Chapter-1 ADMISSION OF NEW PARTNER

Transcription

1 Chapter-1 ADMISSION OF NEW PARTNER Meaning: When a new partner is admitted in a running business due to the requirement of more capital or may be to take advantage of the experience and competence of the newly admitted partner or any other reason, it is called admission of a partner in partnership firm. According to section 31(1) of Indian partnership Act,1932, A new partner can be admitted only with the consent of all the existing partners. At the time of admission of a new partner, following adjustments are required: 1. Calculation of new profit sharing ratio and sacrificing ratio. 2. Accounting treatment of Goodwill. 3. Accounting treatment of accumulated profit. 4. Accounting treatment of revaluation of assets and reassessment of liabilities. 5. Adjustment of capital in new profit sharing ratio. 1. Calculation of new profit sharing ratio. Following types of problems may arise for the calculation of new profit sharing ratio. Meathod-I Case (i) When old ratio is given and share of new partner is given. Illustration 1 A and B are partners in a firm sharing profits and losses in the ratio 1:2.They admitted C into the partnership and decided to give him 1/3rd share of the future profits. Find the new ratio of the partners. (CBSE 2003). Ans : {New ratio A,B and C: 2/9:4/9:3/9=2:4:3 respectively, Sacrificing Ratio = 1/9 : 2/9 = 1:2} Note: Unless agreed otherwise, it is presumed that the new partner acquires his share in profits From old partners in their old profit sharing ratio Case (ii) When new partner does not acquire his/her share from all partners Illustration 2. A, B and C are partners sharing profits in the ratio of 3:2:1. They admit D for 1/6 share. C would retain his old share. Calculate new ratio of all partners. (CBSE- 02 Compt.) Solution: New ratio among A, B,C and D= 15:10:5:5 Meathod-II When new partner AQUIRE / TAKE his share from old partners Case (iii) When new partner acquires his/her share from all partners in agreed share. Illustration 2(a). L and M are partners in a firm sharing profits and losses in the ratio of 7: 3. They admitted N for 3/7 th share,which he takes 2/7 th from L and 1/7 th from M. Calculate the new profit sharing ratio.(cbse 1999 Compt., 2001, 2003) Solution: { New ratio among L,M and N = 29:11:30/70 =29:11:30} Case (iv) When new partner acquires his/her share from all partners in certain ratio. Illustration 3. X and Y are partners in a firm sharing profit and losses in the ratio of 3:2. Z is admitted as partner in the firm for 1/6th share in profits.z acquires his share from X and Y in the ratio of 2:1. Calculate new profit sharing ratio of partners. (CBSE 2003) Solution: New ratio among X,Y and Z = 44:31:15, Sacrificing Ratio = X:Y = 2:1 Meathod-III When old partner surrender his share in favour of new partner Case (v) When new partner acquires his share from all partners as a fraction of their share. Illustration 4. A and B are partners in a firm sharing profit and losses in the ratio of 5:3. A surrenders 1/5th of his share, whereas B surrenders 1/3rd of his share in favour of C, a new partner. Calculate the new profit sharing ratio & Sacrificing Ratio.(CBSE 2003, AI 2004) Solution: New ratio among A, B and C = 2:1:1, Sacrificing Ratio = 1:1 Case (vi) When more than one partner is admitted. Illustration 5. X and Y are partners sharing profits in the ratio of 3:2. They admit P and Q as new partners. X surrendered 1/3 of his share in favour of P and Y surrendered ¼ of his share in favour of Q. Calculate the new profit sharing ratio of X, Y, P and Q. (CBSE 2002 Compt.) Solution: New ratio among X,Y,P & Q =

2 2 2. Accounting Treatment of Goodwill 1. At the time of admission of a partner, treatment of Goodwill is necessary to compensate the old partners for their sacrifice. 2. The incoming partner must compensate the existing partners because he is going to acquire the right to share future profits and this share is sacrificed by old partners. 3. If goodwill (Premium) is paid to old partners privately or outside the business by the new partner then no entry is required in the books of the firm. 4. There may be different situations about the treatment of goodwill at the time of the admission of the new partner : VI cases for treatment of Goodwill I.Goodwill privately paid II.Goodwill brought in cash III. Goodwill brought in cash & withdrawn by the Old partners IV. Unable to bring goodwill premium in cash V. Only a part of Goodwill brought in cash VI.Goodwill Brought in kinds Case(i) Goodwill (premium) brought in by the new partner - Privately No accounting entry is recorded in the books of account in this case. Case(ii) Goodwill (premium) brought in by the new partner in cash and retained in the business When the new partner brings his/her share of goodwill in cash, it is transferred to sacrificing Partner's Capital Account in their sacrificing ratio. In short, it can be said that the existing partners share the amount of goodwill brought in by the new partner in their sacrificing ratio. Journal Entry (i) For Premium or Goodwill brought in cash by the New Partner Cash or Bank A/c Dr. To Premium for Goodwill A/c (ii) For sharing Premium of Goodwill by the Sacrificing partners Premium for Goodwill A/c Dr To Sacrificing Partner's Capital A/c {In sacrificing ratio} Important Note : Note I: When the New Partner also brings in Cash as his/ her Capital Contribution Journal Entry for bringing Cash as Capital Contribution Cash A/c Dr To New Partner's Capital A/c To Premium for Goodwill A/c Illustration 6. (All partners sacrifice) A and B are partners sharing profits and losses in the ratio of 3:2.They admit C into partnership for 1/4 th share in profits. C brings `3,00,000 as capital and `1,00,000

3 3 as goodwill. New profit sharing ratio of the partners shall be 3:3:2. Pass necessary Journal entries.(cbse 2003) Sol: Date Particular Lf Dr Cr Bank A/c Dr. 4,00,000 To Premium for Goodwill A/c To C's Capital A/c 1,00,000 3,00,000 (Being the amount of goodwill and capital brought in by new partner C) Premium for Goodwill A/c To A's capital A/c 1,00,000 To B's capital A/c (Being the amount of goodwill distributed 90,000 10,000 between A and B in their sacrificing ratio i.e,.) Note :(i) Calculation of sacrificing ratio :A = B = { 9:1 } Partners Capital A/c Dr. Cr. Particulars A B C Particulars A B C By Bank A/c 3,00,000 By Premium for Goodwill A/c 90,000 10,000 Case (iii) Amount of goodwill which was brought in by new partner, is withdrawn by old partners In this case one additional journal entry passed : Old Partners Capital A/c Dr To Bank / Cash A/c (Cash withdrawn by old partners in sacrificing Ratio) Treatment of Existing Goodwill shown in the books If goodwill already shown in the balance sheet, it should be written off by debiting old partners in their old profit sharing ratio. Illustration 7. (Existing goodwill to be written off) A and B are partners in a firm sharing profits and losses in the ratio of 3:2. They admit C into partnership for 1/5 share. C brings ` 30,000 as capital and `10,000 as goodwill. At the time of admission of C, goodwill appears in the balance sheet of A and B at ` 3,000. New profit sharing ratio of partners shall be 5:3:2. Pass necessary entries. Solution:

4 4 JOURNAL Date Particular L.f Dr Cr A's capital A/c B's capital A/c To Goodwill A/c (Being existing goodwill written off between old partners in their old ratio i.e., 3:2) 1,800 1,200 3,000 Bank A/c To Premium for Goodwill A/c To C's Capital A/c (Being the amount of goodwill and capital brought in by new partner C) Premium for Goodwill A/c To A's capital A/c To B's capital A/c (Being the amount of goodwill distributed between A and B in their sacrificing ratio i.e., 1:1) 40,000 10,000 30,000 10,000 5,000 5,000 Partners Capital A/c Dr. Cr. Particulars A B C Particulars A B C To Goodwill A/c 1,800 1,200 - By Bank A/c 10,000 By premium for Goodwill A/c 5,000 5,000 Notes :Sacrificing ratio = Old ratio New ratio A = 3/5 5/10 = 6-5/10 = 1/10 B = 2/5 3/10 = 4-3/10 = 1/10 Sacrificing ratio between A and B 1:1 i.e., equal Case (iv) when the new partner is unable to bring his share of goodwill in cash Sometimes the new partner does not bring his share of goodwill in cash.then his share of goodwill is calculated and adjusted by the following Journal entry. New Partners' Current / Capital A/c Dr To old partners Capital A/c (In the sacrificing ratio). Illustration 7 : Neeta and Sumita are partners sharing profits and losses in the sates 2:1. They admit Geeta as apartner for 1/4th Share. Geeta pays `50,000 as capital but does not bring any amount for goodwill. The goodwill of the new firm is valued at `36,000. Give Journal entries. (CBSE 1997, 2003) Solution: Date Particular L.f Dr Cr 1. Cash A/c 50,000 To Geeta's Capital A/c 50,000 (Being the amount of Capital brought in cash by the new partner) 2. Geeta's Capital A/c 9,000

5 To Neeta's Capital A/c To Sunita's Capital A/c (Being the amount of new Partner'sshare of goodwill transferred to oldpartner's Capital A/c in their sacrificing ratio i.e.2:1) 5 Partners Capital A/c 6,000 3,000 Dr. Particulars Neeta Sunita Geeta Particulars Neeta Sunita Geeta To Neeta To Sunita 6,000 3,000 Cr. By Cash A/c 50,000 By Geeta A/c 6,000 3,000 Working Note : (1) As nothing is given about sacrifice etc. except the old ratio and the new partners share of Profit Sacrificing Ratio : Old Ratio = 2:1 (2) Goodwill of the firm = ` 36,000 Geeta's share of profit = 1/4 Geeta's share in firms Goodwill = ` 36,000x1/4 = ` 9,000 Case (iv) Premium brought in kinds Illustration 8. Anubhav and Babita are partners in a firm sharing profits and losses in the ratio of 3:2. On April 1,2016 they admit Deepak as a new partner for 3/13 share in the profits. Deepak contributed the following assets towards his capital and for his share of goodwill : Land `90,000, machinery `70,000, stock `60,000 and debtors `40,000. On the date of admission of Deepak, the goodwill of the firm was valued at `5,20,000, which is not appear in the books.record necessaries journal entries in the books of the firm. Show your calculations clearly. (NCERT, CBSE 2004) Solution: Date Particular L.f Dr Cr Land A/c Dr Machinery A/c Dr Stock A/c Dr Debtors A/c Dr To Premium for Goodwill A/c (5,20,000x3/13) To Deepak's Capital A/c (Balancing figure) (Being the amount of goodwill and capital brought in kind by new partner) 90,000 70,000 40,000 60,000 1,20,000 1,40,000 Premium for Goodwill A/c Dr To Anubhav's capital A/c To Babita's capital A/c (Being the amount of goodwill distributed between Anubhav and Babita in their sacrificing ratio i.e. 3:2) 1,20,000 72,000 48,000 Case (v) Partly goodwill brought in by new partner : Illustration 9. (Partly premium brought in cash) S and T share profits equally. They admit D into partnership. D pays only `1,000 for premium out of his share of premium of `1,800 for 1/4 share of profit. Goodwill Account appears in the books at ` 6,000. All partners have decided that goodwill should not appear in the books of the new firm. Pass necessary Journal Entries.

6 6 Solution: Date Particular L.f Dr Cr Bank A/c Dr 1,000 To Premium for Goodwill A/c 1,000 (Being the amount of goodwill brought in cash by new partner) Premium for Goodwill A/c Dr D's Capital / Current A/c Dr 1,000 To S capital A/c 800 To T capital A/c (Being D's share of goodwill transferred to sacrificing partners in their sacrificing ratio i.e., 1:1) S capital A/c Dr T capital A/c Dr To Goodwill A/c (Being existing goodwill written off between old partners in their old ration i.e., equal ) 3,000 3,000 6,000 Case (vi) Gain made by an old partner : Illustration 10 (Sacrifice/Gain made by a partner) Ashok and Ravi were partners in a firm sharing profits and losses in the ratio of 7:3. They admitted Chander as a new partner. The new profit ratio between Ashok,Ravi and Chander will be 2:2:1.Chander brought ` 24,000 for his share of his goodwill. Pass necessary journal entries for the treatment of goodwill. (CBSE 2000) Sol: Journal Date Particular L.f Dr Cr Bank A/c 24,000 To Premium for Goodwill A/c 24,000 (Being the amount of goodwill brought inby new partner) Premium for Goodwill A/c Ravi's capital A/c To Ashok's capital A/c 24,000 12,000 (Being the goodwill credited to Ashok's capital A/c) 36,000 Note : Calculation of sacrifice/gain share of partners(s) : Sacrificing ration = Old ratio- new ratio Ashok = 7/10-2/5 = 7-4/10 = 3/10 sacrifice Ravi = 3/10-2/5 = 3-4/10 = (-1/10) gain Being negative result, it shows gain. Since Ravi is gaining equal to 1/10 in the profits, therefore, he will also compensate Ashok proportionately. For 1/5 share Chander brought `24,000, therefore, Ravi will compensate Ashok by `12,000 i.e., ` 24,000 x 5/1 x 1/10. Illuustration:11 X and Y are the partners sharing profits and losses in the ratio of 5: 3. On April 1, 2016, they decided to admit Z for 1/3 rd share in profits. The new ratio is 2: 4: 3. C brings in Rs 30,000 as capital and the necessary amount for goodwill/premium in cash for his share of profits. The goodwill of the firm valued is at Rs 1,26,000. Pass the necessary Journal entries for the treatment of goodwill. Solution: Calculation of Sacrificing / Gaining Ratio Sacrificing Ratio = Old Ratio New Ratio Partners = Old Ratio New Ratio = Sacrifice / Gain

