14 Issues in Partnership Accounts

Transcription

1 14 Issues in Partnership Accounts Question 1 Ram, Rahim and Robert are partners, sharing Profits and Losses in the ratio of 5 : 3 : 2. It was decided that Robert would retire on and in his place Richard would be admitted as a partner with new profit sharing ratio between Ram, Rahim and Richard at 3 : 2 : 1. Balance Sheet of Ram, Rahim and Robert as at : Liabilities Assets Capital Accounts: Cash in hand 20,000 Ram 1,00,000 Cash in Bank 1,00,000 Rahim 1,50,000 Sundry Debtors 5,00,000 Robert 2,00,000 Stock in Trade 2,00,000 General Reserve 2,00,000 Plant & Machinery 3,00,000 Sundry Creditors 8,00,000 Land & Building 5,30,000 Loan from Richard 2,00,000 16,50,000 16,50,000 Retirement of Robert and admission of Richard is on the following terms: (a) Plant & Machinery to be depreciated by 30,000. (b) Land and Building to be valued at 6,00,000. (c) Stock to be valued at 95% of book value. (d) Provision for doubtful 10% to be provided on debtors. (e) General Reserve to be apportioned amongst Ram, Rahim and Robert. (f) The firm s goodwill to be valued at 2 years purchase of the average profits of the last 3 years. The relevant figures are: Year ended Profit 50,000 Year ended Profit 60,000

2 Issues in Partnership Accounts 14.2 (g) Year ended Profit 55,000 Out of the amount due to Robert 2,00,000 would be retained as loan by the firm and the balance will be settled immediately. (h) Richard s capital should be equal to 50% of the combined capital of Ram and Rahim. Prepare: (i) Capital accounts of the partners; and (ii) Balance Sheet of the reconstituted firm. (16 Marks, November 2005) (PE-II) Partners Capital Accounts Dr. Cr. Ram Rahim Robert Richard Ram Rahim Robert Richard To Revaluation A/c(W.N. 1) 10,000 6,000 4,000 By Balance b/d 1,00,000 1,50,000 2,00,000 To Loan from Robert A/c 2,00,000 By General reserve 1,00,000 60,000 40,000 To Bank 58,000 By Goodwill (W.N. 2) 55,000 33,000 22,000 To Balance c/d 2,45,000 2,37,000 2,55,000 2,43,000 2,62,000 2,55,000 2,43,000 2,62,000 To Goodwill 55,000 36,667 18,333 By Balance b/d 2,45,000 2,37,000 By Loan A/c transfer 2,00,000 To Balance c/d 1,90,000 2,00,333 1,95,167 By Bank 13,500 2,45,000 2,37,000 2,13,500 2,45,000 2,37,000 2,13,500 As per para 36 of AS 10, Accounting for Fixed Assets, goodwill should be recorded in the books only when some consideration in money or money s worth has been paid for it. Therefore, the goodwill raised at the time of retirement of Robert is to be written off in new ratio among remaining partners including new partner Richard.

3 14.3 Accounting Balance Sheet as at after the admission of Richard Liabilities Assets Capital Accounts: Land and Building 6,00,000 Ram 1,90,000 Plant and Machinery 2,70,000 Rahim 2,00,333 Stock 1,90,000 Richard 1,95,167 Debtors 4,50,000 Sundry Creditors 8,00,000 Cash at Bank (W.N. 3) 55,500 Loan from Robert 2,00,000 Cash in hand 20,000 15,85,500 15,85,500 Working Notes: (1) Revaluation Account To Plant and Machinery 30,000 By Land and Building 70,000 To Stock 10,000 By Partners Capital A/cs: To Debtors 50,000 Ram 10,000 Rahim 6,000 Robert 4,000 20,000 90,000 90,000 (2) Calculation of Goodwill: Profit for the year ended ,000 Profit for the year ended ,000 Profit for the year ended ,000 1,65,000 Average profit = 1,65,000 3 = 55,000 Goodwill = 55,000 2 years = 1,10,000. (3) Bank Account To Balance b/d 1,00,000 By Robert s Capital A/c 58,000 To Richard s Capital A/c 13,500 By Balance c/d 55,500 1,13,500 1,13,500

4 Issues in Partnership Accounts 14.4 Question 2 Laurel and Hardy are partners of the firm LH & Co., from Initially both of them contributed 1,00,000 each as capital. They did not contribute any capital thereafter. They maintain accounts of the firm on mercantile basis. They were sharing profits and losses in the ratio of 5:4. After the accounts for the year ended were finalized, the partners decided to share profits and losses equally with effect from It was also discovered that in ascertaining the results in the earlier years certain adjustments, details of which are given below, had not been noted. Year ended 31 st March Profit as per accounts prepared and finalized 1,40,000 2,60,000 3,20,000 3,60,000 Expenses not provided for (as at 31 st March) 30,000 20,000 36,000 24,000 Incomes not taken into account (as at 31 st March) 18,000 15,000 12,000 21,000 The partners decided to admit Chaplin as a partner with effect from It was decided that Chaplin would be allotted 20% share in the firm and he must bring 20% of the combined capital of Laurel and Hardy. Following is the Balance sheet of the firm as on before admission of Chaplin and before adjustment of revised profits between Laurel and Hardy. Balance Sheet of LH & Co. as at Liabilities Assets Capital Accounts: Plant and machinery 60,000 Laurel 2,11,500 Cash on hand 10,000 Hardy 1,51,500 Cash at bank 5,000 Sundry creditors 2,27,000 Stock in trade 3,10,000 Sundry debtors 2,05,000 5,90,000 5,90,000 You are required to prepare: (i) (ii) Profit and Loss Adjustment account; Capital accounts of the partners; and (iii) Balance Sheet of the firm after the admission of Chaplin. (20 Marks, May, 2007)(PCC)

5 14.5 Accounting (i) To Profit and Loss Adjustment Account Expenses not provided for (years ) 1,10,000 By By Income not considered (for years ) 66,000 Partners capital accounts (loss) Laurel 22,000 Hardy 22,000 1,10,000 1,10,000 (ii) To P & L Adjustment A/c Partners Capital Accounts Laurel Hardy Chaplin Laurel Hardy Chaplin 22,000 22,000 - By Balance b/d 2,11,500 1,51,500 - To Hardy 60,000 By Laurel - 60,000 - To Balance c/d 1,29,500 1,89,500 63,800 By Cash ,800 2,11,500 2,11,500 63,800 2,11,500 2,11,500 63,800 By Balance b/d 1,29,500 1,89,500 63,800 (iii) Balance Sheet of LH & Co. as on (After admission of Chaplin) Liabilities Assets Capital accounts: Plant and machinery 60,000 Laurel 1,29,500 Sundry debtors 2,05,000 Hardy 1,89,500 Stock in trade 3,10,000 Chaplin 63,800 Accrued income 66,000 Sundry creditors 2,27,000 Cash on hand (10, ,800) 73,800 Outstanding expenses 1,10,000 Cash at bank 5,000 7,19,800 7,19,800 It is assumed that expenses and incomes not taken into account in earlier years were fully ignored.

