(CHANGE IN PROFIT
SHARING RATIO AMONG THE EXISTING PARTNERS, ADMISSION OF A PARTNER,
RETIREMENT/DEATH OF A PARTNER)
Admission of
a Partner
Learning
objectives:-
After studying this lesson, the students will be able
to:
·
Identify and deal effectively with the situation
of reconstitution of partnership.
·
Identify the problem arising due to admission of
a partner in the firm.
·
Calculate new and sacrifice ratio in different
cases.
·
Understand, calculate and make treatment of
goodwill in different cases.
·
Make accounting treatment of the revaluation of
assets and liabilities and distribute the profit and loss on revaluation among
the old partners.
·
Make accounting treatment of unrecorded assets
and liabilities
·
Prepare capital Accounts, Cash A/c and Balance
Sheet of the New firm
·
Adjust the Partners’ Capital Accounts
Salient Points:-
1. Goodwill
is the monetary value of business reputation. It is an intangible asset.
2. Goodwill
may be of two types:
a. Purchased
goodwill
b. Non-purchased
goodwill
3. When
existing firm faces problem of limited financial resources and man power then
one new additional partner enters into firm.
4. There
are three methods of valuation of goodwill:
a. Average
Profit Method
b. Super
Profit method
c. Capitalisation
Method
5. When
new partner is admitted into existing partnership then existing partners have
to sacrifice in favour of new partner, it is called sacrificing ratio.
6. Share
of goodwill of new partner will be credited to sacrificing partners into their
sacrificing ratio.
7. At
the admission of new partner Profit & Loss on revaluation of assets and
liabilities and balances of accumulated profits & losses will be
distributed among old partners (only) in old ratio.
Ql. At the time of change
in profit sharing ratio among the existing partners, where will you record an
unrecorded liability ?
Ans. Revaluation
Account-Debit side
Q2. Anand, Bhutan and Chadha are partners sharing profits in
ratio of 3:2:1. On 1st April 2007, they decided to share profits equally. Name
the partners who is gaining on consequence of such change.
Ans. Chadha.
Q3. Give two characteristics
of goodwill.
Ans. (i) it is an intangible
asset having a definite value.
(ii) It helps in earning more profit.
Q4. Name any two factors
affecting goodwill of a partnership firm.
Ans. (i) Favourable location (ii) Time period
Q5. In a partnership firm
assets are Rs.5,00,000 and liabilities are Rs. 2,00,000. The normal profit rate is 15%. State the
amount of normal profits.
Ans. Rs.45,000
Q6. State the amount of
goodwill, if goodwill is to be valued on the basis of 2 years’ purchase of last
year’s profit. Profit of the last year was Rs.20,000.
Ans. Rs.40,000
Q7. Where will you record ‘increase in machinery’ in case of
change in profit sharing ratio among the existing partners?
Ans. Revaluation Account- Credit Side.
Q8. Name two methods for
valuation of goodwill in case of partnership firm.
Ans. (i) Average Profit
Method (ii) Super Profit Method
Q9 Give formula for
calculating goodwill under ‘super profit method’.
Ans. Goodwill = Super Profit
x Number of Years’ Purchase.
Q IO. Pass the journal entry
for increase in the value of assets or decrease in the value of liabilities in
the Revaluation A/c?
Ans Assets A/c Dr. (with the amount of increase)
Liabilities A/c Dr. (with the amount of decrease)
To Revaluation
A/c (with the total
amount of gain)
(Being
revaluation of assets and liabilities)
Qll. P,Q and R are partners
in a firm sharing profits in the ratio of 2:2:1 on 1.4.2007 the partners
decided to share future profits in the
ratio of 3:2:1 on that day balance sheet of the firm shows General Reserve
of Rs
50,000. Pass entry for distribution of reserve.
Ans. General Reserve A/c Dr.