7 X = 7 Y = The negative sign implies that Y is gaining. This implies that Y need to compensate X as X is sacrificing and Y is gaining. Calculation of C's Goodwill C's Goodwill = Firm's Goodwill C's share C's Goodwill = 1,26,000 = ` 42,000 Cash/Bank A/c Dr. 72,000 To C's Capital A/c 30,000 To Premium for Goodwill A/c 42,000 (Amount of capital and goodwill brought in by C) Premium for Goodwill A/c Dr. 42,000 Y's Capital A/c { 1,26,000 } 8,750 To X's Capital A/c (Premium for Goodwill brought in by C adjusted to X's Capital Account. Also, Y is compensating X as Y is gaining) 50,750 Case (vii) Hidden Goodwill Illustration 12. A and B are partners with capitals of ` 26,000 and ` 22,000 respectively. They admit C as partner with 1/4th share in the profits of the firm. C brings ` 26,000 as his share of capital.give journal entry to record goodwill on C s admission. (CBSE 2001 Compt.) Solution: Date Particular L.f Dr Cr Bank A/c To C's capital A/c (Being the amount of goodwill brought in by new partner) C's capital A/c To A's capital A/c To B's capital A/c (Being the goodwill credited to sacrificing partners' capital a/cs in their sacrificing ratio i.e., equal) 26,000 7,500 26,000 3,750 3,750 Notes :(1) Calculation of C s share of goodwill : Total capital of new firm on basis of C s capital i.e., 26,000 x 4/1 1,04,000 Total capital of A and B and C i.e., `26,000 + ` 22,000 + ` 26,000 (74,000) Goodwill of the firm 30,000 Thus C s share of goodwill = 30,000 x 1/4 = ` 7,500 (2) In the absence of information, profits will be shared equally. 3. Accounting treatment of Accumulated Profits. Accumulated profits and reserves are distributed to partners in their old profit sharing ratio. If old partners are not interested to distribute, these accumulated profits are adjusted in the same manner as goodwill and the following adjusting entry will be passed. New Partner s capital A/c Dr. (New share) To old partners capital A/c (Sacrificing ratio)

8 8 Distribution of Goodwill and Reserves in case when some of the Old Partners are Gaining, Some are Sacrificing It is not always necessary that all the old partners may sacrifice their share on the admission of a new partner. Sometimes, there may be some of the old partners who are not sacrificing, while there may be some old partners who may be gaining due to the admission of the new partner. In this case, the partners who gain are called Gaining Partners and the partners who loose are called Sacrificing Partners. Let us understand how the goodwill is distributed in this case. Illustration:13 A, B and C are partners sharing profits and losses is the ratio of 2: 3: 1. They decided to admit D into the partnership for 1/5 th share in future profits. At the time of D's admission, the Balance Sheet showed general reserve of Rs 90,000. D brought in Rs 40,000 for his share of goodwill. The new ratio is 3: 3: 2: 2. Pass the necessary Journal entries and show the relevant items in the partners' Capital Account. Solution Calculation of Sacrificing / Gaining Ratio Sacrificing Ratio = Old Ratio New Ratio The negative sign implies that C is gaining. This implies that C need to compensate A and B. Calculation of Firm's Goodwill Firm's Goodwill = D's Goodwill Reciprocal of D's Share Firm s Goodwill = 40,000 5/1 = 2,00,000 Cash/Bank A/c Dr. 40,000 To Premium for Goodwill A/c 40,000 (Amount of capital and goodwill brought in by D) Premium for Goodwill A/c Dr. 40,000 C's Capital A/c {2,00,000 1/30} Dr. 6,667 To A's Capital A/c 6,667 To B's Capital A/c 40,000 (Premium for Goodwill brought in by D adjusted to A and B's Capital Account. Also, C is compensating A and B as he is gaining) General Reserve A/c Dr. 90,000 To A's Capital A/c 30,000 To B's Capital A/c 25,000 To C's Capital A/c 15,000 (General Reserve transferred to the partner's capital accounts in the ratio 2: 3: 1)

9 9 4. Accounting treatment for revaluation of assets and re-assessment of liabilities : The assets and liabilities are generally revalued at the time of admission of a new partner.revaluation Account is prepared for this purpose in the same way as in case of change in profit sharing ratio. This account is debited with all losses and credited with all gains. Balance of Revaluation Account is transferred to old partners in their old ratio. Preparation of Revaluation A/c, Partner s Capital A/c & Balance sheet Illustration 14. (CBSE 2001)Following is the Balance Sheet of Shashi and Ashu sharing profit as 3:2. Creditors General reserve Workmens compensation fund Capital : Shashi Ashu 18,000 25,000 15,000 15,000 10,000 Debtors Less: prov. For D. D. Land and Building Plant and machinery Stock 22,000 1,000 21,000 18,000 12,000 11,000 Bank 21,000 83,000 83,000 On admission of Tanya for 1/6th share in the profit it was decided that: (i) Provision for doubtful debts to be increased by `1,500. (ii) Value of land and building to be increased to `21,000. (iii) Value of stock to be increased by `2,500. (iv) The liability of workmen s compensation fund was determined to be `12,000. (v) Tanya brought in as her share of goodwill `10,000 in cash. (vi) Tanya was to bring further cash of `15,000 for her capital. Prepare Revaluation A/c, Capital A/c and the Balance Sheet of the new firm. Solution: Revaluation A/c Particular ` Particular ` To Provision for Doubtful debt To Capital A/cs : Shashi 3/5 2,400 Ashu 2/ ,500 4,000 By Land and Building A/c By Stock 3,000 2,500 5,500 5,500 Dr Partners' Capital Account Cr Particular Sashi Ashu Tanya Particular Sashi Ashu Tanya To balance c/d 40,200 26,800 15,000 By balance b/d By general reserve By workmen's Compensation A/c By Revaluation A/c By Bank A/c By Premium for goodwill 15,000 15,000 1,800 2,400 6,000 10,000 10,000 1,200 1,600 4,000 15,000 40,200 26,800 15,000 40,200 26,800 15,000 Balance Sheet