6 Issues in Partnership Accounts 14.6 Working Notes: 1. Computation of Profit and Loss distributed among partners Profit for the year ended ,40, ,60, ,20, ,60,000 Total Profit 10,80,000 Laurel Hardy Total Profit shared in old ratio i.e 5:4 6,00,000 4,80,000 10,80,000 Profit to be shared as per new ratio i.e. 1:1 5,40,000 5,40,000 10,80,000 Excess share 60,000 Deficit share (60,000) Laurel to be debited by 60,000 and Hardy to be credited by 60, Capital brought in by Chaplin Capital to be brought in by Chaplin must be equal to 20% of the combined capital of Laurel and Hardy Capital of Laurel (2,11,500 22,000 60,000) 1,29,500 Capital of Hardy (1,51,500 22, ,000) 1,89,500 Combined Capital 3,19,000 20% of the combined capital brought in by Chaplin (20% of 3,19,000) 63,800 Question 3 A and B are equal partners. They admit C and D as partners with 1/5 and 1/6 share respectively. What is the profit sharing ratio of all the partners? (2 Marks, May, 2007) (PCC) Let total profits or losses of the firm be 1 Shares of C and D is 1 5 and 1 6 respectively.

7 14.7 Accounting Balance remaining: 1 ( + ) = 1 = to be shared equally by A and B as : New profit sharing ratio will be A: B: C: D : : : Thus new profit sharing ratio of all the partners will be 19:19:12:10. Question 4 X and Y are partners sharing profits and losses in the ratio of 3:2. On 30 th September, 2006 they admitted Z as a partner. The new profit sharing ratio agreed was 2:2:1. At the time of admission Z brought in a fixture valued at 6,000 and a machinery worth 24,000. No accounting entry was passed for the fixture brought in by partner Z in the books of the firm. Also at the time of admission the valuation of goodwill was made. The value of goodwill of X and Y was decided at 40,000 and value of goodwill of partner Z was fixed at 20,000. No effect was given to the goodwill value in the books of the firm. On , it was decided that partner X would retire and the other partners viz., Y and Z would continue the business of the firm by converting it into a company called YZ Ltd., with equal shareholding in the company. The partners agreed as below: (i) The goodwill of the firm shall be fixed at 80,000. Necessary effect for goodwill value not recorded earlier shall be given. The present goodwill value being 80,000 shall be reflected in the books of the company. (ii) All the assets and liabilities of the firm shall be taken over by the company. (iii) Partner X would take motor car of the firm at a value of 7,400. (iv) A plant owned by the firm is sold for 6,000. (v) The profit of the firm upto was 44,000. (vi) Partner X agreed to leave 90,000 as loan with the firm in return for 12% interest per annum.

8 Issues in Partnership Accounts 14.8 Following is the Trial Balance of the firm as on : Particulars Dr. Cr. Capital Account: X - 80,000 Y - 50,000 Z - 24,000 Drawings Account: X 22,000 - Y 20,000 - Z 9,600 - Sundry Debtors 70,000 - Sundry Creditors - 32,000 Plant (Book value of plant sold 8,000) 46,000 - Fixtures 14,000 - Stock 24,000 - Motor car 5,400 - Cash at bank 34,600 - Profit and Loss A/c (for the year) 59,600 2,45,600 2,45,600 You are required to prepare: (i) Goodwill Adjustment Account (ii) Profit and Loss Appropriation Account (iii) Partners Capital Accounts (iv) Balance Sheet of YZ Ltd. after conversion. (20 Marks November, 2007) (PCC) (i) Goodwill Adjustment Account To Partners Capital A/cs (in old ratio) By Partners Capital A/cs (in new ratio)

9 14.9 Accounting To Partners Capital A/cs X 24,000 X 24,000 Y 16,000 Y 24,000 Z 20,000 Z 12, By Goodwill A/c X 32,000 (Goodwill raised in the book) Y 32,000 Z 16,000 80,000 1,40,000 1,40,000 (ii) To Plant - Loss on sale of plant To Partners Capital A/cs Profit and Loss Appropriation Account X 32,640 Y 23,840 Z 3,120 2,000 By Motor Car 2,000 By Profit and Loss A/c 59,600 61,600 61,600 Calculation of profit apportionment: Total X Y Z Upto ,000 26,400 17,600 NIL From to ,600 6,240 6,240 3,120 59,600 32,640 23,840 3,120 (iii) Partners Capital Accounts To Goodwill Adjustment A/c X Y Z X Y Z 24,000 24,000 12, By Balance 80,000 50, To Motor car 7, By Plant & ,000

10 Issues in Partnership Accounts machinery To Drawings 22,000 20,000 9,600 By Fixtures - - 6,000 To 12% Loan 90, By Goodwill Adjustment A/c 24,000 16,000 20,000 To Bank 25, By Profit upto 26,400 17, To Balance c/d - 77,840 47, By Profit for 6 6,240 6,240 3,120 months ended By Goodwill Adj. A/c 32,000 32,000 16,000 1,68,640 1,21,840 69,120 1,68,640 1,21,840 69, To Bank 15, By Balance b/d 77,840 47,520 To Share By Bank 15,160 capital 62,680 62,680 77,840 62,680 77,840 62,680 (iv) Balance Sheet of YZ Ltd. Liabilities Assets Share capital 1,25,360 Goodwill 80,000 12% Loan 90,000 Plant (46,000 8,000) 38,000 Sundry creditors 32,000 Fixtures (14, ,000) 20,000 Stock 24,000 Sundry debtors 70,000 Cash at bank 15,360 2,47,360 2,47,360 Bank A/c To Balance b/d 34,600 By X s Capital A/c 25,240 To Plant (sold) A/c 6,000 By Y s Capital A/c 15,160 To Z s capital A/c 15,160 By Balance c/d 15,360 55,760 55,760

