 

 

50,000

 

(Profit on Revaluation transferred to Partners’ Capital)

 

 

 

 

 

 

 

 



Page No 4.93:

Question 56:

X and Y are partners in a firm sharing profits and losses in the ratio of 3 : 2 . On 1st April, 2018, they admit Z as a new partner for 1/5th share in profits . On that date , there was a balance of ₹  1,50,000 in General Reserve and a debit balance of ₹  20,000 in the Profit and Loss Account of the firm . Pass necessary journal entries regarding adjustment of reserve and accumulated profit/loss.

Answer:

Journal

Date
2018

Particulars

L.F.

Debit

Amount

(Rs)

Credit

Amount

(Rs)

April 1

General Reserve A/c

Dr.

 

1,50,000

 

 

  To X’s Capital A/c

 

 

 

90,000

 

  To Y’s Capital A/c

 

 

 

60,000

 

(Adjustment of balance in General Reserve A/c in old ratio)

 

 

 

 

 

 

 

 

 

 

 

X’s Capital A/c

Dr.

 

12,000

 

 

Y’s Capital A/c

Dr.

 

8,000

 

 

  To Profit and Loss A/c

 

 

 

20,000

 

(Adjustment of debit balance in P&L A/c in old ratio)

 

 

 

 

Working Notes:

WN1 Calculation of Share of General Reserve

X's share=1,50,000×35=90,000Y's share=1,50,000×25=60,000

WN2 Calculation of Share of Debit Balance in P&L A/c

X's share=20,000×35=12,000Y's share=20,000×25=8,000

 

Page No 4.93:

Question 57:

X and Y were partners in a firm sharing profits and losses in the ratio of 2 : 1. Z was admitted for 1/3rd share in the profits. On the date of Z's admission, the Balance Sheet of X and Y showed General Reserve of ₹ 2,50,000 and a credit balance of ₹ 50,000 in Profit and Loss Account. Pass necessary Journal entries on the treatment of these items on Z's admission.

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

(Rs)

Credit

Amount

(Rs)

 

General Reserve A/c

Dr.

 

2,50,000

 

 

Profit and Loss A/c

Dr.

 

50,000

 

 

  To X’s Capital A/c

 

 

 

2,00,000

 

  To Y’s Capital A/c

 

 

 

1,00,000

 

(Adjustment of balance in General Reserve A/c and P&L A/c in old ratio)

 

 

 

 

Working Notes:

WN1 Calculation of Share of General Reserve & P&L A/c

X's share=3,00,000×23=2,00,000Y's share=3,00,000×13=1,00,000

Page No 4.93:

Question 58:

(a) X, Y and Z are partners sharing profits and losses in the ratio of 5 : 3 : 2 . They decide to admit W for 1/6th share . Following is th extract of the Balance Sheet on the date of admission:

Liabilities  ₹   Assets ₹ 
General Reserve
Contingency Reserve
Profit and Loss A/c
 
   36,000
    6,000
  18,000
 
Advertisement Suspense A/c


 
 24,000


 
 
(b) A and B were partners in a firm sharing profit in 4 : 3 ratio. On 1st April, 2018, they admitted C as a new partner . On the date of C's admission , the Balance Sheet of A and B showed a General Reserve of ₹ 84,000 and a debit balance of ₹  8,400 in the 'Profit and Loss Account '. Pas necessary journal entries for the treatment of these items on C's admission.
(c) Give the journal entries to distribute 'Workmen Compensation Reserve' of ₹  72,000 at the time of admission of Z , when there is no claim against it . The firm has two partners X and Y .
(d) Give the journal entries to distribute 'Workmen Compensation Reserve' of ₹  72,000 at the time of admission of Z , when there is claim of ₹ 48,000 against it . The firm has two partners X and Y .
(e) Give the journal entry to distribute ' Investment Fluctuation  Reserve' of ₹ 24,000 at the time of admission of , when Investment ( Market Value ₹ 1,10,000 ) appears at ₹ 1,20,000. The firm has two partners X and Y.
(f) Give the journal entry to distribute ' General Reserve ' of ₹ 4,800 at the time of admission of Z , when 20% of General Reserve is to be transferred to Investment Fluctuation Reserve . The firm has two partners X and Y .
(g) A, B and were partners sharing profits and losses in the ratio of 6 : 3 : 1 . They decide to take D into partnership with effect from 1st April, 2018. The new profit-sharing ratio between A, B , C and D will be 3 : 3 : 3 : 1 . They also decide to record the effect of the following without affecting their book values , by passing a single adjustment entry:
  Book Value (₹) 
 General Reserve  1,50,000
 Contingency Reserve 60,000
Profit and Loss A/c (Cr.)  90,000
Advertisement Suspense A/c (Dr.) 1,20,000

Pass the necessary single adjustment entry, through the Partner's Current Account. 

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

(Rs)

Credit

Amount

(Rs)

 

 

 

 

 

 

a.

General Reserve A/c

Dr.

 

36,000

 

 

Contingency Reserve A/c

Dr.

 

6,000

 

 

Profit & Loss A/c

Dr.

 

18,000

 

 

      To X’s Capital A/c

 

 

 

30,000

 

      To Y’s Capital A/c

 

 

 

18,000

 

      To Z’s Capital A/c

 

 

 

12,000

 

(Reserves distributed)

 

 

 

 

 

 

 

 

 

 

 

 X’s Capital A/c

Dr.

 

12,000

 

 

 Y’s Capital A/c

Dr.

 

7,200

 

 

 Z’s Capital A/c

Dr.

 

4,800

 

 

     To Advertisement Suspense A/c

 

 

 

24,000

 

(Advertisement Suspense distributed)

 

 

 

 

 

 

 

 

 

 

b.

General Reserve A/c

Dr.

 

84,000

 

 

      To A’s Capital A/c

 

 

 

48,000

 

      To B’s Capital A/c

 

 

 

36,000

 

(General Reserve distributed)

 

 

 

 

 

 

 

 

 

 

 

 A’s Capital A/c

Dr

 

4,800

 

 

 B’s Capital A/c

Dr.

 

3,600

 

 

     To Profit & Loss A/c

 

 

 

8,400

 

(Profit & Loss A/c distributed)

 

 

 

 

 

 

 

 

 

 

c.

Workmen Compensation Reserve A/c

Dr.

 

72,000

 

 

      To X’s Capital A/c

 

 

 

36,000

 

      To Y’s Capital A/c

 

 

 

36,000

 

(Workmen Compensation Reserve distributed)

 

 

 

 

 

 

 

 

 

 

d.

Workmen Compensation Reserve A/c

Dr.

 

72,000

 

 

      To Workmen Compensation Claim A/c

 

 

 

48,000

 

      To X’s Capital A/c

 

 

 

12,000

 

      To Y’s Capital A/c

 

 

 

12,000

 

(Surplus Workmen Compensation Reserve distributed)

 

 

 

 

 

 

 

 

 

 

e.

Investment Fluctuation Reserve A/c

Dr.

 

24,000

 

 

      To Investment A/c

 

 

 

10,000

 

      To X’s Capital A/c

 

 

 

7,000

 

      To Y’s Capital A/c

 

 

 

7,000

 

(Surplus Investment Fluctuation Reserve distributed)

 

 

 

 

 

 

 

 

 

 

f.

General  Reserve A/c

Dr.