10 Creditors Workmen compensation fund Capital : Shashi Ashu Tanya 18,000 12,000 40,200 26,800 15,000 1,12, Debtors 22,000 Less: prov. for D.D 2,500 Land and Building Plant and machinery Stock Bank 19,500 21,000 12,000 13,500 46,000 1,12,000 Illustration 15 (CBSE 2001)A, B and C are partners sharing profits and losses in the ratio of 2:3:5. On 31 st March 2016, their Balance Sheet was as follows Capital A/c A 36,000 B 44,000 C 52,000 Creditors A/c Bill Payable Profit and Loss Account 1,32,000 64,000 32,000 14,000 2,42,000 Cash Bills receivable Furniture Debtors Investments Machinery Goodwill 18,000 24,000 28,000 42,000 32,000 34,000 20,000 2,42,000 They admit D into partnership on the following terms: (i) Furniture and Machinery to be depreciated by 15%. (ii) Stock is revaluated at `48,000. (iii) Goodwill to be valued at `24,000. (iv) Outstanding rent amount to `1,800. (v) Prepaid salaries ` 800. (vi) D to bring `32,000 towards his capital for 1/6th share. Prepare Revaluation Account, Partners Capital Accounts and Balance Sheet of the new firm Sol: Revaluation A/c Particular ` Particular ` To furniture A/c To Machinery A/c To Outstanding rent A/c 4,200 5,100 1,800 By Stock A/c By Prepaid salaries A/c By Capital A/c (loss) : 4, A 2/10 1,260 B 3/10 1,890 C 5/10 3,150 6,300 11,100 11,100 Dr Partners capital A/c Cr Particulars A B C D Particulars A B C D To Rev. A/c To Goodwill A/c To A's capital To B's capital To C's capital To Balance C/d 1,260 4, ,890 6,000 41,510 3,150 10,000 47, ,200 2,000 28,000 By balance c/d By P/L A/c By D's capital ByCashA/c 36,000 2, ,000 4,200 1,200 52,000 7,000 2,000 32,000 Balancesheet

11 Capital A/c: 11 A 34,340 B 41,510 C 47,850 D 28,000 1,51,700 1,51,700 Cash Bill Receivable Furniture Stock 50,000 24,000 23,800 48,000 1,51,700 Illustration 16. X and Y are partners sharing profits and losses in the ratio of 60 : 40. The firm's Balance Sheet as on was as follows : Liabilities Rs. Assets Rs. Capital Accounts : Fixed Assets 3,00,000 X 1,20,000 Investments 50,000 Y 80,000 2,00,000 Current Assets 2,00,000 Long-term Loan 2,00,000 Loans and Advances 1,00,000 Current Liabilities 2,50,000 6,50,000 6,50,000 Due to financial difficulties, they have decided to admit Z as a partner in the firm from on the following terms: Z will be entitled to 40% of the profits, Z will bring in cash `1,00,000 as capital. It is agreed that goodwill of the firm will be brought in cash as his share of goodwill. It was also decided that the partners will not withdraw their share of goodwill nor will the goodwill appear in the books of account. Goodwill is to be valued at two times the average profits of last three years. The profits of the previous three years were as follows : For the year ended 31,3,2014,Profit `.20,000(including insurance claim received `40,000). For the year ended 31,3,2015, Loss `.80,000 (including voluntary retirement compensation paid `1,10,000).For the year ended 31,3,2016, Profit `1,05,000 (including a profit of ` 25,000 on the sale of assets). It was decided to revalue the assets on 31,3,2016 as follows : Fixed Assets (Net) `4,00,000 Investment Nil Current Assets `1,80,000 Loans and Advances `1,00,000 The new profit sharing ratio after the admission of Z was 35 : 25 : 40, Pass journal entries on admission, show goodwill calculation and prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet as on after the admission of Guru. Sol: Journal Entries Date Particulars J.F. Dr Cr Fixed Assets A/c Dr, 1,00,000 To Revaluation A/c 1,00,000 (For increase in the value of fixed assets) Revaluation A/c Dr, 70,000 To Investment A/c 50,000 To Current Assets A/c 20,000 (For decrease in the value of assets) Revaluation A/c Dr, 30,000

12 12 To X's Capital A/c 18,000 To Y's Capital A/c 12,000 (For profit on revaluation credited to old partners capital Alc in old ratio, i,e,, 60 : 40) Bank A/c Dr, 1,24,000 To Z's Capital A/c 1,00,000 To Premium for Goodwill A/c 24,000 (For amount of capital and goodwill brought in by Guru) Premium for Goodwill A/c Dr, 24,000 To X's Capital A/c 15,000 To Y's Capital A/c 9,000 (For amount of goodwill transferted to old patinas capital A/c in sacrificing ratio, i,e,,5 : 3) Working Notes : (i) Calculation of Goodwill : Profit for ` 20,000 Less : Abnormal Gain -40,000 (-) 20,000 Loss for (-) 80,000 Add : Abnormal Loss 1,10,000 30,000 Profit for ,05,000 Less : Abnormal Gain 25,000 80,000 Total Profits 90,000 ` Value of Goodwill = ( Total profit / No. of Years) x No. of Years' Purchases = x2 = 6 0, Goodwill brought in by Z = Rs. 60,000 x 40/100 Rs. 24,000 WN-2 Sacrificing Ratio = 5:3 Dr Revaluation A/c Cr Particulars Rs. Particulars Rs. To Investment A/c To Current Assets A/c To Capital Acs : 50,000 20,000 By Fixed Assets A/c 1,00,000 X (60/100) 18,000 Y (40/100) 12,000 30, ,00,000 Dr Partners' Capital A/c Cr Particulars X Y Z Particulars X Y Z By Balance b/d 120,000 80,000 By Revaluation A/c 18,000 12,000 By Bank A/c To balance c/d By Premium for Goodwill A/c 15,000 9,000

13 Balance Sheet as on 1st April, 2016 Liabilities Rs. Assets Rs. Capital Accounts : Fixed Assets 4,00,000 X 1,53,000 Current Assets (including Bank Balance Y 1,01,000 (Rs. 1,80,000 + Rs. 1,00,000 + Rs. 24,000) 3,04,000 Z 1,00,000 Loans and Advances 1,00,000 Long-term Loan 2,00,000 Current Liabilities 2,50,000 8,04,000 8,04,000 Illustration-17.(New partners profit sharing ratio is not given at all) A and B share profits in the proportion of 3/4 and 1/4. Their Balance Sheet on March 31, 2016 was as follows : Sundry Creditors 41,500 Cash at Bank 26,500 Reserve Fund 4,000 Bills Receivables 3,000 Capital Accounts : Debtors 16,000 A 30,000 Stock 20,000 B 16,000 Fixtures 1,000 Land and Buildings 25,000 91,500 91,500 On April 1, 2016, C was admitted into partnership on the following terms: a) That C pays `10,000 as his capital. b) That C pays `5,000 for goodwill. Half of this sum is to be withdrawn by A and B. c) That stock and fixtures be reduced by 10% and a 5% provision for doubtful debts be created on Sundry Debtors and Bills Receivables. d) That the value of land and buildings be appreciated by 20%. e) There being a claim against the firm for damages, a liability to the extent of `1,000 should be created. f) An item of `650 included in Sundry Creditors is not likely to be claimed and hence should be written back. Prepare the Balance sheet on the admission of Mr. C in the book of firm assuming that the profitsharing ratio between A and B has not changed. SOLUTION : Balance Sheet as on April 1, 2016 Sundry Creditors 41,850 Cash at Bank 39,000 Capital Accounts : Bills Receivable 3,000 A 36,075 Less Provisions : ,850 B 18,025 Sundry Debtors 16,000 C 10,000 Less Provisions : ,200 Stock 18,000 Fixtures 900 Land & Buildings 30,000 1,05,950 1,05,950

