A nd B are partners sharing profits and losses in the ratio 3:1. On 1st april 2012 their balance sheet was as follows."
Liabilities = Sundry creditors- 70000; Capital a/cs- A - 200000, B- 80000; TOTAL= 350000.
Assets= Goodwill- 20000; plant- 100000; patents- 10000; stock- 142000,; Sundry debtors- 50000; cash ta bank- 8000; profit and loss account- 20000. Total- 350000.
They admit C into partnership with 1/6th share in profits on the following terms:
(a). Goodwill is to be valued at one’s year purchase of the five years’ average profit which were Rs.20000; Rs.30000 ; Rs.30000; rs.50000 and Rs.50000.
(b). C agrees to contribute 1/4th of the combined capital of A and B in the new firm.
( c ). Plant is to be written down to Rs.90000 and patents written up to Rs.12000.
(d). A reserve for bad and doubtful debts is to be created @2%p.a. of the debtors.
( e). A liability of Rs.5000 included in sundry creditors is not likely to arise.
Give journal entries, revaluation account, partners capital account, cash account and balance sheet after the admission of C.
Journal | |||||
Date | Particulars | L.F. | Debit Amount Rs | Credit Amount Rs | |
| Revaluation A/c | Dr. |
| 11,000 |
|
| To Plant A/c |
|
| 10,000 | |
| To Reserve for Doubtful Debts A/c |
|
| 1,000 | |
| (Decrease in Plant and Creation for Reserve for Doubtful Debts recorded) |
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| Patents A/c | Dr. |
| 2,000 |
|
| Sundry Creditors A/c | Dr. |
| 5,000 |
|
| To Revaluation A/c |
|
| 7,000 | |
| (Increase on plant and decrease in creditors recorded) |
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| A’s Capital A/c | Dr. |
| 3,000 |
|
| B’s Capital A/c | Dr. |
| 1,000 |
|
| To Revaluation A/c |
|
| 4,000 | |
| (Revaluation loss distributed between A and B in old |
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| Ratio i.e. 3:1) |
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| Bank A/c | Dr. |
| 66,500 |
|
| To C’s Capital A/c |
|
| 60,500 | |
| To Premium for Goodwill A/c |
|
| 6,000 | |
| (C brought capital and his share of goodwill) |
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| Premium for Goodwill A/c | Dr. |
| 6,000 |
|
| To A’s Capital A/c |
|
| 4,500 | |
| To B’s Capital A/c |
|
| 1,500 | |
| (Premium for Goodwill distributed between A and B in |
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| the sacrificing ratio i.e. 3 : 1) |
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| A’s Capital A/c | Dr. |
| 15,000 |
|
| B’s Capital A/c | Dr. |
| 5,000 |
|
| To Profit and Loss A/c |
|
| 20,000 | |
| (Profit and Loss written-off) |
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| A’s Capital A/c | Dr. |
| 15,000 |
|
| B’s Capital A/c | Dr. |
| 5,000 |
|
| To Goodwill A/c |
|
| 20,000 | |
| (Goodwill written-off) |
|
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Revaluation Account | |||
Dr. |
|
| Cr. |
Particulars | Amount Rs | Particulars | Amount Rs |
Plant and Machinery | 10,000 | Patents | 2,000 |
Reserve for Doubtful Debts |
| Sundry Creditors | 5,000 |
(50,000 × 2%) | 1,000 | Loss transferred to Capital Accounts: |
|
|
| A | 3,000 |
|
| B | 1,000 |
| 11,000 |
| 11,000 |
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Partners’ Capital Accounts | |||||||
Dr. |
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| Cr. |
Particulars | A | B | C | Particulars | A | B | C |
Profit and Loss | 15,000 | 5,000 |
| Balance b/d | 2,00,000 | 80,000 |
|
Goodwill (written-off) | 15,000 | 5,000 |
| Premium for Goodwill | 4,500 | 1,500 |
|
Revaluation | 3,000 | 1,000 |
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Balance c/d | 1,71,500 | 70,500 |
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| 2,04,500 | 81,500 |
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| 2,04,500 | 81,500 |
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| Balance b/d | 1,71,500 | 70,500 |
|
Balance c/d | 1,71,500 | 70,500 | 60,500 | Bank |
|
| 60,500 |
| 1,71,500 | 70,500 | 60,500 |
| 1,71,500 | 70,500 | 60,500 |
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Balance Sheet as on April 01,2012 after C’s admission | |||||
Liabilities | Amount Rs | Assets | Amount Rs | ||
Sundry Creditors (70,000 – 5,000) | 65,000 | Plants (1,00,000 – 10,000) | 90,000 | ||
Capital A/c |
| Patents (10,000 + 2,000) | 12,000 | ||
A | 1,71,500 |
| Stock | 1,42,000 | |
B | 70,500 |
| Sundry Debtors | 50,000 |
|
C | 60,500 | 3,02,500 | Less: Reserve for Doubtful Debts | (1,000) | 49,000 |
|
| Cash at Bank | 74,500 | ||
| 3,67,500 |
| 3,67,500 | ||
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| ||||
Working Note:
1.
2. Distributing of Revaluation Loss
3. Profit and Loss (Loss) written off
4. Calculation of Goodwill
Goodwill = Average Profit × Number of years’ purchase
= 36,000 × 1
= 36,000
5. Distributing of C’s share of Goodwill
6. Writing off of Goodwill
7. Calculation of C’s share of capital
Combined capital of A and B after all adjustments
= 1,71,500 + 70,500 = Rs 2,42,000
Bank Account | |||
Dr. |
|
| Cr. |
Particulars | Amount Rs | Particulars | Amount Rs |
Balance b/d | 8,000 |
|
|
C’s Capital | 60,500 |
|
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Premium for Goodwill | 6,000 | Balance c/d | 74,500 |
| 74,500 |
| 74,500 |
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