PARTNERSHIP ACCOUNTS

PARTNERSHIP ACCOUNTS 1. Following is the Balance Sheet of A and B who share profits und losses equally : Liabilities Amount Assets Amount Capital Machinery 18,000 A 20,000 Plant 20,000 B 14,000 Debtors 5,000 Creditors 6,000 Bank 5,000 A's Loan 8,000 48,000 48,000 They decided to dissolve the firm. Assets are realized as follows: Machinery 20% less than book value, Plant 10% less than book value, Debtors 4000. The creditors were paid off at a discount of 10%. Pass necessary journal entries. (2005) Answer: Journal Entries (For Dissolution) Realization A/c...Dr. 43,000 18,000 To Machinery A/c 20,000 To Plant A/c 5,000 To Debtor A/c (Being transferred of asset to realization A/c) Creditor A/c...Dr. 6,000 To Realisation A/c 6,000 (Being transfer of balance of creditor A/c to Realization A/c) Bank A/c...Dr. 36,400 To Realization A/c 36,400 (For record of amount of realization from asset) Realization A/c...Dr. 5,400 To Bank A/c 5,400 (For payment of debtor) A's Capital A/c... Dr. 3,000 B's Capital A/c...Dr. 3,000 To Realization A/c 6,000 (Being loss on realization transferred to capital A/c of partner's in P.S.R.)

A's Loan A/c...Dr. 8,000 To Bank A/c 8,000 (Being payment of A's loan) A's Capital A/c... Dr. 17,000 B's Capital A/c...Dr. 11,000 To Bank A/c 26,000 (Being loss on realization transferred to capital A/c of partner's in P.S.R.) 2. A and B were partner in a firm sharing profit and losses in the ratio of 5: 3. They admit C as a partner with l/5 th share in profits. He had to contribute the proportionate capital. The financial position was as under: Liabilities Amount Assets Amount Creditors 19,000 Goodwill 10,000 Bills Payable 8,000 Land & Building 25,000 Capital Plant & Machinery 35,000 A 55,000 Stock 20,000 B 30,000 85,000 Debtors 25,000 General Reserve 16,000 Investments 14,000 Provision for Bad & Doubtfull debts 1,500 Cash 2,400 Outstanding salary 2,400 Prepaid Insurance 500 They agreed to admit C, a new partner on the following terms: 1,31,900 l,31,900 Goodwill of the firm was to be valued at Rs. 26,000. Land and Building and Plant and Machinery were to be valued at Rs. 38,000 and Rs. 30,000 respectively, The provision for Bad and Doubtful Debts was to be maintained at Rs. 1,000. A liability for Rs. 1200 included in Sundry Creditors was not likely to arise. Rs. 10,000 of investment were taken over by old partners in their profit sharing ratio. B is to withdraw Rs. 2,400 in cash. An amount of Rs. 100 is outstanding for repairs. After making the above adjustment, C is to bring in capital sufficient to make it Proportionate to his share in profits on the basis of combined capital of Old Partners. The capitals of partners are to be adjusted in profit sharing ratio by opening Current accounts. Pass the necessary Journal entries and prepare the Balance Sheet on the admission of C.

(2006) Answer:- Revaluation A/c (On the date of Admission of Partner) To Plant and Machinery 5,000 By Land and Building 13,000 To Outstanding repairs 100 By Creditor (Decline in Creditors 1,200 To Partner's Capital: A's Capita) 6,000 By Bad debts 500 B's Capiatl 3,600 9,600 14,700 14,700 Partners Capital A/c (On the date of admission of partner) Particular A B C Particular A B C To Investment 6,25 0 3,75 0 To Cash - 2,40 0 To Bal c/d 71,3 75 To Current A/c (Bal. fig.) 3,37 5 81,0 00 42,8 25 45,6 00 25, 550 - By Balance b/d 55, 000 - By Revaluation A/c By Reserve General 6,0 00 10, 000 - - By Goodwill 10, 000 21, 250 30, 000 3,6 00 6,0 00 6,0 00 By Cash - - 28, 550 By Account (Bal. Fig.) Current Balance Sheet C Ltd. (On the date of admission of partner) 81, 000-3,3 75 45, 600 Liabilities Amount Assets Amount Creditor 17,800 Goodwill 26,000 Bills payable 8,000 Land & Building 38,000 Capital a/c:- Plant & Machinery 30,000 A 71,375 Stock 20,000 - - - - - 21, 250