50,000
To P’s Capital
A/c
30,000
To Q’s Capital
A/c 20000
To R’s Capital
A/c 10000
(Being Reserve
distributed)
Q12. “The gaining partner’s
should compensate to sacrificing
partner’s with the amount of gain.” Journalise this statement.
Ans. Gaining Partner’s
Capital A/c Dr
To Sacrificing
Partner’s Capital A/c
(Being compensation
given by gaining partner to sacrificing partner)
Q13. What are the two main
rights acquired by the incoming new partner in a partnership firm? ,
Ans, The two main rights are:
(i) Right to share the assets of the firm.
(ii) Right to share the future profits of the firm.
Q14. A and B are partners,
sharing profits in the ratio of 3:2. C admits for 1/5 share . State the
sacrificing ratio.
Ans. Sacrificing Ratio - 3:2.
Q15. How should the goodwill
of the firm be distributed when the sacrificing ratio of any of the existing
partner is negative (i.e. he is gaining)
Ans. In this case the partner
with a negative sacrificing ratio, i.e. the gaining partner to the extent of
his gain should compensate to the sacrificing partner to the extent of his
gain.
Ql6. In case of admission of
a partner, in which ratio profits or loss on revaluation of assets and
reassessment of liabilities shall be divided?
Ans. Old ratio.
Q17. Give journal entry for
distribution of ‘Accumulated Profits* in case of admission of a partner.
Ans. Accumulated Profit A/c
Dr.
To Old
Partners Capital A/c
(Being distribution
of accumulated profits among old partners)
Q18. At the time of admission of partner where will you record
‘unrecorded investment’?
Ans. Revaluation Account- Credit side.
Q19. The goodwill of a partnership is valued at Rs.20,000. State the
amount required by a new partner, if he is coming for 1/5 share in profits.
Ans. Rs.4,000.
Q20. What journal entries
should be passed when the new partner brings his share of goodwill in kind?
And.
(i) Assets A/c Dr - To Premium A/c
(ii) Premium A/c Dr - To
Sacrificing Partners’ Capital A/c
Q21. What journal entries will
be passed when the new partner is unable to bring his share of goodwill in cash?
Ans. New Partner’s Capital
A/c - -
To Sacrificing
Partners’ Capital A/c
Q22. In case of admission of a
new partner, goodwill was already appearing in the books of the firm. Give journal entry for its treatment
Ans Old Partners* Capital
A/c Dr.
To Goodwill
A/c -
(Being old goodwill
written off among old partners)
Q23. At the time of admission
of a new partner, workmen’s compensation reserve in appearing in the Balance
sheet as Rs1,000. Give journal entry if workmen’s compensation at the time of
admission is estimated at Rs 1,200.
Ans: Revaluation A/c 200
To Workmen’s
Compensation Reserve A/c 200
(Being workmen’s
compensation estimated at Rs. 1,200)
Q24. Give journal entry for
recording deceased partner’s share in profit from the closure of last balance
sheet till the date of his death.
Ans. Profit & Loss
Suspense Account Dr.
To Deceased
Partner’s Capital Account
(Being share of
profit to deceased partners)
Q25. Define gaining ratio.
Ans. Gaining ratio is the
ratio in which remaining/continuing partners acquire the share of the outgoing
partner(s).
Q26. Give two circumstances in
which gaining ratio can be applied.
Ans. (i) Retirement of a
partner (ii) Death of a partner. .
Q27. At the time of retirement
of a partner give journal entry for writing off the existing goodwill.
Ans. All Partners Capital
(including retiring) A/c Dr.
To Goodwill
A/c
(Being old goodwill
written off among all partners in, old ratio)
1 Mark
Questions
Admission of
a Partner
Q.1 State the two financial
rights acquired by a new Partner?
Ans. New partner is admitted
to the partnership if it provided in the partnership deed or all the existing
partners agree to admit the new partner.
Section 31 of the Indian Partnership Act Provides that a person may be
admitted as a new partner into a partnership firm with the consent of all the Partners.