 

4,800

 

 

      To Investment Fluctuation Reserve A/c

 

 

 

960

 

      To X’s Capital A/c

 

 

 

1,920

 

      To Y’s Capital A/c

 

 

 

1,920

 

(Surplus General Reserve distributed)

 

 

 

 

 

 

 

 

 

 

g.

C’s Current A/c

Dr.

 

36,000

 

 

D’s Current A/c

Dr.

 

18,000

 

 

    To A’s Current A/c

 

 

 

54,000

 

(Adjustment entry made)

 

 

 

 

Working Notes:

WN1: Calculation of Sacrifice or Gain

A :B :C=6:3:1 (Old Ratio)A :B :C :D:=3:3:3:1 (New Ratio)Sacrificing (or Gaining) Ratio = Old Ratio - New RatioA's share=610310=6310=310 (Sacrifice)B's share=310310=0C's share=110310=1310=210 (Gain)D's share=0110=110 (Gain)

WN2: Calculation of Net Effect

General Reserve

1,50,000

Contingency Reserve

60,000

Profit and Loss A/c (Cr.)

90,000

 

3,00,000

Less: Advertisement Suspense A/c (Dr.)

1,20,000

 

1,80,000

 

WN 3: Adjustment of Net Effect
Amount credited in A's Current A/c = 1,80,000×310=​ Rs 54,000Amount debited in C's Current A/c = 1,80,000×210=​ Rs 36,000Amount debited in D's Current A/c = 1,80,000×110= ​Rs 18,000

 



Page No 4.94:

Question 59:

A and B , carrying on business in partnership and sharing profits and losses in the ratio of 3 : 2 , require a partner, when their Balance Sheet stood as:   

 

Liabilities

Assets

Creditors

11,800

Cash

1,500

A's Capital

51,450

 

Stock

28,000

B's Capital

36,750

88,200

Debtors

19,500

 

 

 

Furniture

2,500

      Machinery 48,500
         
         

 

 

1,00,000

 

1,00,000

 

 

 

 

 


They admit C into partnership and give him 1/8th share in the future profits on the following terms:
(a) Goodwill of the firm be valued at twice the average of the last three years' profits which amounted to ₹ 21,000; ₹ 24,000 and ₹ 25,560.
(b) C is to bring in cash for the amount  of his share of goodwill.
(c) C is to bring in cash ₹ 15,000 as his capital.
Pass journal entries recording these transactions , draw out the Balance Sheet of the new firm and state  new profit-sharing ratio.

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

Cash A/c

Dr.

 

20,880

 

 

To C’s Capital A/c

 

 

15,000

 

To Premium for Goodwill A/c

 

 

5,880

 

(C brought capital and share of goodwill)

 

 

 

 

 

 

 

 

 

Premium for Goodwill A/c

Dr.

 

5,880

 

 

To A’s Capital A/c

 

 

3,528

 

To B’s Capital A/c

 

 

2,352

 

(Premium for Goodwill distributed between
A and B in sacrificing ratio i.e. 3:1)

 

 

 

 

 

 

 

 

 

Partners’ Capital Account

Dr.

 

 

 

Cr.

Particulars

A

B

C

Particulars

A

B

C

 

 

 

 

Balance b/d

51,450

36,750

 

 

 

 

 

Cash

 

 

15,000

Balance c/d      

54,978

39,102

15,000

Premium for
Goodwill

3,528

2,352

 

 

54,978

39,102

15,000

 

54,978

39,102

15,000

 

 

 

 

 

 

 

 

 

Balance Sheet

after Admission of C

Liabilities

Amount

Rs

Assets

Amount

Rs

Capital:

 

Cash (1,500 + 20,880)

22,380

A

54,978

 

Stock

28,000

B

39,102

 

Debtors

19,500

C

15,000

1,09,080

Furniture

2,500

Creditors       

 

11,800

Machinery

48,500

 

 

1,20,880

 

1,20,880

 

 

 

 

 


Calculation of New Profit Sharing Ratio

C is admitted for share of profit
Let combined share of all partners after admission of C be = 1
Combined share of A and B after C’s admission = 1 − C’s share




Working Note-

WN1




WN2

Page No 4.94:

Question 60:

X, Y and Z are equal partners with capitals of ₹ 1,500; ₹ 1,750 and ₹ 2,000 respectively. They agree to admit W into equal partnership upon payment in cash ₹ 1,500 for 1/4th share of the goodwill and ₹ 1,800 as his capital, both sums to remain in the business. The liabilities of the old firm amounted to ₹ 3,000 and the assets, apart from cash, consist of Motors ₹ 1,200, Furniture ₹ 400, Stock ₹ 2,650 and Debtors ₹ 3,780. The Motors and Furniture were revalued at ₹ 950 and ₹ 380 respectively.
Pass Journal entries to give effect to the above arrangement and also show Balance Sheet of the new firm.

Answer:

Balance Sheet

before admission of W

Liabilities

Amount

Rs

Assets

Amount

Rs

 

 

 

 

Capital:

 

Motors

1,200

X

1,500

 

Furniture

400

Y

1,750

 

Stock

2,650

Z

2,000

5,250

Debtors

3,780

Other Liabilities             

3,000

Cash (Balancing Figure)

220

 

 

8,250

 

8,250

 

 

 

 

 

 

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

 

 

 

 

 

Cash A/c

Dr.

 

3,300

 

 

To W’s Capital A/c

 

 

1,800

 

To Premium for Goodwill A/c

 

 

1,500

 

(W brought his share of goodwill and capital in cash)

 

 

 

 

 

 

 

 

 

Premium for Goodwill A/c

Dr.

 

1,500

 

 

To X’s Capital A/c

 

 

500

 

To Y’s Capital A/c

 

 

500

 

To Z’s Capital A/c

 

 

500

 

(Premium for goodwill distributed between X, Y and Z in sacrificing ratio)

 

 

 

 

 

 

 

 

 

Revaluation A/c

Dr.

 

270

 

 

To Motors A/c

 

 

250

 

To Furniture A/c

 

 

20

 

(Decrease in value of Motors and Furniture transferred to Revaluation Account)

 

 

 

 

 

 

 

 

 

X’s Capital A/c

Dr.

 

90

 

 

Y’s Capital A/c

Dr.

 

90

 

 

Z’s Capital A/c

Dr.

 

90

 

 

To Revaluation A/c

 

 

270

 

(Loss on revaluation transferred to Capital Account)

 

 

 

 

 

 

 

 

 

Balance Sheet

after admission of W

Liabilities

Amount

Rs

Assets

Amount

Rs

Capital:

 

Motors (1,200 – 250)   

950

X (1,500 – 90 + 500)

1,910

Furniture (400 – 20)

380

Y (1,750 – 90 + 500)

2,160

Stock

2,650

Z (2,000 – 90 + 500)

2,410

Debtors

3,780

W

1,800

Cash (220 + 3,300)

3,520

Other Liabilities

3,000

 

 

 

11,280

 

11,280

 

 

 

 


Working Notes:

WN1


WN2
Distribution of Premium for Goodwill


WN3
Distribution of loss Revaluation



Page No 4.95:

Question 61:

Following was the Balance Sheet of A and B who were sharing profits in the ratio f 2 : 1 as at 31st March, 2018:

 

Liabilities

Assets

Capital A/cs:

 

Building

25,000

A

15,000

 

Plant and Machinery

17,500

B

10,000

25,000

Stock

10,000

Sundry Creditors

 

32,950

Sundry Debtors

4,850

      Cash in Hand 600
         
         

 

 

57,950

 

57,950

 

 

 

 

 


They agree to admit C into the partnership on the following terms:
(a) C was to bring in ₹ 7,500 as his capital and ₹ 3,000 as goodwill for 1/4th share in the firm.
(b) Values of the Stock and Plant and Machinery were to be reduced by 5% .
(c) A Provision for Doubtful Debts  was to be created in respect of Sundry Debtor ₹ 375.
(d) Building Account was to be appreciated by 10% .
Pass necessary journal entries to give effect to the arrangements . Prepare Profit and Loss  Adjustment Account (or Revaluation Account ), Capital Accounts and Balance Sheet of the new firm 

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

 

 

 

 

 

Profit and Loss Adjustment A/c

Dr.