11 14.11 Accounting Total capital of the firm before conversion: Y 77,840 Z 47,520 1,25,360 As Y and Z would continue with equal shareholding, therefore, share capital of Y and Z would be 1,25,360 / 2 = 62,680 each. Z should bring cash (62,680 47,520) = 15,160 Y should withdraw cash (77,840 62,680) = 15,160 Question 5 A, B, and C are partners sharing profits and losses in the ratio of 3:2:1. B retired from the firm. Partners A and C decided to take his share in 3:1 ratio. What is the new ratio of the partners A and C? (2 Marks, November, 2007) (PCC) Calculation of new profit and loss sharing ratio of partners A and C 1/3 rd share of B taken by oartners A & C in 3:1 i.e. => A will receive from B = => C will receive from B = Total share of A and C will be: A = + = = or C = = = or = = Therefore, new profit and loss sharing ratio of A and C will be 3:1. Question 6 A, B and C are partners of the firm ABC & Co., sharing profits and losses in the ratio of 5:3:2. Following is the Balance Sheet of the firm as at :

12 Issues in Partnership Accounts Balance Sheet as at Liabilities Assets Partners capital accounts: Goodwill 1,00,000 A 4,50,000 Building 10,50,000 B 1,30,000 Machinery 6,50,000 C 1,70,000 Furniture 2,15,000 Investment fluctuation reserve 1,00,000 Investments (market value 75,000) 60,000 Contingency reserve 75,000 Stock 6,50,000 Long-term loan 15,00,000 Sundry debtors 6,95,000 Bank overdraft 2,20,000 Advertisement suspense 25,000 Sundry creditors 8,00,000 34,45,000 34,45,000 It was decided that B would retire from the partnership on and D would be admitted as a partner on the same date. Following adjustments are agreed amongst the partners for the retirement/admission: (i) Goodwill is to be valued at 5,00,000, but the same will not appear as an asset in the books of the firm. (ii) Building and machinery are to be revalued at 10,00,000 and 5,20,000 respectively. (iii) Investments are to be taken over by B at the market value. (iv) Provision for doubtful debts to be maintained at 20% on sundry debtors. (v) The capital of the reconstituted firm will be 10,00,000 to be contributed by the partners A, C and D in their new profit sharing ratio of 2 :2 : 1. (vi) Surplus funds if any will be used to pay the bank overdraft. (vii) Amount due to retiring partner B will be transferred to his loan account. Prepare: (i) Revaluation Account; (ii) Capital Accounts of the partners; and (iii) Balance Sheet of the firm after reconstitution. (20 Marks, May, 2008) (PCC)

13 14.13 Accounting (i) Revaluation Account To Building 50,000 By Investments 15,000 To Machinery 1,30,000 By Partners capital A/cs (Loss on revaluation) To Provision for doubtful A 1,52,000 debts 1,39,000 B 91,200 C 60,800 3,04,000 3,19,000 3,19,000 (ii) Partners Capital Accounts To Revaluation A/c To Goodwill (W.N.2) To A and B (W.N.3) A B C D A B C D 1,52,000 91,200 60,800 - By Balance b/d 4,50,000 1,30,000 1,70,000-50,000 30,000 20,000 - By Contingency Reserve - - 1,00,000 1,00,000 By Investment fluctuation Reserve To Investments - 75, To Advertisement 12,500 7,500 5,000 - By C and D suspense (W.N.3) To B s Loan A/c (Bal. fig.) - 1,28, By Bank (Bal.fig.) 37,500 22,500 15,000-50,000 30,000 20,000-50,000 1,50, ,000-3,80,800 3,00,000 To Balance c/d (W.N.4) 4,00,000-4,00,000 2,00,000 6,14,500 3,32,500 5,85,800 3,00,000 6,14,500 3,32,500 5,85,800 3,00,000 (iii) Balance Sheet as at (After retirement of B and admission of D) Liabilities Assets Partners capital Building 10,00,000 accounts (W.N.4) A 4,00,000 Machinery 5,20,000 C 4,00,000 Furniture 2,15,000

14 Issues in Partnership Accounts D 2,00,000 Stock 6,50,000 Long term loan 15,00,000 Debtors 6,95,000 B s loan 1,28,800 Less: Provision for doubtful debts 1,39,000 5,56,000 Sundry creditors 8,00,000 Cash at bank (W.N.1) 4,87,800 34,28,800 34,28,800 Working Notes: 1. Bank Account To A s capital A/c 27,000 By Balance b/d (Overdraft) 2,20,000 To C s capital A/c 3,80,800 By Balance c/d (Bal. fig.) 4,87,800 To D s capital A/c 3,00,000 7,07,800 7,07, Goodwill, already shown in the Balance Sheet of 1,00,000, is firstly written off and then an adjusting entry is passed for revalued goodwill of 5,00,000 in sacrificing and gaining ratio of partners. This treatment is given based on the para 36 of AS 10, which states that goodwill should be recorded in the books only when some consideration in money or money s worth has been paid for it. 3. Calculation of sacrificing and gaining ratio Partners New share Old share Share Sacrificed Share Gained A = B C D Adjusting Entry C s Capital A/c Dr. 1,00,000

15 14.15 Accounting D s Capital A/c Dr. 1,00,000 To A s Capital A/c 50,000 To B s Capital A/c 1,50, Capitals of A, C and D as per new ratio Total Capital of the firm after admission 10,00,000 A s share = C s share = D s share = 2 10,00,000 4,00, ,00,000 4,00, ,00,000 2,00,000 5 Question 7 P, Q and R share profit and losses in the ratio of 4:3:2 respectively. Q retires and P and R decide to share future profits and losses in the ratio of 5:3. Then immediately H is admitted for 3/10 share of profits half of which was gifted by P and the remaining share was taken by H equally from P and R. Calculate the new profit sharing ratio after H s admission and gaining ratio of P and R after Q s retirement. (2 Marks, November, 2008) (PCC) (a) Calculation of new profit sharing ratio after H s admission: P = = = = R = = = = H = or =

16 Issues in Partnership Accounts (b) Hence, New Ratio of P : R : H 16:12:12 Or 4 : 3 : 3 Calculation of gaining ratio of P and R after Q s retirement: P = = = R = = = Question 8 A and M are partners, sharing profits and losses in the ratio of 3:2. G is admitted for 1/4 th share. Thereafter, N enters the partnership for 20 Paise in a Rupee. Compute new profit sharing ratio. (2 Marks, June, 2009) (PCC) Let the total share be = 1 1 Share of new partner G = 4 Remaining share of profit = = 4 3 New ratio of (A) = New ratio of (M) = = = 4 5 New ratio of A:M:G = 9: 6: 5 Again, let the total share at the time of admission of N = 1 1 Share of new partner N is 20% i.e Remaining share = = 5 4 New ratio of A = = 9 25

