Double Entry Book Keeping Ts Grewal 2016 for Class 12 Commerce Accountancy Chapter 1

Answer:

Old Ratio of A and B = 21 : 9
Let the total share be = 1
$\begin{array}{l} C' s Share of Profit = \frac{9}{21} \\ Remaining Share = 1 - \frac{9}{21} = \frac{12}{21} \\ A' s Share = \frac{12}{21} \times \frac{21}{30} = \frac{84}{210} \\ B' s Share = \frac{12}{21} \times \frac{9}{30} = \frac{36}{210} \\ C' s Share = \frac{9}{21} or \frac{90}{210} \\ New Profit Share = 84 : 36 : 90 or 14 : 6 : 15 \end{array}$

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

Answer:

Old ratio of A and B = 7 : 3

$\begin{array}{l} A' s Share = \frac{7}{10} \\ A surrenders in favour of C = \frac{7}{10} \times \frac{1}{7} = \frac{1}{10} \\ A' s New Share = \frac{7}{10} - \frac{1}{10} = \frac{6}{10} \end{array}$
$\begin{array}{l} B' s share = \frac{3}{10} \\ B surrenders in favour of C = \frac{3}{10} \times \frac{1}{3} = \frac{1}{10} \\ B' s New share = \frac{3}{10} - \frac{1}{10} = \frac{2}{10} \\ C' s share = \frac{1}{10} + \frac{1}{10} = \frac{2}{10} \\ New Profit Ratio = 6 : 2 : 2 or 3 : 1 : 1 \end{array}$

Answer:

Old Ratio = 1 : 1

Let the total share be = 1

$\begin{array}{l} Share of Black = \frac{1}{4} or \frac{5}{20} \\ Remaining Share = 1 - \frac{1}{4} = \frac{3}{4} \\ Red' s Share = \frac{3}{5} \times \frac{3}{4} = \frac{9}{20} \\ White' s Share = \frac{2}{5} \times \frac{3}{4} = \frac{6}{20} \\ New Profit Sharing Ratio = 9 : 6 : 5 \end{array}$

Answer:

(i) Let the total share be = 1

Old ratio = 2 : 3 : 1

W is admitted for

\frac{1}{6} th

share

Z’s share =

\frac{1}{6}

\begin{array}{l} Total Share of Z and W = \frac{1}{6} + \frac{1}{6} = \frac{1}{3} \\ Remaining Share = 1 - \frac{1}{3} = \frac{2}{3} \\ Old Ratio between X and Y = 2 : 3 \\ X' s New Share = \frac{2}{3} \times \frac{2}{5} = \frac{4}{15} \\ Y' s New Share = \frac{2}{3} \times \frac{3}{5} = \frac{6}{15} \\ Z' s Share = \frac{1}{6} or \frac{5}{30} \\ W' s Share = \frac{1}{6} or \frac{5}{30} \\ New Profit share ratio = 8 : 12 : 5 : 5 \end{array}

(ii) Old Ratio = 3 : 2 : 5

\begin{array}{l} A sacrifices = \frac{1}{5} \times \frac{1}{5} = \frac{1}{25} \\ A' s New Share = \frac{3}{10} - \frac{1}{25} = \frac{13}{50} \\ B sacrifices = \frac{1}{5} \times \frac{1}{5} = \frac{1}{25} \\ B' s New Share = \frac{2}{10} - \frac{1}{25} = \frac{8}{50} \\ C sacrifices = \frac{1}{5} \times \frac{3}{5} = \frac{3}{25} \\ C' s New Share = \frac{5}{10} - \frac{3}{25} = \frac{19}{50} \\ D' s Profit Share = \frac{1}{5} or \frac{10}{50} \\ New Profit Sharing ratio = 13 : 8 : 19 : 10 \end{array}

Answer:

Old ratio = 3 : 2

Let the total share be = 1

$\begin{array}{l} Z' s Share of Profit = \frac{1}{5} \\ Remaining Share = 1 - \frac{1}{5} = \frac{4}{5} \\ X' s Share = \frac{4}{5} \times \frac{3}{5} = \frac{12}{25} \\ Y' s Share = \frac{4}{5} \times \frac{2}{5} = \frac{8}{25} \\ Z' s Share = \frac{1}{5} or \frac{5}{25} \\ New Profit Share = 12 : 8 : 5 \\ Sacrificing ratio = 3 : 2 \end{array}$

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.