B 42,825 Debtors (25,000-1000) 24,000 C 28,550 1,42,750 Investment 4,000 A's Current Account 3,375 Cash 28.550 Outstanding Salary 2,400 Outstanding repairs 100 Prepaid Insurance 500 1,74,425 1,74,425 Calculation of capital contribution by C and equivalent capital Total available capital immediately before admission of C but after considering Goodwill: Capital of A 55,000 + 10,000 + 10,000 + 6,000 6250 74,750 Capital of B 30,000 + 6,000 + 6,000 + 3,600-3,750-2.400 39,450 Total capital of A & B 1,14,200 Share of A & B after admission would be: 1 4 1 5 5 For 4/5, capital is amounted to Rs. 1,14,200 Hence Total Capital would be 5 1, 14, 200 1,42,750 4 New Ratio of profit and (loss) and new capital would be A B 4 5 1 1 1,42,750 5 8 2 3 4 3 3 3 1,42,750 5 8 10 10 71,375 42,825 1 1 C 1,42,750 28,550 5 5 3. Lalit and Mohan are partners and agree to take Yasmin in to partnership. Yasmin is to bring Rs. 25000 as capital and the capital of Lalit is to be reduced to Rs. 60000 and of Mohan to Rs. 30000. Their profit sharing ratio is 'A, 'A and %. The partners do not draw up any partnership deed. The new partnership firm was formed on 1 st January, 2005. The partnership was, however dissolved on September 30, 2005. Land and Building were valued at Rs. 30000 at which they are taken over by Lalit. The other assets are sold at their book value and goodwill is sold for Rs. 25000. The Balance Sheet as on September 30, 2005 stood up follow : Liabilities Amount Assets Amount Creditors 35,000 Land & Building 20,000 Capital A/c:- Machinery 42,500 Lalit 60,000 Stock 51,000 Mohan 30,000 Debtors 33,500 Yashmin 25,000 Yashmin's Current A/c 1,000 Current A/c:- Cash 6,000

Lalit 2.500 Mohan 1,500 1,54,000 1,54,000 You are required to open the necessary account, on dissolution of the firm and show the amount receive by the each partner. (2007) Answer: Realisation A/c (as on 30.09.2005) To Land & Building 20,000 By creditors 35,000 To Machinery 42,500 By Lalit (for L&B) 30,000 To stock 51,000 By Cash A/c (G/W) 25,000 To Debtor 33,500 By Cash (Sale of assets other than To Cash (creditors payment) 35,000 L&B) To Partner's capital L's capital 17,500 M's capital 8,750 Y's capital 8,750 35,000 1,27,000 2,17,000 2,17,000 Cash A/c (as on 30.09.2005) To Balance b/d 6,000 By Creditors 35,000 To Machinery 42.500 By L's Capital 50,000 To Stock 51,000 By M's Capital 40.250 To Debtor 33,500 By Y's Capital 32.750 To Goodwill 25,000 1,58,000 1,58,000 Partners Capital A/c (As on 30.09.2009) Particulars A B C Particulars A B C To Current A/c 60,000 30,000 25,000 By Balance b/d 60,000 30,000 25,000 60,000 30,000 25,000 60,000 30,000 25,000 Partners Current A/c

(As on 30.09.2009) Particulars A B C Particulars A B C To Balance b/d ------ 1,000 By Balance b/d 2,500 1,500 To Realisation A/C 30,000 ------- By Capital A/c 60,000 30,000 25,000 To Cash A/C 50,000 40,250 32,750 By Revaluation A/c 17,500 8,750 8.750 80,000 40,250 33,750 80,000 40,250 33,750 Note:- Information given regarding the admission of Mr. Yasmin, is useless, closing date i.e. 30.09.05 4. A and B are partners in a firm sharing profits and losses in the ratio of 3:2. Their balance sheet as on 31 st December, 2007 stood as follows : Liabilities Amount Assets Amount Sundry Creditors 40,000 Goodwill 24,000 Capital A/c Furniture 500 A Stock in trade 21,500 B Sundry Debtor 42,000 Less: Reserve for B/d 2,000 40,000 Cash in hand 30,000 Profit & Loss Account 8,000 1,24,000 1,24,000 On January 1, 2008 they admit C as a partner on the following terms : (i) The new profit sharing ratio of A, B and C will be 5:3:2. (ii) A good value of goodwill is Rs. 40000 and C brings the necessary premium for goodwill in cash, half of which is withdrawn by the partners. Book value of goodwill should remain undisturbed, (iii) The reserve for bad debts is to be raised to 10% of sundry debtors, (iv) Stock in trade is to be revalued at Rs. 24000 but the effect is not to be shown in the books, (v) Furniture is to be reduced to Rs. 300. (vi) C should bring further sum in cash in order to make his capital equal to 1 /5 th of the combined adjusted capital of A and B. Show necessary journal entries and the capital accounts of the partners.(2008) Answer: Memorandum Revaluation Account (As on 31.12.2007) To Reserves for Bad debts 2,200 By Stock 2,500 To Furniture 200 To Profit A's Capital A/c 60 100 B's Capital A/c 40 2,500 2,500