 

1,750

 

 

To Stock A/c

 

 

500

 

To Plant and Machinery A/c

 

 

875

 

To Reserve for Doubtful Debts A/c

 

 

375

 

(Decrease in stock and Plant and creation of Reserve for Doubtful Debt transferred to Profit and Loss Adjustment Account)

 

 

 

 

 

 

 

 

 

Building A/c

Dr.

 

2,500

 

 

To Profit and Loss Adjustment A/c

 

 

2,500

 

(Increase in value of Building of transferred to Profit and loss Adjustment Accounts)

 

 

 

 

 

 

 

 

 

Profit and Loss Adjustment A/c

 

750

 

 

To A’s Capital A/c

 

 

500

 

To B’s Capital A/c

 

 

250

 

(Profit on revaluation of asset and liabilities
distributed between A and B in their old ratio)

 

 

 

 

 

 

 

 

 

Cash A/c

Dr.

 

10,500

 

 

To C’s Capital A/c

 

 

7,500

 

To Premium for Goodwill A/c

 

 

3,000

 

(C brought capital and share of goodwill)

 

 

 

 

 

 

 

 

 

Premium for Goodwill A/c

Dr.

 

3,000

 

 

To A’s Capital A/c

 

 

2,000

 

To B’s Capital A/c

 

 

1,000

 

(Premium for Goodwill distributed between
A and B in their sacrificing ratio i.e 2:1)

 

 

 

 

 

 

 

 

 
Profit and Loss Adjustment Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Stock

500

 

 

Plant and Machinery

875

Building                             

2,500

Reserve for Doubtful Debts

375

 

 

Profit transferred to

 

 

 

   A Capital

500

 

 

   B Capital

250

 

 

 

2,500

 

2,500

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

A

B

C

Particulars

A

B

C

 

 

 

 

Balance b/d

15,000

10,000

 

 

 

 

 

Cash

 

 

7,500

 

 

 

 

Premium for Goodwill

2,000

1,000

 

Balance c/d        

17,500

11,250

7,500

Profit and Loss Adjustment (Profit)

500

250

 

 

17,500

11,250

7,500

 

17,500

11,250

7,500

 

 

 

 

 

 

 

 

 

Balance Sheet

as on March 31, 2016 after admission of C

Liabilities

Amount

Rs

Assets

Amounts

Rs

 

 

 

 

Capital Accounts:                       

 

Building (25,000 + 2,500)

27,500

A

17,500

 

Plant and Machinery (17,500 – 875)

16,625

B

11,250

 

Stock (10,000 – 500)

9,500

C

7,500

36,250

 

 

Sundry Creditors

32,950

Sundry Debtors

4,850

 

 

 

Less: Provision for D. Debts

375

4,475

 

 

Cash in Hand (600 + 10,500)

11,100

 

69,200

 

69,200

 

 

 

 


Working Notes:

WN1


WN2
Distribution of Premium for Goodwill (in sacrificing ratio)


WN3
Distribution of Profit from Profit and loss Adjustment Account (in old ratio)

Page No 4.95:

Question 62:

Given below is the Balance Sheet of A and B , who are carrying on partnership business on 31st March, 2018. A and share profits and losses  in the ratio of 2 : 1.
 

BALANCE SHEET OF A AND B
as at 31st March, 2018

Liabilities

 

Assets

Bills Payable

10,000

Cash in Hand

10,000

Creditors

58,000

Cash at Bank

40,000

Outstanding Expenses

2,000

Sundry Debtors 60,000

Capital A/cs:

  Stock 40,000
  A

1,80,000

  Plant 1,00,000
  B

1,50,000

3,30,000

Building 1,50,000
 

4,00,000

 

4,00,000

       
   
 C is admitted as a partner on the date of the Balance Sheet on the following terms:
(a) C will bring in ₹ 1,00,000 as his capital and ₹ 60,000 as his share of goodwill for  1/4th share in the profits .
(b) Plant is to be appreciated to ₹ 1,20,000 and the value of building is to be appreciated by 10%.
(c) Stock is found overvalued by ₹ 4,000.
(d) A Provision for doubtful debts is to be created at 5% of Sundry Debtors.
(e) Creditors were unrecorded to the extent of ₹ 1,000.
Pass the necessary journal entries , prepare the Revaluation Account and Partners' Capital Accounts, and show the Balance Sheet after the admission of C.

Answer:

Journal

Date

Particulars

L.F.

Amount

(₹)

Amount

(₹)

2018

Bank A/c

Dr.

 

1,60,000

 

Mar 31

  To C’s Capital A/c

   

1,00,000

 

  To Premium for Goodwill A/c

   

60,000

 

(Capital and premium for goodwill brought by C for 1/4 share)

     

 

 

 

 

 

 

 

Premium for Goodwill A/c

Dr.

 

60,000

 
    To A’s Capital A/c      

40,000

    To B’s Capital A/c      

20,000

 

(Premium for Goodwill brought transferred to old partners’ capital account in their sacrificing ratio)

       
 

Plant A/c

Dr.

 

20,000

 
 

Building A/c

Dr.

 

15,000

 
    To Revaluation A/c      

35,000

 

(Increase in value of assets)

       

 

 

 

 

 

 

 

Revaluation A/c

Dr.

 

8,000

 
    To Stock      

4,000

    To Provision for Doubtful Debts A/c    

3,000

    To Creditors A/c (Unrecorded)      

1,000

 

(Assets and liabilities revalued)

     

 

 

 

 

 

 

 

Revaluation A/c

Dr.

 

27,000

 
    To A’s Capital A/c      

18,000

    To B’s Capital A/c      

9,000

 

(Profit on revaluation transferred to old partners)

     
 

Revaluation Account

Dr.

Cr.

Particulars

Amount

(₹)

Particulars

Amount

(₹)

Stock

4,000

Plant

20,000

Provision for Doubtful Debts

3,000

Building

15,000

Creditors (Unrecorded)

1,000

   

Revaluation Profit

     
  A’s Capital

18,000

     
  B’s Capital

9,000

27,000

   
 

35,000

 

35,000

       
 

Partners’ Capital Account

Dr.

Cr.

