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Page No 5.100:

Question 74:

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, 2019 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 ₹ 30,000 as capital for 1/4th share. He also brings â‚¹ 10,000 for his share of goodwill.
(b) Part of the Stock which had been included at cost of â‚¹ 2,000 had been badly damaged in storage and could  only expect to realise â‚¹ 400.
(c) Bank charges had been overlooked and amounted to â‚¹ 200 for the year 2018-19.
(d) Depreciation on Building of â‚¹ 3,000 had been omitted for the year 2018-19.
(e) A credit for goods for â‚¹ 800 had been omitted from both purchases and creditors although the goods had been correctly included in Stock.
(f) An expense of â‚¹ 1,200 for insurance premium was debited in the Profit and Loss Account of 2018-19 but â‚¹ 600 of this are related to the period after 31st March, 2019.

Answer:

Revaluation Account

Dr.

 

 

Cr.

Particulars

Amount

(₹)

Particulars

Amount

(₹)

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, 2019 after C’s admission

Liabilities

Amount

(₹)

Assets

Amount

(₹)

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

(₹)

Particulars

Amount

(₹)

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 5.100:

Question 75:

Divya, Yasmin and Fatima are partners in a firm, sharing profits and losses in 11 : 7 : 2 respectively. The Balance Sheet of the firm on 31st March, 2018 was as follows:

BALANCE SHEET as at 31st March, 2018

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Sundry Creditors

70,000

Factory Building 7,35,000
Public Deposits 1,19,000 Plant and Machinery 1,80,000
Reserve Fund 90,000 Furniture 2,60,000
Outstanding Expenses 10,000 Stock 1,45,000
Capital A/cs:

 

 Debtors

1,50,000

 

Divya 5,10,000

 

 Less: Provision

(30,000)

1,20,000

Yasmin 3,00,000   Cash at Bank 1,59,000
Fatima

5,00,000

13,10,000

 

 

 

15,99,000

 

15,99,000

 

 

 

 


On 1st April, 2018, Aditya is admitted as a partner for one-fifth share in the profits with a capital of â‚¹ 4,50,000 and necessary amount for his share of goodwill on the following terms:
(a) Furniture of â‚¹ 2,40,000 were to be taken over Divya, Yasmin and Fatima equally.
(b) A creditor of â‚¹ 7,000 not recorded in books to be taken into account.
(c) Goodwill of the firm is to be valued at 2.5 years' purchase of average profits of last two years. The profit of the last three years were:
2015-16 − â‚¹ 6,00,000; 2016-17 − â‚¹ 2,00,000; 2017-18 − â‚¹ 6,00,000.
(d) At time of Aditya's admission. Yasmin also brought in â‚¹ 50,000 as fresh capital.
(e) Plant and Machinery is re-valued to â‚¹ 2,00,000 and expenses outstanding were brought down to â‚¹ 9,000.
Prepare Revaluation Account, Partners Capital Account and the Balance Sheet of the reconstituted firm.

Answer:

In the books of Divya, Yasmin, Fatima and Aditya

Dr.

Revaluation A/c

Cr.

Particulars

Amount

(₹)

Particulars

Amount

(₹)

To Sundry Creditors A/c

7,000

By Plant and Machinery A/c

20,000

To Profit Transferred to:

 

By Outstanding Expenses A/c

1,000

Divya’s Capital A/c

7,700

 

 

 

  Yasmin’s Capital A/c

4,900

 

 

 

  Fatima’s Capital A/c

1,400

14,000

 

 

 

 

 

 

 

21,000

 

21,000

 

 

 

 

 
Dr.

Partner’s Capital A/c

Cr.

