Page No 5.96:

Question 66:

X and Y share profits in the ratio of 5 : 3. Their Balance Sheet as at 31st March, 2019 was:

Liabilities		Amount `	Assets		Amount `
Creditors		15,000	Cash at Bank		5,000
Employees' Provident Fund		10,000	Sundry Debtors	20,000
Workmen Compensation Reserve		5,800	Less: Provision for Doubtful Debts	600	19,400
Capital A/cs:			Stock		25,000
X	70,000		Fixed Assets		80,000
Y	31,000	1,01,000	Profit and Loss A/c		2,400

		1,31,800			1,31,800

They admit Z into partnership with 1/8th share in profits on 1st April, 2019. Z brings   ` 20,000 as his capital and   ` 12,000 for goodwill in cash. Z acquires his share from X. Following revaluations are also made:
(a) Employees' Provident Fund liability is to be increased by   ` 5,000.
(b) All Debtors are good.
(c) Stock includes   ` 3,000 for obsolete items.
(d) Creditors are to be paid   ` 1,000 more.
(e) Fixed Assets are to be revalued at   ` 70,000.
Prepare Journal entries, necessary accounts and new Balance Sheet. Also, calculate new profit-sharing ratio.

Answer:

Revaluation Account
Dr.			Cr.
Particulars	Amount `	Particulars	Amount `
Stock	3,000	Provision for D. Debts	600
Creditors	1,000
Fixed Assets	10,000	Loss transferred to
Provident Fund	5,000	X Capital	11,500
		Y Capital	6,900
	19,000		19,000

Partners’ Capital Accounts
Dr.							Cr.
Particulars	X	Y	Z	Particulars	X	Y	Z
Revaluation (Loss)	11,500	6,900		Balance b/d	70,000	31,000
Profit and Loss	1,500	900		Workmen’s Comp. Fund	3,625	2,175
Balance c/d	72,625	25,375	20,000	Cash			20,000
				Premium for Goodwill	12,000
	85,625	33,175	20,000		85,625	33,175	20,000

Balance Sheet as on March 31, 2019 after Z’s admission
Particulars		Amount `	Assets	Amount `
Creditors (15,000 + 1,000)		16,000	Land and Building	5,000
Provident Fund (10,000 + 5,000)		15,000	Sundry Debtors	20,000
Capital A/cs:			Stock (25,000 – 3,000)	22,000
X	72,625		Fixed Assets (80,000 – 10,000)	70,000
Y	25,375		Cash	32,000
Z	20,000	1,18,000
		1,49,000		1,49,000

Working Notes

WN1: Distribution of Revaluation Loss

X’s capital will be debited =18,400×5/8=11,500

Y’s capital will be debited =18,400×3/8=6,900

WN2: Distribution Accumulated Loss

X’s capital will be debited =2,400×5/8=1,500

Y’s capital will be Credited =2,400×3/8=900

WN3: Distribution of Workmen’s Compensation Fund

X’s capital will be credited =5,800×5/8=3,625

Y’s capital will be Credited =5,800×3/8=2,175

WN4: Z’s premium for goodwill will be transferred to X’s Capital Account because Z receives his entire share from X.

WN5: Calculation of New Profit Sharing Ratio

Z acquired 1/8^th share from X

New share of X=5/8-1/8=4/8

New share of Y=3/8

New share of Z=1/8

New profit sharing ratio= 4;3:1
Page No 5.96:

Question 67:

X and Y are partners in a firm sharing profits in the ratio of 3 : 2. Their Balance Sheet as at 31st March, 2019 was as follows:


Liabilities		Amount `	Assets		Amount `
Outstanding Rent		13,000	Cash		10,000
Creditors		20,000	Sundry Debtors	80,000
Workmen Compensation Reserve		5,600	Less : Provision for Doubtful Debts	4,000	76,000
Capital A/cs: X	50,000		Stock		20,000
Y	60,000	1,10,000	Profit and Loss A/c		4,000
			Machinery		38,600


		1,48,600			1,48 ,600

On 1st April, 2019, they admitted Z as a partner for 1/6th share on the following terms:
(i) Z brings in   ` 40,000 as his share of Capital but he is unable to bring any amount for Goodwill.
(ii) Claim on account of Workmen Compensation is   ` 3,000.
(iii) To write off Bad Debts amounted to   ` 6,000.
(iv) Creditors are to be paid   ` 2,000 more.
(v) There being a claim against the firm for damages, liabilities to the extent of   ` 2,000 should be created.
(vi) Outstanding rent be brought down to   ` 11,200.
(vii) Goodwill is valued at 112 years' purchase of the average profits of last 3 years, less   ` 12,000. Profits for the last 3 years amounted to   ` 10,000;   ` 20,000 and   ` 30,000.
Pass Journal entries, prepare Partners' Capital Accounts and opening Balance Sheet.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount `	Credit Amount `
2019
April 1	Revaluation A/c	Dr.		2,000
	To Provision for Doubtful Debts A/c				2,000
	(Provision on debtors increased)

