Chapter 3 from Textbook Book Keeping & Accountancy Solutions for Class 12 ACCOUNTANCY

Question 1.A1:

Objective Type Questions :
Answer in one sentence only.

What is meant by Reconstitution of partnership ?

Answer:

Reconstitution of partnership refers to a change in the existing relationship of partners due to a change in the existing agreement between them. It may be due to the change in profit sharing ratio, on the eve of admission of a new partner, retirement or death of an existing partner.

Question 1.A2:

Objective Type Questions :
Answer in one sentence only.

What is meant by admission of partner?

Answer:

When a new partner joins the firm with the consent of all the other partners, then a new agreement needs to be prepared. Such a procedure of admitting a new partner into a partnership firm is termed as admission of partner.

Question 1.A3:

Objective Type Questions :
Answer in one sentence only.

What is sacrifice ratio?

Answer:

The ratio in which the new partner (who has joined a partnership firm) is given the share by the existing partners of the firm is called sacrificing ratio. So, it is the ratio in which the existing partners sacrifice their share of profit in favour of the new partner. Algebraically, it is expressed as:

Sacrifice ratio = Old ratio – New ratio

Question 1.A4:

Objective Type Questions :
Answer in one sentence only.

What does the excess of debits over credits in profit and loss adjustment account indicate?

Answer:

The excess of debits over credits in Profit and Loss Adjustment Account indicates the amount of net loss that needs to be shared by the old partners in their old profit sharing ratio. This is done as the new partner is not liable for any losses due to the past activities of the old partners.

Question 1.A5:

Objective Type Questions :
Answer in one sentence only.

What is revaluation account?

Answer:

Revaluation Account is an account that is opened at the time of admission, retirement and death of a partner. This account records the effect of every increase or decrease in the value of assets and liabilities. The balance of this account (which may be either profit or loss) is transferred to the Old Partners’ Capital Accounts, as the new partner has no right over such profits earned prior to his/her admission.

Question 1.A6:

Objective Type Questions :
Answer in one sentence only.

In what proportion is general reserve distributed amongst the old partners?

Answer:

The amount of general reserve is to be distributed amongst the old partners in their old profit sharing ratio. This reserve belongs to the old partners since it was created out of the profits of the previous years; therefore, the new partners do not receive any share of the general reserve.

Question 1.A7:

Objective Type Questions :
Answer in one sentence only.

When is goodwill account raised in the books of the firm?

Answer:

Goodwill Account is raised in the books of the firm at the time of admission of a new partner. The incoming partner brings his/her share of goodwill along to compensate the existing partners for the sacrifices made by them in the favour of the new partner.

Question 1.A8:

Objective Type Questions :
Answer in one sentence only.

How is sacrifice ratio calculated?

Answer:

Sacrificing ratio is the ratio in which the existing partners sacrifice their share of profit in favour of the incoming partner. Algebraically, it is expressed as:

Sacrifice ratio = Old ratio – New ratio

Question 1.A9:

Objective Type Questions :
Answer in one sentence only.

Why a new partner is admitted?

Answer:

The following are a few reasons for which a new partner is admitted to a partnership firm:

a. For additional capital amount
b. For endowment of knowledge and skills possessed by him/her
c. To enhance a firm’s future growth prospects and progress
d. To compete with the other firms
e. To replace the outgoing partner at the time of retirement and death of a partner

Question 1.A10:

Objective Type Questions :
Answer in one sentence only.

When is the ratio of sacrifice to be calculated?

Answer:

Sacrificing ratio needs to be calculated at the time of admission of a new partner. It is done to determine the amount of compensation that is to be paid by the new partner to the old partners in exchange for the sacrifice of profit share made by them.

Question 1.B1:

Write the word/term or phrase which can substitute each of the following statement.

The account which shows change in the values of assets.

Answer:

Revaluation or Profit and Loss Adjustment Account

Explanation: The account which shows change in the values of assets is called Revaluation or Profit and Loss Adjustment Account. This account is opened to record the changes in the values of assets and liabilities, so that the new partner is not put to any advantage or disadvantage.

Question 1.B2:

Write the word/term or phrase which can substitute each of the following statement.

Credit balance on revaluation account.

Answer:

Profit on Revaluation Account

Explanation: Credit balance in Revaluation Account is termed as profit on revaluation. Such profits are to be transferred to the capital accounts of old (or existing) partners in their old profit sharing ratio.

Question 1.B3:

Write the word/term or phrase which can substitute each of the following statement.

The proportion in which old partners make a sacrifice.

Answer:

Ratio of Sacrifice

Explanation: The proportion in which the old partners make a sacrifice is regarded as the ratio of sacrifice. It is the amount that is foregone by all the old partners equally or by some of the partners in the agreed share.

Question 1.B4:

Write the word/term or phrase which can substitute each of the following statement.

Excess actual capital over proportionate capital.

Answer:

Surplus Capital

Explanation: Excess of actual capital over proportionate capital is regarded as surplus capital. This surplus capital is either transferred to the current accounts or can be withdrawn by the old partners as per the terms of the partnership agreement.

Question 1.B5:

Write the word/term or phrase which can substitute each of the following statement.

Name of intangible asset having a value.

Answer:

Goodwill

Explanation: An intangible asset is an asset with no physical existence. It cannot be seen, touched or felt. Goodwill is an intangible asset that has a certain value.

Question 1.B6:

Write the word/term or phrase which can substitute each of the following statement.

Account which is debited when new partner brings cash for his share of goodwill.

Answer:

Cash/Bank A/c

Explanation: Cash/Bank A/c is debited when the new partner brings cash for his/her share of goodwill, following the rule "Debit what comes in". This amount of goodwill (premium) is transferred to the capital accounts of sacrificing partners in the sacrificing ratio of the old partners.

Question 1.B7:

Write the word/term or phrase which can substitute each of the following statement.

Account which is credited when goodwill is withdrawn by old partners.

Answer:

Cash/Bank A/c

Explanation: Cash/Bank A/c is credited when goodwill is withdrawn from the business by the old partners, following the rule "Credit what goes out". The amount brought in by the new partner as goodwill can be either withdrawn by the sacrificing partners fully or partly or can even be retained in the business.

Question 1.B8:

Write the word/term or phrase which can substitute each of the following statement.

Profit and Loss Account appearing on the asset side of a balance sheet.

Answer:

Profit & Loss Account (Debit balance) or undistributed losses

Explanation: Profit and Loss Account appearing on the Assets side of a Balance Sheet represents debit balance in the Profit & Loss Account (i.e. undistributed losses). Such losses are to be borne by the old partners in their old profit sharing ratio.