Q.2 Give the name of the
compensation which is paid by a new Partner to sacrificing Partners for
sacrificing their share of profits.
Ans. When a partner joins the
firm, he gets the following two rights along with others :
i) Right to share future profit of the firm and
ii) Right to share the assets of the firm.
Q.3 Enumeration the matters
that need adjustment at the time of admission of a new Partner.
Ans. The matter that needs
adjustment of the time of admission of a new partner are:
i) Adjustment in profit sharing ratio and
adjustment of capital
ii) Adjustment for goodwill
iii) Adjustment of Profit / Loss arising from the
Revolution of Assets and Reassessment
of Liabilities.
iv) adjustment of accumulated profits, reserves
and losses.
Q.4 Give two circumstances
in which sacrificing Ratio may be
applied.
Ans. Circumstances in which
sacrificing Ratio may be applied are:
i) At the time of admission of a new partner
for distributing goodwill brought in by the new partner.
ii) For adjustment goodwill in case of change in
Profit - sharing ratio of existing partners.
Q.5 Why is it necessary to
revalue assets and reassess liabilities of a firm in case of admission of a new
partner?
Ans. The assets are revalued
and liabilities of a firm are reassess, at the time of admission of a partner
because the new partner should; neither benefit nor suffer because change in
the value of assets and liabilities as on the date of admission.
Q.6 What are the accumulated
profit and accumulated losses?
Ans. The profit accumulated
over the years and have not been credited to partners’ capital A/c are known as
accumulated Profit or undistributed profit, e.g. the General Reserve, Profit and Loss A/c (credit
balance).
The losses which have
not yet been written off to the debit of Partners’ Capital A/c are known as
accumulated Losses, e.g. the Profit and Loss A/c appearing on the assets side
of Balance Sheet, etc.
Q.7 Explain the treatment of
goodwill in the books of a firm on the admission of a new Partner when goodwill
already appears in the Balance sheet at its full value and the new partner
brings his share of good will in cash.
Ans. By following accounting
standard - 10, the existing goodwill (i.e. goodwill appearing in the Balance
Sheet ) is written off to the old partners Capital a/c in their old profit
sharing ratio.
Old partners
capital A/c Dr. .....
To
Goodwill A/c [in
old Ratio]
[Being the
existing g/w written off in the old ratio.]
Q.8 Under
what circumstances the premium for goodwill paid by the incoming Partner will
not recorded in the books of Accounts ?
Ans. When the premium for
goodwill is paid by the incoming partner privately, it is not recorded in the
books of A/c as it is as a matter outside the business.
Q.9 A and B share profits
and losses in the Ratio of 4:3, they admit C with 3/7th share; which he gets
2/7th from A and 1/7 from B. What is the new profit sharing ratio?
Ans. A
: -
= 4/7-2/7 =2/7
B
: :
= 3/7-1/7=2/7
C
: =2/7+1/7=3/7
New Profit sharing Ratio is 2:2:3.
Q.10 The capital of A and B
are Rs. 50,000 and Rs. 40,000. To
Increase the Capital base of the firm to Rs. 1,50,000, they admit C to join the firm, C is required to Pay a sum
of Rs. 70,000, what is the amount of premium of goodwill ?
Ans. The total capital of the firm is Rs. 90,000. To increase the capital base to Rs. 1,50,000,
C is to bring in Rs. 60,000 (Rs. 1,50,000 - 9,00,00) But he bring in Rs. 70,000.
Therefore, the excess of Rs. 10,000 represent premium for goodwill.
Q.11 Distinguish between New
Profit - sharing ratio and sacrificing ratio?
Ans. Distinction between New Profit - Sharing ratio and
sacrificing ratio:
New Profit
sharing Ratio Sacrificing
Ratio
1) It is related to all the Partners 1) It is
related to old partners only
(including new)
2) It is the ratio in which the all 2) It is the
ratio in which old partners
partner (including new) will share have sacrificed their share in
favour
profit in future. of
new Partner or when profit
sharing
Ratio is changed.