Particulars

Divya

(₹)

Yasmin

(₹)

Fatima

(₹)

Aditya

(₹)

Particulars

Divya

(₹)

Yasmin

(₹)

Fatima

(₹)

Aditya

(₹)

To Furniture A/c     

80,000

80,000

80,000

 

By balance b/d

5,10,000

3,00,000

5,00,000

 

 

 

 

 

 

By Bank A/c

 

50,000

 

4,50,000

To balance c/d

5,97,200

3,76,400

4,50,400

4,50,000

By Premium

1,10,000

70,000

20,000

 

 

 

 

 

 

for Goodwill A/c

 

 

 

 

 

 

 

 

 

By Reserve Fund A/c

49,500

31,500

9,000

 

 

 

 

 

 

By Revaluation A/c

7,700

4,900

1,400

 

 

 

 

 

 

 

 

 

 

 

 

6,77,200

4,56,400

5,30,400

4,50,000

 

6,77,200

4,56,400

5,30,400

4,50,000

 

 

 

 

 

 

 

 

 

 

 
Working Notes:

Calculation of Goodwill brought in by Aditya
 
Average Profits = (Normal profits from 31st March, 2017 to 31st March, 2018)/2
  = ₹ (2,00,000 + 6,00,000)/2= ₹ 4,00,000
Goodwill = Average Profits × No. of years of Purchase
  = ₹ (4,00,000 × 2.5) = ₹ 10,00,000
Goodwill brought in by Aditya = ₹ (10,00,000 × 1/5) = ₹ 2,00,000
           

Balance Sheet

as at 31st March, 2019

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Capitals:

 

Factory Building

7,35,000

  Divya

5,97,200

 

Plant and Machinery

2,00,000

  Yasmin

3,76,400

 

Furniture

20,000

  Fatima

4,50,400

 

Stock

1,45,000

  Aditya

4,50,000

18,74,000

Debtors

1,50,000

 

Sundry Creditors

77,000

  Less: Provision (30,000)

1,20,000

Public Deposits

1,19,000

Cash at Bank

8,59,000

Outstanding Expenses           

9,000

(1,59,000 + 2,00,000 + 50,000 + 4,50,000)

 

 

 

 

 

 

20,79,000

 

20,79,000

 

 

 

 



Page No 5.101:

Question 76:

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, 2019 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 â‚¹ 25,000 towards his capital.
(b) C also brings in â‚¹ 5,000 for 1/5th share of goodwill.
(c) Stock is undervalued by 10%.
(d) Creditors include a liability of â‚¹ 4,000, which has been decided by the court at â‚¹ 3,200.
(e) In regard to the Debtors, the following Debts proved Bad or Doubtful−
₹ 2,000 due from X−bad to the full extent;
₹ 4,000 due from Y−insolvent, 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

(₹)

Particulars

Amount

(₹)

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, 2019 after C’s admission

Liabilities

Amount

(₹)

Assets

Amount

(₹)

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 5.101:

Question 77:

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, 2019
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, 2019, they admit D as a partner on the following conditions:
(a) D will bring in â‚¹ 1,20,000 as his capital and also â‚¹ 30,000 as goodwill premium for a quarter of the share in the future profits/losses of the firm.
(b) 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 â‚¹ 3,000 in full settlement of his dues.
(d) 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.

Answer:

Revaluation Account

Dr.

 

 

Cr.

Particulars

Amount

(₹)

Particulars

Amount

(₹)

 

 

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, 2019, after D’s admission

Liabilities

Amount

(₹)

Assets

Amount

(₹)

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

(₹)

Credit

Amount

(₹)

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 5.102:

Question 78:

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, 2019:

 
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, 2019 on the following terms:
(a) C is to pay â‚¹ 20,000 as capital for 1/4th share. He also pays â‚¹ 5,000 as premium for goodwill.
(b) Debtors amounted to â‚¹ 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 â‚¹ 300 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 â‚¹ 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

(₹)

Particulars

Amount

(₹)

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, 2019 after C’s admission

Liabilities

Amount

(₹)

Assets

Amount

(₹)

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

(₹)

Particulars

Amount

(₹)

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 5.102:

Question 79:

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, 2019 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, 2019 on the following terms:
(a) Goodwill is to be valued at â‚¹ 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 â‚¹ 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.