Question 1.B9:

Write the word/term or phrase which can substitute each of the following statement.

Account which is opened to record the gains and losses on revaluation.

Answer:

Profit and Loss Adjustment Account

Explanation: Profit and Loss Adjustment Account is opened to record the gains and losses on revaluation of assets and liabilities, so that the new partner is not put to any advantage or disadvantage. Any profit or loss on revaluation is shared or borne by the old partners in their old profit sharing ratio.

Question 1.B10:

Write the word/term or phrase which can substitute each of the following statement.

Change in the relationship between the partners.

Answer:

Reconstitution of a partnership

Explanation: Change in the relationship between the partners is regarded as reconstitution of a partnership firm. The reconstitution of partnership firm is said to occur when there exists a change in profit sharing ratio at the time of admission, retirement or death of a partner.

Question 1.C1:

Select the most appropriate answer from the alternative given below and rewrite the sentence.

Account is debited when unrecorded liability is brought into business.
a) liability
b) revaluation
c) capital
d) current

Answer:

Revaluation Account is debited when unrecorded liability is brought into business.

Explanation: The Revaluation Account is debited when unrecorded liability is brought into business. An unrecorded liability is one which was earlier omitted from the records and is now being considered (i.e. recorded). This leads to increase in the amount of liabilities and so, the Revaluation Account is debited.

Question 1.C2:

Select the most appropriate answer from the alternative given below and rewrite the sentence.

When goodwill is withdrawn by old partners ________________ a/c is credited.
a) cash/bank
b) capital
c) revaluation
d) Profit and Loss Adjustment

Answer:

When goodwill is withdrawn by old partners Cash/Bank A/c is credited.

Explanation: When goodwill is withdrawn by the old partners Cash/Bank A/c is credited. This is because of the rule "Credit what goes out". The amount brought in by the new partner may be withdrawn by the sacrificing partners fully or partly.

Question 1.C3:

Select the most appropriate answer from the alternative given below and rewrite the sentence.

Excess of proportionate capital over actual capital represents _________________.
a) surplus capital
b) deficit capital
c) sacrifice
d) equal capital

Answer:

Excess of proportionate capital over actual capital represents deficit capital.

Explanation: Excess of proportionate capital over actual capital represents deficit capital. This deficit capital must be brought in by the old partners or it is to be transferred to their current accounts.

Question 1.C4:

Select the most appropriate answer from the alternative given below and rewrite the sentence.

The proportion in which old partners make a sacrifice is called _________________ ratio.
a) capital
b) gaining
c) sacrifice
d) new

Answer:

The proportion in which old partners make a sacrifice is called sacrifice ratio.

Explanation: The proportion in which old partners make a sacrifice is called sacrifice ratio. It is the amount that is foregone by all the old partners equally or by some of the partners in the agreed share.

Question 1.C5:

Select the most appropriate answer from the alternative given below and rewrite the sentence.

Jay, Vijay and Ajay are three partners sharing profits in 3:2:1. They decided to admit Sanjay and give him 1/7th share, new profit sharing ratio of partners will be _________________.
a) equal
b) 3:2:1:2
c) 3:2:1:1
d) 2:3:1:2

Answer:

Jay, Vijay and Ajay are three partners sharing profits in 3:2:1. They decided to admit Sanjay and give him 1/7th share, new profit sharing ratio of partners will be 3:2:1:1.

Explanation: It is calculated as follows:-

Let the total share be 1.
$Sanjay' s share = \frac{1}{7} Remaining share = 1 - \frac{1}{7} = \frac{6}{7} Jay' s share = \frac{6}{7} \times \frac{3}{6} = \frac{3}{7} Vijay' s share = \frac{6}{7} \times \frac{2}{6} = \frac{2}{7} Ajay' s share = \frac{6}{7} \times \frac{1}{6} = \frac{1}{7} New profit sharing ratio of Jay, Vijay, Ajay and Sanjay = \frac{3}{7} : \frac{2}{7} : \frac{1}{7} : \frac{1}{7} or 3 : 2 : 1 : 1$

Question 1.C6:

Select the most appropriate answer from the alternative given below and rewrite the sentence.

Akash, Prakash and Deepak are partners who share profits as 3:2:1. They admit Suraj as a partner and decided to share future profits as 5:3:2:2. The sacrifice ratio will be __________
a) 1:1:0
b) 2:1:1
c) 0:1:3
d) 0:0:2

Answer:

Akash, Prakash and Deepak are partners who share profits as 3:2:1. They admit Suraj as a partner and decided to share future profits as 5:3:2:2. The sacrifice ratio will be 1:1:0.

Explanation: It is calculated as follows:-

Sacrifice ratio = Old ratio – New ratio

$Akash' s sacrifice = \frac{3}{6} - \frac{5}{12} = \frac{1}{12} Prakash' s sacrific = \frac{2}{6} - \frac{3}{12} = \frac{1}{12} Deepak' s sacrifice = \frac{1}{6} - \frac{2}{12} = 0 Therefore, Sacrificing ratio = 1 : 1 : 0$

Question 1.C7:

Select the most appropriate answer from the alternative given below and rewrite the sentence.

The _____________ ratio is useful for making adjustment for goodwill among the old partners.
a) new
b) sacrifice
c) old
d) Profit and Loss Adjustment

Answer:

The sacrifice ratio is useful for making adjustment for goodwill among the old partners.

Explanation: Sacrificing ratio is useful for making adjustment of goodwill among the old partners because the amount of goodwill brought in by the new partner is distributed amongst the old partners in their sacrificing ratio. This ratio represents the amount of profits which is foregone by them in favour of the new partner.

Question 1.C8:

Select the most appropriate answer from the alternative given below and rewrite the sentence.

Krishna and Balram, who are equal partners, admit Arjun into partnership for 1/4^th share, their new profit sharing ratio will be ________________.
a) 3:3:1
b) equal
c) 3:3:2
d) 2:2:1

Answer:

Krishna and Balram, who are equal partners, admit Arjun into partnership for 1/4^th share, their new profit sharing ratio will be 3:3:2.

Explanation: It is calculated as follows:

Let the total share be 1.

$Arjun' s share = \frac{1}{4} or \frac{2}{8} Remaining share = 1 - \frac{1}{4} = \frac{3}{4} Krishna' s share = \frac{3}{4} \times \frac{1}{2} = \frac{3}{8} Balram' s share = \frac{3}{4} \times \frac{1}{2} = \frac{3}{8} New profit sharing ratio of Krishna, Balram and Arjun = \frac{3}{8} : \frac{3}{8} : \frac{2}{8} or 3 : 3 : 2$

Question 1.C9:

Select the most appropriate answer from the alternative given below and rewrite the sentence.