3) New Profit sharing Ratio = 3) Sacrificing
Ratio =
Old Ratio - Sacrificing Ratio Old Ratio - New Ratio
2-3 marks questions:
Q 1 A & B are partners sharing in the ratio of 3:2. C is admitted. C
gets 3/20th from A and 1/20th from B. calculate new and sacrifice ratio
Ans: 9: 7: 4
Q2 X & Y are partners share profits in the
ratio of 5:3. Z the new partner gets
1/5 of X’s share and 1/3rd of Y’s share. Calculate new ratio.
Ans: 4:2:2
Q 3 P & Q are partners sharing in the ratio
of 5:3. They admit R for 1/4th share and agree to share between them in the
ratio of 2:1 in future. Calculate new ratio.
Ans: 2:1:1.
6-8 Marks Questions
Q.1 Dinesh,
Yasmine and Faria are partners in a firm, sharing profits and losses in 11:7:2
respectively. The Balance Sheet of the firm as on 31st Dec 2001 was as follows:
Liabilities
|
Rs.
|
Assets
|
Rs.
|
Sundry
Creditors
|
800
|
Factory
|
7,350
|
Public
Deposits
|
1,190
|
Plant &
Machinery
|
1,800
|
Reserve fund
|
900
|
Furniture
|
2,600
|
Capital A/c
|
Stock
|
1,450
|
|
Dinesh
|
5,100
|
Debtors
Rs. 1,500
|
|
Yasmine
|
3,000
|
Less: bad debts Rs.
300 provisions
|
1,200
|
Faria
|
5,000
|
Cash in hand
|
1,590
|
15,900
|
15,900
|
On the same date, Annie is admitted as a partner for
one-sixth share in the profits with Capital of Rs. 4,500 and necessary amount
for his share of goodwill on the following terms:-
a. Furniture of Rs. 2,400 were to be taken
over by Dinesh, Yasmine and Faria equally.
b. A Liability of Rs. 1,670 be created
against Bills discounted.
c. Goodwill of the firm is to be valued at 2.5 years' purchase
of average profits of 2 years. The profits are as under:
2000:- Rs.
2,000 and 2001 - Rs. 6,000.
d. Drawings of Dinesh, Yasmine, and Faria were Rs. 2,750; Rs.
1,750; and Rs. 500 Respectively.
e. Machinery and Public Deposits are
revalued to Rs. 2,000 and Rs. 1,000 respectively.
Prepare Revaluation Account,
Partners' Capital Accounts and Balance Sheet of the new firm.
Solution 1
Books of Dinesh, Yamine, Farte and Anie
REVALUATION ACCOUNT
Particulars Rs. Assets Rs.
To Bills Discounted A/c 1670 By Public deposits A/c 190
By
Machinery A/c 200
By
Loss transferred to
Dinesh's capital A/c 704 Yasmine's Capital A/c 448
Faria's Capital A/c 128 1280
1670 1670
PARTNERS' CAPITAL ACCOUNTS
Dr. Dr.
Particulars Dinesh Yasmine Faria Annie Particulars Dinesh Yasmine Faria Annie
Rs. Rs. Rs. Rs.
Rs Rs. Rs. Rs.
To Revaluation By
Balance b/d 5100 3000 5000 --
A/c (Loss) 704 448 128 -- By
Reserve F A/c 495 315 90 --
To Furniture A/c 800 800 800 -- By
Cash A/c -- -- -- 4500
To Drawings 2750 1750 500 -- By
Premium A/c 917 583 167 --
A/c
To Balance c/d 2258 900 3829 4500
6512 3898 5257 4500 6512 3898 5257 4500
By
Balance b/d 2258 900 3829 4500
BALANCE SHEET
as at 31.12.2001
Particulars Rs. Assets Rs.
