A and B are partners in a firm. They share profits and losses as 4/5th and 1/5th respectively. Below is given the Balance Sheet of the firm as at 31st march,2012:
C wants to join the firm from 1st April, 2012. He is willing to pay goodwill premium to partners amounting to Rs 20,000. In return he will be allowed to share 1/5th of the future profits of the firm which he acquires equally from A and B. The following revaluation of the assets is agreed upon : Plant to be reduced to Rs 60,000, stock to Rs 65,000 and debtors to Rs 50,000 (Rs 10,000 proved bad debts). The new partner is to introduce 50% of the adjusted capitals of the existing partners. You are required to give journal entries recording the above transactions. Give also the opening balance sheet of the new firm and new profit sharing ratio.
[Ans: Loss on revaluation Rs 40,000; capital ; A Rs 1,01,000; B Rs 39,000 ; and C Rs 70,000; balance Sheet Total Rs 2,90,000; New profit sharing ratio 7:1:2]
Dear Student
| Journal | ||||
| Date | Particulars | Debit Amount (Rs.) | Credit Amount (Rs.) | |
| Cash A/c | Dr. | 20,000 | ||
| To Premium for Goodwill A/c | 20,000 | |||
| (Being C brought premium for goodwill) | ||||
| Premium for Goodwill A/c | Dr. | 20,000 | ||
| To A's Capital A/c | 10,000 | |||
| To B's Capital A/c | 10,000 | |||
| (Being premium adjusted in sacrificing ratio) | ||||
| Revaluation A/c | Dr. | 40,000 | ||
| To Plant | 15,000 | |||
| To Stock | 15,000 | |||
| To Debtors | 10,000 | |||
| (Being revaluation done) | ||||
| A's Capital A/c (40,000 x 4/5) | Dr. | 32,000 | ||
| B's Capital A/c (40,000 x 1/5) | Dr. | 8,000 | ||
| To Revaluation A/c | 8,000 | |||
| (Being Revaluation loss transferred to Partners capital accounts) | ||||
| Cash A/c | Dr. | 70,000 | ||
| To C's Capital A/c | 70,000 | |||
| (Being capital introduced by C) | ||||
| Balancesheet | |||
| Liabilities | Amount (in Rs) | Assets | Amount (in Rs) |
| Creditors | 65,000 | Plant | 60,000 |
| Bills Payable | 15,000 | Stock | 65,000 |
| Debtors | 50,000 | ||
| Capital | Cash | 115,000 | |
| A | 101,000 | ||
| B | 39,000 | ||
| C | 70,000 | ||
| 290,000 | 290,000 | ||
| Calculation of New PSR | |||
| Particulars | A | C | C |
| Old Ratio | 4/5 | 1/5 | 0 |
| Share of New Partner | 1/5 | ||
| Total share sacrificed by Old partners for new partner | 1/10 | 1/10 | |
| (1/5 x 1/2) | (1/5 x 1/2) | ||
| New Share of A and C | 7/10 | 1/10 | |
| (4/5 - 1/10) | (1/5 - 1/10) | ||
| Therefore New PSR | 7/10 | 1/10 | 1/5 or 2/10 |
| Goodwill Adjustment | ||
| Sacrificing Ratio | 1:1 | |
| Share of Goodwill of C | 20,000 | |
| Distribution in Sacrificing Ratio | ||
| A's Capital A/c | (20,000 x 1/2) | 10,000 |
| B's Capital A/c | (20,000 x 1/2) | 10,000 |
| Partner's Capital A/c | |||||||
| Particulars | A's Capital A/c | B's Capital A/c | C's Capital A/c | Particulars | A's Capital A/c | B's Capital A/c | C's Capital A/c |
| Goodwill | 16,000 | 4,000 | Balance b/d | 115,000 | 35,000 | ||
| Revaluation A/c | 32,000 | 8,000 | Cash | 70,000 | |||
| Premium for Goodwill A/c | 10,000 | 10,000 | |||||
| Reserve | 24,000 | 6,000 | |||||
| Bal C/d | 101,000 | 39,000 | 70,000 | ||||
| 149,000 | 51,000 | 70,000 | 149,000 | 51,000 | 70,000 | ||
| Capital Adjustment | ||
| Combined Capital of A and B after all adjustments | 140,000 | |
| Capital of C = 50% of Combined capital | (1,40,000 x 50%) | 70,000 |
Regards