If any asset is taken over by partner from the firm _________________ account will be debited.
a) capital
b) revaluation
c) asset
d) Profit and Loss Adjustment

Answer:

If any asset is taken over by partner from the firm capital account will be debited.

Explanation: If any asset is taken over by a partner from the firm, then his/her Capital Account is debited. The capital account of a partner has credit balance, which, on taking over of an asset, gets reduced to the extent of the value of the asset so taken over.

Question 1.C10:

Select the most appropriate answer from the alternative given below and rewrite the sentence.

In case of admission of a partner, the profit or loss on revaluation of assets and liabilities is shared by _________________ partners.
a) all
b) old
c) new
d) none of these

Answer:

In case of admission of a partner, the profit or loss on revaluation of assets and liabilities is shared by old
partners.

Explanation: In case of admission of a partner, the profit or loss on revaluation of assets and liabilities is shared by the old partners in their old profit-sharing ratio. This is because profit on revaluation of assets and liabilities is a gain for the existing partners only and the new partner has no right on such profits earned prior to his/her admission.

Question 1.D1:

State 'True' or 'False'

When goodwill is paid privately, no entry in the books of account is required.

Answer:

True

Explanation: Goodwill/Premium paid outside the business does not have any link with the business; so, no entry is recorded in the books of accounts.

Question 1.D2:

State 'True' or 'False'

The goodwill brought in by a new partner is shared by the old partners.

Answer:

True

Explanation: Goodwill brought in by a new partner is shared by the old partners in their sacrificing ratio. At the time of admission, the new partner acquires the right to share future profits; so, in exchange, he/she should compensate the sacrificing partners. Such compensation is known as premium for goodwill.

Question 1.D3:

State 'True' or 'False'

The goodwill brought in by the new partner is shared by all partners.

Answer:

False

Explanation: Goodwill brought in by the new partner is shared only by the old partners in their sacrificing ratio. The new partner has no right on goodwill brought in by him.

Question 1.D4:

State 'True' or 'False'

Profit on revaluation account is distributed between the old partners on admission of a partner.

Answer:

True

Explanation: Revaluation Account is prepared to record the effect of changes in the values of assets and liabilities prior to the admission of a new partner. If there is any profit on such revaluation, then it belongs to the existing partners only, since the new partner has no right on such profit arising out of revaluation.

Question 1.D5:

State 'True' or 'False'

The new partner must pay his share of goodwill in cash only.

Answer:

False

Explanation: The new partner can pay his share of goodwill either in cash or kind. Besides this, the amount can also be paid privately (i.e. outside the business).

Question 1.D6:

State 'True' or 'False'

A new partner is admitted in the firm for getting additional capital and skill.

Answer:

True

Explanation: There can be many reasons for admitting a new partner in a firm. For example, if the firm is short of capital, then a new partner can be admitted with the approval of all the partners. The new partner brings his or her share of capital, besides the skills possessed by him.

Question 1.D7:

State 'True' or 'False'

The credit balance of revaluation account means loss on revaluation account.

Answer:

True

Explanation: The credit balance in the Revaluation Account represents the losses on revaluation of assets and liabilities. Such losses occur when the decrease in the value of assets and increase in the value of liabilities is more than the increase in the value of assets and decrease in the value of liabilities.

Question 1.D8:

State 'True' or 'False'

If the goodwill account raised up, goodwill account is debited.

Answer:

False

Explanation: If the goodwill account is raised, then goodwill or premium account is credited, whereas, cash/ bank account is debited if the amount is brought in cash.

Question 1.D9:

State 'True' or 'False'

When goodwill is written off, goodwill amount is debited.

Answer:

False

Explanation: If old (or existing) goodwill appears in the books of a firm, then at first, it is written off by debiting the Old Partners’ Capital Accounts in their old profit sharing ratio and crediting the Goodwill Account.

Question 1.D10:

State 'True' or 'False'

On admission of a partner, the amount of goodwill brought in cash is credited to goodwill account.

Answer:

True

Explanation: As per Accounting Standard 26 issued by The Institute of Chartered Accountants of India (ICAI), if any partner brings in a certain amount of goodwill in cash, then cash/bank account is debited and goodwill account is credited. Such premium is distributed among the sacrificing partners in their sacrificing ratio.

Question 1:

PRACTICAL PROBLEM

The Balance Sheet of Rajkumar and Rajendra Kumar as on 31^st March 2012 is set out below, they share profits and losses in the ratio of 2:1.

Balance Sheet as on 31^st March, 2012
Liabilities	Amount Rs	Assets	Amount Rs
Capital A/c’s - Rajkumar	2,00,000	Buildings	1,00,000
Rajendra Kumar	1,50,000	Furniture	30,000
General Reserve	1,20,000	Stock	60,000
Creditors	80,000	Debtors	3,00,000
		Cash	30,000
		Profit and Loss A/c	30,000
	5,50,000		5,50,000

They agreed to admit Dhiraj Kumar on 1^st April, 2012 as a partner into the firm on the following terms on.

(1) Dhiraj Kumar to bring Rs 60,000 as capital and Rs 45,000 as a goodwill, which is to be retained in the business. He will be entitled to 1/4^th share of profit of the firm.

(2) 50% of General Reserve is to remain as Reserve for doubtful debts.

(3) Furniture is to be depreciated by 5%.

(4) Stock is to be revalued at Rs 65,000/-

(5) Creditors of Rs 5,000 are not likely to claim and hence should be written off.

(6) Rent of Rs 2,000 due but not received has not been recorded in the books.

Pass the necessary journal entries in the books of new firm and prepare Balance Sheet of the new firm.