Sundry Creditors 800 Cash in Hand 2757
Public Deposits 1000 Factory Buildings 7350
Capitals : Dinesh 2258 Machinery 2000 Furniture 200
Yashmine 900 Stock 1450
Faria 3829 Debtors 1500
Annie 4500 11487 Less
: Provision 300 1200
Bills Discounted 1670
14957 14957
Q.2 X and Y are partners as they share profits
in the proportion of 3:1 their balance
sheet as at 31.03.07 as follows.
BALANCE
SHEET
Liabilities
|
Rs.
|
Assets
|
Rs.
|
Capital
Account
|
Land
|
1,65,000
|
|
X
|
1,76,000
|
Furniture
|
24,500
|
Y
|
1,45,200
|
Stock
|
1,32,000
|
Creditors
|
91,300
|
Debtors
|
35,200
|
Bills
Receivable
|
28,600
|
||
Cash
|
27,500
|
||
4,12,500
|
4,12,500
|
On the same date, Z is admitted
into partnership for 1/5th share on the following terms
a. Goodwill is to be valued at 3½ years
purchase of average profits of last for year which was Rs. 20,000 Rs. 17,000
Rs. 9,000 (Loss) respectively.
Ù Stock
is fund to be overvalued by Rs. 2,000 Furniture is reduced and Land to be
appreciated by 10% each, a provision for Bad Debts @ 12% is to be created on
Debtors and a Provision of Discount of Creditors @ 4% is to be created.
Ù A
liability to the extent of Rs. 1,500 should be created for a claim against the
firm for damages.
Ù An
item of Rs. 1,000 included in Creditors is not likely to be claimed, and hence
it should be written off.
Prepare
Revaluation Account, Partners: Capital Accounts and Balance Sheet of the new
firm if Z is to contribute proportionate capital and goodwill. The capital of
partners is to be in profit sharing ratio by opening current Accounts.
Solution 2
BOOK OF X, Y AND Z
REVALUATION ACCOUNT
Dr. Cr.
Particulars Amount Particulars Amount
To Stock A/c 2000 By land A/c 16500
To furniture A/c 2420 By creditors A/c 1000
To Provision for bad debts A/c 4224 By provision of discount
on 3612
To claim against damages A/c 1500 creditors A/c
To profit transferred to
X's capital A/c 8266
Y's 2742 10968
21112 21112
PARTNER'S CAPITAL ACCOUNT
Dr. Cr
Particulars X
Rs. Y Rs. Z Rs. Particulars X Rs. Y Rs. Z Rs.
Y's Current A/c - 64,900 - By Balance b/d 1,76,000 1,45,200 -
To Balance 2,54,901 84,967 84,967 By revaluation 8,226 2,742 -
Profit
By
premium a/c 5,775 1,925 -
By
Cash a/c - - 84,967
By
X's current 64,900 - -
2,54,901 1,49,867 84,967 2,54,901 1,49,867 84,967
BALANCE SHEET AS AT 31.3.07
Liabilities Rs.
Assets Rs.
Claim against damages 1,500 Cash 1,20,167
Creditors Rs.
91,300 Land 1,81,500
Less Rs.
1,000 Furniture 21,780
90,300 Stock 1,30,000
Less Prov. 3,612
86,688 Debtors 35,200
Capital Less
provision. 4,224 30,976
X Rs.
2,54,901 Bills
receivables 28,600
Y Rs.
84,967 X's current a/c
64,900
Z Rs.
84,967 4,24,835
Current A/c (Y) 64,900
5,77,923 5,77,923
Q.3. Rashmi and Pooja are partners in a firm.