Answer:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

(₹)

Particulars

Amount

(₹)

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, 2019 after Z’s admission

Liabilities

Amount

(₹)

Assets

Amount

(₹)

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

(₹)

Credit

Amount

(₹)

 

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 5.103:

Question 80:

Deepika and Rajshree are partners in a firm sharing profits and losses in the ratio of 3 : 2. On 31st March, 2019 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  
Deepika 48,000   Less: Provision for Doubtful Debts  800  
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 1st April, 2019 the partners 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 â‚¹ 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 â‚¹ 60,000, Stock at â‚¹ 40,000 and the Provision for Doubtful Debts is to be maintained at â‚¹ 4,000. Value of Land and Building has appreciated by 20%. Furniture has been depreciated by 10%.
(e) There is an additional liability of â‚¹ 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

(₹)

Particulars

Amount

(₹)

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, 2019 after Anshu’s admission

Liabilities

Amount

(₹)

Assets

Amount

(₹)

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 5.104:

Question 81:

Atul and Amit are partners sharing profits in the ratio of 3 : 2. Their Balance Sheet as at 31st March, 2019 is as follows:

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Capital A/cs:

 

Plant and Machinery 1,80,000
Atul

1,00,000

 

Furniture 30,000
Amit

1,00,000

2,00,000

Computer

10,000

Current A/cs:

 

 

Stock 40,000
Atul 70,000   Debtors 50,000
Amit

50,000

1,20,000

Bills Receivable

10,000

Creditors   40,000 Cash 10,000
Bills Payable   10,000 Bank 40,000
 

3,70,000

 

3,70,000

 

 

 

 


​Abhay is admitted as a partner for 1/4th share on 1st April, 2019 on the following terms:
(a) Abhay is to bring â‚¹ 65,000 as capital after adjusting amount due to him included in creditors and his share of Goodwill.
(b) â‚¹ 10,000 included in creditors is payable to Abhay which is to be transferred to his Capital Account.
(c) Furniture is to reduced by â‚¹ 3,000 and Plant and Machinery is to be increased to â‚¹ 1,98,000.
(d) Stock is overvalued by â‚¹ 4,000.
(e) A Provision for Doubtful Debts is to be created @ 5%.
(f) Goodwill is to be valued at 2 years' purchase of average profit for four years. Profits of four years ended 31st March were as follows: 2018-19 − â‚¹ 25,000, 2017-18 − â‚¹ 10,000, 2016-17 − â‚¹ 2,500, and 2015-16 − â‚¹ 2,500.
Pass the Journal entries for the above arrangement.

Answer:

In the books of the Atul, Amit and Abhay

Journal

Date

Particulars

 

L.F.

Debit
Amount

(₹)

Credit
Amount

(₹)

2019

 

 

 

 

 

April 01

Creditors A/c

Dr.

 

10,000

 

 

  To Abhay’s Capital A/c

 

 

 

10,000

 

(Being amount due to Abhay transferred to his Capital A/c)

 

 

 

 

 

 

 

 

 

 

 

Cash A/c

Dr.

 

60,000

 

 

  To Abhay’s Capital A/c

 

 

 

55,000

 

  To Premium for Goodwill A/c (WN1)

 

 

 

5,000

 

(Being Capital and goodwill paid by the new partner)

 

 

 

 

 

 

 

 

 

 

 

Premium for Goodwill A/c

Dr.

 

5,000

 

 

  To Atul’s Capital A/c

 

 

 

3,000

 

  To Amit’s Capital A/c

 

 

 

2,000

 

(Being premium for goodwill adjusted in 3:2)

 

 

 

 

 

 

 

 

 

 

 

Revaluation A/c

Dr.

 

9,500

 

 

  To Furniture A/c

 

 

 

3,000

 

  To Stock A/c

 

 

 

4,000

 

  To Provision for Doubtful Debts A/c

 

 

 

2,500

 

(Being assets revalued and liabilities reassessed)

 

 

 

 

 

 

 

 

 

 

 

Plant & Machinery A/c

Dr.

 

18,000

 

 

  To Revaluation A/c

 

 

 

18,000

 

(Being appreciation in plant & machinery provided for)

 

 

 

 

 

 

 

 

 

 

 

Revaluation A/c (WN2)

Dr.