Answer:

Journal Entry
Date	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
	Revaluation A/c	Dr.		1,500
	To Furniture A/c				1,500
	(Furniture depreciated by 5%)

	Stock A/c	Dr.		5,000
	To Revaluation A/c				5,000
	(Stock appreciated)

	Creditors A/c	Dr.		5,000
	To Revaluation A/c				5,000
	(Creditors written off)

	Accrued Rent A/c	Dr.		2,000
	To Revaluation A/c				2,000
	(Rent due but not received)

	Revaluation A/c			10,500
	To Rajkumar’s Capital A/c	Dr.			7,000
	To Rajendra Kumar’s Capital A/c	Dr.			3,500
	(Profit of revaluation distributed among existing partners in the ratio 2:1)

	Cash A/c	Dr.		1,05,000
	To Dhirajkumar’s Capital A/c				60,000
	To Goodwill A/c				45,000
	(DhirajKumar brought his share of Capital and Goodwill)

	Goodwill A/c	Dr.		45,000
	To Rajkumar’s Capital A/c				30,000
	To Rajendra Kumar’s Capital A/c				15,000
	(Goodwill distributed among sacrificing partner in their sacrificing ratio old profit sharing i.e. 2:1to compensate for their sacrifice)

	Rajkumar’s Capital A/c	Dr.		20,000
	Rajendra Kumar’s Capital A/c	Dr.		10,000
	To Profit and Loss A/c				30,000
	(Profit and Loss (Dr.) distributed among existing partners in their old profit sharing ratio 2:1)

	General Reserve A/c	Dr.		60,000
	To Rajkumar’s Capital A/c				40,000
	To Rajendra Kumar’s Capital A/c				20,000
	(General Reserve distributed among existing partners in their old profit sharing ratio 2:1)

Balance Sheet as on April 01, 2012 after DhirajKumar’s admission
Liabilities		Amount Rs	Assets		Amount Rs

Capital A/cs:			Stock		65,000
Rajkumar	2,57,000		Cash		1,35,000
Rajendra Kumar	1,78,500		Furniture	30,000
Dhirajkumar	6,000	4,95,500	Less: 5% Depreciation	(1,500)	28,500
Creditors	80,000		Debtors	3,00,000
Less: Creditors written-off	(5,000)	75,000	Less: 50% Reserve for Doubtful Debts	(60,000)	2,40,000
			Accrued Rent		2,000
			Building		1,00,000
		5,70,500			5,70,500

Working Notes:

Calculation of Profit Sharing Ratio

Working Notes:

WN1: Distribution of General Reserve

WN2: Distribution of Profit and Loss A/c

WN3: Distribution of Dhiraj Kumar’s share of Goodwill

WN4: Profit and Loss Adjustment Account

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

Furniture		1,500	Stock	5,000
Profit transferred to:			Creditors	5,000
Rajkumar’s Capital	7,000		Accrued Rent	2,000
Rajendra Kumar’s Capital	3,500	10,500
		12,000		12,000

WN5: Cash Account

Cash Account
Dr.				Cr.
Particulars	Amount (Rs)	Particulars	Amount (Rs)

Balance b/d	30,000	Balance c/d	1,35,000
Dhirajkumar’s Capital A/c	60,000
Goodwill A/c	45,000
	1,35,000		1,35,000

Question 2:

PRACTICAL PROBLEM

Suresh and Ramesh are partners in a business sharing Balance sheet as on 31^st March, 2013 is as follows:

Balance Sheet as on 31^st March, 2013
Liabilities		Amount Rs	Amount Rs	Assets	Amount Rs	Amount Rs
Capital A/c’s				Building		30,000
	Suresh	50,000		Machinery		10,000
	Ramesh	24,000	74,000	Furniture		9,500
Creditors			57,000	Debtors	40,000
Bills Payable			20,000	(-) R.D.D.	1,000	39,000
Reserve fund			9,000	Stock		30,000
				Bills Receivable		7,600
				Cash at Bank		33,900
			1,60,000			1,60,000

They admitted Kailash on 1^st April, 2013 as a partner on the following terms:

1) Kailash will bring Rs 30,000 as his capital for 1/4^th share in future profit and Rs 12,000 as goodwill which will be withdrawn by old partners.

2) Stock and Machinery to be depreciated by 10%.

3) R.D.D. is to be maintained at 5% on debtors.

4) Building to be appreciated by 20% and furniture is revalued at Rs 10,000.

Prepare Profit and Loss Adjustment Account, Partner’s Capital Accounts and Balance Sheet of the New firm.

Answer:

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

Stock		3,000	Building	6,000
Machinery		1,000	Furniture	500
Reserve for Doubtful Debts (R.D.D)		1,000
Profit transferred to:
Suresh’s Capital	750
Ramesh’s Capital	750	1,500
		6,500		6,500

Partners’ Capital Accounts
Dr.								Cr.
Particulars	Suresh	Ramesh	Kailash	Particulars	Suresh	Ramesh	Kailash
Cash (Goodwill withdrawn)	6,000	6,000		Balance b/d	50,000	24,000
Balance c/d	55,250	29,250	30,000	Reserve Fund	4,500	4,500
				Profit and Loss Adjustment (Profit)	750	750
				Cash			30,000
				Premium for Goodwill	6,000	6,000
	61,250	35,250	30,000		61,250	35,250	30,000

Balance Sheet as on April 01, 2013 after Kailash’s admission
Liabilities		Amount Rs	Assets		Amount Rs

Creditors		57,000	Building		36,000
Capital			Furniture		10,000
Suresh	55,250		Bills Receivable		7,600
Ramseh	29,250		Sundry Debtors	40,000
Kailash	30,000	1,14,500	Less: Reserve for Doubtful Debts	(2,000)	38,000
Bills Payable		20,000	Machinery	10,000
			Less: Depreciation	(1,000)	9,000
			Stock	30,000
			Less: Depreciation	(3,000)	27,000
			Cash at Bank		63,900
		1,91,500			1,91,500

Working Notes:

Calculation of New Profit Sharing Ratio

WN1: Distribution of Reserve Fund

WN2: Distribution of Dhiraj Kumar’s share of Goodwill

WN3: Cash Account

Cash Account
Dr.					Cr.
Particulars	Amount (Rs)	Particulars		Amount (Rs)

Balance b/d	33,900	Capital A/cs:
Kailash’s Capital A/c	30,000	Suresh	6,000
Premium for Goodwill A/c	12,000	Ramesh	6,000	12,000
		Balance c/d		63,900
	75,900			75,900

Question 3:

PRACTICAL PROBLEM

Snehal and Meenal are equal partners in a business. Their Balance sheet is as follows:

Balance Sheet as on 31^st March, 2012
Liabilities		Amount Rs	Amount Rs	Assets	Amount Rs	Amount Rs
Capital A/c’s				Premises		20,500
	Snehal	80,000		Investments		10,500
	Meenal	45,000	1,25,000	Equipments		5,000
Creditors			26,000	Bills Receivable		18,000
Bank Loan			40,000	Debtors	1,10,000
(Taken on 1.1.2012)				(-) R.D.D.	11,000	99,000
				Profit and Loss A/c		6,600
				Bank		31,400
			1,91,000			1,91,000

They agreed to admit Kamal on 1^st April, 2012 on the following terms.