14 WORKING NOTES : 14 (1) Dr. P & L Adjustment Account / Revaluation A/c Cr To Stock A/c 2, By Land & Buildings A/c 5,000 Apr. 1 To Fixtures A/c 100 Apr. 1 By S. Creditors 650 To Prov. for Lib. for Damages 1,000 To Prov. for Bad Debts A/c 800 To Prov. for Doubtful Debts on B/R 150 To A's Capital A/c 1 Profit 1,200 To B's Capital A/c I Transferred 400 5,650 5,650 (2) Dr. Bank Account Cr To Balance B/d 26, By As Capital A/c 1,875 Apr. 1 To C's Capital A/c 10,000 Apr.1 By B's Capital A/c 625 To Premium A/c 5,000 By Balance C/d 39,000 41,500 41,500 (3) Dr Capital Accounts Cr Date Particulars A B C Date Particulars A B C 2008 To Bank A/c 1, By Balance B/d 30,000 16, Apr. 1 To Balance C/d 36,075 18,025 10,000 Apr 1 By Bank A/c ,000 By Premium A/c 3,750 1, By P & L Adj (Profit 1, By Res. Fund At 3,000 1, ,950 18,650 10,000 37,950 18,650 10,000 {Imp. Note : In this question, students may note that incoming partner's share of profit is not given. However, it is stated that profit sharing ratio between A & B had not changed, which specifically means that the Sacrificing Ratio shall also be the same as the old ratio between them. For this purpose, we need NEITHER the share of the new partner nor the new Profit Sharing Ratio} Q.1. A and B are in partnership, sharing profits in proportion of 4/7 and 3/7 respectively. Their Balance Sheet is as follows : Creditors 19,600 Cash 10,000 Provision for Doubtful debt 1,800 Debtors 40,000 Bills Payable C s Loan A/c 9,000 30,000 Stock Investment 60,400 10,000 Capitals : Goodwill 5,000 A 50,000 Plant 25,000 B 40,000 90,000 1,50,400 1,50,400 C is admitted into partnership on the following terms : (i) The new profit-sharing ratio will be 3 : 2 : 1 between A, B and C respectively. (ii) C s Loan should be treated as his Capital. (iii) C is not to bring goodwill in cash. Goodwill is valued on the basis of 2 years' purchase of the average profits of the last three years. (iv) Average Profits of the last three years are `6,000. (v) ` 7,000 of Investments were to be taken over by A and B in their profit sharing Ratio.

15 15 (vi) Stock be reduced by 10%. (vii) Provision for doubtful debts should 5% on Debtors and a provision for 2% should also be made on Debtors. (viii) B is to withdraw ` 8,000 in cash. Prepare the Balance Sheet of the new firm. [Ans: Loss on revalution A/c -`7000; Capital A/c : A - ` 40,000; B- `25,000; C-` 30,000, Balance sheet - ` 1,23,600] Q.2. [Delhi 2004] Usha and Asha are partners in a firm sharing profits in the ratio of 3 : 2. Their Balance Sheet on 31st March, 2016 was as foilows : Liabilities Rs. Assets Rs. Creditors 27,000 Cash 24,000 General Reserve 18,000 Debtors 48,000 Bills Payable 5,000 Less : Provision for Bad Debts 4,800 43,200 Capitals : Stock 30,000 Usha 40,000 Patents 7,400 Asha 35,000 Building 20,400 1,25,000 1,25,000 Neelam is admitted into the partnership giving her 1/5th share in the profits. Neelam to bring in Rs. 30,000 as her capital and her share of Goodwill in cash, subject to the following terms : (a) Goodwill of the firm to be valued at Rs.50,000. (b) Stock to be reduced by 10% and Provision for Bad Debts be reduced by Rs. 2,400. (c) Patents are valueless. (d) There was a claim against the firm for damages amounting to Rs.2,000.The claim has now been accepted. Prepare Revaluation Account. Partners' Capital Accounts and the Balance Sheet of the new firm. [Ans : Loss on Revaluation `10,000 ; Dr. Premium `10,000; Cr. Usha ` 6,000 and Asha `4,000; Balance of Capital A/cs Usha `50,800, Asha ` 42,200 and Neelam `30,000; Cash Balance ` 64,000; Balance Sheet Total `1,57,000.] Q3. [Al 2001] Madan and Krishna were partners in a firm. Their Balance Sheet as on 31st December, 2016 stood as follows : Liabilities Rs. Assets Rs. Outstanding Expenses 10,000 Cash in Band 4,000 Sundry Creditors 30,000 Cash at Bank 56,000 Bank Overdraft 20,000 Debtors 30,000 Bills Payable 30,000 Furniture 12,000 Reserve 18,000 Machinery Capitals : Building 57,000 Madan Krishna 30,000 75,000 1,83,000 1,83,000 They decided to admit Ram on the following terms : a) That machinery, building and furniture be depreciated by 5%. b) A provision at 5% be created for doubtful debts. c) A goodwill for Rs be valued in the books of the firm. d) Ram brings Rs.45,000 as capital and he will receive 1/3rd share in future profits. Prepare Revaluation A/c, Capital A/cs of all partners and the Balance Sheet of the new firm. [Loss on Revaluation Rs. 6,150. For Goodwill : Dr. Ram's Capital Rs. 10,000, Cr. Madan's Capital and Krishna's Capital Rs. 5,000 each; Balance of Capital A/c : Madan Rs. 55,925, Krishna Rs. 40,925 and Ram Rs. 35,000; Bank Balance Rs. 1,01,000; Balance Sheet Total Rs. 2,21,850.] Q4. A, B and C are partners sharing profits and losses in the ratio of 3 : 2 : 1 respectively.d is admitted as a new partner on 31st March for an equal share and is to pay Rs. 50,000 as capital. Following is the Balance Sheet on the date of admission:

16 16 BALANCE SHEET Capital A/c: Land and Building 50,000 A 60,000 Plant and Machinery 40,000 B 60,000 Furniture 30,000 C 40,000 Stock 20,000 Creditors 30,000 Debtors 30,000 Bills Payable 10,000 Bills Receivable 20,000 Bank 10,000 2,00,000 2,00,000 Following are the required adjustments on D's admission: 1. Out of the Creditors, a sum of ` 10,000 is due to D which will be transferred to his capital. 2. Advertisement Expenses of ` 1,200 is to be carried forward to next accounting period. 3. Expenses debited in the Profit and Loss Account includes a sum of ` 2,000 paid for B's personal expenses. 4. A Bill of Exchange of ` 4,000, which was previously discounted with the banker, was dishounored on 31st March, 2016 but no entry has been passed for that. 5. A Provision for boubtful 5% is to be created against Debtors. 6. Expenses on revaluation amounting to ` 2,100 is paid by A. Prepare the necessary Ledger Accounts and the Balance Sheet after D's admission. [Loss on Revaluation ` 600; Partners' Capital Accounts: A ` 61,800; B `57,800; C ` 39,900; D ` 50,000; Balance Sheet Total Rs. 2,39,500] [Hint: When a bill, which was previously discounted, is dishonoured, Debtors Account is debited and Bank Account is credited. In effect, Debtors balance is increased and Bank balance is decreased.] Q.5 (New partners profit sharing ratio is not given at all) A and B share profits in the proportion of 3/4 and 1/4. Their Balance Sheet on March 31, 2016 was as follows : Sundry Creditors 83,000 Cash at Bank 53,000 Reserve Fund 8,000 Bills Receivables 6,000 Capital Accounts : Debtors 32,000 A 60,000 Stock 40,000 B 32,000 Fixtures 2,000 Land and Buildings 50,000 1,83,000 1,83,000 On April 1, 2008, C was admitted into partnership on the following terms: a) That C pays `20,000 as his capital. b) That C pays `10,000 for goodwill.half of this sum is to be withdrawn by A & B. c) That stock and fixtures be reduced by 10% and a 5% provision for doubtful debts be created on Sundry Debtors and Bills Receivables. d) That the value of land and buildings be appreciated by 20%. e) There being a claim against the firm for damages, a liability to the extent of `2,000 should be created. f) An item of `1,300 included in Sundry Creditors is not likely to be claimed and hence should be written back. Prepare the new Balance sheet on the admission of Mr. C in the book of firm assuming that the profitsharing ratio between A and B has not changed.

17 17 5. Adjustment of capital 1. On the basis of old partner 2. On the basis of New partnerrs' capital 1. Calculation of New Partners capital on the basis of old partners: Step 1. Calculate the adjusted closing capitals of old partners (after all adjustments have been made. i.e; after preparing Old Partners capital A/c) Step 2. Calculate the total closing capital of new firm as follows : [Total capital of new firm = Old partners Total Adjusted capital Reciprocal of remaining share] [Remaining share = 1- New partners share] Step 3. Calculate the proportionate capital of new partner as under : [New Partner's Capital = Total capital of the new firm New Partners share of profit] For example, the Capitals of X and Y after all the adjustments and revaluation are `25,000 and `15,000 respectively. They admitted C as a new partner with 1/5th share in the profits. C's capital will be calculated as follows : Sol: Share of A and B (after giving 1/5 th share to C) = 1-1/5 = 4/5 i.e., Remaining share. Thus, if for 4/5 th share of profits the Combined Capital of A and B = ` 40,000, Thus, the total capital of the firm = ` 40,000 x5/4 = ` 50,000 C's Capital for 1/5 th share of profit = ` 50,000 x 1/5 = ` 10,000. Illustration-1 (C.B.S.E. 2009) Following is the Balance Sheet of Jain and Gupta sharing profit as 3:2. Creditors Bills payable Bank overdraft Reserve Capital : Jain Gupta 20,000 3,000 17,000 15,000 70,000 60,000 Cash Debtors 20,500 Less: prov. For D. D. 300 Stock Plant Building Motor Vehicles 14,800 20,200 20,000 40,000 70,000 20,000 1,85,000 1,85,000 They agreed to admit Mishra for 1/4 th share from subject to the following terms: a) Mishra to bring in capital equal to 1/4th of the total capital of Jain and Gupta after all adjustments including premium for goodwill. b) Buildings to be appreciated by `14,000 and Stock to be depreciated by `6,000. c) Provision for Bad debts on Debtors to be raised to `1,000. d) A provision be made for `1,800 for outstanding legal charges. e) Mishra's share of goodwill/premium was calculated at `10,000 which is brought by him in cash. Prepare Revaluation Account, Partner's Capital Accounts and the Balance Sheet of the new Mishra's admission. Sol: Dr Revalution A/c Cr Particular ` Particular ` To Stock To Prov. For Bad Debts To prov. For Legal Charges To Capital A/cs : 6, ,800 By Building A/c 14,000 firm on

18 18 Jain 3,300 Gupta 2, ,000 14,000 Dr Partners' Capital Account Dr Particular Jain Gupta Mishra Particular Jain Gupta Mishra To balance c/d 88,300 88,300 72,200 72,200 40,125 40,125 By balance b/d By Reserve By Revaluation A/c By Premium for goodwill By Bank A/c 70,000 9,000 3,300 6,000 88,300 60,000 6,000 2,200 4,000 72,200 40,125 40,125 Balance Sheet Creditors Bills payable Provision for legal charges 20,000 3,000 1,800 Capital : Jain 88,300 - Gupta 72,200 - Mishra 40, ,625 Working Note WN-1 Calculation of mishra s capital Wn-2 Computation of Bank Balance 2,25,425 Cash Bank Debtors 20,500 Less:Prov.For Bad Debt 1,000 Stock Buildings Plant Motor vehicles 14,800 33,125 19,500 14,000 84,000 40,000 20,000 2,25,425 Illustration-2. S and K are partners in a firm sharing profits and losses as S 75% and K 25%. On 1st April, 2008 their position was given as : liabilities ` Assets ` Capital Alc Plant 40,000 S 50,000 Stock 10,000 K 30,000 80,000 Sundry Debtors Sundry Creditor Cash at Bank 20,000 1,00,000 1,00,000 R is now to join the partnership. He agrees to pay the partners `20,000 by way of goodwill and introduces 1/2 of the combined capital of the two existing partners after depreciating plant and stock at 20% and 10% respectively and raising a provision of 10% against Sundry Debtors. The new partner is to be allowed 1/4th of the profit of the firm. You are required to record the above transactions in the books of the firm and give the new balance sheet of the new firm. Solution: Journal Date Particulars L.F. Dr. Cr. Revaluation A/c Dr. 12,000 To Plant A/c To Stock A/c 1.000

19 19 To Provision for Doubts Debts A/c 3,000 (For increase in the value of assets and decrease in the amount S's Capital of liabilities) A/c Dr 9,000 K's Capital A/c Dr 3,000 To Revaluation A/c 12,000 (For loss on revaluation transferred to partners' capital Nc in ratio 3: I) Bank A/c Dr 20,000 To Premium for Goodwill A/c 20,000 (For the amount of goodwill brought in by new partner) Premium for Goodwill A/c Dr 20,000 To S's Capital A/c To K's Capital A/c (For distribution of premium between old partners in their sacrificing ratio 3 : 1) Bank A/c Dr To R s Capital A/c (For the amount of capital brought in by new partner) 44,000 15,000 5,000 44,000 Balance sheet of new firm Liabilities Rs. Assets Rs Capital A/c: Plant 32,000 S 56,000 Stock 9,000 K 32,000 Sundry Debtors 30,000 R 44,000 1,32,000 Less : Provision (3,000) 27,000 Sundry Creditors 20,000 Cash at Bank 84,000 (20, , ,000) 1,52,000 1,52,000 WN-1 Partner s Capital A/c Particulars S K R Particulars S K R To Revaluation A/c 9,000 3,000 By Balance b/d 50,000 30,000 (Loss) By Premium for Goodwill Alc To Balance c/d 56,000 32,000 44,000 15,000 5,000 By Bank A/c(WN) 44,000 65,000 35,000 44,000 65,000 35,000 44,000 SOME SPECIAL CASES Illustration-3 {both case-1 & Case-2) G and H were partners in a firm sharing profits in the ratio 5:3.They admit U as a partner with 1/5 th contributed according to the proportionate capital.the financial position was as under : Creditors 19,000 Goodwill 10,000 Bills Payable 8,000 Land & Building 25,000 Capital A/cs : Plant & Machinery 35,000 G 55,000 Stock 20,000 H 30,000 85,000 Debtors 25,000 General Reserve 16,000 Investments 14,000 Provision for Bad & Doubtful Debts 1,500 Cash 2,400