17 14.17 Accounting New ratio of M = New ratio of G = New ratio of A:M:G:N = 9:6:5:5 = = Question 9 P, N and T are equal partners. The decided to change their profit sharing ratio into 5:4:3. They raised the goodwill in the books to the extent of 2,40,000 and it is to be written off immediately. Show Journal entries with narration to be passed for raising the goodwill and for its subsequent write off. (2 Marks, November, 2009) (PCC) Journal Entries Dr. () Cr. () Goodwill A/c Dr. 2,40,000 To A s Capital A/c 80,000 To B s Capital A/c 80,000 To C s Capital A/c 80,000 (Being the value of goodwill raised in the books, in old profit sharing ratio) A s Capital A/c Dr. 1,00,000 B s Capital A/c Dr, 80,000 C s Capital A/c Dr. 60,000 To Goodwill A/c 2,40,000 (Being the value of goodwill written off from the books of the firm, in new profit sharing ratio) Note: As per para 36 of AS 10, Accounting for fixed Assets, goodwill should be recorded in the books only when some consideration in money or money s worth has been paid for it. Therefore, the goodwill valued at the time of change in profit and loss sharing ratio is to be adjusted through capital accounts of the partners directly. The journal entries for raising goodwill and then writing it off is not in accordance with the said standard but have been given due to the requirement of the question. Alternatively, Capital accounts of partner A and partner C may be adjusted to give net effect to the above entries.

18 Issues in Partnership Accounts The Adjusting Journal entry would be A s Capital A/c Dr. 20,000 To C s Capital A/c 20,000 (Being adjusting entry passed for goodwill, due to change in profit and loss sharing ratio) Question 10 On 1 st April, 2008, X, Y and Z enter into partnership introducing capital of 80,000, 50,000 and 50,000 respectively. They agree to share Profits and Losses equally. At the end of the accounting year on 31 st March, 2009, X claims that he be paid interest on his additional Capital of 10% per annum, while Z demands salary of 600 per month for the extra hours devoted by him daily at the shop. The partnership deed is silent on these matters. Decide the matters with reasons. (2 Marks, November, 2009) (IPCC) When the partnership deed is silent on the matter of interest on capitals and salary to partners, then no partner is entitled to claim interest on capital and salary. Therefore, claim of X and Z is not tenable. However, inclusion of specific provision regarding the said issues in partnership deed can make them entitled for interest on capital and salary. Question 11 Were partners sharing Profits and Losses in the ratio of 5:3:2 respectively. On 31 st March, 2009 Balance Sheet of the firm stood as follows: Liabilities Assets Capital A/cs Buildings 55,000 E 50,000 Furniture 25,000 F 40,000 Stock 42,000 G 28,000 1,18,000 Debtors 20,000 Creditors 33,500 Cash at Bank 11,200 Outstanding Expenses 1,700 1,53,200 1,53,200 On 31 st March, 2009, E decided to retire and F and G decided to continue as equal partners. Other terms of retirement were as follows: (i) Building be appreciated by 20%. (ii) Furniture be depreciated by 10%.

19 14.19 Accounting (iii) A provision of 5% be created for bad debts on debtors. (iv) Goodwill be valued at two years purchase of profit for the latest accounting year. The firm s Profit for the year ended 31 st March, 2009 was 25,000. No goodwill account is to be raised in the books of accounts. (v) Fresh capital be introduced by F and G to the extent of 10,000 and 35,000 respectively. (vi) Out of sum payable to retiring partner E, a sum of 45,000 be paid immediately and the balance be transferred to his loan account bearing 12% per annum. The loan is to be paid off by 31 st March, One month after E s retirement, F and G agreed to admit E s son H as a partner with one-forth share in Profits/Losses. E agreed that the balance in his loan account be converted into H s Capital. E also agreed to forgo one month s interest on his loan. It was also agreed that H will bring in, his share of goodwill through book adjustment, valued at the price on the date of E s retirement. No goodwill account is to be raised in the books. You are requested to pass necessary Journal Entries to give effect to the above transactions and prepare Partners Capital Accounts. (16 Marks November, 2009) (IPCC) Dr. Cr. 1. Building Account Dr. 11,000 To Revaluation Account 11,000 (Being building appreciated) 2. Revaluation Account Dr. 3,500 To Furniture Account 2,500 To Provision for Doubtful Debts Account 1,000 (Being furniture depreciated by 10% and Provision for doubtful debts 5% on Debtors) 3. Revaluation Account Dr. 7,500 To E s Capital Account 3,750 To F s Capital Account 2,250 To G s Capital Account 1,500 (Being profit on revaluation transferred to capital accounts of partners) 4. F s Capital Account Dr. 10,000

20 Issues in Partnership Accounts G s Capital Account Dr. 15,000 To E s Capital Account 25,000 (Being adjustment for E s share of goodwill) 5. Bank Account Dr. 45,000 To F s Capital Account 10,000 To G s Capital Account 35,000 (Being fresh capital introduced by F and G) 6. E s Capital Account Dr. 78,750 To Bank Account 45,000 To E s Loan Account 33,750 (Being settlement of E s capital on his retirement) 7. E s Loan Account Dr. 33,750 To H s Capital Account 33,750 (Transfer of E s Loan Account to H s Capital Account) 8. H s Capital Account Dr. 12,500 To F s Capital Account 6,250 To G s Capital Account 6,250 (Being adjustment entry passed for H s share of goodwill) Partners Capital Accounts E F G H E F G H To E (Goodwill) 10,000 15,000 By Balance b/d 50,000 40,000 28,000 To Bank 45,000 By Revaluation A/c 3,750 2,250 1,500 To E s Loan A/c 33,750 By F (Goodwill) 10,000 To Balance c/d 42,250 49,500 By G (Goodwill) 15,000 By Bank (fresh capital) 10,000 35,000 78,750 52,250 64,500 78,750 52,250 64,500 To F (Goodwill) 6,250 By Balance b/d 42,250 49,500 To G (Goodwill) 6,250 By E s Loan A/c 33,750 To Balance c/d 48,500 55,750 21,250 By H (goodwill) 6,250 6,250 48,500 55,750 33,750 48,500 55,750 33,750