1) He should bring 50,000 towards his capital for 1/4^th share in future profit.

2) Goodwill A/c be raised in the books of the firm Rs 40,000/-

3) R.D.D to be maintained at 5% on debtors.

4) Premises to be valued at Rs 30,000 and Equipments to be written off fully.

5) Interest at the rate of 15% p.a. is due on bank loan.

6) Creditors allowed a discount of Rs 1100/- and they were paid off immediately.

Pass necessary journal entries to record the above scheme of admission.

Answer:

	Journal Entry
Date		Particulars		L.F.	Debit Amount Rs	Credit Amount Rs

		Reserve for Doubtful Debts A/c	Dr.		5,500
		To Profit and Loss Adjustment A/c				5,500
		(Reserve for Doubtful Debts maintained @ 5%)

		Premises A/c	Dr.		9,500
		To Profit and Loss Adjustment A/c				9,500
		(Premises Appreciated by Rs 9,500)

		Creditors A/c	Dr.		1,100
		To Profit and Loss Adjustment A/c				1,100
		(Creditors paid off)

		Profit and Loss Adjustment A/c	Dr.		5,000
		To Equipment A/c				5,000
		(Equipments written off)

		Profit and Loss Adjustment A/c	Dr.		1,500
		To Outstanding Interest on Loan				1,500
		(Interest on Bank Loan outstanding for 3 months @ 15% per annum)

		Profit and Loss Adjustment A/c	Dr.		9,600
		To Snehal’s Capital A/c				4,800
		To Meenal’s Capital A/c				4,800
		(Profit on Profit and Loss Adjustment A/c, distributed among existing partners in the equal ratio)

		Snehal’s Capital A/c	Dr.		3,300
		Meenal’s Capital A/c	Dr.		3,300
		To Profit and Loss A/c				6,600
		(Profit and Loss (Dr.) A/c transferred to existing Partner’s Capital A/c in the equal ratio)

		Cash A/c	Dr.		50,000
		To Kamal’s Capital A/c				50,000
		(Kamal brought his share of Capital in Cash)

		Goodwill A/c	Dr.		40,000
		To Snehal’s Capital A/c				20,000
		To Meenal’s Capital A/c				20,000
		(Goodwill A/c is to be raised in the book of the firm)

Working Notes:

Calculation of New Profit Sharing Ratio

WN1: Distribution of Profit and Loss A/c

WN2: Distribution of Kamal’s Share of Goodwill

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

Equipments		5,000	Reserve for Doubtful Debts	5,500
Outstanding Interest on Loan		1,500	Premises	9,500
Profit transferred to:			Creditors	1,100
Snehal’s Capital $(9, 600 \times \frac{1}{2})$	4,800
Meenal’s Capital $(9, 600 \times \frac{1}{2})$	4,800	9,600
		16,100		16,100

Question 4:

PRACTICAL PROBLEM

Following is the balance sheet of Harish and Girish

Balance Sheet as on 31^st March, 2010
Liabilities		Amount Rs	Amount Rs	Assets	Amount Rs	Amount Rs
Creditors			38,000	Cash in Hand		37,000
Bills Payable			46,000	Stock		21,000
Profit and Loss A/c			16,000	Debtors	46,000
Capital A/c’s				(-) R.D.D.	6,000	40,000
	Harish	1,00,000		Equipments		12,000
	Girish	1,40,000	2,40,000	Furniture		25,000
				Plant		85,000
				Building		1,20,000
			3,40,000			3,40,000

They admitted Shirish on 1^st April 2010 on the following conditions:

1) For his 1/3^rd share in the future profits Shirish brings Rs 2,00,000 as his Capital.

2) It is decided to raise goodwill by Rs 90,000 and write it off fully after Shirish’s admission.

3) Equipments and plant to be depreciated by 20% and10% respectively and Building to be appreciated by 15%.

4) Bills Payable were retired for Rs 35,000

5) All debtors are considered good.

6) Furniture of the book value Rs 12,000 was taken over by Harish at 40% of the book value.

Prepare, revaluation A/c, Partner’s Capital Account and Balance Sheet of the new firm.

Answer:

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

Plant		8,500	Bills Payable	11,000
Equipment		2,400	Reserve for Doubtful Debts	6,000
Furniture		7,200	Building	18,000
Profit transferred to :
Harish’s Capital	8,450
Girish’s Capital	8,450	16,900
		35,000		35,000

Partners’ Capital Accounts
Dr.								Cr.
Particulars	Harish	Girish	Shirish	Particulars	Harish	Girish	Shirish
Plant	4,800			Balance b/d	1,00,000	1,40,000
Goodwill (Written off)	30,000	30,000	30,000	Profit and Loss A/c	8,000	8,000
Balance c/d	1,26,650	1,71,450	1,70,000	Profit and Loss Adjustment (Profit)	8,450	8,450
				Cash			2,00,000
				Premium for Goodwill	45,000	45,000
	1,61,050	2,01,450	2,00,000		1,61,050	2,01,450	2,00,000

Balance Sheet as on April 01, 2012 after Shirish’s admission
Liabilities		Amount Rs	Assets		Amount Rs

Creditors		38,000	Stock		21,000
Capital			Debtors		46,000
Harish	1,26,650		Equipments	12,000
Girish	1,71,450		Less: 20% Depreciation	2,400	9,600
Shirish	1,70,000	4,68,100	Plant	85,000
			Less: 10% Depreciation	8,500	76,500
			Furniture	25,000
			Less: Taken by Harish	12,000	13,000
			Building		1,38,000
			Cash		2,02,000
		5,06,100			5,06,100

Working Notes:

Calculation of Profit Sharing Ratio

WN1: Distribution of Profit and Loss A/c

WN2: Distribution of Shirish’s Share of Goodwill

WN3: Writing off Goodwill

WN4:

WN5: Cash Account

Cash Account
Dr.				Cr.
Particulars	Amount (Rs)	Particulars	Amount (Rs)

Balance b/d	37,000	Goodwill Written off	90,000
Premium for Goodwill	90,000	Bills Payable	35,000
Shirish’s Capital A/c	2,00,000	Balance c/d	2,02,000
	3,27,000		3,27,000

Question 5:

PRACTICAL PROBLEM

Keshav and Madhav were partners sharing the profits and losses in the ratio of 2:3. Their Balance Sheet is as follows:

Balance Sheet as on 31^st March, 2011
Liabilities		Amount Rs	Assets		Amount Rs
Capital Accounts :			Live stock		20,000
	Keshav	2,50,000	Building		1,38,000
	Madhav	2,60,000	Investments		45,000
Creditors		8,500	Loose Tools		38,000
			Debtors	90,000
			(-) R.D.D.	18,000	72,000
			Profit and Loss A/c		15,000
			Closing Stock		1,04,500
			Cash in Hand		86,000
		5,18,500			5,18,500

On 1^st April, 2011 they admitted Uddhav on the following terms:

1) The new profit sharing ratio is equal.

