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#### Page No 4.67:

Old Ratio of A and B = 21 : 9
Let the total share be = 1

#### Page No 4.67:

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 4.67:

Old ratio of A and B = 7 : 3

#### Page No 4.67:

Old Ratio = 1 : 1

Let the total share be = 1

#### Page No 4.67:

(i) Let the total share be = 1

Old ratio = 2 : 3 : 1

W is admitted for $\frac{1}{6}\mathrm{th}$ share

Z’s share = $\frac{1}{6}$

(ii) Old Ratio = 3 : 2 : 5

#### Page No 4.67:

Old ratio = 3 : 2

Let the total share be = 1

Note: When nothing has been specified about the new profit sharing ratio, it has been assumed that the sacrificing ratio will be same as old ratio, i.e. 3 : 2.

#### Page No 4.67:

Sacrificing Share = Old Ratio − New Ratio

#### Page No 4.67:

Old ratio = 3 : 2

#### Page No 4.67:

Profit sharing ratio of A and B = 4 : 1

Thus, Profit sharing ratio of B and C will also be 4 : 1

Let B’s Profit Share = 1

Since, C’s share of profit is 25% of B’s Profit Share

A’s Profit Share is 4 times the B’s Profit Share, thus, A’s Profit Share = 4

New Profit Share = 4 : 1 : 0.25 or 16 : 4 : 1

Sacrificing Ratio = Old Ratio – New Ratio

#### Page No 4.67:

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 4.67:

Sacrificing Ratio = Old Ratio × Surrender Ratio

New Ratio = Old Ratio − Sacrificing Ratio

∴New Profit Sharing Ratio = 75 : 48 : 37

#### Page No 4.67:

Sacrificing Ratio = Old Ratio − Sacrificing Ratio

#### Page No 4.67:

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 4.67:

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 4.67:

Old ratio = 3 : 2

Let the total share be = 1

#### Page No 4.68:

Since goodwill has been paid privately, thus, no entry will be recorded in the books of the firm.

#### Page No 4.68:

Since goodwill has been paid privately, thus, no entry will be recorded in the books of the firm.

#### Page No 4.68:

 Books of …. Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs Bank A/c Dr. 48,000 To Premium for Goodwill A/c 48,000 (Goodwill brought in by the new partner) Premium for Goodwill A/c Dr. 48,000 To X’s Capital A/c 28,800 To Y’s Capital A/c 19,200 (Goodwill distributed among old partners in their sacrificing ratio)

Working Notes:

Let the total share = 1

Z is admitted for $\frac{1}{4}\mathrm{th}$ share

Note: When nothing has been specified about the new profit sharing ratio, it has been assumed that the sacrificing ratio will be same as old ratio, i.e. 3 : 2.

#### Page No 4.68:

 Books of... Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs Bank A/c Dr. 10,000 To Premium for Goodwill A/c 10,000 (Goodwill brought in by the new partner) Premium for Goodwill A/c Dr. 10,000 F’s Capital A/c $\left(40,000×\frac{1}{20}\right)$ Dr. 2,000 To E’s Capital A/c $\left(40,000×\frac{6}{20}\right)$ 12,000 (Goodwill distributed among old partners in their sacrificing ratio)

Working Notes

Sacrificing ratio = Old ratio – New ratio

Old ratio between E and F = 4 : 1

New ratio between E, F and G = 2 : 1 : 1

Value of Firm’s Goodwill = 10,000 × 4 = Rs 40,000

#### Page No 4.68:

 Books of... Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs Bank A/c Dr. 1,10,000 To Premium for Goodwill A/c 30,000 To Z’s Capital A/c 80,000 (Capital and goodwill brought in by the new partner) Premium for Goodwill A/c Dr. 30,000 To X’s Capital A/c 10,000 To Y’s Capital A/c 20,000 (Goodwill distributed among old partners in their sacrificing ratio)
 Partners’ Capital Accounts Dr. Cr. Particulars X Y Z Particulars X Y Z Balance c/d 2,10,000 1,20,000 80,000 Balance b/d 2,00,000 1,00,000 Bank A/c 80,000 Premium for Goodwill A/c 10,000 20,000 2,10,000 1,20,000 80,000 2,10,000 1,20,000 80,000

Working Notes:

Old ratio = 2 : 1

Z is admitted for $\frac{1}{5}\mathrm{th}$ share

New ratio = 3 : 1 : 1

Sacrificing ratio = Old ratio – New Ratio

#### Page No 4.68:

 Books of… Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs Bank A/c Dr. 91,500 To Premium for Goodwill A/c $\left(84,000×\frac{3}{8}\right)$ 31,500 To Samir’s Capital A/c 60,000 (Capital and goodwill brought in by the new partner) Premium for Goodwill A/c Dr. 31,500 Satish’s Capital A/c $\left(84,000×\frac{5}{56}\right)$ Dr. 7,500 To Sushil’s Capital A/c $\left(84,000×\frac{26}{56}\right)$ 39,000 (Goodwill distributed among old partners in their sacrificing ratio)
 Partners’ Capital Accounts Dr. Cr. Particulars Sushil Satish Samir Particulars Sushil Satish Samir Sushil’s Capital A/c 7,500 Balance b/d 48,000 42,000 Balance c/d 87,000 34,500 60,000 Bank A/c 60,000 Premium for Goodwill A/c 31,500 Satish’s Capital A/c 7,500 87,000 42,000 60,000 87,000 42,000 60,000
 Balance Sheet as on April 01, 2016 after Samir’s admission Liabilities Amount Rs Assets Amount Rs Bank Loan 23,000 Bank 97,500 Creditors 55,000 Stock 12,000 Capital A/cs: Plant & Machinery 30,000 Sushil 87,000 Debtors 18,300 Satish 34,500 Less : Provision for Doubtful Debts 300 18,000 Samir 60,000 1,81,500 Building 1,02,000 2,59,500 2,59,500

Working Notes:

Old ratio = 5 : 2

New ratio = 2 : 3 : 3

Sacrificing ratio = Old ratio – New ratio

 Bank Account Dr. Cr. Particulars Amount Rs Particulars Amount Rs Balance b/d 6,000 Balance c/d 97,500 Premium for Goodwill A/c 31,500 Samir’s Capital A/c 60,000 97,500 97,500

#### Page No 4.68:

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 4.69:

 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 4.69:

 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

#### Page No 4.69:

 Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs 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) 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 4.69:

 Books of... Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs Bank A/c Dr. 2,36,000 To Premium for Goodwill A/c 36,000 To Amit’s Capital A/c 2,00,000 (Capital and goodwill brought in by the new partner) Premium for Goodwill A/c Dr. 36,000 To Sachin’s Current A/c 3,600 To Kapil’s Current A/c 32,400 (Goodwill distributed among old partners in their sacrificing ratio) Sachin’s Current A/c Dr. 3,600 Kapil’s Current A/c Dr. 32,400 To Bank A/c 36,000 (Goodwill withdrawn by the old partners)

Working Notes

#### Page No 4.69:

 Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs Cash A/c Dr. 13,000 To C’s Capital A/c 10,000 To Premium for Goodwill A/c 3,000 (C brought capital and Premium for Goodwill) Premium for Goodwill A/c Dr. 3,000 To A’s Capital A/c 3,000 (Premium for Goodwill transferred to A’s Capital) A’s Capital A/c Dr. 3,000 To Cash A/c 3,000 (Premium for Goodwill withdrawn)

Working Notes:

Calculation of Sacrificing Ratio

Here only A is sacrificing his share of profit in favour of C. Hence, A will get the whole amount of premium for goodwill.

#### Page No 4.69:

 Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs Cash A/c Dr. 24,000 To Shyam’s Capital A/c 15,000 To Premium for Goodwill A/c 9,000 (Shyam brought capital and his share of goodwill in cash) Premium for Goodwill A/c Dr. 9,000 To Prabhu’s Capital A/c 4,500 To Sat Kumar’s Capital A/c 4,500 (Goodwill brought by Shyam distributed between Prabhu and Sat Kumar i.e. 1:1) Prabhu’s Capital A/c Dr. 4,500 Sat Kumar’s Capital A/c Dr. 4,500 To Cash A/c 9,000 (Amount of Premium for Goodwill withdrawn by Prabhu and Sat Kumar’s)

Calculation of Future (New) Profit Sharing Ratio

Shyam admitted for share of profit

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

Combined share Phrabhu and Sat Kumar after Shyam’s admission

#### Page No 4.69:

 Books of …. Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs Bank A/c (60% of 25,000) Dr. 15,000 To Premium for Goodwill A/c 15,000 (Goodwill brought in by the new partner) 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 in among old partners in their sacrificing ratio) C’s Current A/c (40% of 25,000) Dr. 10,000 To A’s Capital A/c 6,667 To B’s Capital A/c 3,333 (Amount of goodwill not brought by new partner debited from current account and distributed among old partners in their sacrificing ratio)