April 1	Revaluation A/c	Dr.		2,000
	To Creditors A/c				2,000
	(Creditors increased)

April 1	Revaluation A/c	Dr.		2,000
	To Claim for Damages A/c				2,000
	(Liability increased)

April 1	Outstanding Rent A/c	Dr.		1,800
	To Revaluation A/c				1,800
	(Liability decreased)

April 1	X’s Capital A/c	Dr		2,520
	Y’s Capital A/c	Dr		1,680
	To Revaluation A/c				4,200
	(Loss on revaluation transferred to Partners’ Capital A/c)

April 1	Workmen Compensation Reserve A/c	Dr.		5,600
	To Workmen Compensation Claim A/c				3,000
	To X’s Capital A/c				1,560
	To Y’s Capital A/c				1,040
	(Surplus Workmen Compensation Reserve distributed)

April 1	Bank A/c	Dr		40,000
	To Z’s Capital A/c				40,000
	(Capital brought in cash)

April 1	Z’s Current A/c	Dr.		3,000
	To X’s Capital A/c				1,800
	To Y’s Capital A/c				1,200
	(Goodwill adjusted in the ratio 3:2 )

Partners’ Capital Accounts
Dr.								Cr.
Particulars	X	Y	Z	Particulars	X	Y	Z

Profit & Loss A/c	2,400	1,600		Balance b/d	50,000	60,000
Revaluation A/c	2,520	1,680		Bank A/c			40,000
Balance c/d	48,440	58,960	40,000	Workmen Compensation Reserve	1,560	1,040
				Z's Current A/c	1,800	1,200

	53,360	62,240	40,000		53,360	62,240	40,000

Balance sheet as on 1^st April, 2019 after Z’s admission
Liabilities		Amount `	Assets		Amount `
Outstanding Rent		11,200	Cash		50,000
Workmen Compensation Claim		3,000	Stock		20,000
Creditors		22,000	Machinery		38,600
Claim for Damages		2,000	Z ‘s Current A/c		3,000
Capital			Debtors	80,000
X	48,440		Less : Provision for D.D.	6,000	74,000
Y	58,960
Z	40,000	1,47,400

		1,85,600			1,85,600

Working Notes:

WN1: Calculation of Goodwill

Average Profit =10,000+20,000+30,000/3=60,000/3= ` 20,000

Goodwill = Average Profits × Number of years' purchase

= (20,000×1.5) - 12,000 = 30,000 - 12,000 = ` 18,000

WN 2: Calculation of Z’s share of goodwill
Z's share of goodwill = 18,000×16= ` 3,000

Page No 5.97:

Question 68:

Rajesh and Ravi are partners sharing profits in the ratio of 3 : 2. Their Balance Sheet at 31st March, 2019 stood as:

BALANCE SHEET as at 31st March, 2019
Liabilities		`	Assets		`
Creditors		38,500	Cash		2,000
Outstanding Rent		4,000	Stock		15,000
Capital A/cs:			Prepaid Insurance		1,500
Rajesh	29,000		Debtors	9,400
Ravi	15,000		Less : Provision for Doubtful Debts	400	9,000
			Machinery		19,000
			Building		35,000
			Furniture		5,000
		86,500			86,500

Raman is admitted as a new partner introducing a capital of   ` 16,000. The new profit-sharing ratio is decided as 5 : 3 : 2. Raman is unable to bring in any cash for goodwill. So, it is decided to value the goodwill on the basis of Raman's share in the profits and the capital contributed by him. Following revaluations are made:
(a) Stock to decrease by 5%;
(b) Provision for Doubtful Debts is to be   ` 500;
(c) Furniture to decrease by 10%;
(d) Building is valued at   ` 40,000.
Show necessary Ledger Accounts and Balance Sheet of new firm.

Answer:

Revaluation Account
Dr.				Cr.
Particulars		Amount `	Particulars	Amount `
Stock		750	Building	5,000
Provision for D. Debts	500
Less: Old Provision	400	100
Furniture		500

Profit on Revaluation transferred to
Rajesh Capital		2,190
Ravi Capital		1,460
		5,000		5,000

Partners’ Capital Accounts
Dr.							Cr.
Particulars	Rajesh	Ravi	Raman	Particulars	Rajesh	Ravi	Raman
				Balance b/d	29,000	15,000
				Revaluation	2,190	1,460
Balance c/d	31,190	16,460	16,000	Cash			16,000
(before and just went of
Goodwill)
	31,190	16,460	16,000		31,190	16,460	16,000
Rajesh’s Capital			1,635	Balance c/d	31,190	16,460	16,000
Raman’s Capital			1,635	Raman’s Capital	1,635	1,635
Balance c/d	32,825	18,095	12,730
	32,825	18,095	16,000		32,825	18,095	16,000