2) Uddhav brings Rs 2,00,000 as his capital and Rs 80,000 as share of goodwill in cash.

3) Prepaid insurance of Rs 7,500 was not recorded in the books.

4) Loose tools were found undervalued by 5% and Building was found overvalued by 15% in the books.

5) All debtors are considered as good and out of creditors Rs 500 is no longer payable.

6) The market Value of Investment is 50% more than its book value.

Prepare, Profit and Loss Adjustment in A/c, Capital Accounts of partners and Balance Sheet of the new firm.

Answer:

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

Building		18,000	Prepaid Insurance	7,500
Profit transferred to:			Loose Tools	2,000
Keshav’s Capital	13,000		Reserve for Debtors	18,000
Madhav’s Capital	19,500	32,500	Investments	22,500
			Creditors	500
		50,500		50,500

Partners’ Capital Accounts
Dr.								Cr.
Particulars	Keshav	Mashav	Uddhav	Particulars	Keshav	Madhav	Uddhav
Profit and Loss A/c (Dr.)	6,000	9,000		Balance b/d	2,50,000	2,60,000
Balance c/d	2,73,000	3,34,500	2,00,000	Profit and Loss Adjustment (Profit)	13,000	19,500
				Cash			2,00,000
				Premium for Goodwill	16,000	64,000
	2,79,000	3,43,500	2,00,000		2,79,000	3,43,500	2,00,000

Balance Sheet as on April 01, 2011 after Uddhav’s admission
Liabilities		Amount Rs	Assets	Amount Rs

Creditors		8,000	Live Stock	20,000
Capital:			Building	1,20,000
Keshav	2,73,000		Investments	67,500
Madhav	3,34,500		Loose Tools	40,000
Uddhav	2,00,000	8,07,500	Debtors	90,000
			Prepaid Insurance	7,500
			Closing Stock	1,04,500
			Cash	3,66,000
		8,15,500		8,15,500

Working Notes:

WN1: Distribution of Profit and Loss A/c (Dr.)

WN2: Distribution of Uddhav’s Share of Goodwill

WN3: Cash Account

Cash Account
Dr.			Cr.
Particulars	Amount (Rs)	Particulars	Amount (Rs)

Balance b/d	86,000	Balance c/d	3,66,000
Premium for Goodwill	80,000
Uddhav’s Capital A/c	2,00,000
	3,66,000		3,66,000

Question 6:

PRACTICAL PROBLEM

Raj and Dev are partners sharing profits and losses 3:2 respectively. Their position on 31^st March, 2011

Balance Sheet as on 31^st March, 2011
Liabilities		Amount Rs	Assets		Amount Rs
Capital A/c’s	Raj	1,00,000	Buildings		1,00,000
	Dev	75,000	Furniture		10,000
Creditors		10,000	Stock		31,000
Bills Payable		5,000	Debtors	50,000
General Reserve		15,000	(-) R.D.D.	1,000	49,000
			Bank Balance		15,000
		2,05,000			2,05,000

On 1^st April, 2011 they admitted Manoj on following terms:

1) Manoj should bring in cash Rs 1,00,000 as a capital for 1/5^th share in future profit and Rs 25,000 as goodwill.

2) Building should be revalued for Rs 1,25,000.

3) Depreciate furniture at 12 ½ % p.a. and stock at 10% p.a.

4) R.D.D. should be maintained as it is.

5) The Capital accounts of partners should be adjusted in their new profit sharing ratio through bank account.

Prepare, Profit and Loss Adjustment Account, Capital Accounts, Balance Sheet of new firm and show how you have calculated new ratio and new capital.

Answer:

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

Furniture		1,250	Building	25,000
Stock		3,100
Profit transferred to:
Raj’s Capital	12,390
Dev’s Capital	8,260	20,650
		25,000		25,000

Partners’ Capital Accounts
Dr.								Cr.
Particulars	Raj	Dev	Manoj	Particulars	Raj	Dev	Manoj
Balance c/d	1,36,390	99,260	1,00,000	Balance b/d	1,00,000	75,000
				General Reserve	9,000	6,000
				*Profit and Loss Adjustment (Profit)*	12,390	8,260
				Cash			1,00,000
				Premium for Goodwill	15,000	10,000

	1,36,390	99,260	1,00,000		1,36,390	99,260	1,00,000
Balance c/d	2,40,000	1,60,000	1,00,000	Balance b/d	1,36,390	99,260	1,00,000
				Bank	1,03,610	60,740
	2,40,000	1,60,000	1,00,000		2,40,000	1,60,000	1,00,000

Balance Sheet *as on April 01, 2011 after Manoj’s admission*
Liabilities		Amount Rs	Assets		Amount Rs

Creditors		10,000	Building		1,25,000
Bills Payable		5,000	Furniture	10,000
Capital:			Less: Depreciation @12.5%	1,250	8,750
Raj	2,40,000		Stock	31,000
Dev	1,60,000		Less: Depreciation @10%	3,100	27,900
Manoj	1,00,000	5,00,000	Debtors	50,000
			Less: Reserve for Doubtful Debts	1,000	49,000
			Cash (1,00,000+25,000)		1,25,000
			Bank		1,79,350
		5,15,000			5,15,000

Working Notes:

Calculation of Profit Sharing Ratio:

WN1: Adjustment of Capital

WN2: Distribution of General Reserve

WN3: Distribution of Manoj’s Share of Goodwill

WN4: Bank Account

Bank Account
Dr.			Cr.
Particulars		Amount (Rs)		Particulars	Amount (Rs)

Balance b/d		15,000		Balance c/d	1,79,350
Capital A/s:
Raj	1,03,610
Dev	60,740	1,67,350
		1,79,350			1,79,350

Question 7:

PRACTICAL PROBLEM

Following is the Balance Sheet of Dhiraj and Niraj who shared profits and losses equally.