Answer:

Sacrificing Share = Old Ratio − New Ratio

Answer:

Old ratio = 3 : 2
$\begin{array}{l} Share acquired from X = \frac{2}{7} \\ X' s New Share = \frac{3}{5} - \frac{2}{7} = \frac{11}{35} \\ Share acquired from Y = \frac{1}{7} \\ Y' s New Share = \frac{2}{5} - \frac{1}{7} = \frac{9}{35} \\ Z' s Profit Share = \frac{2}{7} + \frac{1}{7} = \frac{3}{7} or \frac{15}{35} \\ New Profit Sharing Ratio = 11 : 9 : 15 \end{array}$

$\begin{array}{l} Sacrificing Ratio = Old Ratio - New Ratio \\ Sacrifice made by X = \frac{3}{5} - \frac{11}{35} = \frac{10}{35} \\ Sacrifice made by Y = \frac{2}{5} - \frac{9}{35} = \frac{5}{35} \\ Sacrificing Ratio = 10 : 5 or 2 : 1 \end{array}$

Answer:

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

$∴ C' s Profit Share = \frac{1}{4} \times 1 = 0.25$

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

$\begin{array}{l} A = \frac{4}{5} - \frac{16}{21} = \frac{68}{105} \\ B = \frac{1}{5} - \frac{4}{21} = \frac{17}{105} \\ Sacrificing Ratio = 68 : 17 or 4 : 1 \end{array}$

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

Answer:

Sacrificing Ratio = Old Ratio × Surrender Ratio

New Ratio = Old Ratio − Sacrificing Ratio

∴New Profit Sharing Ratio = 75 : 48 : 37

Answer:

Sacrificing Ratio = Old Ratio − 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

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

Answer:

Old ratio = 3 : 2

Let the total share be = 1

$\begin{array}{l} Remaining Share = 1 - \frac{1}{4} = \frac{3}{4} \\ A and B decided to share future profits and losses in the ratio of 1 : 1 \\ A' s Share = \frac{1}{2} \times \frac{3}{4} = \frac{3}{8} \\ B' s Share = \frac{1}{2} \times \frac{3}{4} = \frac{3}{8} \\ C' s Share = \frac{1}{4} or \frac{2}{8} \\ New Profit Sharing Ratio = 3 : 3 : 2 \\ Sacrificing Ratio = Old Ratio - New Ratio \\ Sacrifice made by A = \frac{3}{5} - \frac{3}{8} = \frac{9}{40} \\ Sacrifice made by B = \frac{2}{5} - \frac{3}{8} = \frac{1}{40} \\ Sacrificing ratio of A and B = 9 : 1 \end{array}$

Answer:

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

Answer:

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

Answer:

	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} th

share

\begin{array}{l} Remaining share = 1 - \frac{1}{4} = \frac{3}{4} \\ Old ratio of X and Y = 3 : 2 \\ X' s new share = \frac{3}{5} \times \frac{3}{4} = \frac{9}{20} \\ Y' s share = \frac{2}{5} \times \frac{3}{4} = \frac{6}{20} \\ Z' s share = \frac{1}{4} or \frac{5}{20} \\ New profit sharing ratio = 9 : 6 : 5 \\ Sacrificing ratio of X and Y = 3 : 2 \end{array}

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.

Answer:

	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 $(40, 000 \times \frac{1}{20})$	Dr.		2,000
		To E’s Capital A/c $(40, 000 \times \frac{6}{20})$				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

\begin{array}{l} Sacrifice made by E = \frac{4}{5} - \frac{2}{4} = \frac{6}{20} \\ Sacrifice made by F = \frac{1}{5} - \frac{1}{4} = - \frac{1}{20} (gain) \end{array}

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

Answer:

	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} th

share

New ratio = 3 : 1 : 1

Sacrificing ratio = Old ratio – New Ratio

\begin{array}{l} Sacrifice made by X = \frac{2}{3} - \frac{3}{5} = \frac{1}{15} \\ Sacrifice made by Y = \frac{1}{3} - \frac{1}{5} = \frac{2}{15} \\ Sacrificing ratio = 1 : 2 \end{array}

Answer:

	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 $(84, 000 \times \frac{3}{8})$				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 $(84, 000 \times \frac{5}{56})$	Dr.		7,500
		To Sushil’s Capital A/c $(84, 000 \times \frac{26}{56})$				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

\begin{array}{l} Sacrifice made by Sushil = \frac{5}{7} - \frac{2}{8} = \frac{26}{56} \\ Sacrifice made by Satish = \frac{2}{7} - \frac{3}{8} = - \frac{5}{56} (gain) \end{array}

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

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

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

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-

Answer:

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

Answer:

	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

$\begin{array}{l} Old ratio = 2 : 3 \\ New ratio = 3 : 3 : 2 \\ Sacrificing ratio = Old ratio - New ratio \\ Sacrifice made by Sachin = \frac{2}{5} - \frac{3}{8} = \frac{1}{40} \\ Sacrifice made by Kapil = \frac{3}{5} - \frac{3}{8} = \frac{9}{40} \\ Sacrificing ratio = 1 : 9 \end{array}$

Answer:

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.

Answer:

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

Answer:

	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

$\begin{array}{l} A' s new share = \frac{3}{5} - \frac{1}{6} = \frac{13}{30} or \frac{26}{60} \\ B' s new share = \frac{2}{5} - \frac{1}{12} = \frac{19}{60} \\ C' s new share = \frac{1}{4} or \frac{15}{60} \\ New profit sharing ratio = 26 : 19 : 15 \\ Sacrificing ratio = Old ratio - New ratio \\ Sacrifice made by A = \frac{3}{5} - \frac{26}{60} = \frac{10}{60} \\ Sacrifice made by B = \frac{2}{5} - \frac{19}{60} = \frac{5}{60} \\ Sacrificing ratio = 10 : 5 or 2 : 1 \end{array}$

Answer:

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
Distribution of Premium for Goodwill

WN3
Distribution of Goodwill charged from C’s Capital Account

Answer:

	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 $(60, 000 \times \frac{1}{8})$	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

$\begin{array}{l} Sacrifice made by A = \frac{5}{8} - \frac{9}{16} = \frac{1}{16} \\ Sacrifice made by B = \frac{3}{8} - \frac{5}{16} = \frac{1}{16} \\ Sacrificing ratio = 1 : 1 \end{array}$

Answer:

	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 $(5, 40, 000 \times \frac{4}{60})$	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

\begin{array}{l} Sacrifice made by A = \frac{5}{10} - \frac{3}{12} = \frac{15}{60} \\ Sacrifice made by B = \frac{4}{10} - \frac{4}{12} = \frac{4}{60} \\ Sacrifice made by C = \frac{1}{10} - \frac{2}{12} = - \frac{4}{60} (gain) \end{array}

Sacrificing ratio = 15 : 4

$\begin{array}{l} Value of Firm' s Goodwill = D' s Share of Goodwill \times Reciprocal of his Profit Share \\ Value of Firm' s Goodwill = 90, 000 \times \frac{12}{2} = Rs 5, 40, 000 \end{array}$

Answer:

	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

\begin{array}{l} Total capital of the new firm = Capital of incoming partner \times Reciprocal of his profit share \\ Total capital of the new firm = 80, 000 \times \frac{5}{1} = 4, 00, 000 \\ Combined Capital of X, Y and Z = 1, 30, 000 + 90, 000 + 80, 000 = 3, 00, 000 \\ Value of Firm' s Goodwill = 4, 00, 000 - 3, 00, 000 = 1, 00, 000 \\ Z' s Share in Goodwill = 1, 00, 000 \times \frac{1}{5} = 20, 000 \end{array}

Answer:

	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

$\begin{array}{l} Total capital of the new firm = Capital of incoming partner \times Reciprocal of his profit share \end{array} \begin{array}{lcl} Total capital of the firm & = & 50, 000 \times \frac{4}{1} = 2, 00, 000 \\ Capital of A, B and C & = & A' Capital A / c + B' s Capital A / c + C' s Capital A / c + Reserves + Profit and Loss A / c - Advertisement expenditure \\ = & 30, 000 + 20, 000 + 50, 000 + 50, 000 + 11, 000 - 1, 000 = 1, 60, 000 \\ Goodwill of the firm & = & 2, 00, 000 - 1, 60, 000 = Rs 40, 000 \\ C' s Share in Goodwill & = & 40, 000 \times \frac{1}{4} = 10, 000 \end{array}$

Answer:

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 $(1, 00, 000 \times \frac{1}{4})$

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

Answer:

	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.