21 14.21 Accounting Working Notes: 1. Calculation of gaining ratio Partners New ratio Old ratio Gain Sacrifice E F G Hence, ratio of gain between F and G = 2:3 2. Value of total goodwill of the firm = 25,000 2 = 50,000 5 E s share = 50,000 = Rs. 25, F will bear = 25,000 =Rs. 10, G will bear = 25,000 =Rs. 15, H s share of goodwill = 50,000 1 = 12, = = F and G share equal profits. Therefore, their sacrificing ratio will also be equal Hence, each of them will be credited with 6,250 Question 12 SAD Enterprises, a partnership firm, had purchased business of SWAD enterprises on and paid 50,000 towards goodwill. On , SAD enterprises decided to admit W as partner and the goodwill was valued at 1,00,000 for the purpose. Please explain with reasons, at what price goodwill can be shown in the books of account. (4 Marks, November, 2009) (IPCC) Para 16 of AS 10, Accounting for Fixed Assets states that goodwill can be recorded in the books only when some consideration in money or money s worth has been paid for it. Therefore, only purchased goodwill should be recorded in the books. In the said case, payment of 50,000 was made towards purchase of goodwill, hence to this extent goodwill

22 Issues in Partnership Accounts can be recorded in the books. Para 35 of AS 26 Intangible Assets also states that internally generated goodwill should not be recognized as an asset. Internally generated (self generated) goodwill is not recognized as an asset because it is not an identifiable resource controlled by the enterprise that can be measured reliably at cost. Therefore, only purchased goodwill should be recorded in the books. Additional goodwill of 50,000 is self generated goodwill, which should not be recorded. On admission, death or retirement of a partner, goodwill adjustments can be carried out through capital accounts. Question 13 (i) A and B are partners in a firm sharing profits and losses in the ratio of 3 : 2. Their capitals are 60,000 and 40,000 respectively. They admit C as a new partner who will get 1/6 th share in the profit of the firm. C brings in 25,000 as his capital. Find out the amount of goodwill on the basis of the above information. (ii) In the absence of a partnership deed, what will be your decision in disputes amongst partners regarding the following matters: (a) Profit sharing ratio; (b) Interest rate, at which interest is to be allowed to a partner, on loan given to the firm by a partner. (2 Marks May, 2010) (IPCC) (i) Calculation of Goodwill (ii) C brings capital for 1/6 th share in profit = 25,000 Therefore, total capital of the firm = 25,000 6 = 1,50,000 Capital of old partners should be = 1,50,000 25,000 = 1,25,000 Actual combined capital of old partners = 60, ,000 = 1,00,000 So, the goodwill of the firm = 1,25,000-1,00,000= 25,000 In the absence of a partnership deed: (a) The partners will share profits/losses equally; and (b) 6% per annum is to be paid on the loan advanced to the firm by a partner. AS 26 does not form part of Paper 1 Accounting syllabus. The enterprise, while doing business, develops goodwill over a period of time. Goodwill generated in the process of doing business is called internally generated goodwill.

23 14.23 Accounting Question 14 Following two problems are regarding issues in Partnership Accounts, kindly solve both: (i) (ii) Anil and Mukesh are partners sharing profit, and losses in the ratio 3 : 2. Govind is admitted for ¼ th share of firm. Thereafter, Madan enters for 20 paisa in a rupee. Compute new profit sharing ratios under both the admission of partners. The following Goodwill Account was opened by the partners R and S, on the admission of H as a new partner into firm Om and Sons. Calculate the share of profit agreed to be given to H. Goodwill A/c To R s Capital A/c 24, By R s Capital A/c 12, To S s Capital A/c 18, By S s Capital A/c 12, By H s Capital A/c 18,600 43,400 43,400 (5 Marks, November, 2010) (IPCC) (i) 1. At the time of admission of Govind Let the total share of profit at the time of admission of Govind = 1 Share of New Partner - Govind = ¼ Remaining share of profit = 1 ¼ = ¾ Now, New share of Anil = 3 4 x 3 5 = 9 20 New share of Mukesh = 3 4 x 2 5 = 6 20 New ratio of Anil, Mukesh and Govind 9 20 : 6 20 : 1 4 i.e. = 9:6:5 2. At the time of admission of Madan Let total share at the time of admission of Madan = 1 Share of new partner - Madan = 1/5

24 Issues in Partnership Accounts Remaining share = 1 1/5 = 4/5 Now, New share of Anil = 4 5 x 9 20 = 9 25 New share of Mukesh = 4/5 x 6/20 = 6/25 New share of Govind = 4/5 x 5/20 =5/25 New ratio of Anil, Mukesh, Govind and Madan : : : i.e. 9 : 6 :5 :5 (ii) Share of H in profit sharing ratio may be calculated as follows: H s share = Question 15 Share of H in Goodwill Total Goodwill = 18,600 43,400 = 3 7 Ramu, Shamu and Raju were partners sharing profits and losses in the ratio of 3 : 2 : 2. Their Balance Sheet as on was as follows: Liabilities Assets Capital accounts Fixed assets 80,000 Ramu 30,000 Stock 15,000 Shamu 20,000 Debtors 12,000 Raju 20,000 70,000 Cash & bank 1,951 Reserves 14,000 Creditors 24,951 1,08,951 1,08,951 On 1 st October, 2009, Ramu died. His heirs agreed that: (i) Goodwill of the firm be valued at 2 years purchase of average profit of past three years. Profits for the year 2006, 2007 and 2008 were 30,000, 40,000 and 47,600 respectively. (ii) Fixed assets be revalued at 1,01,000. (iii) Profit to be shared, earned in subsequent period after death of Ramu till settlement of his executors claim.

25 14.25 Accounting Ramu s heirs account was settled on by bringing in required cash by remaining partners in equal proportion leaving cash balance of 1,234. Each partner had 1,000 per month for personal use. Profit for the current year after charging depreciation of 9,000 ( 6,000 for first three quarters and 3,000 for last quarter ) was 46,600 earned evenly through-out the year. You are requested to prepare Profit & Loss Appropriation A/c, Cash & Bank A/c, Ramu s Executor s A/c and Partners Capital Accounts for the year ended on assuming remaining partners decided not to retain goodwill in the books. (16 Marks, November, 2010) (IPCC) (i) Profit & Loss Account (for nine months) (for three months (for nine months) (for three months) To Depreciation 6,000 3,000 By Profit (W.N.1) 41,700 13,900 To Net profit 35,700 10,900 41,700 13,900 41,700 13,900 Profit & Loss Appropriation Account (for nine months) (for three months (for nine months) (for three months To Partners capital A/cs By Net Profit 35,700 10,900 Ramu 15,300 - Shamu 10,200 3,043 Raju 10,200 3,044 To Ramu s Executor A/c (W.N.2) - 4,813 35,700 10,900 35,700 10,900 (ii) Partners Capital Accounts as on 1 st October, 2009 Ramu Shamu Raju Ramu Shamu Raju () () () () () () To Drawings 9,000 9,000 9,000 By Balance b/d 30,000 20,000 20,000 To Ramu s Executors A/c 87, By Reserves 6,000 4,000 4,000