Working Notes

Old ratio = 3 : 2

#### Page No 4.69:

 Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs Cash A/c Dr. 10,000 To Premium for Goodwill A/c 10,000 (C brought premium for Goodwill) Premium for Goodwill A/c Dr. 10,000 To A’s Capital A/c 6,667 To B’s Capital A/c 3,333 (Premium for Goodwill distributed in sacrificing Ratio) C’s Current A/c Dr. 6,000 To A’s Capital 4,000 To B’s Capital 2,000 (Out of the share of goodwill Rs 6,000 not brought by C, and charged from his capital account and distributed)

Working Notes:
WN1

WN2

WN3
Distribution of Goodwill charged from C’s Capital Account

#### Page No 4.70:

 Books of …. Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs Bank A/c Dr. 80,000 To C’s Capital A/c 80,000 (Capital brought in by new partner) C’s Current A/c $\left(60,000×\frac{1}{8}\right)$ Dr. 7,500 To A’s Capital A/c 3,750 To B’s Capital A/c 3,750 (Amount of goodwill not brought by new partner debited from his current account and distributed among old partners in their sacrificing ratio)

Working Notes

Old ratio = 5 : 3

New ratio = 9 : 5 : 2

#### Page No 4.70:

 Books of …. 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 by the new partners) E’s Current A/c Dr. 45,000 C’s Capital A/c $\left(5,40,000×\frac{4}{60}\right)$ Dr. 36,000 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 (Amount of goodwill not brought by new partners debited from their capital account and distributed among old partners in their sacrificing ratio)

Working Notes

Old ratio = 5 : 4 : 1

New ratio = 3 : 4 : 2 : 2 : 1

Sacrificing ratio = Old ratio – New ratio

Sacrificing ratio = 15 : 4

#### Page No 4.70:

 Books of …. Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs Bank A/c Dr. 80,000 To Z’s Capital A/c 80,000 (Capital brought in by new partner) Z’s Current A/c Dr. 20,000 To X’s Capital A/c 10,000 To Y’s Capital A/c 10,000 (Amount of goodwill not brought by new partner debited from his capital account and distributed among old partners in their sacrificing ratio)

Since, nothing has been specified about the new profit sharing ratio, thus, it has been assumed that sacrificing ratio is same as old ratio, i.e. 1 : 1.

Working Notes

#### Page No 4.70:

 Books of …. Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs C’s Current A/c Dr. 10,000 To A’s Capital A/c 6,000 To B’s Capital A/c 4,000 (Amount of goodwill not brought by new partner debited from his capital account and distributed among old partners in their sacrificing ratio.)

Since, nothing has been specified about new profit sharing ratio, it is assumed that sacrificing ratio is same as the old ratio.

Working Notes

#### Page No 4.70:

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

Total Capital of the firm after Z’s admission = 50,000 + 50,000 + 40,000 + 80,000

Total Capital of the firm after Z’s admission = Rs 2,20,000

Share of Goodwill of Z: Rs 25,000 $\left(1,00,000×\frac{1}{4}\right)$

 Z’s Current A/c Dr. 25,000 To X’s Capital A/c 12,500 To Y’s Capital A/c 12,500

#### Page No 4.70:

 Books of …. Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs Cash A/c Dr. 50,000 To Premium for Goodwill A/c 50,000 (Goodwill amount brought in by new partner) Premium for Goodwill A/c Dr. 50,000 C’s Current A/c Dr. 40,000 To A’s Capital A/c 45,000 To B’s Capital A/c 45,000 (Amount of goodwill not brought by new partner debited from his capital account and distributed among old partners in their sacrificing ratio) A’s Capital A/c Dr. 80,000 B’s Capital A/c Dr. 80,000 To Goodwill A/c 1,60,000 (Goodwill written-off between old partners)

Note: Since no information about new ratio is given, it is assumed that old partners will sacrifice in their old ratio.

#### Page No 4.70:

 Books of …. Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs Bank A/c Dr. 39,600 To C’s Capital A/c 30,000 To Premium for Goodwill A/c 9,600 (Capital and goodwill brought in by the new partner) Premium for Goodwill A/c Dr. 9,600 To A’s Capital A/c 7,200 To B’s Capital A/c 2,400 (Goodwill distributed among old partners in their sacrificing ratio) A’s Capital A/c Dr. 3,000 B’s Capital A/c Dr. 1,000 To Goodwill A/c 4,000 (Goodwill written off between old partners)