20 20 Outstanding Salary 2,400 Prepaid Insurance 500 1,31,900 1,31,900 They agreed to admit U, a new partne on the following terms : (i) U brings in `5,200 as his share of goodwill in cash. (ii) Land and Building ; Plant and Machinery were to be valued at `38,000 and `30,000 respectively. (iii) The provision for bad and doubtful debts was to be maintained upto `1,000. (iv) A liability for ` 1,200 included in Sundry Creditors was not likely to arise. (v) `10,000 of investment were taken over by old partners in their profit sharing ratio. (vi) H is to withdraw its `2,400 in cash. (vii) An amount of `100 is outstanding for repairs. (viii) The capital of the partners were to be adjusted in profit sharing ratio by opening current A/c. Pass necessary journal entries and Balance Sheet on the admission of U. Sol: Journal Entries Date Particulars L.F Dr Cr General Reserve A/c Dr.. 16,000 To Ajay's Capital A/c 0 10,000 To Vijay's Capital A/c (For the transfer of general reserve to old partners' capital a/cs in their old ratio) Revaluation A/c Dr. 5,100 To Plant & Machinery A/c 5,000 To Outstanding Repairs A/c 100 (For decrease in the value of assets and increase in the amount of liabilities recorded) Land and Building A/c Dr. 13,000 Provision for Bad & Doubtful Debts Dr. 500 Creditors A/c Dr. 1,200 To Revaluation A/c 14,700 (For increase in the value of assets and decrease in the amount of Revaluation A/c Dr. 9,600 To G's Capital A/c 6,000 To H's Capital A/c 3,600 (For profit on revaluation transferred to old partners' capital a/cs in their old ratio) Cash A/c To Premium for Goodwill A/c 5,200 5,200 (For share of goodwill broughl in cash by new partner) Premium for Goodwill A/c 5,200 To G's Capital A/c 1,950 To H 's Capital A/c 3,250 (For U's share of goodwill transferred to old partners A/c in their sacrificing G's Capital ratio A/c 5 73) Dr 6,250 H's Capital A/c Dr 3,750 To Goodwill A/c 10,000 (For existing goodwill written off in old ratio) G's Capital A/c Dr 6,250 H's Capital A/c Dr 3,750 To Investments A/c 10,000 (For investments taken over by old partners in profit sharing ratio 5:3)

21 21 H's Capital A/c 2,400 To Cash A/c 2,400 (For amount withdrawn by H) Cash Alc 23,350 To U s Capital A/c (For the amount of capital brought in by U) 23,35 G's Capital A/c 3,375 To G's Current A/c 3,375 (For surplus capital transferred to current a/c) H's Current A/c 3,375 To H's Capital A/c 3,375 (For deficit capital transferred to current A/c) Balance Sheet Creditors 17,800 Land & Building 38,000 Bills Payable 8,000 Plant & Machinery 30,000 Capital A/c : Stock 26,000 G 58,375 Debtors 25,000 H 35,025 Investments 4,000 U 23,350 1,14,750 Cash (2, ,200 2, ,350) 28,550 Provision for Bad & Doubtful Debts 1,000 Prepaid Insurance 500 Outstanding Salary 2,400 H's Current A/c 3,375 Outstanding Repairs 100 G's Current A/c 3,375 1,49,425 1,49,425 Partners Capital A/c Particulars G ` H ` U ` Particulars G ` H ` To Goodwill A/c 6,250 3,750 - By Balance bid 55,000 30,000 To Investments A/c 6,250 3,750 - Bs General Reserve A/c 10,000 6,000 To Cash A/c - 2,400 - By Revaluation A/c 6,000 3,600 To Balance c/d 61,750 31,650 - By Premium for Goodwill 3,250 1,950 74,250 41,550-74,250 41,550 To Ajay's Current A/c 3,375 41,550 - By Balance b/d 61,750 31,650 - To Balance c/d 58,375 35,025 23,350 By Cash A/c ,350 By Vijay's Current A/c - 3,375-61,750 35,025 23,350 61,750 35,025 23,350 U ` Wn-1 New Ratio: 5:3:2 Wn-2 Computation of U s capital which is not given Capitals of G and H after making the necessary adjustments are ` 61,750 and ` 31,650 respectively. Thus, the combined capital of G and H works out `93,400 which is 4/5(1-1/5) of the capital of the firm, hence U's 1/5th share in the capital of the firm will be : 93,400 x5/4x1/5 = `23,350 Wn-3 Capitals of the partners are to be adjusted in new profit sharing ratio, 5 : 3 : 2. For that purpose base of new partner's capital will be taken. Based on U's capital, the total capital of the firm will work out,

22 22 U's capital for 1/5th share = ` 23,350. So, the capital of the whole firm = 23,350 x5/1 =` 1,16,750. G 's share of capital =`1,16,750 x 5/10 =` 58,375 H's share of capital = 1,16,750 x 3/10 = Rs. 35,025 (iv) Excess Capital of G = ` 61,750 ` 58,375 = `3,375 Deficit Capital of H = ` 35,025 ` 31,650 = ` 3,375 Illustration- 4 [C.B.S.E. Sample Paper 1, 2003] (Preparation of capital accounts) X and Y are partners in a firm sharing profits in the ratio of 3:2. They decided to admit Z as a new partner, w.e.f. April 1, In future profits will be shared equally. The Balance Sheet of X and Y as at April 1, 2016 and the terms of admission are given below: BALANCE SHEET of X and Y Liabilities Amount Assets Amount Capitals: Plant and Machinery 4,53,000 X 3,00,000 Furniture and Fittings 62,000 Y 3,00,000 6,00,000 Stock 84,000 S. Creditors 60,000 S. Debtors 36,000 Outstanding Expenses 15,000 Cash in Hand 40,000 6,75,000 6,75,000 (a) Capital of the firm was fixed at ` 6,00,000 o be contributed by partners in the profit sharing ratio. The difference will be adjusted in cash. (b) Z to bring his share of capital and Goodwill in cash. Goodwill of the firm is to be valued on the basis of two year's purchase of Super Profit. The average net profit expected in future by the firm is `90,000 per year. The normal rate of return on capital in similar business is 10%. Calculate Goodwill and prepare Partners' Capital Account and Cash Account. SOLUTION: CALCULATION OF GOODWILL Capital Nonnal Rate Expected Profit Average Profit Super Profit `6,00,000 (given) 10% (given) `90,000 (given) ` 60,000 (`6,00,000 x 10/100) ` 30,000 (` 90,000 60,000) Goodwill ` (30,000 x 2) = ` 60,000 Dr. PARTNERS' CAPITAL ACCOUNTS Cr. Particulars X ` Y ` Z 7 Particulars X Z Y 7 To Cash A/c 1,16,000 1,04,000 By Balance b/d 3,00,000 3,00,000 To Balance c/d 2,00,000 2,00,000 2,00,000 By Cash A/c 2,00,000 By Premium A/c 16,000 4,000 (Goodwill) 3,16,000 3,04,000 2,00,000 3,16,000 3,04,000 2,00,000 By Balance b/d 2,00,000 2,00,000 2,00,000 Dr CASH ACCOUNT Cr Particulars Z Particulars Z To Balance b/d 40,000 By X's Capital A/c 1,16,000 To Z's Capital A/c 2,00,000 By Y's Capital A/c 1,04,000 To Premium A/c (brought in by Z) 20,000 By Balance c/d 40,000 Z Z