26 Issues in Partnership Accounts To Balance c/d - 55,276 55,276 By Goodwill (W.N.3) 36,114 24,076 24,076 By Fixed 9,000 6,000 6,000 Assets By Profit & Loss Appropriation A/c 15,300 10,200 10,200 96,414 64,276 64,276 96,414 64,276 64,276 (iii) Partners Capital Accounts as on Shamu Raju Shamu Raju () () () () By Balance b/d 55,276 55,276 To Drawings 3,000 3,000 By Cash 62,255 62,255 To Goodwill 42,133 42,133 By Profit & Loss To Balance c/d 75,441 75,442 Appropriation A/c 3,043 3,044 1,20,574 1,20,575 1,20,574 1,20,575 (iv) Ramu s Executors A/c as on () () To Bank 92,227 By Balance b/d 87,414 By P&L Appropriation A/c 4,813 92,227 92,227 (v) Cash & Bank A/c () () To Balance b/d 1,951 By Ramu s executors A/c 92,227 To Shamu s capital A/c 62,255 By Partners Capital A/cs (Drawings): As per para 36 of AS 10, Accounting for fixed Assets, goodwill should be recorded in the books only when some consideration in money or money s worth has been paid for it. However, in the above solution, goodwill has been raised in the books at the time of death of a partner and written off by the remaining partners, as per the information given in the question. Appreciation of fixed assets may also be recorded through Revaluation Account.

27 14.27 Accounting To Raju s capital A/c 62,255 Ramu 9,000 Working Notes: 1. Profit for the year before depreciation: Shamu 12,000 Raju 12,000 By Balance c/d 1,234 1,26,461 1,26,461 Profit after depreciation 46,600 Add: Depreciation 9,000 Profit before depreciation 55, As per section 37 of the Partnership Act, in case of settlement of deceased partner s account on the date other then the date of death, the executor of deceased partner has a choice to take Either- (A) Profit earned on un-settled capital = Profit x Unsettled capital as on Total capital as on = 10,900 x = 10,900 x 87,414 (87, , ,276) 87,414 1,97,966 = 4,813 Or- (B) Interest on 6% i.e. 87,414 6% 3/12 = 1,311 Option A is beneficial, therefore heirs of Ramu will opt for proportionate share of profit i.e. 4, Valuation of Goodwill: Weight Product Profit for , , , ,000

28 Issues in Partnership Accounts , ,42,800 1,17, ,52,800 Weighted Average Profit = 2,52,800 6 = 42,133 Goodwill = 2 years purchase of average profit = 42,133 2 = 84,266. Question 16 Shiv and Mohan are partners in a firm sharing profits and losses equally. On 31 st March, 2011, the balances of their capital accounts were 3,00,000 and 2,00,000 respectively. The average profits of the firm are 1,36,000 and the rate of normal profit is 20%. On 1 st April, 2011 they agreed to admit Hari as a partner for one fourth share. Hari will bring 1,00,000 as capital. You are required to compute the value of the goodwill of the firm on admission of Hari, if goodwill is to be calculated on the basis of: (1) 5 years purchase of super profit (2) Capitalization method (3) 3 years purchase of average profit. (5 Marks, May, 2011) (IPCC) Valuation of goodwill (1) 5 years purchase of super profit Average profit 1,36,000 Less : Normal 20% of ( 3,00,000+ 2,00,000) (1,00,000) Super profit 36,000 Value of goodwill = 5 Super profit = 5 36,000 = 1,80,000 Value of goodwill of the firm will be 1,80,000. (2) Capitalisation method Normal value of business = Average profit Normal rate of profit

29 14.29 Accounting = 1,36,000 20% = 6,80,000 Normal value of business 6,80,000 Less: Actual capital employed Shiv Mohan Value of goodwill of the firm will be (3) 3 years purchase of average profits Goodwill = 3 Average profit = 3 1,36,000 = 4,08,000 Value of goodwill of the firm will be 4,08,000. 3,00,000 2,00,000 (5,00,000) 1,80,000 Question 17 Amit and Sumit are partners sharing profits and losses in the ratio of 3:2. Their Balance Sheet as on 31 st March 2011 is given below: Liabilities Amount Assets Amount Capital Accounts: Land & building 3,20,000 Amit 1,76,000 Investments (Market value 55,000) 50,000 Sumit 2,54,000 Debtors 3,00,000 Loan from Puneet 3,00,000 Less: Provision for doubtful debts 2,90,000 10,000 General Reserve 30,000 Stock 1,10,000 Employer s provident fund 10,000 Cash at bank 50,000 Creditors 50,000 8,20,000 8,20,000 They decided to admit Puneet as a new partner from 1 st April, 2011 on the following terms: (1) Amit will give 1/3 rd of his share and Sumit will give 1/4 th of his share to Puneet. (2) Puneet s loan account will be converted into his capital. (3) The Goodwill of the firm is valued at 3,00,000. Puneet will bring his share of goodwill in cash and the same was immediately withdrawn by the partners.

30 Issues in Partnership Accounts (4) Land and building was found undervalued by 1,00,000. (5) Stock was found overvalued by 60,000. (6) Provision for doubtful debts will be made equal to 5% of debtors. (7) Investments are to be valued at their market price. It was decided that the total capital of the firm after admission of new partner would be 10,00,000. Capital accounts of partners will be readjusted on the basis of their profit sharing ratio and excess or deficiency will be adjusted in cash. You are required to prepare: (a) Revaluation A/c (b) Partners capital A/cs (c) Balance Sheet of the firm after admission of a new partner (16 Marks, May, 2011) (IPCC) Revaluation A/c Particulars Particulars To Stock 60,000 By Land & building 1,00,000 To Provision for doubtful 5,000 By Investments 5,000 debts To Profit transferred to Amit s capital A/c 24,000 Sumit s capital A/c 16,000 1,05,000 1,05,000 Partners Capital Accounts Particulars Amit Sumit Puneet Particulars Amit Sumit Puneet To Amit s By Balance b/d capital A/c ,000 By Puneets' Loan A/c To Puneet s capital A/c 1,76,000-2,54, ,00, ,000 By Puneet s capital A/c 60,000 30,000 - To Bank A/c 60,000 30,000 - By Bank A/c (W.N.2) ,000 To Balance By Revaluation 24,000 16,000 - c/d 4,00,000 3,00,000 3,00,000 A/c