To Stock 2,500 By Loss A's Capital A/c 1,250 2,500 B's Capital A/c 750 C's Capital A/c 500 2,500 2,500 Partner's capital Account (As on 31.12.2007) Particulars A B C Particulars A B C To Memo. Reval. 1,250 750 500 By Balance b/d 24,000 60,000 To Profit & Loss A/c 4,800 3,200 By Memo. Reval. 60 40 To Cash A/c (1/2 Ci/W) By Balance c/d 20,010 58,090 15,620 2,000 2,000 By Cash A/c (G/W) 4,000 4,000 By Cash A/c 16.120 28,060 64,040 16,120 28,060 64,040 16,120 Balance Sheet (as on 31.12.2007) A's Capital 20,010 Goodwill 24,000 B's Capital 58,090 Furniture 300 C's Capital 15,620 93,720 Stock in trade 21,500 Creditors 40,000 Sundry debtor 42,000 (-) Reserve 4,200 37,800 Cash (30,000 + 16,120 + 8,000-2,000-2,000) 50,120 1,33,720 1,33,720 Journal Entries (as on 31.12.2007) Date Particulars L.F. Amount Amount 1. Revaluation A/c... Dr. 2,400 To Reserve for bad debts 2,200 To Furniture 200 (Being asset revalued)

2. Stock - in - trade...dr. 2,500 To Memorandum revaluation 2,500 (Being adjustment done for S-I-T) 3. Memorandum Revaluation A/c...Dr. 100 To A's capital 60 To B's capital 40 (Being Adjustment profit share in old) 4. A's Capital A/c...Dr. 1,250 B's Capital A/c...Dr. 750 C's Capital A/c...Dr. 500 To Memorandum revaluation 2,500 (Being Loss on Memo. Rev. A/c) 5. Cash A/c... Dr. 24,120 To C's capital 16,120 To C's Goodwill 8,000 (Being capital and goodwill contributed) 6. A's Capital...Dr. 2,000 B's Capital...... Dr. 2,000 To Cash A/c 4,000 (Being half goodwill withdrawn) 7. A's Capital... Dr. 4,800 B's Capital... Dr. 3,200 To P&L A/c 8,000 (Being Loss Shared) 5. A and B are partners in a firm sharing profits and losses in the ratio of 3:2. Their balance sheet as on 31 st December, 2007 stood as follows : Liabilities Amount Assets Amount Sundry Creditors 40,000 Goodwill 24,000 Capital A/c Furniture 500 A Stock in trade 21,500 B Sundry Debtor 42,000 Less: Reserve for B/d 2,000 40,000 Cash in hand 30,000 Profit & Loss Account 8,000 1,24,000 1,24,000

On January 1, 2008 they admit C as a partner on the following terms : (i) The new profit sharing ratio of A, B and C will be 5:3:2. (ii) A good value of goodwill is Rs. 40000 and C brings the necessary premium for goodwill in cash, half of which is withdrawn by the partners. Book value of goodwill should remain undisturbed, (iii) The reserve for bad debts is to be raised to 10% of sundry debtors, (iv) Stock in trade is to be revalued at Rs. 24000 but the effect is not to be shown in the books, (v) Furniture is to be reduced to Rs. 300. (vi) C should bring further sum in cash in order to make his capital equal to 1 /5 th of the combined adjusted capital of A and B. Show necessary journal entries and the capital accounts of the partners.(2008) Answer: Memorandum Revaluation Account (As on 31.12.2007) To Reserves for Bad debts 2,200 By Stock 2,500 To Furniture 200 To Profit A's Capital A/c 60 100 B's Capital A/c 40 To Stock 2,500 2,500 2,500 By Loss A's Capital A/c 1,250 2,500 B's Capital A/c 750 C's Capital A/c 500 2,500 2,500 Partner's capital Account (As on 31.12.2007) Particulars A B C Particulars A B C To Memo. Reval. 1,250 750 500 By Balance b/d 24,000 60,000 To Profit & Loss A/c 4,800 3,200 By Memo. Reval. 60 40 To Cash A/c (1/2 Ci/W) By Balance c/d 20,010 58,090 15,620 2,000 2,000 By Cash A/c (G/W) 4,000 4,000 By Cash A/c 16.120 28,060 64,040 16,120 28,060 64,040 16,120 Balance Sheet (as on 31.12.2007)