Balance Sheet as on 31^st March, 2013
Liabilities		Amount Rs	Assets	Amount Rs
Capital A/c’s			Plant and Machinery	45,000
	Dhiraj	1,25,000	Land and Building	84,000
	Niraj	35,000	Patents	3,400
Creditors		86,200	Stock	47,800
Bills Payable		28,000	Furniture	10,600
General Reserve		6,800	Debtors	80,000
			Cash	10,200
		2,81,000		2,81,000

On 1^st April, 2013 they agreed to admit Suraj on the following terms and conditions:

1) Suraj to bring for 1/3^rd share in future profit in cash Rs 90,000 towards his capital.

2) The firms goodwill should be raised to Rs 90,000 and it is to be written off after Suraj admission in new profit ratio.

3) Plant and Machinery was found undervalued by 10% and Land and Building was found overvalued by 20%.

4) Stock to be increased by Rs 2,200 and furniture to be reduced to Rs 10,000/-

5) Out of creditors Rs 1,200 is no more payable.

6) The Capital A/c to be adjusted in new profit sharing ratio by opening the current accounts.

Prepare Revaluation A/c, Capital A/c and New Balance Sheet.

Answer:

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

Land and Building	14,000	Plant and Machinery		5,000
Furniture	600	Stock		2,200
		Creditors		1,200
		Loss transferred to:
		Dhiraj’s Capital	3,100
		Niraj’s Capital	3,100	6,200
	14,600			14,600

Partners’ Capital Accounts
Dr.				Cr.
Particulars	Dhiraj	Niraj	Suraj		Particulars	Dhiraj	Niraj	Suraj
Goodwill (Written off)	30,000	30,000	30,000		Balance b/d	1,25,000	35,000
Profit and Loss Adjustment (Loss)	3,100	3,100			General Reserve	3,400	3,400
Current A/c	50,300				Premium for Goodwill	45,000	45,000
Balance c/d	90,000	50,300	60,000		Cash			90,000
	1,73,400	83,400	90,000			1,73,400	83,400	90,000
Balance b/d	90,000	90,000	90,000		Balance b/d	90,000	50,300	60,000
					Current A/c		39,700	30,000
	90,000	90,000	90,000			90,000	90,000	90,000

Balance Sheet as on April 01, 2013 after Suraj’s admission
Liabilities			Amount Rs	Assets		Amount Rs

Capital A/c:				Plant and Machinery		50,000
Dhiraj		90,000		Land and Building		70,000
Niraj		90,000		Patents		3,400
Suraj		90,000	2,70,000	Stock		50,000
A’s Current A/c			50,300	Furniture	10,600
Bills Payable			28,000	Less: Depreciation	600	10,000
Creditors	86,200			Debtors		80,000
Less: Not Payable	1,200		85,000	Cash (Rs 10,200+Rs 90,000)		1,00,200
				Current A/c:
				Niraj	39,700
				Dhiraj	30,000	69,700
			4,33,300			4,33,300

Working Notes:

Calculation of New Profit Sharing Ratio

WN1: Calculation of Plant and Machinery Undercasted

WN2: Calculation of Land and Building Overcasted

WN3: Distribution of General Reserve

WN4: Distribution of Suraj’s Share of Goodwill

WN5: Writing off Goodwill

WN6: Calculation of New Capital

Question 8:

PRACTICAL PROBLEM

Vaibhav and Vilas were partners sharing profit and losses in the ratio of 2:3 respectively. Their Balance Sheet as on 31^st March, 2012 was as follows.

Balance Sheet as on 31^st March, 2012
Liabilities		Amount Rs	Assets	Amount Rs
Capital A/c’s	Vaibhav	50,000	Land & Building	25,000
	Vilas	50,000	Plant	30,000
Creditors		70,000	Furniture	2,000
			Stock	50,000
			Debtors	58,000
			Cash	5,000
		1,70,000		1,70,000

They agreed to admit Vivek as a partner on 1^st April 2012 on the following terms:

1) Vivek will have 1/4^th share in future profits for which he shall bring Rs 25,000 as his capital and Rs 20,000 as his share of goodwill.

2) Land & Building are valued at Rs 30,000 and while stock is valued at Rs 55,000.

3) Plant is taken over by Vilas 10% discount.

4) Depreciate furniture by 10%.

5) Provision for bad and doubtful debts is to be maintained at 5% on debtors.

6) The capital account of all the partners to be adjusted in their new profit sharing ratio and excess amount to be transferred to their loan account.

Answer:

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

Plant		3,000		Land & Building	5,000
Furniture		200		Stock	5,000
Provision for Bad and Doubtful Debts		2,900
Profit transferred to:
Vaibhav	1,560
Vilas	2,340	3,900
		10,000			10,000

Partners’ Capital Accounts
Dr.				Cr.
Particulars	Vaibhav	Vilas	Vivek	Particulars	Vaibhav	Vilas	Vivek
Plant	27,000			Balance b/d	50,000	50,000
Balance c/d	32,560	64,340	25,000	Profit and Loss Adjustment (Profit)	1,560	2,340
				Cash			25,000
				Premium for Goodwill	8,000	12,000
	57,560	64,340	25,000		57,560	64,340	25,000
Balance b/d	30,000	45,000	25,000	Balance b/d	32,560	64,340	25,000
Loan A/c	2,560	19,340
	32,560	64,340	25,000		32,560	64,340	25,000

Balance Sheet as on April 01, 2012 after Vivek’s admission
Liabilities		Amount Rs	Assets		Amount Rs

Creditors		70,000	Land & Building		30,000
Capital			Furniture	2,000
Vaibhav	30,000		Less: Depreciation @10%	200	1,800
Vilas	45,000		Stock		55,000
Vivek	25,000	1,00,000	Debtors	58,000
Loan A/c:			Less: Provision for Bad and Doubtful Debts	2,900	55,100
Vaibhav	2,560		Cash		50,000
Vilas	19,340	21,900
		1,91,900			1,91,900

Working Notes:

Calculation of New Profit Sharing Ratio

WN1: Distribution of Vivek’s Share of Goodwill

WN2: Calculation of Adjustment of Capital

Question 9:

PRACTICAL PROBLEM

Manoj and Rahul are equal partners in a business. Their Balance sheet as on 31^st March, 2013 stood as under:

Balance Sheet as on 31^st March, 2013
Liabilities		Amount Rs	Assets		Amount Rs
Sundry Creditors		1,80,000	Cash at Bank		1,20,000
General Reserve		36,000	Debtors	62,000
Capitals-	Manoj	90,000	(-) R.D.D.	2,000	60,000
	Rahul	60,000	Bills receivable		24,000
			Building		1,14,000
			Machinery		48,000
		3,66,000			3,66,000

They decided to admit Amit on 1^st April, 2013 on the following terms:

1) The Machinery and Building be depreciated by 10%

2) Reserve for doubtful debts to be increased to Rs 5,000.