31 14.31 Accounting By General reserve 18,000 12,000 - By Bank 1,82,000 18,000-4,60,000 3,30,000 3,90,000 4,60,000 3,30,00 0 Balance Sheet as on 1 st April, 2011 (After admission of a new partner - Puneet) 3,90,000 Liabilities Amount Assets Amount Capital accounts Land and building (3,20, ,00,000) 4,20,000 Amit 4,00,000 Investments 55,000 Sumit 3,00,000 Debtors 3,00,000 Puneet 3,00,000 Less: Provision for doubtful debts (15,000) 2,85,000 Creditors 50,000 Stock (1,10,000 60,000) 50,000 Employers Cash at bank (W.N. 3) provident fund 10,000 2,50,000 10,60,000 10,60,000 Working Notes: (1) Calculation of incoming partner s share, new profit sharing ratio and sacrificing ratio Amit Sumit Old profit sharing ratio 3/5 2/5 Surrendered by old partners 3/5 x 1/3 = 1/5 2/5 x 1/4 = 1/10 Remaining share 3/5 1/5 = 2/5 2/5 1/10 = 3/10 Puneet s total share in profits = 1/5 + 1/10 = 3/10 New profit sharing ratio of Amit : Sumit : Puneet =2/5 : 3/10 : 3/10 = 4:3:3 Sacrificing ratio of Amit : Sumit is 1/5 : 1/10 : or 2:1 It is assumed that Employer s Provident Fund represents employer s contribution to provident fund which is yet to be deposited. Hence, the same represents a current liability.

32 Issues in Partnership Accounts (2) Calculation of share of goodwill by old partners Goodwill of the firm was 3,00,000 Share of Puneet in goodwill = 3,00,000 3 = 90, Goodwill will be distributed among the old partners in their sacrificing ratio of 2:1 i.e. 60,000 by Amit and 30,000 by Sumit. (3) Calculation of closing balance of bank account after admission Bank A/c Particulars Amount Particulars Amount () () To Balance b/d 50,000 By Amit s capital A/c 60,000 To Puneet s capital A/c 90,000 By Sumit s capital A/c 30,000 To Sumit s capital A/c 18,000 By Balance c/d 2,50,000 To Amit s capital A/c 1,82,000 3,40,000 3,40,000 Question 18 X,Y and Z are partners sharing profits an losses in the ratio of 4:3:2 respectively. On 31 st March, 2011 Y retires and X and Z decide to share profits and losses in the ratio of 5:3. Then immediately, W is admitted for 3/10 th shares in profits, 2/3 rd of which was given by X and rest was taken by W from Z. Goodwill of the firm is valued at 2,16,000 W brings required amount of goodwill. Give necessary Journal Entries to adjust goodwill on retirement of Y and admission of W if they do not want to raise goodwill in the books of accounts. (4 Marks, May, 2011) (IPCC) Journal Entries Date Particulars L.F. Dr. () Cr.() X s capital A/c Dr. 39,000 Z s capital A/c Dr. 33,000 To Y s capital A/c (3/9 х 2,16,000) 72,000 (Being Y s share of goodwill adjusted in the capital accounts of gaining partners in their gaining ratio 13:11 Refer Working Note.) Cash A/c Dr. 64,800

33 14.33 Accounting To W s capital A/c (3/10 х 2,16,000) 64,800 (Being the amount of goodwill brought in by W) W s capital A/c Dr. 64,800 To X s capital A/c 43,200 To Z s capital A/c 21,600 (Being the goodwill credited to sacrificing partners in their sacrificing ratio 2:1) Working Note: Calculation of gaining ratio of X and Z Gaining ratio = New ratio Old ratio For X = 5/8-4/9 = 13/72 Z = 3/8-2/9 = 11/72 Gaining ratio = 13:11 Question 19 A and B are in partnership sharing profits and losses in the ratio of 3:2. The capitals of A and B are 80,000 and 60,000 respectively. They admit C as a partner who contributes 35,000 as capital for 1/5 th share of profits to be acquired equally from both A & B. The capital accounts of old partners are to be adjusted on the basis of the proportion of C s capital to his share in the business. Calculate the amount of actual cash to be paid off or brought in by the old partners for the purpose and pass the necessary journal entries. Share of profit taken from A and B each= 1/5 x 1/2 = 1/10 each Calculation of New Profit Sharing Ratio (5 Marks, November, 2011) (IPCC) A B Existing ratio 3/5 2/5 Less: Share of profit transferred to C (1/10) (1/10) New share 5/10 3/10 New profit sharing ratio of A:B:C = 5/10 : 3/10 : 2/10 Calculation of Total Capital of the Reconstituted Firm Capital brought in by C for 1/5 th share = 35,000 Total Capital = 35,000 x (5/1) = 1,75,000

34 Issues in Partnership Accounts Calculation of Actual Cash to be paid or brought in by old partners A B C () () () New capital of 1,75,000 distributed in the ratio 5:3:2 87,500 52,500 35,000 Less: Adjusted old capital of A & B (80,000) (60,000) - Cash brought in 7,500 35,000 Cash to be paid (7,500) Journal Entries Dr. Cr. Particulars L.F. Amount Amount Cash A/c Dr. 7,500 To A s Capital A/c 7,500 (Being the shortage of capital brought in cash by A) B s Capital A/c Dr. 7,500 To Cash A/c 7,500 (Being the excess capital withdrawn by B) Note: Entries for cash brought in and paid off only, have been passed. Question 20 Good, Better and Best are in partnership sharing profits and losses in the ratio 3 : 2 : 4. Their capital account balances as on 31st March, 2012 are as follows: Good Better Best 1,70,000 (Cr) 1,10,000 (Cr) 1,22,000 (Cr) Following further information provided: (1) 22,240 is to be transferred to General Reserve. (2) Good, Better and Best are paid monthly salary in cash amounting 2,400, 1,600 and 1,800 respectively. (3) Partners are allowed interest on their closing capital 6% p.a. and are charged interest on 8% p.a. (4) Good and Best are entitled to 8% and 10% respectively of the net profit before making any appropriation.