A's Capital 20,010 Goodwill 24,000 B's Capital 58,090 Furniture 300 C's Capital 15,620 93,720 Stock in trade 21,500 Creditors 40,000 Sundry debtor 42,000 (-) Reserve 4,200 37,800 Cash (30,000 + 16,120 + 8,000-2,000-2,000) 50,120 1,33,720 1,33,720 Journal Entries (as on 31.12.2007) Date Particulars L.F. Amount Amount 1. Revaluation A/c... Dr. 2,400 To Reserve for bad debts 2,200 To Furniture 200 (Being asset revalued) 2. Stock - in - trade...dr. 2,500 To Memorandum revaluation 2,500 (Being adjustment done for S-I-T) 3. Memorandum Revaluation A/c...Dr. 100 To A's capital 60 To B's capital 40 (Being Adjustment profit share in old) 4. A's Capital A/c...Dr. 1,250 B's Capital A/c...Dr. 750 C's Capital A/c...Dr. 500 To Memorandum revaluation 2,500 (Being Loss on Memo. Rev. A/c) 5. Cash A/c... Dr. 24,120 To C's capital 16,120 To C's Goodwill 8,000 (Being capital and goodwill contributed) 6. A's Capital...Dr. 2,000 B's Capital...... Dr. 2,000 To Cash A/c 4,000 (Being half goodwill withdrawn)

7. A's Capital... Dr. 4,800 B's Capital... Dr. 3,200 To P&L A/c 8,000 (Being Loss Shared) 6. A, B and C carried on business in partnership, profits being divisible as to A 1/2, B 1/3, and C 1/6. The Balance Sheet on 31" March, 2009 showed their capitals to be Rs. 104000, Rs. 50000 and Rs. 30000 respectively. On 3 I s ' May, 2009 A died. From the following particulars prepare an account for presentation to A's executors: (i) Plant and Machinery (as on 1" April, 2009) was to be written up by Rs. 25,000. (ii) The provision of Doubtful Debts is increased to Rs. 2,000. (iii) An unaccounted liability for Rs. 5,000 be brought into books of accounts. (iv) The firm had insured the partners" lives severally - A for Rs. 90,000, B for Rs. 48,000 and C for Rs. 24,000. The premium has been charged to Profit & Loss Account. The surrender value on 31 st May, 2009 was one-fourth of the sum assured. (v) Capitals carried interest at 9% per annum, (vi) A's drawing from I s ' April, 2009 to the date of his death were Rs. 12,000. (vii) A's share of profits for the portion of the current year for which he was alive was to be taken at sum calculated on the average of the previous three completed years and credit was to be given to A. For his share of goodwill, it was to be calculated on the basis of two years" purchase of the average profits of those three years but goodwill account will not be opened. The profits of the three previous completed years were Rs. 92,000, Rs 74,000 and Rs. 86,000 respectively. Prepare A's Account and makes calculations to the nearest rupee. (2010) Answer:- Revaluation A/c To Unaccounted Liability 5,000 By Plant & Machinery 25,000 To Doubtfull debts 2,000 To Partner's capital A's Capital 9,000 B's Capital 6,000 C's Capital 3,000 18,000 25,000 25,000 1. Computation of Goodwill:- Rs. 92,000 + Rs. 74,000 + Rs. 86,000 2 = Rs. 1,68,000 3 A's Share in goodwill = Rs. 84,000 B's Share in Goodwill = Rs. 56,000 C's Share in Goodwill = Rs. 28,000

2. Computation of share in profit:- Rs. 92,000 + Rs. 74,000 + Rs. 86,000 Avg. Profit for 3 years = = Rs. 84,000 A's share in profit = Rs. 84,000 1/2 2/12 = Rs. 7,000 3. Computation of Ratio(s):- Profit sharing Ratio 3 1 1 1 : : or 3:2:1 2 3 6 New Profit sharing Ratio = 2:1 Gaining Ratio:- (Gaining Ratio =New Ratio - Old Ratio) B C 2 2 2 3 6 6 1 1 1 3 6 6 Ratio = 2:1 A's Capital Account (on the date of death of A) To Drawings 12,000 By Balance b/d 1,04,000 By Interest on capital 1,560* By Goodwill (B & C Capital) 84,000 By A's LIP 45,000" By B's Capital 6,000 4 To Bank A/c 2,31,560 By C's Capital 3,000 4 * 1,04,000 9/100 2/12 = 1,560 4. Calculation of Amount payable to A 2,43,560 2,43,560 Policy of A 90,000 Add: Surrender value of B 48,000 1/4 12,000 Add: Surrender value of C 24,000 1/4 6,000 Total Amount 1,08,000 Date Particulars L.F. Amount Amount 1. Bank A/c... Dr. 9,00,000