Balance Sheet as on March 31, 2019 after Raman’s admission
Liabilities		Amount `	Assets		Amount `
Creditors		38,500	Cash (2,000 + 16,000)		18,000
Outstanding Rent		4,000	Stock (15,000 – 750)		14,250
Capital A/cs:			Prepaid Insurance		1,500
Rajesh	32,825		Debtors	9,400
Ravi	18,095		Less: Provision for D. Debts	500	8,900
Raman	12,730	63,730	Machinery		19,000
			Building (35,000 + 5,000)		40,000
			Furniture (5,000 – 500)		4,500
		1,06,150			1,06,150

Working Notes-

WN1 Calculation of Sacrificing Ratio

	Rajesh	Ravi	Raman
OLD RATION	3 :	2
NEW RATIO	5 :	3 :	2

Sacrificing Ratio = Old Ratio − New Ratio

	Rajesh’s	=3/5-5/10
		=1/10
	Ravi’s	=2/5-3/10
		=1/10
			Rajesh		Ravi
Sacrificing ratio=			1/10	:	1/10
=			1	:	1

WN2 Calculation of Goodwill
Actual Capital of all Partners before adjustment of goodwill = Rajesh’s Capital + Ravi’s Capital + Raman’s Capital
= 31,190 + 16,460 + 16,000
= ` 63,650
Capitalised value on the basis of Raman’s share =16,000×10/2=80,000
Goodwill of thefirm= Capitalised value of the firm-Actual capital of the firm (before adjument of the goodwill)

=80,000-63,650

=16,350
Raman’s share of Goodwill =16,350×2/10=3,270

WN3 Adjustment of Raman’s share of goodwill
Rajesh and Ravi each Capital Accounts will be credited by =3,270×1/2=1,635

Journal
Particulars		L.F.	Debit Amount `	Credit Amount `
Raman’s Capital A/c	Dr.		3,270
To Rajesh’s Capital A/c				1,635
To Ravi’s Capital A/c				1,635
(Raman’s share of goodwill adjusted)

WN4 Distribution of Profit on Revaluation (in old ratio)
Rajesh will get =3,650×3/5=2190

Ravi will get =3,650×2/5=1460

Page No 5.97:

Question 69:

A and B are partners in a firm sharing profits in the ratio of 3 : 2. They admit C as a partner on 1st April, 2019 on which date the Balance Sheet of the firm was:


Liabilities		`	Assets	`
Capital A/cs:			Building	50,000
A	60,000		Plant and Machinery	30,000
B	40,000	1,00,000	Stock	20,000
Creditors		20,000	Debtors	10,000
			Bank	10,000


		1,20,000		1,20,000

You are required to prepare the Revaluation Account, Partners' Capital Accounts and Balance Sheet of the new firm after considering the following:
(a) C brings   ` 30,000 as capital for 1/4th share. He also brings   ` 10,000 for his share of goodwill.
(b) Part of the Stock which had been included at cost of   ` 2,000 had been badly damaged in storage and could only expect to realise   ` 400.
(c) Bank charges had been overlooked and amounted to   ` 200 for the year 2018-19.
(d) Depreciation on Building of   ` 3,000 had been omitted for the year 2018-19.
(e) A credit for goods for   ` 800 had been omitted from both purchases and creditors although the goods had been correctly included in Stock.
(f) An expense of   ` 1,200 for insurance premium was debited in the Profit and Loss Account of 2018-19 but   ` 600 of this are related to the period after 31st March, 2019.

Answer:

Revaluation Account
Dr.			Cr.
Particulars	Amount `	Particulars	Amount `
Stock (2,000 – 400)	1,600
Bank (charges)	200	Prepaid Insurance	600
Building	3,000
Creditors	800	Loss transferred to
		A Capital	3,000
		B Capital	2,000
	5,600		5,600

Partners’ Capital Accounts
Dr.							Cr.
Particulars	A	B	C	Particulars	A	B	C
Revaluation	3,000	2,000		Balance b/d	60,000	40,000
				Bank			30,000
				Premium for Goodwill	6,000	4,000
Balance c/d	63,000	42,000	30,000
	66,000	44,000	30,000		66,000	44,000	30,000

Balance Sheet as on April 01, 2019 after C’s admission
Liabilities		Amount `	Assets	Amount `
Capital A/cs:			Building (50,000 – 3,000)	47,000
A	63,000		Plant and Machinery	30,000
B	42,000		Stock (20,000 – 1,600)	18,400
C	30,000	1,35,000	Debtors	10,000
Creditors (20,000 + 800)		20,800	Bank	49,800
			Prepaid Insurance	600
		1,55,800		1,55,800