Particulars

A

B

C

Particulars

A

B

C

Balance c/d

2,38,000

1,79,000

1,00,000

Balance b/d

1,80,000

1,50,000

 
       

Bank

   

1,00,000

       

Premium for Goodwill

40,000

20,000

 
       

Revaluation

18,000

9,000

 
               
 

2,38,000

1,79,000

1,00,000

 

2,38,000

1,79,000

1,00,000

               
 

Balance Sheet

as on March 31, 2018

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Bills Payable

10,000

Cash in Hand

10,000

Creditors

59,000

Cash at Bank

2,00,000

Outstanding Expenses

2,000

Sundry Debtors

60,000

 

Capital:

 

Less: Provision for Doubtful Debt

3,000

57,000

   A

2,38,000

 

Stock

36,000

   B

1,79,000

 

Plant

1,20,000

   C

1,00,000

5,17,000

Building

1,65,000

 

5,88,000

 

5,88,000

 

 

 

 


Note: Since no information is given about the share of sacrifice, it is assumed that the old partners are sacrificing in their old profit sharing ratio.

Page No 4.95:

Question 63:

Balance Sheet of J and K who share profits in the ratio of 3 : 2 is as follows:
 

BALANCE SHEET
as at 31st March, 2018
Liabilities
 
Assets
Reserve
1,00,000
Cash 
2,00,000
  J's Capital
1,50,000
  Other Assets 1,50,000
  K's Capital
1,00,000
2,50,000
   
 
3,50,000
 
3,50,000
       
   
M joins the firm from 1st April, 2018 for a half share in the future profits . He is to pay ₹ 1,00,000 for goodwill and ₹ 3,00,000 for capital. Draft the journal entries and prepare Balance Sheet in each of the following cases:
(a) If M acquires his share of profit from the firm in the profit -sharing ratios of the partners.
(b) If M acquires his share of profits from the firm in equal proportions from the original partners .
(c) If M acquires his share of profit in the ratio of 3 : 1 from the original partners, ascertain the future profit-sharing ratio of the partners in each case.

Answer:

(a) If M acquires his share of profit from the firm in the original ratios of the partners.
 

Journal

Date
2018

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

April 1

Cash A/c

Dr.

 

4,00,000

 

 

To M’s Capital A/c

 

 

3,00,000

 

To Premium for Goodwill A/c

 

 

1,00,000

 

(M brought capital and his of goodwill in cash)

 

 

 

 

 

 

 

 

April 1

Premium for Goodwill A/c

Dr.

 

1,00,000

 

 

To J’s Capital A/c

 

 

60,000

 

To K’s Capital A/c

 

 

40,000

 

(Premium for Goodwill distributed between
J and K in their Sacrificing Ratio)

 

 

 

 

 

 

 

 

April 1

Reserve A/c

Dr.

 

1,00,000

 

 

To J’s Capital A/c

 

 

60,000

 

To K’s Capital A/c

 

 

40,000

 

(Reserve distribution between M and J in their old ratio)

 

 

 

 

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

 

 

 

 

 

Cr.

Particulars

J

K

M

Particulars

J

K

M

 

 

 

 

Balance b/d

1,50,000

1,00,000

 

 

 

 

 

Cash

 

 

3,00,000

 

 

 

 

Premium for
Goodwill

60,000

40,000

 

Balance c/d

2,70,000

1,80,000

3,00,000

Reserve

60,000

40,000

 

 

2,70,000

1,80,000

3,00,000

 

2,70,000

1,80,000

3,00,000

 

 

 

 

 

 

 

 

 

Balance Sheet

as on April 01, 2018 after M’s admission

Liabilities

Amount

Rs

Assets

Amount

Rs

 

 

Cash (2,00,000 + 4,00,000)

6,00,000

  J’s Capital

2,70,000

Other Assets

1,50,000

  K’s Capital

1,80,000

 

 

  M’s Capital                     

3,00,000

 

 

 

7,50,000

 

7,50,000

 

 

 

 


Calculation of Future (New) Profit Sharing Ratio

M is admitted for share of profit
Let the combined share of all partners after admission of M be = 1
Combined share of J and K after M’s admission = 1 − M’s share



Working Notes-

WN1
Distribution of Premium for Goodwill (in sacrificing ratio)


WN2
Distribution of General Reserve (in old ratio)
J will get
K will get

(b) If M acquires his share of profit from the firm in equal proportions from the original partners.
 

Journal

Date
2018

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

 

 

 

 

April 1

Reserve A/c

Dr.

 

1,00,000

 

 

To J’s Capital A/c

 

 

60,000

 

To K’s Capital A/c

 

 

40,000

 

(Reserve distributed between J and K in old ratio)

 

 

 

 

 

 

 

 

April 1

Cash A/c

Dr.

 

4,00,000

 

 

To M’s Capital A/c

 

 

3,00,000

 

To J’s Premium for Goodwill A/c

 

 

1,00,000

 

(M brought capital and his share of goodwill)

 

 

 

 

 

 

 

 

April 1

Premium for Goodwill A/c

Dr.

 

1,00,000

 

 

To J’s Capital A/c

 

 

50,000

 

To K’s Capital A/c

 

 

50,000

 

(Premium for Goodwill distributed between J and K in sacrificing Raito i.e 1:1)

 

 

 

 

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

J

K

M

Particulars

J

K

M

 

 

 

 

Balance b/d

1,50,000

1,00,000

 

 

 

 

 

Cash

 

 

3,00,000

 

 

 

 

Premium for
Goodwill

50,000

50,000

 

Balance c/d

2,60,000

1,90,000

3,00,000

Reserve

60,000

40,000

 

 

2,60,000

1,90,000

3,00,000

 

2,60,000

1,90,000

3,00,000

 

 

 

 

 

 

 

 

 

Balance Sheet

as on April 01, 2018 after M’s admission

Liabilities

Amount

Rs

Assets

Amount

Rs

   J’s Capital

2,60,000

Cash (2,00,000 + 4,00,000)

6,00,000

   K’s Capital

1,90,000

Others Assets

1,50,000

   M’s Capital                      

3,00,000

 

 

 

7,50,000

 

7,50,000

 

 

 

 


Calculation of future (new) profit sharing ratio

M is admitted for share of profit
J and K each will sacrifice in favour of




Working Notes:

WN1
Distribution of Premium for Goodwill (in Sacrificing ratio)
J and K each will get

WN2
Distribution of General Reserve (in old ratio)
J will get
K will get

(c) If M acquires his share of profit in the ratio of 3:1 from the original partners
 

Journal

Date
2018

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

April 1

Reserve A/c

Dr.

 

1,00,000

 

 

To J’s Capital A/c

 

 

60,000

 

(Reserve distributed between J and K at the time of M’s admission)

 

 

 

 

 

 

 

 

April 1

Cash A/c

Dr.

 

4,00,000

 

 

To M’s Capital A/c

 

 

3,00,000

 

To Premium for Goodwill A/c

 

 

1,00,000

 

(M brought Capital his share of Goodwill)

 

 

 

 

 

 

 

 

April 1

Premium for Goodwill A/c

Dr.

