Page No 5.98:

Question 71:

A and B are partners in a firm. The net profit of the firm is divided as follows: 1/2 to A, 1/3 to B and 1/6 carried to a Reserve. 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	50,000		Plant and Machinery	30,000
B	40,000	90,000	Stock	18,000
Reserve		10,000	Debtors	22,000
Creditors		20,000	Bank	5,000
Outstanding Expenses		5,000

		1,25,000		1,25,000

Following are the required adjustments on admission of C:
(a) C brings in   ` 25,000 towards his capital.
(b) C also brings in   ` 5,000 for 1/5th share of goodwill.
(c) Stock is undervalued by 10%.
(d) Creditors include a liability of   ` 4,000, which has been decided by the court at   ` 3,200.
(e) In regard to the Debtors, the following Debts proved Bad or Doubtful−
` 2,000 due from X−bad to the full extent;
` 4,000 due from Y−insolvent, estate expected to pay only 50%.
You are required to prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the new firm.

Answer:

Revaluation Account
Dr.			Cr.
Particulars	Amount `	Particulars	Amount `
Bad Debts	2,000	Stock	2,000
Provision for Doubtful Debts	2,000	Creditors (4,000 – 3,200)	800
(4,000 × 50%)
		Loss transferred to
		A Capital	720
		B Capital	480
	4,000		4,000

Partners’ Capital Accounts
Dr.							Cr.
Particulars	A	B	C	Particulars	A	B	C
Revaluation	720	480		Balance b/d	50,000	40,000
				Reserve	6,000	4,000
				Bank			25,000
Balance c/d	58,280	45,520	25,000	Premium for Goodwill	3,000	2,000
	59,000	46,000	25,000		59,000	46,000	25,000

Balance Sheet as on April 01, 2019 after C’s admission
Liabilities		Amount `	Assets		Amount `
Capital A/cs:			Building		50,000
A	58,280		Plan and Machinery		30,000
B	45,520		Stock (18,000 × 100/90)		20,000
C	25,000	1,28,800	Debtors	22,000
Creditors (20,000 – 800)		19,200	Less: Bad Debts	2,000
Outstanding Expenses		5,000	Less: Prov. for D. Debts	2,000	18,000
			Bank (5,000 + 30,000)		35,000
		1,53,000			1,53,000

Working Notes

WN1
old ration ; ½:1/3=3:2

Sacrificing ratio=3:2

WN2
Distribution of Reserve
A will get =10,000×3/5=6,000

B will get =10,000×2/5=4,000

WN3
Distribution of Premium for Goodwill
A will get =5,000×3/5=3,000

B will get =5,000×2/5=2,000

Page No 5.98:

Question 72:

Following is the Balance Sheet of the firm, Ashirvad, owned by A, B and C who share profits and losses of the business in the ratio of 3 : 2 : 1.

BALANCE SHEET as at 31st March, 2019
Liabilities		`	Assets	`
Capital A/cs:			Furniture	95,000
A	1,20,000		Business Premises	2,05,000
B	1,20,000		Stock-in-Trade	40,000
C	1,20,000	3,60,000	Debtors	28,000
Sundry Creditors		20,000	Cash at Bank	15,000
Outstanding Salaries and wages		7,200	Cash in Hand	4,200


		3,87,200		3,87,200

On 1st April, 2019, they admit D as a partner on the following conditions:
(a) D will bring in ` 1,20,000 as his capital and also ` 30,000 as goodwill premium for a quarter of the share in the future profits/losses of the firm.
(b) Values of the fixed assets of the firm will be increased by 10% before the admission of D.
(c) Mohan, an old customer whose account was written off as bad debts, has promised to pay ` 3,000 in full settlement of his dues.
(d) Future profits and losses of the firm will be shared equally by all the partners.
Pass the necessary Journal entries and prepare Revaluation Account, Partners' Capital Accounts and opening Balance Sheet of the new firm.

Answer:

Revaluation Account
Dr.				Cr.
Particulars	Amount `	Particulars		Amount `
		Fixed Assets:
		Furniture	95,000 × 10%	9,500
Profit transferred to		Business Premises	2,05,000  10%	20,500
A Capital	15,000
B Capital	10,000
C Capital	5,000

	30,000			30,000

Partners’ Capital Accounts
Dr.									Cr.
Particulars	A	B	C	D	Particulars	A	B	C	D
A’s Capital (Goodwill)			7,500		Balance b/d	1,20,000	1,20,000	1,20,000
B’s Capital (Goodwill)			2,500		Revaluation (Profit)	15,000	10,000	5,000
					Cash				1,20,000
Balance c/d	1,65,000	1,40,000	1,15,000	1,20,000	Premium for Goodwill	22,500	7,500
					C’s Capital (Goodwill)	7,500	2,500
	1,65,000	1,40,000	1,25,000	1,20,000		1,65,000	1,40,000	1,25,000	1,20,000