Bank Account
Dr.			Cr.
Particulars	Amount `	Particulars	Amount `
Balance b/d	10,000	Revaluation (Bank charges)	200
C’s Capital	30,000
Premium for Goodwill	10,000	Balance c/d	49,800
	50,000		50,000

Working Notes:

WN1 Sacrificing Ratio
Old Ratio (A and B) 3 : 2
Sacrificing Ratio = 3 : 2

WN2 Distribution of Premium for Goodwill
A will get =10,000×3/5=6,000

B will get =10,000×2/5=4,000

Page No 5.97:

Question 70:

Divya, Yasmin and Fatima are partners in a firm, sharing profits and losses in 11 : 7 : 2 respectively. The Balance Sheet of the firm on 31st March, 2018 was as follows:

BALANCE SHEET as at 31st March, 2018
Liabilities		Amount `	Assets		Amount `
Sundry Creditors		70,000	Factory Building		7,35,000
Public Deposits		1,19,000	Plant and Machinery		1,80,000
Reserve Fund		90,000	Furniture		2,60,000
Outstanding Expenses		10,000	Stock		1,45,000
Capital A/cs:			Debtors	1,50,000
Divya	5,10,000		Less: Provision	(30,000)	1,20,000
Yasmin	3,00,000		Cash at Bank		1,59,000
Fatima	5,00,000	13,10,000
		15,99,000			15,99,000

On 1st April, 2018, Aditya is admitted as a partner for one-fifth share in the profits with a capital of   ` 4,50,000 and necessary amount for his share of goodwill on the following terms:
(a) Furniture of   ` 2,40,000 were to be taken over Divya, Yasmin and Fatima equally.
(b) A creditor of   ` 7,000 not recorded in books to be taken into account.
(c) Goodwill of the firm is to be valued at 2.5 years' purchase of average profits of last two years. The profit of the last three years were:
2015-16 −   ` 6,00,000; 2016-17 −   ` 2,00,000; 2017-18 −   ` 6,00,000.
(d) At time of Aditya's admission. Yasmin also brought in   ` 50,000 as fresh capital.
(e) Plant and Machinery is re-valued to   ` 2,00,000 and expenses outstanding were brought down to   ` 9,000.
Prepare Revaluation Account, Partners Capital Account and the Balance Sheet of the reconstituted firm.

Answer:

In the books of Divya, Yasmin, Fatima and Aditya
Dr.	Revaluation A/c					Cr.
Particulars			Amount `	Particulars	Amount `
To Sundry Creditors A/c			7,000	By Plant and Machinery A/c	20,000
To Profit Transferred to:				By Outstanding Expenses A/c	1,000
Divya’s Capital A/c		7,700
Yasmin’s Capital A/c		4,900
Fatima’s Capital A/c		1,400	14,000

			21,000		21,000

Dr.	Partner’s Capital A/c									Cr.
Particulars		Divya `	Yasmin `	Fatima `	Aditya `	Particulars	Divya `	Yasmin `	Fatima `		Aditya `
To Furniture A/c		80,000	80,000	80,000		By balance b/d	5,10,000	3,00,000	5,00,000
						By Bank A/c		50,000			4,50,000
To balance c/d		5,97,200	3,76,400	4,50,400	4,50,000	By Premium	1,10,000	70,000	20,000
						for Goodwill A/c
						By Reserve Fund A/c	49,500	31,500	9,000
						By Revaluation A/c	7,700	4,900	1,400

		6,77,200	4,56,400	5,30,400	4,50,000		6,77,200	4,56,400	5,30,400		4,50,000

Working Notes:

Calculation of Goodwill brought in by Aditya

Average Profits	=	(Normal profits from 31^st March, 2017 to 31^st March, 2018)/2
	=	` (2,00,000 + 6,00,000)/2= ` 4,00,000
Goodwill	=	Average Profits × No. of years of Purchase
	=	` (4,00,000 × 2.5) = ` 10,00,000
Goodwill brought in by Aditya	=	` (10,00,000 × 1/5) = ` 2,00,000

Balance Sheet
as at 31^st March, 2019
Liabilities		Amount `	Assets		Amount `
Capitals:			Factory Building		7,35,000
Divya	5,97,200		Plant and Machinery		2,00,000
Yasmin	3,76,400		Furniture		20,000
Fatima	4,50,400		Stock		1,45,000
Aditya	4,50,000	18,74,000	Debtors	1,50,000
Sundry Creditors		77,000	Less: Provision	(30,000)	1,20,000
Public Deposits		1,19,000	Cash at Bank		8,59,000
Outstanding Expenses		9,000	(1,59,000 + 2,00,000 + 50,000 + 4,50,000)

		20,79,000			20,79,000