 

1,00,000

 

 

To J’s Capital A/c

 

 

75,000

 

To K’s Capital A/c

 

 

25,000

 

(Premium for Goodwill distributed between
J and K in their sacrificing ratio i.e 3:1)

 

 

 

 

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

J

K

M

Particulars

J

K

M

 

 

 

 

Balance b/d

1,50,000

1,00,000

 

 

 

 

 

Cash

 

 

3,00,000

 

 

 

 

Premium for
Goodwill

75,000

25,000

 

 

 

 

 

Reserve

60,000

40,000

 

Balance c/d

2,85,000

1,65,000

3,00,000

 

 

 

 

 

2,85,000

1,65,000

3,00,000

 

2,85,000

1,65,000

3,00,000

 

 

 

 

 

 

 

 

 

Balance Sheet

as on April 01, 2018 after M’s admission

Liabilities

Amount

Rs

Assets

Amount

Rs

   J’s Capital

2,85,000

Cash (2,00,000 + 4,00,000)

6,00,000

   K’s Capital

1,65,000

Other Assets

1,50,000

   M’s Capital                   

3,00,000

 

 

 

7,50,000

 

7,50,000

 

 

 

 


Calculation of Future (New) Profit Sharing Ratio

M is admitted for share of profit

New Ratio = Old Ratio − Sacrificing Ratio



Working Notes:

WN1
Distribution of Premium for Goodwill (in sacrificing ratio)


WN2
Distribution of Reserve (in old ratio)



Page No 4.96:

Question 64:

The Balance Sheet of Madhu and Vidhi who are sharing profits in the ratio of 2 : 3 as at 31st March, 2016 is given below:

 
Liabilities Assets
Madhu's Capital 5,20,000 Land and Building 3,00,000
Vidhi's Capital 3,00,000 Machinery 2,80,000
General Reserve 30,000 Stock 80,000
Bills Payable 1,50,000 Debtors 3,00,000  
              Less: Provision  10,000 2,90,000
         
      Bank 50,000
       
       
  10,00,000   10,00​,000
       

Madhu and Vidhi decided to admit Gayatri as a new partner from 1st April, 2016 and their new profit-sharing ratio will be 2 : 3 : 5. Gayatri brought ₹ 4,00,000 as her capital and her share of goodwill premium in cash.
(a) Goodwill of the firm was valued at ₹ 3,00,000.
(b) Land and Building was found undervalued by ₹ 26,000.
(c) Provision for doubtful debts was to be made equal to 5% of the debtors.
(d) There was a claim of ₹ 6,000 on account of workmen compensation.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of the reconstituted firm.

Answer:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Provision for Doubtful Debts

5,000

Land &Building

26,000

Claim against Workmen Compensation

6,000

   

Revaluation Profit

     
 

Madhu’s Capital

6,000

     
 

Vidhi’s Capital

9,000

15,000

   
 

26,000

 

26,000

       
 
Partners’ Capital Account 
Dr.
Cr.
Particulars
Madhu
Vidhi
Gayatri
Particulars
Madhu
Vidhi
Gayatri
Balance c/d
5,98,000
4,17,000
4,00,000
 Balance b/d
5,20,000
3,00,000
 
       
 Bank
   
4,00,000
         General Reserve 12,000 18,000  
       
 Premium for Goodwill
60,000
90,000
 
       
 Revaluation
6,000
9,000
 
               
  5,98,000 4,17,000 4,00,000  
5,98,000
4,17,000
4,00,000
               
 
Balance Sheet
as on March 31, 2016
Liabilities
Amount
(₹)
Assets
Amount
(₹)
Bills Payable
1,50,000
Bank (50,000 + 4,00,000 + 1,50,000)
 
6,00,000
Claim for Workmen Compensation
6,000
Sundry Debtors
3,00,000
 
Capital:
 
Less: Provision for Doubtful Debt
15,000
2,85,000
Madhu
5,98,000
 
Stock
80,000
Vidhi
4,17,000
 
Machinery
2,80,000
Gayatri
4,00,000
14,15,000 
Land &Building
3,26,000
 
15,71,000
 
15,71,000
 
 
 
 

Working Notes:

WN1: Calculation of Gayatri’s Share of Goodwill

Gayatri's share=3,00,000×510=1,50,000 to be shared in 2:3

WN1: Calculation of Sacrificing Ratio

Sacrificing Ratio = Old Ratio – New Ratio

Madhu=25210=210Vidhi=35310=310

Page No 4.96:

Question 65:

Shyamlal and Sanjay were in partnership business sharing profits and losses in the ratio of 2 : 3 respectively. Their Balance Sheet as at 31st March, 2018 was:




 

 

Liabilities

Assets

 Sundry Creditors

12,435

Cash in Hand

710

 Capital A/cs:   Cash at Bank 11,925

Shyamlal

34,050

 

Sundry Debtors

5,500

Sanjay

34,050

68,100

Stock

18,000

 

 

 

Furniture

4,400

      Building 40,000
         
         

 

 

80,535

 

80,535

 

 

 

 

 



On 1st April, 2018, they admitted Shanker into partnership for 1/3rd share in the future profits on the following terms:
(a) Shanker is to bring in ₹ 30,000 as his capital and ₹ 20,000 as  goodwill which is to remain in the business.
(b) Stock and Furniture are to be reduced in value by 10%.
(c) Building is to be appreciated by ₹ 15,000.
(d) Provision of 5%  is to be made on Sundry Debtors for Doubtful Debts .
(e) Unaccounted Accrued Income of ₹ 2,400 to be provided for . A debtor , whose dues of ₹ 4,800 were  written off as bad debts , paid 50%  in full settlement .
(f) Outstanding Rent amounted to ₹ 4,800.
Show Profit and Loss Adjustment Account (Revaluation Account) , Capital Accounts of Partners and opening Balance Sheet  of the new firm.

Answer:

Profit and Loss Adjustment Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Stock

1,800

Building

15,000

Furniture

440

Accrued Income

2,400

Provision for Doubtful Debts

275

Bad Debts Recovered

2,400

Outstanding Rent 4,800    

Profit transferred to

 

 

 

Shyamlal Capital

4,994

 

Sanjay Capital

7,491

12,485

 

 

19,800

 

19,800

 

 

 

 

 

 

Partners’ Capital Account

Dr.

 

 

Cr.

Particulars

Shyamlal

Sanjay

Shanker

Particulars

Shyamlal

Sanjay

Shanker

 

 

 

 

Balance b/d

34,050

34,050

 

 

 

 

 

Cash A/c

 

 

30,000

 

 

 

 

Premiumf or
Goodwill

8,000

12,000

 

Balance c/d

47,044

53,541

30,000

Revaluation

4,994

7,491

 

 

47,044

53,541

30,000

 

47,044

53,541

30,000

 

 

 

 

 

 

 

 

 

Balance Sheet

as on April 01, 2018 after Shanker’s admission

Liabilities

Amount

Rs

Assets

Amount

Rs

Sundry Creditors                              

12,435

Cash in Hand (710 + 50,000 + 2,400)

53,110

Capital A/cs:

 

Cash at Bank

11,925

Shyamlal

47,044

 

Sundry Debtors

5,500

 

Sanjay

53,541

 

Less: Provision for D. Debts

275

5,225

Shanker

30,000

1,30,585

Stock (18,000 – 1,800)

16,200

Outstanding Rent

4,800

Building (40,000 + 15,000)

55,000

    Furniture (4,400 – 440) 3,960

 

 

Accrued Income

2,400

 

1,47,820

 

1,47,820

 

 

 

 


Working Notes:


WN1
Distribution of Premium for Goodwill (in sacrificing ratio)

Shyamlal will get=20,000×25=Rs 8,000Sanjay will get=20,000×35=Rs 12,000

WN2
Distribution of Profit from Profit and Loss Adjustment Account (in old ratio)



Page No 4.97:

Question 66:

A , B and C are partners sharing profits and losses in the ratio of 3 : 2 : 1  respectively. Their Balance Sheet as at 31st March , 2108 is as follows:


 

 

Liabilities

Assets

Capital A/cs:

 

Land and Building

50,000

A

60,000

 

Plant and Machinery

40,000

      B  60,000   Furniture   30,000

40,000

1,60,000

Stock

20,000

  Creditors

 

30,000

Debtors

30,000

Bills Payable   10,000 Bills Receivable 20,000
      Bank 10,000
         

 

 

2,00,000

 

2,00,000

 

 

 

 

 



D is admitted as a new partner on 1st April, 2018 for an equal share and is to pay ₹ 50,000 as capital .
Following are the adjustments required on D's admission :
(a) Out of the  Creditors , a sum of ₹ 10,000 is due to D which will be transferred to his capital Account.
(b) Advertisement Expenses of ₹ 1,200 are to be carried forward to next accounting period as Prepaid Expenses.
(c) Expenses debited in the Profit and Loss Account  includes a sum of ₹ 2,000 paid for B's personal expenses.
(d) A Bill of Exchange of ₹ 4,000, which was previously discounted with the banker, was dishonoured on 31st March, 2018 but no entry has been  passed for that .
(e) A Provision for Doubtful Debts @ 5% is to be  created against Debtors .
(f) Expenses on Revaluation amounted to ₹ 2,100 is paid by A . 
Prepare necessary Ledger Accounts and Balance Sheet after D's admission.

Answer:

Revaluation Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Provision for doubtful Debts

1,700

Prepaid Advt. Expense

1,200

A’s Capital (Rev. Exp.)

2,100

B’s Capital (Personal Exp.)

2,000

 

 

 

 

 

 

Loss transferred to

 

 

 

A Capital

300

 

 

 

B Capital

200

 

 

 

C Capital

100

600

 

3,800

 

 

3,800

 

 

 

 

 

 

Partners’ Capital Accounts

Dr.

Cr.

Particulars

A

B

C

D

Particulars

A

B

C

D

Revaluation

 

2,000

 

 

Balance b/d

60,000

60,000

40,000

 

(Personal Exp.)

 

 

 

 

Creditors

 

 

 

10,000

Revaluation (Loss)

300

200

100

 

Cash

 

 

 

40,000

Balance c/d

61,800

57,800

39,900

50,000

Revaluation (Exp.)

2,100

 

 

 

 

62,100

60,000

40,000

50,000

 

62,100

60,000

40,000

50,000

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet

as on April 01,2018 after D’s admission

Liabilities

Amount

Rs

Assets

Amount

Rs

Capital Accounts:

 

Land and Building

50,000

    A

61,800

 

Plant and Machinery

40,000

    B

57,800

 

Furniture

30,000

    C

39,900

 

Prepaid Advt. Expenses

1,200

    D

50,000

2,09,500

Stock

20,000

 

 

 

Debtors

30,000

 

Creditors

30,000

 

Add: B/R dishonor

4,000

 

    Less: D’s Capital

10,000

20,000

Less: 5% Provision for D Debts

(1,700)

32,300

Bill Payable

10,000

 

 

 

 

 

Bills Receivable

 

20,000

 

 

Bank (10,000 + 40,000 - 4,000)

46,000

 

2,39,500

 

2,39,500

 

 

 

 


WN1: Distribution of Loss on Revaluation

A's Capital will be debited by=600×36=Rs 300 B's Capital will be debited by=600×26=Rs 200 C's Capital will be debited by=600×16=Rs 100 

Page No 4.97:

Question 67:

X and Y share profits in the ratio of 5 : 3 . Their Balance Sheet as at 31st March, 2018 was:

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Creditors

15,000

Cash at Bank 5,000
Employees' Provident Fund

10,000

Sundry Debtors

20,000

 

Workmen Compensation Reserve

5,800

  Less: Provision for D. Debts

600

19,400

Capital A/cs:   Stock   25,000
  X

70,000

 

Fixed Assets 80,000
  Y

31,000

1,01,000

Profit and Loss A/c

2,400

 

 

 

 

 

 

1,31,800

 

1,31,800

 

 

 

 

 
 Z is admitted as a new partner on 1st April, 2018 on the following terms:
(a) Provision for doubtful debts is to be maintained  at 5% on Debtors.
(b) Outstanding rent amounted to ₹  15,000.
(c) An accrued income of ₹  4,500 does not appear in the books of the firm . It is now to be recorded.
(d)  X takes over the Investments  at an agreed  value of ₹  18,000.
(e) New Profit-sharing Ratio of partners will be 4 : 3 : 2 .
(f)  Z will bring in ₹  60,000 as his capital by cheque.
(g)  Z is to pay an amount equal to his share in firm's goodwill valued at twice the average profits of the last three years which were ₹  90,000 ; ₹  78,000 and ₹  75,000 respectively.
(h) Half of the amount of the goodwill is to be withdrawn by X and Y .  
You are required to pass journal entries , prepare Revaluation Account , Partners'  Capital and Current  Accounts  and the Balance Sheet of the new firm.

They admit Z into partnership with 1/8th share in profits on this date . Z  brings ₹ 20,000 as his capital and ₹  12,000 for goodwill in cash . Z acquires his share entirely from X. Following revaluations are also made :
(a) Employees' Provident Fund liability is to be increased by ₹  5,000.
(b) All Debtors are good. Therefore, no provision is required on Debtors.
(c) Stock includes ₹  3,000 for obsolete items.
(d) Creditors are to be paid ₹  1,000 more.
(e) Fixed Assets are to be revalued at ₹  70,000. 
Prepare journal entries , necessary accounts and new Balance Sheet . Also, calculate new profit-sharing ratio.

Answer:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Stock

3,000

Provision for D. Debts

600

Creditors

1,000

 

 

Fixed Assets

10,000

Loss transferred to

 

Provident Fund

5,000

X Capital

11,500

 

 

Y Capital

6,900

 

19,000

 

19,000

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

X

Y

Z

Particulars

X

Y

Z

Revaluation (Loss)

11,500

6,900

 

Balance b/d

70,000

31,000

 

Profit and Loss

1,500

900

 

Workmen’s Comp.
Fund

3,625

2,175

 

Balance c/d

72,625

25,375

20,000

Cash

 

 

20,000

 

 

 

 

Premium for Goodwill

12,000

 

 

 

85,625

33,175

20,000

 

85,625

33,175

20,000

 

 

 

 

 

 

 

 

 

Balance Sheet

as on March 31, 2018 after Z’s admission

Particulars

Amount

Rs

Assets

Amount

Rs

Creditors (15,000 + 1,000)

16,000

Land and Building

5,000

Provident Fund (10,000 + 5,000)

15,000

Sundry Debtors

20,000

Capital A/cs:

 

Stock (25,000 – 3,000)

22,000

X

72,625

 

Fixed Assets (80,000 – 10,000)

70,000

Y

25,375

 

Cash

32,000

Z

20,000

1,18,000

 

 

 

1,49,000

 

1,49,000

 

 

 

 


Working Notes

WN1: Distribution of Revaluation Loss


WN2: Distribution Accumulated Loss


WN3: Distribution of Workmen’s Compensation Fund


WN4: Z’s premium for goodwill will be transferred to X’s Capital Account because Z receives his entire share from X.