They share profits and losses in the ratio of 2:1. They admit Santosh into
partnership firm on the condition that she will bring Rs. 30,000 for Goodwill
and will bring such an amount that her capital will be 1/3 of the total capital
of the new firm. Santosh will be given 1/3 share in future profits. At the time
of admission of Santosh, the Balance Sheet of Rashmi and Pooja was as under:
Balance
sheet
Liabilities
|
Rs.
|
Assets
|
Rs.
|
Capital
Account
|
Cash
|
90,000
|
|
Rashmi
|
1,35,000
|
Machinery
|
1,20,000
|
Pooja
|
1,25,000
|
Furniture
|
10,000
|
Creditors
|
30,000
|
Stock
|
50,000
|
Bills Payable
|
10,000
|
Debtors
|
30,000
|
3,00,000
|
3,00,000
|
It
was decided to:
a.
revalue
stock at Rs. 45,000.
b.
depreciated
furniture by 10% and machinery by 5%.
c.
make
provision of Rs. 3,000 on sundry debtors for doubtful debts.
Prepare
Revaluation Account, Partners: Capital Accounts and Balance Sheet of the new
firm. Give full workings.
Solution : 3
REVALUATION ACCOUNTS
Dr. Cr.
Particulars Rs. Particulars Rs.
To Stock 5000 By Loss on Revaluation distributed
To Furniture 1000 Rashmi 10000
To Machinery 6000
Pooja 5000
To Debtors 3000
15000 15000
CAPITAL ACCOUNTS OF PARTNERS
Particulars Rashmi Pooja Santosh
Particulars Rashmi Pooja Santosh
Rs. Rs. Rs. Rs. Rs. Rs.
To Revaluation A/c 10000 5000 -- By
Balance b/d 115000 115000 --
To Adv Susp. A/c 2000 1000 -- By Cash A/c -- -- --
To Balance C/d 145000 130000 -- By Premium a/c 20000 10000 --
By
Reserve 16000 8000 --
By
Work com.Res. 6000 3000 -
157000 136000 -- 157000 136000 --
To Balance c/d 145000 130000 137500 To Balance c/d 145000 130000 -
By
Cash A/c -- -- 137500
½
of (Rs. 145000 -- -- 137500
+ Rs. 130000)
145000 130000 137500 145000 130000 137500
BALANCE SHEET OF A, B & C AS AT
Dr. Cr.
Liabilities Rs. Assets Rs.
Creditors 30000 Cash 257500
Bills Payable 10000 Machinery 114000
Rashmi's Capital 145000 Furniture 9000
Pooja's capital 130000 Stock 45000
Santosh's capital 137500 Debtors 30000
Less
: Provision 3000
452500 452500
Q.4 A, B and C are equal partners in a firm,
their Balance Sheet as on 31st March
2002 was as follows:
Liabilities
|
Rs.
|
Assets
|
Rs.
|
Sundry
Creditors
|
27,000
|
Goodwill
|
1,17,000
|
Employees
Provident Fund
|
6,000
|
Building
|
1,25,000
|
Bills Payable
|
45,000
|
Machinery
|
72,000
|
General
Reserve
|
18,000
|
Furniture
|
24,000
|
Capitals:
|
Stock
|
1,14,000
|
|
A
|
2,17,000
|
Bad Debts
|
1,02,000
|
B
|
1,66,000
|
Cash
|
12,000
|
C
|
90,000
|
Advertisement
Suspense A/c
|
3,000
|
5,69,000
|
5,69,000
|
On
that date they agree to take D as equal partner on the following terms:
a. D should bring in Rs. 1,60,000 as his
capital and goodwill. His share of goodwill is valued at Rs. 60,000.
b. Goodwill appearing in the books must be
written off.
c. Provision for loss on stock and
provision for doubtful debts is to be made at 10% and 5% respectively.
d. The value of building is to taken Rs.
2,00,000.
e. The total capital of the new firm has
been fixed has been fixed at Rs. 4,00,000 and the partners capital accounts are
to be adjusted in the profit sharing ratio. Any excess is to be transferred to
current account and any deficit is to be brought in cash.