Answer:

	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

$\begin{array}{l} Old ratio = 3 : 1 \\ New ratio = 3 : 1 : 1 \\ Sacrificing ratio = Old ratio - New ratio \\ Sacrifice made by A = \frac{3}{4} - \frac{3}{5} = \frac{3}{20} \\ Sacrifice made by B = \frac{1}{4} - \frac{1}{5} = \frac{1}{20} \\ Sacrificing ratio = 3 : 1 \end{array}$

WN 2: Calculation of Goodwill

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

Average Profit for 4 years = \frac{Total Profit}{4}

Average Profit = \frac{64, 000}{4} = 16, 000

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

Goodwill = 16,000 × 3 = 48,000

C ’ s Share of goodwill = \frac{1}{5} \times 48, 000 = 9, 600

Answer:

	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

Average Profit = \frac{Total Profit for 3 Years}{3}

Average Profit = \frac{2, 25, 000}{3} = 75, 000

Goodwill = Rs 75,000

W' s Share of goodwill = 75, 000 \times \frac{1}{5} = 15, 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.

Answer:

	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

Average Profit = \frac{Total Profit}{5}

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

\begin{array}{l} Average Profit = \frac{1, 12, 000}{5} = 22, 400 \\ Goodwill = 22, 400 \times 3 = 67, 200 \end{array}

B' s share of Goodwill = 67, 200 \times \frac{1}{2} = 33, 600

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

Answer:

(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

\begin{array}{l} Sacrifice made by A = \frac{3}{5} - \frac{3}{8} = \frac{9}{40} \\ Sacrifice made by B = \frac{2}{5} - \frac{3}{8} = \frac{1}{40} \end{array}

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)

Answer:

WN1: Calculation of Rao’s share of Goodwill

Rao' s Share of Goodwill = 30, 000 \times \frac{1}{4} = 7, 500

WN2: Adjustment of Rao’s share of Goodwill

Murty will get = 7, 500 \times \frac{3}{5} = 4, 500 Rao will get = 7, 500 \times \frac{2}{5} = 3, 000

(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)

Answer:

	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)

Answer:

	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)

Answer:

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:

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 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)

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)

Answer:

	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

Answer:

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

\begin{array}{l} Old ratio = 3 : 2 \\ New profit sharing ratio = 5 : 3 : 2 \\ Sacrificing ratio = Old ratio - New ratio \\ Sacrifice made by X = \frac{3}{5} - \frac{5}{10} = \frac{1}{10} \\ Sacrifice made by Y = \frac{2}{5} - \frac{3}{10} = \frac{1}{10} \\ Sacrificing ratio = 1 : 1 \end{array}

WN 2:Calculation of Hidden Goodwill

$\begin{array}{l} Z brings 2, 50, 000 as his capital for \frac{2}{10} share in profits \\ Total Capital of the New Firm = 2, 50, 000 \times \frac{10}{2} = Rs 12, 50, 000 \end{array}$

$\begin{array}{ccl} Capital at the time of Z' s admission & = & X' s Capital A / c + Y' s Capital A / c + Z' s Capital A / c - Revaluation Loss \\ = & 3, 75, 000 + 1, 87, 500 + 2, 50, 000 - 8, 750 = 8, 03, 750 \end{array} \begin{array}{l} Goodwill of the Firm = 12, 50, 000 - 8, 03, 750 = 4, 46, 250 \\ Z' s Share of Goodwill = 4, 46, 250 \times \frac{2}{10} = 89, 250 \end{array}$

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

Answer:

Profit and Loss Adjustment Account
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs

Stock		1,800	Building	15,000
Furniture		440
Provision for Doubtful Debts		275
Profit transferred to
Shyamlal Capital	4,994
Sanjay Capital	7,491	12,485
		15,000		15,000

Partners’ Capital Account
Dr.						Cr.
Particulars	Shyamlal	Sanjay	Shanker	Particulars	Shyamlal

Double Entry Book Keeping Ts Grewal 2016 for Class 12 Commerce Accountancy Chapter 1 - Joint Venture Accounts

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