WN5: Calculation of New Profit Sharing Ratio



Page No 4.98:

Question 68:

Balance Sheet of Ram and Shyam who shares profits in proportion to their capitals as at 31st March, 2018 is:


 

 

Liabilities

Assets

Capital A/cs:

 

Freehold Premises

20,000

Ram 

30,000

 

Plant and Machinery

13,500

     Shyam  25,000 55,000 Fixtures and Fittings 1,750
Current A/cs:     Vehicles 1,350
     Ram 2,000   Stock 14,100

Shyam 

1,800

3,800

Bills Receivable

13,060

Creditors

 

19,000

Debtors

27,500

Bills Payable   16,000 Bank 1,590
      Cash 950
         

 

 

93.800

 

93,800

 

 

 

 

 



On 1st April, 2018  they admitted Arjun into partnership on the following terms:
(a) Arjun to bring in ₹  20,000 as capital and ₹  6,600 for goodwill, which is to be left in the business and he is to receive 1/4th share of the profits .
(b) Provision for Doubtful Debts is to be 2% on Debtors .
(c) Value of Stock to be written down  by 5% .
(d) Freehold Premises are to be taken at valuation of ₹  22,400; Plant and Machinery ₹  11,800; Fixtures and Fittings ₹  1,540 and Vehicles ₹ 800 .
You are required to make necessary adjustments entries in the firm, give Balance Sheet of the new firm as at 1st April, 2018 and also give  the proportions in which the partners will share profits , there being no change in the proportions of Ram and Shyam. 

Answer:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Reserve for D. Debts (27,500 × 2%)

550

Free hold Premises (22,400 – 20,000)

2,400

Stock

705

Loss transferred to

 

Plant and Machinery (13,500 – 11,800)

1,700

  Ram’s Current A/c

717

Fixture and Fittings

210

   Shyam’s Current A/c

598

Vehicles

550

 

 

 

3,715

 

3,715

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

Ram

Shyam

Arjun

Particulars

Ram

Shyam

Arjun

 

 

 

 

Balance b/d

30,000

25,000

 

Balance c/d

30,000

25,000

20,000

Cash

 

 

20,000

 

30,000

25,000

20,000

 

30,000

25,000

20,000

 

 

 

 

 

 

 

 

 

Partners’ Current Accounts

Dr.

 

Cr.

Particulars

Ram

Shyam

Arjun

Particulars

Ram

Shyam

Arjun

Revaluation

717

598

 

Balance b/d

2,000

1,800

 

 

 

 

 

Premium for Goodwill

3,600

3,000

 

Balance c/d

4,883

4,202

 

 

 

 

 

 

5,600

4,800

 

 

5,600

4,800

 

 

 

 

 

 

 

 

 

 

Balance Sheet
as on 1st April, 2018

Liabilities

Amount

Rs

Assets

Amount

Rs

Creditors

19,000

Freehold Premises

22,400

Bills Payable

16,000

Plant and Machinery

11,800

Capital A/cs:

 

Fixture and Fittings

1,540

Ram

30,000

 

Vehicles

800

Shyam

25,000

 

Stock (14,100 – 705)

13,395

Arjun

20,000

75,000

Bills Receivables

13,060

 

 

Debtors

27,500

 

Current A/cs:

 

Less: 2% Reserve for D. Debts

550

26,950

Ram

4,883

 

Bank

1,590

Shyam

4,202

9,085

Cash (950 + 20,000 + 6,600)

27,550

 

 

 

 

 

 

1,19,085

 

1,19,085

 

 

 

 

 

Journal

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

Cash A/c

Dr.

 

26,600

 

To Arjun’s Capital

 

 

20,000

To Premium for Goodwill

 

 

6,600

(Arjun brought Capital and share of goodwill)

 

 

 

 

 

 

 

Premium for Goodwill A/c

Dr.

 

6,600

 

To Ram’s Current A/c

 

 

3,600

To Shyam’s Current A?C

 

 

3,000

(Premium for Goodwill transferred to partners
current account in sacrificing ratio i.e. 6:5)

 

 

 

 

 

 

 



Arjun admitted for share of profit
Let the combined share of all partner after Arjun’s admission be = 1
Combined share of Ram and Shyam after Arjun’s admission

New Ratio = Old Ratio − Combined share of Ram and Shyam



Working Notes

WN1 Distribution of Premium for Goodwill


WN2 Distribution of Loss on Revaluation

Page No 4.98:

Question 69:

X and Y are partners in a firm sharing profits in the ratio of 3 : 2 . Their Balance Sheet as at 31st March , 2018 was as follows:

 

Liabilities

Assets

Outstanding Rent

13,000

Cash

10,000

Creditors

20,000

Sundry Debtors

80,000

 

 

         

 

   Less : Provision for D.D.

4,000

76,000

Workmen Compensation Reserve      5,600    
Capital A/cs:        

  X

50,000

 

Stock










 

 

20,000

  Y

60,000

1,10,000

Profit  and Loss A/c

 

4,000

    Machinery 38,600
       
       

 

1,48,600

 

1,48​,600

 

 

 

 


On 1st April, 2018 , they admitted Z as a partner for 1/6th share on the following terms:

(i) Z brings in ₹  40,000 as his share of Capital but he is unable to bring  any  amount for Goodwill .
(ii) Claim on account of Workmen Compensation is ₹  3,000.
(iii) To write off Bad Debts amounted to ₹  6,000.
(iv) Creditors are to be paid ₹  2,000 more.
(v) There being a claim against the firm for damages , liabilities to the extent of ₹  2,000 should be created.
(vi) Outstanding rent be brought  down to ₹  11,200.
(vii) Goodwill is valued at 112 years' purchase of the average profits of last 3 years, less ₹  12,000 . Profits  for the last 3 years amounted to ₹  10,000 ; ₹  20,000 and ₹  30,000.
Pass journal entries , prepare Capital Accounts and opening Balance Sheet.

Answer:

Journal

Date
2018

Particulars

L.F.

Debit

Amount

(Rs)

Credit

Amount

(Rs)

 

 

 

 

 

 

April 1

Revaluation A/c

Dr.

 

2,000

 

 

   To Provision for Doubtful Debts A/c

 

 

 

2,000

 

(Provision on debtors increased)

 

 

 

 

 

 

 

 

 

 

April 1

Revaluation A/c

Dr.

 

2,000

 

 

   To Creditors A/c

 

 

 

2,000

 

(Creditors  increased)

 

 

 

 

 

 

 

 

 

 

April 1

Revaluation A/c

Dr.

 

2,000

 

 

   To Claim for Damages A/c

 

 

 

2,000

 

(Liability increased)

 

 

 

 

 

 

 

 

 

 

April 1

Outstanding Rent A/c

Dr.

 

1,800

 

 

    To Revaluation A/c

 

 

 

1,800

 

(Liability decreased)

 

 

 

 

 

 

 

 

 

 

April 1

 X’s Capital A/c

Dr

 

2,520

 

 

 Y’s Capital A/c

Dr

 

1,680

 

 

     To Revaluation A/c

 

 

 

4,200

 

(Loss on revaluation transferred to Partners’ Capital A/c)

 

 

 

 

 

 

 

 

 

 

April 1

Workmen Compensation Reserve A/c

Dr.