 

8,500

 

 

  To Atul’s Capital A/c

 

 

 

5,100

 

  To Amit’s Capital A/c

 

 

 

3,400

  (Being revaluation profit transferred to partner’s capital A/c)

 

 

 

 

   

 

 

 

 


Working Notes:

1. Calculation of Goodwill brought in by Abhay:

Average Profits = (Normal profits from 31st March, 2016 to 31st March, 2019)/2
  = ₹ (25,000 + 10,000 + 2,500 + 2,500)/4= ₹ 10,000
Goodwill = Average Profits × No. of years of Purchase
  = ₹(10,000 × 2) = ₹ 20,000
Goodwill brought in by Abhay = ₹(20,000 × 1/4) = ₹ 5,000

2. Calculation of Revaluation Profit/Loss:
Debit side total = ₹ (3,000 + 4,000 + 2,500) = ₹ 9,500 Credit side total= ₹ 18,000 Gain on Revaluation = ₹ (18,000 – 9,500) = ₹ 8,500

Page No 5.104:

Question 82:

Yogesh and Naresh are partners sharing profits in the ratio of 3 : 2. They admit Ramesh for 1/3rd share on 1st April, 2019 and also decide to share future profits equally. Balance Sheet of the firm as at 31st March, 2019 was as follows:

Liabilities Amount (₹) Assets Amount (₹)
Capital A/cs:   Land 4,00,000
Yogesh 5,00,000   Building   4,00,000
Naresh 5,00,000 10,00,000 Furniture 50,000
Current A/cs:   Computers   1,00,000
Yogesh 1,10,000   Stock 1,50,000
Naresh 90,000 2,00,000 Sundry Debtors 2,10,000  
Employees' Provident Fund   25,000 Less: Provision for Doubtful Debts 10,000 2,00,000
Workmen Compensation Reserve   1,00,000 Cash   10,000
Sundry Creditors   75,000 Bank   70,000
Expenses Payable   10,000 Advertisement Suspense 30,000
  14,10,000   14,10,000
       

They admitted Ramesh on the following terms:
(a) He will bring â‚¹ 5,00,000 as his capital.
(b) His share of goodwill is valued at â‚¹ 1,00,000 but he is unable to bring cash for his share of goodwill. It is agreed to debit the amount to his Current Account.
(c) Value of Land and Building is to be appreciated by â‚¹ 40,000 each.
(d) Value of Furniture to be reduced to â‚¹ 40,000.
(e) Provision for Doubtful Debts to be increased to 10%.
(f) A liability for damages of â‚¹ 10,000 is to be created.
Pass the Journal entries on admission of Ramesh and prepare Revaluation Account.

Answer:

In the books of the Yogesh, Naresh and Ramesh

Journal

Date

Particulars

 

L.F.

Debit
Amount

(₹)

Credit
Amount

(₹)

2019

 

 

 

 

 

April 01

Cash A/c

Dr.

 

5,00,000

 

 

  To Ramesh’s Capital A/c

 

 

 

5,00,000

 

(Being Capital brought in by the new partner)

 

 

 

 

 

 

 

 

 

 

 

Ramesh’s Current A/c

Dr.

 

1,00,000

 

 

  To Yogesh’s Current A/c (1,00,000 × 4/5)

 

 

 

80,000

 

  To Naresh’s Current  A/c (1,00,000 × 1/5)

 

 

 

20,000

 

(Being premium for goodwill adjusted in 4 : 1)

 

 

 

 

 

 

 

 

 

 

 

Revaluation A/c

Dr.

 

31,000

 

 

  To Provision for Doubtful Debts A/c

 

 

 

11,000

 

  To Liability for damages A/c

 

 

 

10,000

 

  To Furniture A/c

 

 

 

10,000

 

(Being assets revalued and liabilities reassessed)

 

 

 

 

 

 

 

 

 

 

 

Land A/c

Dr.

 

40,000

 

 

Building A/c

Dr.

 

40,000

 

 

  To Revaluation A/c

 

 

 

80,000

 

(Being appreciation in land and building provided for)

 

 

 

 

 

 

 

 

 

 

 

Revaluation A/c (WN2)

Dr.

 

49,000

 

 

  To Yogesh’s Current A/c

 

 

 

29,400

 

  To Naresh’s Current  A/c

 

 

 

19,600

 

(Being revaluation profit transferred to partner’s current A/c)

 

 

 

 

           

 

Workmen Compensation Reserve A/c

Dr.