To A's Capital 9,00,000 (Being A's policy received) 2. A's LIP Dr. 90,000 To A's Capital 45,000 To B's Capital 30,000 To C's Capital 15,000 (Being policy shared between old partners) 3. B's Capital... Dr. 6,000 C's Capital... Dr. 3,000 To A's Capital 9,000 * A's Remaining Balance calculation: Amount payable to A 54,000 (Amount already credited to A) 45,000 Remaining payable amount 9,000 Remaining amount would be shared by new partners in Gaining Ratio, calculation is as follows: B's Capital 9,000 X j) 6,000 C's Capital 9,000 xj) 3,000 Total shared amount 9,000 7. Following was the Balance Sheet of Long and short on 31 st Dec. 1995 Liabilities Rs. Assets Rs. Creditors 2,875 Cash 12 Reserve Fund 2,000 Freehold Land and Building 8,000 Long's Loan 2,500 Plant and Machinery 6,000 Midline Bank 1,387 Stocks 5,400 Long's Capital 14,300 Debtors 11,050 Short's Capital 7,100 Reserve Fund Investment 1,500 P&L 1,800 31,962 31,962 They made a profit of Rs. 3,800 to 31 51 December, 1996 before charging interest on Capital at 5 percent, net profits being divisible into long seven tenths and three-tenths. At the later date it is decided to admit Mr. Thin into partnership, upon the conditions that he pays Rs. 2,000 for goodwill for a one-fifth share of profit (which he acquires) in equal proportions from the partners, who withdraw this goodwill in cash. Now part contributes Rs. 5,000 as his share of Capital. In 1997, the profits before charging interest on Capital were Rs. 4,200. Prepare the Capital Account of each partner at 31 st December 1997. (2012) Answer:- W.N.I: - Statement Showing Calculation of Closing Capital for the year 1995

Long Short Capital shown in Balance Sheet as on 31.12.1995 14,300 7,100 Distribution of P&L shown in Balance Sheet as on 31.12.1995 in ratio of 7:3 1,260 540 Closing capital on 31.12.95 15,560 7,640 Statement Showing Calculation of Closing Capital for the year 1996 Capital as on 01.01.1996 15,560 7,640 Profit before Charging Interest on Capital 3,800 ----------- ----------- Interest on Capital (a> 5% on opening capital (l,160) 778 382 Net Profit 2,640 Distribution of profit in ratio of 7:3 --------- 1,848 792 Closing Capital on 31.12.96 18,186 8,814 Partner's Capital Account (JUST AFTER ADMISSION) Particulars Long Short Thin Particulars Long Short Thin To Cash A/c By Balance b/d 18,186 8.814 (Withdrawal of By Cash A/c 5,000 Goodwill) 1,000 1,000 - By Cash A/c (G/w) 1,000 1,000 To Balance c/d 19,586 10,414 5,000 By Reserve funds 1,400 600 20,586 10,414 5,000 20,586 10,414 5,000 Partner's Capital (Account as on 31.12.1996) Particulars Long Short Thin Particulars Long Short Thin By Balance b/d 20,586 10,414 5,000 By Interest on cap. 979 471 250 By P&L A/c 1,500 500 500 To Balance c/d 22,065 10,385 5.750

22,065 10385 5,750 22,065 10385 5,750 * There is no information given about second aspect of profit earned; hence assumed it is closely connected with Cash at bank. # It is assumed that Thin; will enter into partnership on date 01.01.1997. Soor and Tulsi share profits in the proportion of 3/4 and ¼. The balance Sheet firm on December 31, 2012 was as under Liabilities Rs. Assets Rs. Sundry Creditors 4,150 Cash at bank 2,250 Capital Accounts Bills Receivable 300 Soor 3000 Books Debts 1,600 Tulsi 1600 4,600 Stock 2,000 Furniture 100 Building 2,500 8,750 8,750 On 1 January 2012 Keshav was admitted in the partnership on the following terms : a. Keshav pays Rs. 1,000 as capital and Rs. 500 as good will for 1/5 share Half the amount of goodwill to be with draw by Soor and Tulsi. b. Stock and Furniture be reduced by 10% Provision for Doubtful debts be created on Books-Debts and B/R. c. Value of building be increased by 20%. d. A liability to be extent of Rs. 100 be created in respect of claim from damage against the firm. e. An item of Rs. 65 included in sundry creditors is not liked to be claimed. f. The profit sharing ration as between Soot and Tulsi remaining unchanged. Prepare Revaluation Account, Capital Accounts Partners and Balance sheet of the firm.(2013) Answer:- Revaluation A/c (On the date of Admission of Partner) To Stock 5,000 By Land and Building 50 To Furniture 100 By Creditor (Decline in Creditors 6 To Reserve for Doubt full debts: Book Debts B/R 80 15 To Liability for damage 100