 

5,600

 

 

      To Workmen Compensation Claim A/c

 

 

 

3,000

 

      To X’s Capital A/c

 

 

 

1,560

 

      To Y’s Capital A/c

 

 

 

1,040

 

(Surplus Workmen Compensation Reserve distributed)

 

 

 

 

 

 

 

 

 

 

April 1

Bank A/c

Dr

 

40,000

 

 

   To Z’s Capital A/c

 

 

 

40,000

 

(Capital  brought in cash)

 

 

 

 

 

 

 

 

 

 

April 1

Z’s Current A/c

Dr.

 

3,000

 

 

      To X’s Capital A/c

 

 

 

1,800

 

      To Y’s Capital A/c

 

 

 

1,200

 

(Goodwill adjusted in the ratio 3:2 )

 

 

 

 

 

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

X

Y

Z

Particulars

X

Y

Z

 

 

 

 

 

 

 

 

Profit & Loss A/c

2,400

1,600

 

Balance b/d

50,000

60,000

 

Revaluation A/c

2,520

1,680

 

Bank A/c

 

 

40,000

Balance c/d

48,440

58,960

40,000

Workmen Compensation Reserve

1,560

1,040

 

 

 

 

 

Z's Current A/c

1,800

1,200

 

 

 

 

 

 

 

 

 

 

53,360

62,240

40,000

 

53,360

62,240

40,000

 

 

 

 

 

 

 

 

                   

 

Balance sheet 

as on 1st April, 2018 after Z’s admission

Liabilities

Amount

Rs

Assets

Amount

Rs

Outstanding Rent

   11,200

Cash

50,000

Workmen Compensation Claim

3,000

Stock

20,000

Creditors

22,000

Machinery

38,600

Claim for Damages

2,000

Z ‘s Current A/c

3,000

Capital

 

Debtors

80,000

 

X

48,440

 

 Less : Provision for D.D.

6,000

74,000

Y

58,960

 

 

 

 

Z

40,000

1,47,400

 

 

 

 

 

 

 

 

1,85,600

 

1,85,600

 

 

 

 

 

Working Notes:

WN1: Calculation of Goodwill

Average Profit =10,000+20,000+30,0003=60,0003=Rs 20,000Goodwill = Average Profits × Number of years' purchase                = (20,000×1.5) - 12,000 = 30,000 - 12,000 = Rs 18,000


WN 2: Calculation of Z’s share of goodwill
Z's share of goodwill = 18,000×16=Rs 3,000



Page No 4.99:

Question 70:

Following is the Balance Sheet of X and Y as at 31st March, 2018 who are partners  in a firm sharing profits and losses in the ratio of 3 : 2 respectively:
 

Liabilities

Amount

Rs

Assets

Amount

Rs

Creditors

45,000

Cash at bank 15,000

General Reserve                     

 

36,000

   
Capital A/cs:     Debtors 60,000  

 X

1,80,000

 

Less: Provision for Doubtful Debts 2,400 57,600

Y

90,000

2,70,000

   

 

 

Patents

 

44,400
Current A/cs:   Investments   24,000

X

30,000

 

Fixed Assets 2,16,000

Y

6,000

 

Goodwill

30,000

 

 

36,000

 

 

 

3,87,000

 

3,87,000

 

 

 

 

 
 Z is admitted as a new partner on 1st April, 2018 on the following terms:
(a) Provision for doubtful debts is to be maintained  at 5% on Debtors.
(b) Outstanding rent amounted to ₹  15,000.
(c) An accrued income of ₹  4,500 does not appear in the books of the firm . It is now to be recorded.
(d)  X takes over the Investments  at an agreed  value of ₹  18,000.
(e) New Profit-sharing Ratio of partners will be 4 : 3 : 2 .
(f)  Z will bring in ₹  60,000 as his capital by cheque.
(g)  Z is to pay an amount equal to his share in firm's goodwill valued at twice the average profits of the last three years which were ₹  90,000 ; ₹  78,000 and ₹  75,000 respectively.
(h) Half of the amount of the goodwill is to be withdrawn by X and Y .  
You are required to pass journal entries , prepare Revaluation Account , Partners'  Capital and Current  Accounts  and the Balance Sheet of the new firm.

Answer:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Prov. for D. Debts

600

Accrued Income

4,500

Outstanding Rent

15,000

Loss transferred to

 

Investments

6,000

  X’s Current A/c

10,260

   

  Y’s Current A/c

6,840

   

 

 

 

21,600

 

21,600

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

X Y Z

Particulars

X Y Z

 

 

 

 

Balance b/d

1,80,000

90,000

 

Balance c/d

1,80,000

90,000

60,000

Bank

 

 

60,000

 

1,80,000 90,000 60,000

 

1,80,000 90,000 60,000

 

 

 

 

 

 

 

 

 

Partners’ Current Accounts

Dr.

 

Cr.

Particulars

X Y Z

Particulars

X Y Z

Revaluation

10,260

6,840

 

Balance b/d

30,000

6,000

 

Goodwill 18,000 12,000   General Reserve 21,600 14,400  

Bank

12,600

5,400

 

Premium for Goodwill

25,200

10,800

 

Investments 18,000            

Balance c/d

17,940 6,960

 

 

 

 

 

 

76,800

31,200

 

 

76,800

31,200

 

 

 

 

 

 

 

 

 

 

Balance Sheet
as on 1st April, 2018

Liabilities

Amount

Rs

Assets

Amount

Rs

Capital A/cs:

 

Patents 44,400

X

1,80,000

 

Fixed Assets 2,16,000

Y

90,000

 

Accrued Income 4,500

Z

60,000

3,30,000

Cash at Bank (15,000 + 96,000 – 18,000) 93,000

Outstanding Rent

15,000

Debtors

60,000

 

Current A/cs:

 

Less: 5% Reserve for D. Debts

3,000

57,000

X

17,940

 

   

Y

6,960

24,900

 

 

Creditors

 

45,000

 

 

 

4,14,900

 

4,14,900

 

 

 

 

 

Journal

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

Bank A/c

Dr.

 

96,000

 

To Z’s Capital

 

 

60,000

To Premium for Goodwill

 

 

36,000

(Z brought Capital and share of goodwill)

 

 

 

 

 

 

 

Premium for Goodwill A/c

Dr.

 

36,000

 

To X’s Current A/c

 

 

25,200

To Y’s Current A/c

 

 

10,800

(Premium for Goodwill transferred to partners
current account in sacrificing ratio i.e. 7:3)

 

 

 

       
X's Current A/c                                            Dr.   12,600  
Y's Current A/c                                            Dr.   5,400  
  To BankA/c     18,000

(Half of goodwill withdrawn by partners)

 

 

 


Working Notes:

WN1 Calculation of Z's Share of Premium for Goodwill

Average Profits=90,000+78,000+75,0003=Rs 81,000Firm's Goodwil=81,000×2=Rs 1,62,000Z's share=1,62,000×29=Rs 36,000Rs 36,000 will be distributed between X and Y in sacrificing ratio.

WN2 Calculation of  Sacrificing Ratio

Sacrificing Ratio=Old Ratio-New RatioX's sacrifice=35-49=745Y's sacrifice=25-39=345Sacrificing Ratio=7 : 3

WN3 Calculation of Share of Premium of Goodwill

X's share=36,000×710=Rs 25,200Y's share=36,000×310=Rs 10,800

WN4 Distribution of Loss on Revaluation


X's share=17,100×35=Rs 10,260Y's share=17,100×25=Rs 6,840



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