Balance Sheet as on April 1, 2019, after D’s admission
Liabilities		Amount `	Assets	Amount `
Capital A/cs:			Furniture (95,000 + 9,500)	1,04,500
A	1,65,000		Business Premises (2,05,000+20,500)	2,25,500
B	1,40,000		Stock-in-Trade	40,000
C	1,15,000		Debtors	28,000
D	1,20,000	5,40,000	Cash at Bank	15,000
Sundry Creditors		20,000	Cash in hand (4,200 + 1,50,000)	1,54,200
Outstanding salaries and wages		7,200
		5,67,200		5,67,200

Working Note:

WN1 Calculation of Sacrificing Ratio

	A	B	C	D
OLD RATION	3 :	2 :	1
NEW RATIO	1 :	1 :	1 :	1

Sacrificing Ratio = Old Ratio − New Ratio

A= 3/6-1/4=6/24

B=2/6-1/4=2/24

C=1/6-1/4=-2/24((Gain)

Sacrificing Ratio =6/24 ; 2/24=3;1

WN2 Calculation of C’s gain in goodwill
Goodwill of the firm=D’s share×4/1s

= 30,000×4/1s=1,20,000

C’s gain in goodwill=1,20,000×2/24=10,000

WN3 Amount of Goodwill to be distributed between A and B (Sacrificing Partners)

Premium for goodwill=30,000
A will get =30,000×3/4=22,500

B will get =30,000×1/4=7,500

WN4 Journal Entries for D’s Capital and distribution of goodwill

Particulars		L.F.	Debit Amount `	Credit Amount `
Cash A/c	Dr.		1,50,000
To D’s Capital A/c				1,20,000
To Premium for Goodwill A/c				30,000
(D brought Capital and share of Capital)

Premium for Goodwill	Dr.		30,000
C’s Capital A/c	Dr.		10,000
To A’s Capital A/c				30,000
To B’s Capital				10,000
(Gain goodwill distributed between A and B in sacrificing ratio i.e. 3:1)

Page No 5.99:

Question 73:

Deepika and Rajshree are partners in a firm sharing profits and losses in the ratio of 3 : 2. On 31st March, 2019 their Balance Sheet was:


Liabilities		`	Assets		`
Sundry Creditors		16,000	Cash in Hand		1,200
Public Deposits		61,000	Cash at Bank		2,800
Bank Overdraft		6,000	Stock		32,000
Outstanding Liabilities		2,000	Prepaid Insurance		1,000
Capital A/cs:			Sundry Debtors	28,000
Deepika	48,000		Less: Provision for Doubtful Debts	800
Rajshree	40,000	88,000	Plant and Machinery		48,000
			Land and Building		50,000
			Furniture		10,000

		1,73,000			1,73,000

On 1st April, 2019 the partners admit Anshu as a partner on the following terms:
(a) The new profit-sharing ratio of Deepika, Rajshree and Anshu will be 5 : 3 : 2 respectively.
(b) Anshu shall bring in   ` 32,000 as his capital.
(c) Anshu is unable to bring in any cash for his share of goodwill. Partners, therefore, decide to calculate the goodwill on the basis of Anshu's share in the profits and the capital contribution made by her to the firm.
(d) Plant and Machinery is to be valued at   ` 60,000, Stock at   ` 40,000 and the Provision for Doubtful Debts is to be maintained at   ` 4,000. Value of Land and Building has appreciated by 20%. Furniture has been depreciated by 10%.
(e) There is an additional liability of   ` 8,000 being outstanding salary payable to employees of the firm. This liability is not included in the outstanding liabilities, stated in the above Balance Sheet. Partners decide to show this liability in the books of account of the reconstituted firm.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of Deepika, Rajshree and Anshu.

Answer:

Revaluation Account
Dr.				Cr.
Particulars		Amount `	Particulars	Amount `
Reserve for D. Debts	4,000		Plant and Machinery	12,000
Less: Old Reserve	800	3,200	(60,000 – 48,000)

Furniture 10,000 × 10%		1,000	Stock (40,000 – 32,000)	8,000
Outstanding salary		8,000
Profit transferred to			Land and Building	10,000
Deepika Capital		10,680	(50,000 × 20%)
Rajshree Capital		7,120
		30,000		30,000

Partners’ Capital Accounts
Dr.							Cr.
Particulars	Deepika	Rajshree	Anshu	Particulars	Deepika	Rajshree	Anshu
Balance c/d	58,680	47,120	32,000	Balance b/d	48,000	40,000
(before adjustment of Goodwill)
				Revaluation	10,680	7,120
				Cash			32,000
	58,680	47,120	32,000		58,680	47,120	32,000