3) Bills receivable are taken over by Manoj at a discount of 5%.

4) The amount of creditors paid at a discount of 10%.

5) The Capital Accounts of all the partners be adjusted in current account of partners.

6) Amit should bring Rs 80,000 as capital for his 1/4^th in future profits and goodwill account be opened in the books of the firm at Rs 40,000.

Prepare Profit and Loss Adjustments A/c, Partner’s Capital A/c and Balance sheet of the firm at Rs 4,000/-

Answer:

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

Machinery		4,800	Creditors		18,000
Building		11,400	Loss transferred to:
Reserve for Doubtful Debt		3,000	Manoj’s Capital	1,200
Bills Receivable		1,200	Rahul’s Capital	1,200	2,400

		20,400			20,400

Partners’ Capital Accounts
Dr.				Cr.
Particulars	Manoj	Rahul	Amit	Particulars	Manoj	Rahul	Amit
Bills Receivable	22,800			Balance b/d	90,000	60,000
Profit and Loss Adjustment (Loss)	1,200	1,200		General Reserve	18,000	18,000
Balance c/d	1,04,000	96,800	80,000	Cash			80,000
				Premium for Goodwill	20,000	20,000
	1,28,000	98,000	80,000		1,28,000	98,000	80,000
Balance b/d	1,20,000	1,20,000	80,000	Balance b/d	1,04,000	96,800	80,000
				Current A/c	16,000	23,200
	1,20,000	1,20,000	80,000		1,20,000	1,20,000	80,000

Balance Sheet as on April 01, 2013 after Amit’s admission
Liabilities		Amount Rs	Assets		Amount Rs

Capital A/c			Cash at Bank		78,000
Manoj	1,20,000		Debtors	62,000
Rahul	1,20,000		Less: Reserve for Doubtful Debts	5,000	57,000
Amit	80,000	3,20,000	Building	1,14,000
			Less: Depreciation @10%	11,400	1,02,600
			Machinery	48,000
			Less: Depreciation @10%	4,800	43,200
			Current A/cs:
			Manoj	16,000
			Rahul	23,200	39,200
		3,20,000			3,20,000

Working Notes:

Calculation of Profit Sharing Ratio

WN2: Distribution of General Reserve

WN3: Distribution of Amit’s Share of Goodwill

WN4: Adjustment of Capital

WN5: Cash Account

Cash Account
Dr.				Cr.
Particulars	Amount Rs	Particulars	Amount Rs
Balance b/d	1,20,000	Creditors	1,62,000
Amit’s Capital A/c	80,000	Balance c/d	78,000
Goodwill	40,000
	2,40,000		2,40,000

Question 10:

PRACTICAL PROBLEM

The Balance Sheet of Ramakant and Shyamkant who shared the profits in the ratio of 2:1 is as under

Balance Sheet as on 31^st March, 2012
Liabilities		Amount Rs	Assets			Amount Rs
Capitals:	Ramakant	1,34,000	Leasehold Property			20,000
	Shyamkant	1,20,000	Live stock			6,600
Creditors		51,000	Loose Tools			90,200
Rent Outstanding		10,000	Stock			84,800
Reserve Fund		7,200	Debtors		48,000
Current A/c-	Ramakant	2,800	(-) R.D.D.		2,000	46,000
			Bank			75,400
			Current A/c-	Shyamkant		2,000
		3,25,000				3,25,000

On 1^st April, 2012 Umakant was admitted as 1/4^th partner on the following terms:

1) He brings equipments of Rs 80,000 as his capital.

2) Firm’s goodwill is valued at Rs 1,44,000 and Umakant agreed to bring his share in firm’s goodwill by cheque.

3) R.D.D. should be maintained at 7.5% on debtors.

4) Increase live stock by Rs 2,600 and write off loose tools by 20%.

5) Outstanding rent paid Rs 9,040 in full settlement.

Pass necessary journal entries to record the above scheme of admission.

Answer:

Journal Entry
Date	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs

	Profit and Loss Adjustment A/c	Dr.		1,600
	To Reserve for Doubtful Debts A/c				1,600
	(Reserve for Doubtful Debt is maintained @ 7.5% on Debtors)

	Loose Tools A/c	Dr.		18,040
	To Profit and Loss Adjustment A/c				18,040
	(Loose Tools written off by 20%)

	Stock A/c	Dr.		2,600
	To Profit and Loss Adjustment A/c				2,600
	(Stock increased by Rs 2,600)

	Outstanding Rent A/c	Dr.		9,040
	To Profit and Loss Adjustment A/c				9,040
	(Outstanding Rent Paid)

	Profit and Loss Adjustment A/c	Dr.		16,080
	To Ramakant’s Current A/c				10,720
	To Shyamkant’s Current A/c				5,360
	(Loss on Profit and Loss Adjustment A/c transferred to existing Partner’s Current Accounts)

	Reserve Fund	Dr.		7,200
	To Rajkumar’s Current A/c				4,800
	To Shyamkant’s Current A/c				2,400
	(Reserve fund transferred to existing Partner’s Current Account)

	Bank A/c	Dr.		36,000
	To Goodwill A/c				36,000
	(Goodwill brought in by Umakant by cheque)

	Goodwill A/c	Dr.		36,000
	To Ramakant’s Current A/c				24,000
	To Shyamkant’s Current A/c				12,000
	(Goodwill distributed among existing Partner’s in their sacrificing ratio i.e. 2:1)

	Equipment A/c	Dr.		80,000
	To Umakant’s Capital A/c				80,000
	(Umakant brought his share of Capital in kind i.e. Equipment)

Working Notes:

Calculation of Profit Sharing Ratio

WN2: Distribution of Reserve Fund

WN3: Distribution of Umakant’s Share of Goodwill

WN4: Profit and Loss Adjustment Account

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

Reserve for Doubtful Debts	1,600	Stock		2,600
Loose Tools	18,040	Outstanding Rent		960
		Loss transferred to:
		Ramamkant’s Current A/c	10,720
		Shyamkant’s Current A/c	5,360	16,080
	19,640			19,640

Book Keeping & Accountancy Solutions Solutions for Class 12 Commerce Accountancy Chapter 3 - Reconstitution Of Partnership (Admission Of Partner)

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