Working Notes

WN 1: Calculation of Sacrificing Ratio

WN 2: Calculation of Goodwill

Total Profit = 15,000 + 12,000 + 18,000 + 19,000 = 64,000

Goodwill = Average profit for 4 years × Numbers of Years’ purchase

Goodwill = 16,000 × 3 = 48,000

#### Page No 4.70:

 Books of …. Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs Bank A/c Dr. 50,000 To W’s Capital A/c 50,000 (Capital amount brought in by new partner) W’s Current A/c Dr. 15,000 To X’s Capital A/c 2,500 To Y’s Capital A/c 5,000 To Z’s Capital A/c 7,500 (Amount of goodwill not brought by new partner debited from his capital account and distributed in old partners in their sacrificing ratio.) X’s Capital A/c Dr. 10,000 Y’s Capital A/c Dr. 20,000 Z’s Capital A/c Dr. 30,000 To Goodwill A/c 60,000 (Old goodwill written off among old partners in their old ratio)

Working Notes

Goodwill = Average profit for 3 years

Total Profit = 62,500 + 70,000 + 92,500 = 2,25,000

Goodwill = Rs 75,000

Note: As no information about new profit sharing ratio is given, it is assumed that old ratio is the sacrificing ratio. Since Z is not bringing any goodwill, his Current A/c will be debited.

#### Page No 4.71:

 Books of …. Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs Bank A/c Dr. 5,15,200 To B’s Capital A/c 4,81,600 To Premium for Goodwill A/c 33,600 (Capital and goodwill brought in by new partner) Premium for Goodwill A/c Dr. 33,600 To A’s Capital A/c 33,600 (Goodwill given to A brought in by B)

Working Notes

Goodwill = Average Profit for 5 Years’ × Numbers of Years’ Purchase

Total Profit = (8,000) + 20,800 + 27,200 + 32,000 + 40,000 = 1,12,000

Calculation of A’s Capital

= Opening Balance of his Capital + 5 Years’ Profit+ A’s Share of Goodwill – Drawings

= 4,00,000 + 1,12,000 + 33,600 – 64,000= 4,81,600

#### Page No 4.71:

(i)

 Books of …. Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs Bank A/c Dr. 20,000 To Premium for Goodwill A/c 20,000 (Goodwill brought in by new partner in cash) Premium for Goodwill A/c Dr. 20,000 To A’s Capital A/c 18,000 To B’s Capital A/c 2,000 (Goodwill distributed among old partners in their sacrificing ratio) A’s Capital A/c Dr. 24,000 B’s Capital A/c Dr. 16,000 To Goodwill A/c 40,000 (Old Goodwill written off among old partners in their old ratio)

Working Notes

Old ratio = 3 : 2

New ratio = 3 : 3 : 2

Sacrificing ratio = Old ratio – New ratio

Sacrificing ratio = 9 : 1

(ii)
 Books of …. Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs Bank A/c Dr. 1,000 To Premium for Goodwill A/c 1,000 (Goodwill brought in by new partner in cash) Premium for Goodwill A/c Dr. 1,000 C’s Current A/c Dr. 1,000 To A’s Capital A/c 1,000 To B’s Capital A/c 1,000 (Goodwill distributed among old partners in their sacrificing ratio) A’s Capital A/c Dr. 3,000 B’s Capital A/c Dr. 3,000 To Goodwill A/c 6,000 (Old Goodwill written off among old partners in their old ratio)

#### Page No 4.71:

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 4.71:

 Books of …. Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs Revaluation A/c Dr. 16,000 To Machinery A/c 16,000 (Machinery value has reduced) Building A/c Dr. 40,000 To Revaluation A/c 40,000 (Building account appreciated) Revaluation A/c Dr. 4,000 To Provision for Doubtful Debts A/c 4,000 (Provision created against debtors) Revaluation A/c Dr. 12,000 To Provision for Warranty Claims A/c 12,000 (Created provision against warranty claims)

#### Page No 4.71:

 Books of …. Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs Investments A/c Dr. 20,000 To Revaluation A/c 20,000 (Investment value increased due to unrecorded investment) Revaluation A/c Dr. 5,000 To Creditors A/c 5,000 (Creditors increased by 5,000 due to unrecorded liability) Sundry Creditors A/c Dr. 1,600 To Revaluation A/c 1,600 (Liability for creditors reduced to the extent of 1,600)

#### Page No 4.71:

 Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs General Reserve A/c Dr. 4,000 Revaluation A/c Dr. 2,000 To A’S Capital A/c 4,500 To B’s Capital A/c 1,500 (Profit on Revaluation and General Reserve distributed between A and B in old ratio)

Working Note:

#### Page No 4.72:

 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 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 4.72:

 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 4.72:

 Books of …. Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs Bank A/c Dr. 2,50,000 To C’s Capital A/c 2,00,000 To Premium for Goodwill A/c 50,000 (Capital and Goodwill brought in by new partner) Premium for Goodwill A/c Dr. 50,000 To A’s Capital A/c 25,000 To B’s Capital A/c 25,000 (Goodwill distributed among old partners in their sacrificing ratio, i.e. 1 : 1) A’s Capital A/c Dr. 25,000 B’s Capital A/c Dr. 25,000 To Cash A/c 50,000 (Goodwill brought in by C is withdrawn by old partners) Revaluation A/c (10,000 – 5,000) Dr. 5,000 To Provision for Doubtful Debts 5,000 (Created provision against debtors) Revaluation A/c Dr. 32,500 To Machinery A/c 20,000 To Furniture A/c 12,500 (Value of machinery and furniture has depreciated) Stock A/c Dr. 30,000 To Revaluation A/c 30,000 (Value of stock has reduced) Building A/c Dr. 1,47,000 To Revaluation A/c 1,47,000 (Value of building has appreciated by 20%) Investments A/c Dr. 20,000 To Revaluation A/c 20,000 (Value of investments has increased due to unrecorded investments) Revaluation A/c Dr. 1,59,500 To A’s Capital A/c 79,750 To B’s Capital A/c 79,750 (Revaluation profit distributed among old partners in their old ratio)

 Balance Sheet as on March 31, 2016 after C’s admission Liabilities Amount Rs Assets Amount Rs Sundry Creditors 6,50,000 Sundry Debtors 2,00,000 Outstanding Expenses 30,000 Less: Provision for Doubtful debts 10,000 1,90,000 Capital A/c: Stock 2,30,000 A 6,79,750 Furniture (1,00,000 – 12,500) 87,500 B 4,79,750 Investments 20,000 C 2,00,000 13,59,500 Machinery (1,80,000 – 20,000) 1,60,000 Building (7,35,000 + 1,47,000) 8,82,000 Cash at Bank 4,70,000 20,39,500 20,39,500

Working Notes
 Partners’ Capital Accounts Dr. Cr. Particulars A B C Particulars A B C Bank A/c 25,000 25,000 Balance b/d 6,00,000 4,00,000 Bank A/c 2,00,000 Revaluation A/c 79,750 79,750 Balance c/d 6,79,750 4,79,750 2,00,000 Premium for Goodwill A/c 25,000 25,000 7,04,750 5,04,750 2,00,000 7,04,750 5,04,750 2,00,000

 Cash at Bank Account Dr. Cr. Particulars Amount Rs Particulars Amount Rs Balance b/d 2,70,000 A’s Capital A/c 25,000 C’s Capital A/c 2,00,000 B’s Capital A/c 25,000 Premium for Goodwill A/c 50,000 Balance c/d 4,70,000 5,20,000 5,20,000

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 Revaluation Account Dr. Cr. Particulars Amount Rs Particulars Amount Rs Stock A/c 6,250 Provision for Doubtful Debts A/c 18,750 Plant and Machinery A/c 21,250 Loss transferred to: X’s Capital A/c 5,250 Y’s Capital A/c 3,500 8,750 27,500 27,500

 Cash at Bank Account Dr. Cr. Particulars Amount Rs Particulars Amount Rs Balance b/d 1,50,000 Balance c/d 4,89,250 Premium for Goodwill A/c 89,250 Samir’s Capital A/c 2,50,000 4,89,250 4,89,250

 Partners’ Capital Accounts Dr. Cr. Particulars X Y Z Particulars X Y Z Revaluation A/c 5,250 3,500 Balance b/d 3,75,000 1,87,500 Bank A/c 2,50,000 Balance c/d 4,14,375 2,28,625 2,50,000 Premium for Goodwill A/c 44,625 44,625 4,19,625 2,32,125 2,50,000 4,19,625 2,32,125 2,50,000

 Balance Sheet as on April 01, 2016 after Z’s admission Liabilities Amount Rs Assets Amount Rs Sundry Creditors 1,87,500 Debtors 2,50,000 Bills Payable 1,00,000 Less: Provision for Doubtful Debts 6,250 2,43,750 Outstanding Rent 25,000 Stock (62,500 – 6,250) 56,250 Capital A/cs: Plant and Machinery (4,25,000 – 21,250) 4,03,750 X 4,14,375 Prepaid Expenses 12,500 Y 2,28,625 Cash at Bank 4,89,250 Z 2,50,000 8,93,000 12,05,500 12,05,500

Working Notes

WN 1:Calculation of Sacrificing Ratio

WN 2:Calculation of Hidden Goodwill

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 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