Deepika			2,220	Balance b/d	58,680	47,120	32,000
Rajshree			2,220	Anshu’s Capital (Goodwill)	2,220	2,220
Balance c/d	60,900	49,340	27,560
	60,900	49,340	32,000		60,900	49,340	32,000

Balance Sheet as on March 31, 2019 after Anshu’s admission
Liabilities		Amount `	Assets		Amount `
Outstanding Salaries		8,000	Cash in Hand		1,200
Sundry Creditors		16,000	Cash at Bank		28,800
Public Deposits		61,000	Stock		40,000
Outstanding Liabilities		2,000	Prepaid Insurance		1,000
Capital A/cs:			Sundry Debtors	28,800
Deepika	60,900		Less: reserve for D. Debts	4,000	24,800
Rajshree	49,340		Plant and Machinery		60,000
Anshu	27,560	1,37,800	Land and Building		60,000
			Furniture		9,000
		2,24,800			2,24,800

Working Notes

WN1: Calculation of Sacrificing Ratio

	Deepika	Rajshree	Anshu
OLD RATION	3 :	2
NEW RATIO	5 :	3 :	2

Sacrificing Ratio = Old Ratio − New Ratio
Deepika = 3/5-5/10=1/10

Rajshree =2/5-3/10=1/10

	Deepika	Rajshree
Sacrificing Ratio =	1 :	1

WN2: Valuation of Goodwill
Capitalised value on the basis of Anshu’s share=32,000×10/2=1,60,000
Actual Capital of all partners before adjustment of Goodwill = 58,680 + 47,120 + 32,000= ` 1,37,800
Goodwill = Capitalised value − Actual Capital of all partners before adjustment of Goodwill
= 1,60,000 − 1,37,800
= ` 22,200
Anshu’s share of Goodwill =22,200×2/10=4,440
Deepika and Rajshree each will entitle for Goodwill=4,440×1/2=2,220

Page No 5.99:

Question 74:

Atul and Amit are partners sharing profits in the ratio of 3 : 2. Their Balance Sheet as at 31st March, 2019 is as follows:

Liabilities		Amount `	Assets	Amount `
Capital A/cs:			Plant and Machinery	1,80,000
Atul	1,00,000		Furniture	30,000
Amit	1,00,000	2,00,000	Computer	10,000
Current A/cs:			Stock	40,000
Atul	70,000		Debtors	50,000
Amit	50,000	1,20,000	Bills Receivable	10,000
Creditors		40,000	Cash	10,000
Bills Payable		10,000	Bank	40,000
		3,70,000		3,70,000

Abhay is admitted as a partner for 1/4th share on 1st April, 2019 on the following terms:
(a) Abhay is to bring   ` 65,000 as capital after adjusting amount due to him included in creditors and his share of Goodwill.
(b)   ` 10,000 included in creditors is payable to Abhay which is to be transferred to his Capital Account.
(c) Furniture is to reduced by   ` 3,000 and Plant and Machinery is to be increased to   ` 1,98,000.
(d) Stock is overvalued by   ` 4,000.
(e) A Provision for Doubtful Debts is to be created @ 5%.
(f) Goodwill is to be valued at 2 years' purchase of average profit for four years. Profits of four years ended 31st March were as follows: 2018-19 −   ` 25,000, 2017-18 −   ` 10,000, 2016-17 −   ` 2,500, and 2015-16 −   ` 2,500.
Pass the Journal entries for the above arrangement.

Answer:

In the books of the Atul, Amit and Abhay Journal
Date	Particulars		L.F.	Debit Amount `	Credit Amount `
2019
April 01	Creditors A/c	Dr.		10,000
	To Abhay’s Capital A/c				10,000
	(Being amount due to Abhay transferred to his Capital A/c)

	Cash A/c	Dr.		60,000
	To Abhay’s Capital A/c				55,000
	To Premium for Goodwill A/c (WN1)				5,000
	(Being Capital and goodwill paid by the new partner)

	Premium for Goodwill A/c	Dr.		5,000
	To Atul’s Capital A/c				3,000
	To Amit’s Capital A/c				2,000
	(Being premium for goodwill adjusted in 3:2)

	Revaluation A/c	Dr.		9,500
	To Furniture A/c				3,000
	To Stock A/c				4,000
	To Provision for Doubtful Debts A/c				2,500
	(Being assets revalued and liabilities reassessed)

	Plant & Machinery A/c	Dr.		18,000
	To Revaluation A/c				18,000
	(Being appreciation in plant & machinery provided for)

	Revaluation A/c (WN2)	Dr.		8,500
	To Atul’s Capital A/c				5,100
	To Amit’s Capital A/c				3,400
	(Being revaluation profit transferred to partner’s capital A/c)

Working Notes:

1. Calculation of Goodwill brought in by Abhay:

Average Profits	=	(Normal profits from 31^st March, 2016 to 31^st March, 2019)/2
	=	` (25,000 + 10,000 + 2,500 + 2,500)/4= ` 10,000
Goodwill	=	Average Profits × No. of years of Purchase
	=	`(10,000 × 2) = ` 20,000
Goodwill brought in by Abhay	=	`(20,000 × 1/4) = ` 5,000

2. Calculation of Revaluation Profit/Loss:
Debit side total = ` (3,000 + 4,000 + 2,500) = ` 9,500 Credit side total= ` 18,000 Gain on Revaluation = ` (18,000 – 9,500) = ` 8,500

Page No 5.100:

Question 75:

Yogesh and Naresh are partners sharing profits in the ratio of 3 : 2. They admit Ramesh for 1/3rd share on 1st April, 2019 and also decide to share future profits equally. Balance Sheet of the firm as at 31st March, 2019 was as follows:

Liabilities		Amount `	Assets		Amount `
Capital A/cs:			Land		4,00,000
Yogesh	5,00,000		Building		4,00,000
Naresh	5,00,000	10,00,000	Furniture		50,000
Current A/cs:			Computers		1,00,000
Yogesh	1,10,000		Stock		1,50,000
Naresh	90,000	2,00,000	Sundry Debtors	2,10,000
Employees' Provident Fund		25,000	Less: Provision for Doubtful Debts	10,000	2,00,000
Workmen Compensation Reserve		1,00,000	Cash		10,000
Sundry Creditors		75,000	Bank		70,000
Expenses Payable		10,000	Advertisement Suspense		30,000
		14,10,000			14,10,000

They admitted Ramesh on the following terms:
(a) He will bring   ` 5,00,000 as his capital.
(b) His share of goodwill is valued at   ` 1,00,000 but he is unable to bring cash for his share of goodwill. It is agreed to debit the amount to his Current Account.
(c) Value of Land and Building is to be appreciated by   ` 40,000 each.
(d) Value of Furniture to be reduced to   ` 40,000.
(e) Provision for Doubtful Debts to be increased to 10%.
(f) A liability for damages of   ` 10,000 is to be created.
Pass the Journal entries on admission of Ramesh and prepare Revaluation Account.

Answer:

In the books of the Yogesh, Naresh and Ramesh Journal
Date	Particulars		L.F.	Debit Amount `	Credit Amount `
2019
April 01	Cash A/c	Dr.		5,00,000
	To Ramesh’s Capital A/c				5,00,000
	(Being Capital brought in by the new partner)

	Ramesh’s Current A/c	Dr.		1,00,000
	To Yogesh’s Current A/c (1,00,000 × 4/5)				80,000
	To Naresh’s Current A/c (1,00,000 × 1/5)				20,000
	(Being premium for goodwill adjusted in 4 : 1)

	Revaluation A/c	Dr.		31,000
	To Provision for Doubtful Debts A/c				11,000
	To Liability for damages A/c				10,000
	To Furniture A/c				10,000
	(Being assets revalued and liabilities reassessed)

	Land A/c	Dr.		40,000
	Building A/c	Dr.		40,000
	To Revaluation A/c				80,000
	(Being appreciation in land and building provided for)

	Revaluation A/c (WN2)	Dr.		49,000
	To Yogesh’s Current A/c				29,400
	To Naresh’s Current A/c				19,600
	(Being revaluation profit transferred to partner’s current A/c)

	Workmen Compensation Reserve A/c	Dr.		1,00,000
	To Yogesh’s Current A/c				60,000
	To Naresh’s Current A/c				40,000
	(Being workmen compensation reserve distributed)

	Yogesh’s Current A/c	Dr.		18,000
	Naresh’s Current A/c	Dr.		12,000
	To Advertisement Suspense A/c				30,000
	(Being accumulated loss written off)

Working Notes:

1. Calculation of new profit-sharing ratio:

Particulars	Yogesh	Gopal
Old Ratio	3/5	2/5
New Ratio	1/3	1/3
Gain/Sacrifice	(3/5 – 1/3)= 4/15 (Sacrifice)	(2/5 – 1/3)= 1/15 (Sacrifice)
Sacrificing Ratio	4:1

2. Calculation of Revaluation Profit/Loss:
Debit side total= ` (11,000 + 10,000 + 10,000) = ` 31,000
Credit side total = ` 80,000

Gain on Revaluation= ` (80,000 – 31,000) = ` 49,000

Dr.	Revaluation A/c					Cr.
Particulars			Amount `	Particulars	Amount `
To Provision for Doubtful debt A/c			11,000	By Land A/c	40,000
To Liability for Damages A/c			10,000	By Building A/c	40,000
To Furniture A/c			10,000
To Profit transferred to:
Yogesh’s Current A/c		29,400
Naresh’s Current A/c		19,600	49,000

			80,000		80,000