 

1,00,000

 

 

  To Yogesh’s Current A/c

 

 

 

60,000

 

  To Naresh’s Current A/c

 

 

 

40,000

 

(Being workmen compensation reserve distributed)

 

 

 

 

 

 

 

 

 

 

 

Yogesh’s Current A/c

Dr.

 

18,000

 

 

Naresh’s Current A/c

Dr.

 

12,000

 

 

  To Advertisement Suspense A/c

 

 

 

30,000

 

(Being accumulated loss written off)

 

 

 

 


Working Notes:

1. Calculation of new profit-sharing ratio:
 

Particulars

Yogesh

Gopal

Old Ratio

3/5

2/5

New Ratio

1/3

1/3

Gain/Sacrifice

(3/5 – 1/3)= 4/15 (Sacrifice)

(2/5 – 1/3)= 1/15 (Sacrifice)

Sacrificing Ratio

4:1


2. Calculation of Revaluation Profit/Loss:
Debit side total= ₹ (11,000 + 10,000 + 10,000) = ₹ 31,000
Credit side total = ₹ 80,000

Gain on Revaluation= ₹ (80,000 – 31,000) = ₹ 49,000

Dr.

Revaluation A/c

Cr.

Particulars

Amount

(₹)

Particulars

Amount

(₹)

To Provision for Doubtful debt A/c

11,000

By Land A/c

40,000

To Liability for Damages A/c

10,000

By Building A/c                         

40,000

To Furniture A/c

10,000

 

 

To Profit transferred to:

 

 

 

  Yogesh’s Current A/c

29,400

 

 

 

   Naresh’s Current A/c

19,600

49,000

 

 

 

 

 

 

 

80,000

 

80,000

 

 

 

 



Page No 5.105:

Question 83:

Balance Sheet of Ram and Shyam who shares profits in the ratio of their capitals as at 31st March, 2019 is:
 

 
Liabilities Amount
(₹)
Assets Amount
(₹)
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, 2019, they admitted Arjun into partnership on the following terms:
(a) Arjun to bring ₹ 20,000 as capital and â‚¹ 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 a value of â‚¹ 22,400; Plant and Machinery â‚¹ 11,800; Fixtures and Fittings â‚¹ 1,540 and Vehicles â‚¹ 800.
You are required to make necessary adjustments entries in the firm, give Balance Sheet of the new firm as at 1st April, 2019 and also determine the ratio in which the partners will share profits, there being no change in the ratio of Ram and Shyam. 

Answer:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

(₹)

Particulars

Amount

(₹)

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, 2019

Liabilities

Amount

(₹)

Assets

Amount

(₹)

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

(₹)

Credit

Amount

(₹)

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 5.105:

Question 84:

Following is the Balance Sheet of X and Y as at 31st March, 2019 who are partners in a firm sharing profits and losses in the ratio of 3 : 2 respectively:
 

Liabilities Amount
(₹)
Assets Amount (₹)
Creditors 45,000 Cash at Bank 15,000
General Reserve   36,000 Debtors 60,000  
Capital A/cs:     Less: Provision for Doubtful Debts 2,400 57,600
X 1,80,000   Patents   44,400
Y 90,000 2,70,000 Investments 24,000
Current A/cs:   Fixed Assets   2,16,000
X 30,000   Goodwill 30,000
Y 6,000 36,000    
         
  3,87,000   3,87,000
       

Z is admitted as a new partner on 1st April, 2019 on the following terms:
(a) Provision for doubtful debts is to be maintained at 5% on Debtors.
(b) Outstanding rent amounted to â‚¹ 15,000.
(c) An accrued income of â‚¹ 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 â‚¹ 18,000.
(e) New Profit-sharing Ratio of partners will be 4 : 3 : 2.
(f) Z will bring in â‚¹ 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 profit of the last three years which were â‚¹ 90,000; â‚¹ 78,000 and â‚¹ 75,000 respectively.
(h) Half of the amount of 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

(₹)

Particulars

Amount

(₹)

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