35 14.35 Accounting (5) Better is entitled to 15% of the net profit before charging Interest on Drawings but after making all other appropriations. (6) During the year Good withdraw 2,000 at the beginning of every month, Better 1,750 at the end of every month and Best 1,250 at the middle of every month. (7) Firm's Accountant is entitled to a salary of 2,000 per month and a commission of 12% of net profit after charging such commission. The Net Profit of the firm for the year ended on 31st March, 2012 before providing for any of the above adjustments was 2,76,000. You are required to prepare Profit and Loss Appropriation Account for the year ended on 31st March, 2012 (8 Marks, May 2012) (IPCC) Profit and Loss Appropriation Account for the year ended on 31 st March, 2012 Particulars Particulars To General reserve 22,240 By Net Profit (See W.N.1) 2,25,000 To Salaries to partners By Interest on drawings (W.N.3) Good 28,800 Good 1,040 Better 19,200 Better 770 Best 21,600 69,600 Best 600 2,410 To Interest on Capital Good 10,200 Better 6,600 Best 7,320 24,120 To Commission to partners Good 18,000 Better 10,281 (W.N.4) Best 22,500 50,781 To Partners Capital A/cs (profit) Good 20,223 Better 13,482 Best 26,964 60,669 2,27,410 2,27,410

36 Issues in Partnership Accounts Working Notes: 1. Profit and Loss Account Particulars Particulars To Salary (Firm s Accountant) 24,000 By Profit 2,76,000 To Commission (Firm s Accountant) (W.N.2) 27,000 To Net Profit transferred to P & L Appropriation A/c 2,25,000 2,76,000 2,76, Commission of Firm s Accountant Profit after salary of firm's accountant = % ( ) 3. Interest on Drawings 12% = ( 2,76,000-24,000 ) 12% = 27, % ( ) Good (at the beginning of every month) ( 2,000 x 6.5 x 8%) 1,040 Better (at the end of every month) ( 1,750 x 5.5 x 8%) 770 Best (at the middle of every month) ( 1,250 x 6 x 8%) 600 2, Commission of Better Commission of Better = [Net profit for appropriation (excluding interest on drawings) - General reserve Interest on capital - Salaries to partners Commission to Good and Best] x 15% Commission to Better = [2,25,000 22,240 24,120 69,600 18,000 22,500] x 15% = 68,540 x 15% = 10,281. Question 21 X, Y and Z are partners sharing profits and losses equally. On 1st December, 2011 Z retired from the partnership firm. The capitals of the partners, after all necessary adjustments stood at 45,000, 75,000 and 50,000 respectively. X and Y continued to carry on the business without settling the accounts of Z. Final payment to Z made on 1 st March, The partnership firm made profit amounting to 30,000 during the period from 1st December, 2011 to 29 th February, What are the rights of Z to share subsequent profit as per the provisions of Section 37 of the Indian Partnership Act? (4 Marks, May 2012) (IPCC)

37 14.37 Accounting Under Section 37 of the Partnership Act, Z can exercise any of the following two options in the absence of a contract: 1. Z is entitled at his option to such share of the profits made since he ceased to be a partner as may be attributable to the use of his share of the property of the firm or 2. Z is entitled to interest at the rate of six per cent per annum on the amount of his share in the property of the firm. It may be noted that Z is not bound to make election until the share of the profit that would be payable to him has been ascertained. Question 22 Arun and Varun were partners sharing profits in the ratio of 13 : 11 respectively. On 1 st April, 2012 they admitted Tarun as a new partner on the following conditions: (i) (ii) All partners would share profits equally in the new firm. Tarun would bring in 52,000 as his capital and 36,000 as his share of goodwill. No goodwill account appeared in the books of the firm at the time of Tarun's admission and it was decided not to open any goodwill account. Adjustment for Tarun's goodwill being made through capital accounts. Pass journal entries to record all the transactions on Tarun's admission. Clearly show the calculation of ratio of sacrifice. Journal Entries on Tarun s admission (5 Marks, November 2012) (IPCC) Year 2012 Dr. Cr. 1 st April Bank A/c Dr. 88,000 To Tarun s Capital A/c (52, ,000) 88,000 (Being amount brought by Tarun towards its Capital and share of Goodwill) Tarun s Capital A/c Dr. 36,000 To Arun s Capital A/c 22,500 To Varun s Capital A/c 13,500 (Being Tarun s share of goodwill in the firm 36,000, has been credited to the old partners in the sacrificing ratio 5:3)

38 Issues in Partnership Accounts Working Note: Calculation of Sacrificing Ratio Old Ratio New Ratio Sacrificing Ratio (Old new) Arun 13/24 1/3 (13/24 1/3) = 5/24 Varun 11/24 1/3 (11/24 1/3) = 3/24 Tarun -- 1/3 -- Therefore sacrificing ratio is 5:3. Question 23 Atul, Balbir and Chatur were carrying on a business in partnership sharing profits in the ratio of 5 : 3 : 2 respectively. On 31 st March, 2012 their Balance Sheet stood as follows: Liabilities Assets Atul's Capital 6,25,000 Goodwill 80,000 Balbir's Capital 3,75,000 Land and Buildings 7,00,000 Chatur's Capital 2,50,000 Furniture 1,65,000 General Reserve 1,00,000 Stock 2,86,000 Trade Creditors 2,10,000 Trade Debtors 1,80,000 Less: Provision for Bad 3,600 1,76,400 Cash at Bank 1,52,600 Total 15,60,000 15,60,000 Atul retired on the above mentioned date and partners agreed that : (i) The current value of goodwill be taken to be equal to the book value of the asset. (ii) Land and Buildings be considered worth 9,00,000. (iii) The provision for bad debts on trade debtors be raised to 5%. (iv) Provision be made for compensation of 5,000 to an ex-employee. (v) Half of the amount due to Atul be paid immediately in cash and the balance be treated as 10% loan, repayable within 3 years. In order to facilitate cash payment to Atul, Balbir and Chatur brought in 3,00,000 in the ratio of 3 : 2 respectively. Prepare Revaluation Account, the Capital Accounts of all the partners and Bank Account. Also draw the Initial Balance Sheet of Balbir and Chatur, immediately after Atul's retirement. (16 Marks, November 2012) (IPCC)

39 14.39 Accounting 1 Revaluation Account To Provision for doubtful debts [(5% of 1,80,000) 3,600] 5,400 By Land and Buildings 2,00,000 To Provision for compensation 5,000 To Partners Capital Accounts (Profit) Atul 94,800 Balbir 56,880 Chatur 37,920 1,89,600 2,00,000 2,00, Partners Capital Accounts Particulars Atul Balbir Chatur Particulars Atul Balbir Chatur To Goodwill By Balance b/d 6,25,000 3,75,000 2,50,000 (5:3:2) 40,000 24,000 16,000 To Cash A/c 3,84,900 By General Reserve 50,000 30,000 20,000 To 10% Loan 3,84,900 By Revaluation A/c 94,800 56,880 37,920 To Atul s By Balbir s & Capital A/c - 24,000 16,000 Chatur s Capital Accounts 40,000 To Balance By Cash A/c 1,80,000 1,20,000 c/d 5,93,880 3,95,920 8,09,800 6,41,880 4,27,920 8,09,800 6,41,880 4,27, Bank Account To Balance b/d 1,52,600 By Atul s Capital A/c 3,84,900 Goodwill appearing in the given balance sheet as on 31 st March, 2012 has been written off in line with the provisions of Accounting Standards.