To Partner's Capital: Soor's Capital 120 Tulsi's Capiatl 40 160 565 565 Partners Capital A/c (On the date of admission of partner) Particulars Soor Tulsi Keshav Particulars Soor Tulsi Keshav To Cash 187.50 62.50 By Bal. b/d 3,000 1,600 To Balance c/d 3,307.50 1,702.50 1,000 By Reval. A/c 120 40 By Premium* 375 125 By Cash ------- ---- 1,000 3,495 1,765 1,000 3,495 1,765 1,000 Balance Sheet (On the date of admission of partner) Liabilities Amount Assets Amount Creditor (4,150-65) 4,085 Book Debts (1,600-80) 1,520 Liability for damages 100 Stock (2,000-200) 1,800 Capital a/c:- Furniture (100-10) 90 A 3,307.5 Land & Building (2,500+500) 3,000 B 1,702.5 C 1,000.0 Cash (2,250 + 1,000 + 500-187.5-62.5) * Goodwill is shared by old partner's in their Sacrificing Ratio: (i) Calculation of New Profit Sharing Ratio Suppose Profit = 1 Profit after Keshav Share = 1 1/5 = 4/5 Profit Sharing ratio of Soor = 4/5 3/4 =3/5 Profit Sharing ratio of Tulsi = 4/5 1/4 =1/5 Profit Sharing ratio of Keshav = 1/5 New Profit Sharing ratio = 3:1:1 (ii) Calculation of Sacrificing ratio Sacrificing Ration = Old ratio - New Ratio Sacrifice of Soor = 3/4-3/5 = 3/20 Sacrifice of Tulsi = 1/4-1/5 -//20 # 50% of Premium Received by old partners is to withdrawn in cash. 3,500 Bills Receivable (300-15) 285 10,195 10,195

The Balance sheet of X,Y and Z shows as under when they resolved to dissolve Liabilities Rs. Assets Rs. Creditors 6,600 Cash at bank 100 X's Capital X 3ft p 12,000 Debtor 4,500 Y's Capital Y 3ft p 9,000 Stock 16,000 Z's Capital Z 3ft p 3,000 Machinery 10,000 30600 30600 Debtors Stock and Machinery' realize 50% of book value and expenses of realization content to Rs.50. Z is insolvent and is enable to bring in anything in respect of his debt to the firm. Show the final Adjustment of Accounts (2013) (a) When Garner versus Murray decision does not apply i.e. under Indian Partnership Act and (b) When decision in Garner versus Murray Applies Answer: Realization A/c (On the date of Dissolution of Partnership) To Debtor 4,500 By creditors 6,600 To Stock 16,000 By Bank 15,250 To Machinery 10,000 By X's Capital A/c 5,100 To Bank 6,600 By Y's Capital A/c 5,100 To bank A/c (Expenses) 50 By Z's Capital A/c 5,100 37,150 37,150 Note: Realization A/c will be same for both systems i.e. (i) Garner v. Murray (ii) Indian Accounting System. Note: Few teachers are taking view that creditors will also be paid @ 50%, but since question is silent, it is not taken as assumption. (a) When decision in Garner versus Murray Applies Partners Capital A/c (On the date of dissolution of partner Particulars X Y Z Particulars X Y Z To Real. A/c 5,100 5,100 5,100 By Bal. b/d 12,000 9,000 3,000 To 2's capital 1,200 900 By X's capital 200 To Bal. c/d 10,800 5,100 By Y's capital 900 By Bank A/c 5,100 5,100 17,100 14,100 5,100 17,100 14,100 5,100

As per the decision of Garner V. Murray case, "the deficiency of insolvent partners capital account must be borne by the remaining solvent partners in proportion of their last agreed capital and not in profit sharing ratio". Hence deficiency 5,100-3,000 = Rs. 2,100 will be borne by X and Y in the ratio of 12:9 Contribution to Z by X = 2,100 12/21= 1,200 Contribution to Z by Y = 2.100 9/21 = 900 Bank A/c To Balance b/d 100 By Realisation 6,600 To Realisation 15,250 By X's Capital 10,800 To X's Capital A/c 5,100 By Y's Capital 8,100 To Y's Capital A/c 5,100 25,550 25,550 (b) Indian Accounting System The difference is only that, while preparation of capital a/c of solvent partners, Partners Capital A/c (On the date of dissolution of partner) Particulars X Y Z Particulars X Y Z To Realization 5,100 5,100 5,100 By Bal. B/d 12,000 9,000 3,000 To 2's capital 1,050 1,050 ----- By X's capital ------- ------- 1,050 To Bal. c/d 5,850 2,850 ----- By Y's capital ------- ------- 8,100 12,000 9,000 5,100 12,000 9,000 5,100 Bank A/c To Balance b/d 100 By Realization 50 To Realization 15,250 By Realization 6,600 By X's Capital 5,850 By Y's Capital 2,850 15,350 15,350 9. Ram, Rahim and Karirn sharing profits in the proportion 3:2:1 agreed upon dissolution of their partnership on 31 s ' December, 2013. On which date their balance sheet was as follows:

Liabilities Amount Assets Amount Capital Account: Machinery 40,500 Ram 40,000 60,000 Stock in Trade..y.. 7,550 Rahim 20,000 Investment 20,830 Mrs. Ram's Loan 10,000 Joint Life Policy 14,000 Life Policy Fund 14,000 Debtor 9,300 8,700 Investment Fluctuation Fund 6,000 Less: R/B/D/D 600 Current Account of Karim 11,500 Creditors 18.500 Cash at Bank 5,420 1,08,500 1,08,500 The life policy is surrendered for Rs. 12,000. The investments are takes over by Ram for Rs. 17,500. Ram agrees to discharge his wife's loan. Rahim takes over all the stock at Rs. 7,000 and Debtors amounting to Rs. 5,000 at Rs. 4,000. Machinery is sold for Rs. 55,000. The remaining debtors realize 50% of book value. The expenses of realization amounted to Rs. 600. It is found that an investment not recorded in the books is worth Rs. 3,000. The same is taken over by one of the creditors at this time. Show the necessary ledger accounts including the final accounts of the partners on completion of the firms. (2014) Answer:- To Sundry Assets: Realization Account By Sundry Liabilities: Machinery 40,500 Mrs. A's Loan 10,000 49,100 Stock in trade 7,550 Creditors 18,500 Investment 20,830 Life Policy Fund 14,000 Joint Life Policy 14,000 Inv. Fluct. Fund 6,000 Debtors 9,300 92,180 Bad Debt Res. 600 To A's Capital A/c (Mrs. A's Loan Taken over) 10,000 By A's Capita] A/c (Investment taken over) 17,500 To Cash A/c (Expenses) 600 By B's Capital A/c 11,000 To Bank A/c Stock 7,000 Creditors 18,500 15,500 Debtors 4,000 Less: Invest Unrecorded 3,000 By Bank A/c Machinery 55,000 To A's Capital A/c 14,235 Life Policy 12,000 To B's Capital A/c 9,490 Debtors 2,150 To C's Capital A/c 4,745 1,46,750 1,46,750

Partner's Capital Account Particulars A B C Particulars A B C To Bal b/d... 11,500 By Bal b/d 40,000 20,000 To Real A/c (Asset taken over) 17,500 11,000 To Real A/c (Mrs. A's Loan) 10,000 To Bank A/c 46,735 18,490... By Realization A/c 14,235 9,490 4,745 By Bank 6.755 64,235 29,490 11,500 64,235 29,490 11,500 Bank Account To Balance b/d 5,420 By Realization A/c (exp) 600 To Real. A/c (asset realized) 69,150 By Realization A/c (Crs. Paid) 15,500 To C's Capital A/c 6,755 By A's Capital A/c 46,735 By B's Capital A/c 18,490 81325 81,325 10.A, 8 and C are Partners in ratio of 6:5:3. Their Balance Sheet are as under: Liabilities Amount Particulars Amount Bills Payable 12,600 Debtors 52,920 Creditors 37,800 Cashes 3,780 General Reserve 21,000 Stock 58,800 Capital A/c Furniture 14,700 A 70,800 Building 90,300 B 59,700 Goodwill 10,500 C 29,100 2,31,000 2,31,000 They admit D for 1/8 th share into partnership on the following terms: a. Furniture will be depreciated by Rs. 1,840. b. A Provisions of Rs. 2,640 was made for outstanding bill, c. Value of goodwill will be Rs. 29,400. d. An old customer of bad debts agreed to pay Rs. 4,000 in account. e. Value of building to be appreciated to Rs. 1,09,820. f. D shall bring Rs. 29,400 as his capital. g. Partners Capital A/c are to be adjusted on the ration of D's capital. Pass journal entries and prepare necessary accounts. (2015) Answer:

Working Note (a): Writing off Goodwill in Balance Sheet by old partners : A's Share in Goodwill 10,500 6/14 4,500 B's Share in Goodwill 10,500 5/14 3,750 C's Share in Goodwill 10,500 3/14 2,250 Working Note (b) : Computation of New Profit and Loss Sharing Ratio: D is receiving 1/8 th share in profit, the remaining profit i.e. 7/8 will be shared by A, B and C in their old profit sharing ratio A B C 6 14 5 14 3 14 7 8 7 8 7 8 3 8 5 16 3 16 So, the Profit Sharing Ratio would be 6:5:3:2 Working Note: Calculation of Capital Adjustments: On the basis of D's capital of Rs, 29,400; the total capital of firm will be Rs. 2,35,200 ( i.e.29,400 8/1) ; In this A's Capital share will be 2,35,200 6/16 88,200 B's Capital share will be 2,35,200 5/16 73,500 C's Capital share will be 2,35,200 3/16 44,100 D's Capital share will be 2,35,200 2/16 29,400 Revaluation Account To Furniture 1,840 By Debtors 4,000 To Provision for Repairs 2,640 By Building (109820-90300) 19,520 To A's Capital A/c 8,160 To B's Capital A/c 6,800 To C's Capital A/c 4,080 23,520 23,520 Partner's Capital Account Particulars A B C D Particulars A B C D