23 23 2,60,000 2,60,000 To Balance b/d 40,000 Working Notes: Calculation of Sacrificing Ratio = 4:1 Q.1.(Illustration-1) (C.B.S.E. 2009) Following is the Balance Sheet of Jain and Gupta sharing profit as 3:2. Creditors 40,000 Cash 29,600 Bills payable 6,000 Debtors 41,000 Bank overdraft 34,000 Less: prov. For D. D ,400 Reserve Capital : Jain Gupta 30,000 1,40,000 1,20,000 3,70,000 Stock Plant Building Motor Vehicles 40,000 80,000 1,40,000 40,000 3,70,000 They agreed to admit Mishra for 1/4 th share from subject to the following terms: a) Mishra to bring in capital equal to 1/4th of the total capital of Jain and Gupta after all adjustments including premium for goodwill. b) Buildings to be appreciated by `28,000 and Stock to be depreciated by `12,000. c) Provision for Bad debts on Debtors to be raised to `2,000. d) A provision be made for `3,600 for outstanding legal charges. e) Mishra's share of goodwill/premium was calculated at `20,000 which is brought by him in cash. Prepare Revaluation Account, Partner's Capital Accounts and the Balance Sheet of the new firm on Mishra's admission.[rev profit-11,000; Mishra s capital- 80,250; B/s- 4,50,850 ] Q.2. {Illustration-2.} S and K are partners in a firm sharing profits and losses as S 75% and K 25%. On 1st April, 2008 their position was given as : liabilities ` Assets ` Capital Alc Plant 80,000 S 1,00,000 Stock 20,000 K 60,000 1,60,000 Sundry Debtors 60,000 Sundry Creditor 40,000 Cash at Bank 40,000 2,00,000 2,00,000 R is now to join the partnership. He agrees to pay the partners `40,000 by way of goodwill and introduces 1/2 of the combined capital of the two existing partners after depreciating plant and stock at 20% and 10% respectively and raising a provision of 10% against Sundry Debtors. The new partner is to be allowed 1/4th of the profit of the firm. You are required to record the above transactions in the books of the firm and give the new balance sheet of the new firm. [ Loss on Revalution- Rs. 24,000 ; R s capital- 88,000 ; B/s- 3,04,000] Q.3. { Illustration-3} G and H were partners in a firm sharing profits in the ratio 5:3. They admit U as a partner with 1/5 th contributed according to the proportionate capital. The financial position was as under Creditors 38,000 Goodwill 20,000 Bills Payable 16,000 Land & Building 50,000 Capital A/cs : Plant & Machinery 70,000 G 1,10,000 Stock 40,000 H 60,000 1,70,000 Debtors 50,000

24 24 General Reserve 32,000 Investments 28,000 Provision for Bad & Doubtful Debts 3,000 Cash 4,800 Outstanding Salary 4,800 Prepaid Insurance 1,000 2,63,800 2,63,800 They agreed to admit U, a new partner on the following terms : (i) U brings in `10,400 as his share of goodwill in cash. (ii) Land and Building ; Plant and Machinery were to be valued at `76,000 and `60,000 respectively. (iii) The provision for bad and doubtful debts was to be maintained upto `2,000. (iv) A liability for ` 2,400 included in Sundry Creditors was not likely to arise. (v) `20,000 of investment were taken over by old partners in their profit sharing ratio. (vi) H is to withdraw its `4,800 in cash. (vii) An amount of `200 is outstanding for repairs. (viii) The capital of the partners were to be adjusted in profit sharing ratio by opening current A/c. Pass necessary journal entries and Balance Sheet on the admission of U. [Ans: Profit on revaluton-19,200 ; Capital A/c-(i) Excess Capital of G = ` 1,23,500 ` 1,16,750 = ` 6,750 ; (ii) Deficit Capital of H = ` 70,050 `63,300 = ` 6,750 ;Capital of U =46,700; B/s- 2,98,850 ] Q.4. A and B are partners and the profit is divided as follows : A,B & Carried to a Reserve A/c 1 /2: 1/3: 1/6 respectively. They admit C as a partner on 1st April, 2014 on which date the Balance Sheet of the firm was as under : Creditors O/s Expenses Reserve Capital : A B 1,60,000 12,000 90,000 3,18,000 2,00,000 7,80,000 Cash Debtors Stock Plant & Machinery Building Advertisement Expenditure 20,000 2,20,000 1,80,000 1,50,000 2,00,000 10,000 7,80,000 Following terms were agreed upon : (i) Stock is undervalued by 10% (ii) Depreciation of `30,000 had been omitted on plant and machinery for the year ended 31st March, (iii) Creditors include a contingent liability of `50,000 which has been decided by the Court at `43,000. (iv) In respect of debtors, the following debts proved bad or doubtful : `15,000 due from Ram bad to the full extent; `20,000 due from Shyam insolvent, estate expected to pay only 40%. (v) Goodwill of the firm is valued at `60,000. However, C is unable to bring his share of goodwill in cash. (vi) C is given I/5th share of profits which he acquires equally from A and B. C is to bring in capital proportionate to his share of profits in the firm. You are required to prepare Revaluation Account, Capital Accounts and the new balance sheet of the Firm. [Loss on Revaluion- `30,000; A s cap - 3,54,000 ;B s cap. 2,26,000; C s cap. `1,45,000 ; B/s-8,90,000] Q.5.The Balance Sheet of Ram and Shyam, who were sharing profits in the ratio of 3 : 1 on 31 st March, 2009 was as follows: Liabilities Amount Amount Assets ` ` Creditors 2,800 Cash at bank 2,000 Employees provident fund 1,200 Debtors 6,500 General Reserve 2,000 Less:Reserve for bad debts (500) 6,000