To Cash A/c (Bal. Fig.) 7,860 7,250 By Bal b/d 70,800 59,700 29,100 To Bal. c/d 88,200 73,500 44,100 29,400 By Gen. 9,000 7,500 4,500 Res. 1 By 8,100 6,750 4,050 Goodwill 2 By Cash - 29,400 By Reveal A/c By Cash A/c (Bal. Fig.) 8,160 6,800 4,080 2,370 96,060 80.750 44.1(H) 29,400 96.060 80.750 44,100 29,400 Cash Account To Balance b/d 3,780 By A's Capital A/c 7,860 To D's Capital 29,400 By B's Capital A/c 7,250 To C's Capital A/c 2,370 By Bal. c/d 20,440 35,550 35,550 1. General Reserve is divided in old PSR. 2. Revised value of Goodwill 29,400 Old Value of Goodwill 10,500 18,900; It is shared by old partners in sacrificing ratio i.e. 6:5:3. Balance Sheet Liabilities Amount Particulars Amount Bills Payable 12,600 Debtors (52,920 + 4,000) 52,920 Creditors 37,800 Cash 20,440 Provision of outstanding bill 2,640 Stock 58,800 Capital A/C Furniture (14,700-1,840) 12,860 A 88,200 Building (90,300 + 19,520) 1,09,820 B 73,500 Goodwill 29,400 C 44,100 D 29,400 2,88,240 2,88,240 11. M, N and O are partners sharing profits in the ration of 2:1:1. Their Balance Sheet is as under : M, N & O, 2:1:1

Liabilities Amount Assets Amount Capital A/C Cash 12,000 M 40,000 Debtors 34,000 N 20,000 Furniture 10,000 D 10,000 Stock 21,000 Contingency Reserve 12,000 Plant 41,000 General Reserve 16,000 Creditors 20,000 1,18,000 1,18,000 The firm is dissolved and assets are realized as under: l st realization Rs. 14,000, 2 nd realization Rs. 39,000 and 3 rd realization Rs. 38,000. There was a contingent liability of Rs. 4,000 which was settled at Rs. 3,000 at the 2 nd realization. Realization expenses were Rs. 3,000 but in actual expense is Rs. 2,400. The firm had to pay Rs. 800 out of 3" 1 realization for which no provision was made. N takes over the stock at Rs. 2,200at the time of realization. Prepare a statement showing the distribution of cash. (2015) Answer: Statement Showing Piecemeal Distribution Net Particulars Creditors Partner's Capital Cash M N D Balance as per Balance Sheet 20,000 40,000 20,000 10,000 ADD: General Reserve 8,000 4,000 4,000 ADD: Contingent Liabilities 12,000 LESS: Liability 4,000 Credited to Partner's Capital 8,000 4,000 2,000 2,000 Balance Due 20,000 52,000 26,000 16,000 12,000 Cash in Hand (3,000) Amount kept for realization expenses 9,000 (4,000) Amount kept for contingent liabilities 5,000 (5,000) Paid to creditors (5,000) Balance Due 15,000 52,000 26,000 16,000 14,000 First Realization (14,000) Paid to Creditors (14,000) Balance Due 1,000 52,000 26,000 16,000

39,000 2 nd Realization (1,000) Paid to Creditors (1,000) 38,000 Balance 52,000 26,000 16,000 1,000 ADD: Profit on Contingent Liability 500 250 250 Balance Due 52,500 26,250 16,250 Maximum Loss is Rs. 56,000/- i.e. [(52,500 + 26,250 + 16,250) - 39,000); which is debited to partners in Profit Sharing Ratio 28,000 14,000 14,000 Balance Due 24,500 12.250 2.250 (39,000) LESS: Cash Paid to Partners 24,500 12,250 2,250 Balance Due 28,000 14,000 14,000 38,000 3 rd Realization 600 ADD: Cash saved in Realization Expenses 2,200 ADD: Stock Takeover by N 800 LESS: New Liab. Paid of which no provision made 40,000 Maximum Loss is Rs. 16,000/- i.e. {(28,000 + 14,000 +14,000) - 40,000}; which is debited to partners in Profit Sharing Ratio 8,000 4,000 4,000 Balance Due 20,000 10,000 10,000 (40,000) Cash Paid to Partners 20,000 10,000 10,000 Balance Due 8,000 4,000 4,000 IN Profit sharing Ratio 2: 2: 1