Required
: Revaluation Account, Partners Capital Accounts, and the Balance Sheet of the
new firm.
Solution 4
REVALUATION ACCOUNT
Dr. Cr.
Particulars Rs. Particulars Rs.
To Stock 11400 By land & building 75000
To provision for doubtful debtors 5100
A's Capital A/c (1/3) 19500
B's Capital A/c (1/3) 19500
C's Capital A/c (1/3) 19500
75000 75000
CAPITAL ACCOUNTS OF PARTNERS
Particulars Rashmi Pooja Santosh
Particulars Rashmi Pooja Santosh
Rs. Rs. Rs. Rs. Rs. Rs.
To Adver. By
Balance c/d 217000 166000 90000
Sus. A/c 1000 1000 1000 By Revaluation 19500 19500 19500
to goodwill 39000 39000 39000 By General Res. 6000 6000 6000
To Current A/c 122500 71500 -- By Premium A/c 20000 20000 20000
To Balance c/d 100000 100000 100000 By Current A/c -- -- 4500
262500 211500 140000 262500 211500 140000
BALANCE SHEET OF M/S A, B & C as at 31st march 20x2
Dr. Cr.
Liabilities Rs. Assets Rs
Sundry creditors 27000 Cash at bank 172000
Employees' Provident Fund 6000 Debtors 102000
Bills Payable 45000 Less : Provision 5100 96900
A's Capital 100000 Mr. X --
B's Capital 100000 Stock 102600
C's Capital 100000 Furniture & Fixtures 24000
D's Capital 100000 Plant & Machinery 72000
A's Current A/c 122500 Land & Building 200000
B's Current A/c 71500 C's Current A/c 4500
672000 672000
Q.5 A, Band C were partners in a firm sharing profits equally: Their Balance Sheet on.31.12.2007 stood as:
BALANCE SHEET AS AT
31.12.07
Liabilities Rs. Assets Rs.
A
Rs. 30,000 Goodwill 18,000
B
Rs. 30,000 Cash 38,000
C
Rs. 25,000 85,000 Debtors .
43,000
Bills payable 20,000 Less: Bad Debt provision 3,000 40,000
Creditors 18,000 Bills Receivable 25,000
Workers Compensation Fund 8,000 Land and Building 60,000
Employees provide4nt Fund 60,000 Plant and Machinery 40,000
General Reserve 30,000
2,21,000 2,21,000
It was mutually agreed that C will
retire from partnership and for this purpose following terms were agreed upon.
i) Goodwill
to be valued on 3 years’ purchase of average profit of last 4 years which were
2004 : Rs.50,000 (loss); 2005 : Rs. 21,000; 2006: Rs.52,000; 2007 : Rs.22,000.
ii) The
Provision for Doubtful Debt was raised to Rs. 4,000.
iii) To
appreciate Land by 15%.
iv) To
decrease Plant and Machinery by 10%.
v) Create
provision of Rs;600 on Creditors.
vi) A
sum of Rs.5,000 of Bills Payable was not likely to be claimed.
vii) The
continuing partners decided to show the firm’s capital at 1,00,000 which would
be in their new profit sharing ratio which is 2:3. Adjustments to be made in
cash
Make necessary accounts and prepare the
Balance Sheet of the new partners.
Ans.5 REVALUATION ACCOUNT
Particulars Rs. Particulars Rs.
To Provision for Debts A/c 1,000 By Land A/c 9,000
To Plant & Machinery A/c 4,000 By Provision on Creditors A/c 600
To Profit transferred to By
Bills Payable A/c 5,000
A’s Capital A/c Rs. 3,200
B’s Capital A/c Rs. 3,200
C’s Capital A/c Rs. 3,200 9,600
14,600 14,600
PARTNER’S CAPITAL ACCOUNTS
Particulars ARs. B Rs. C
Rs. Particulars A Rs. B
Rs. C Rs.
To Goodwill A/c 6,000 6,000 6,000 By Balance b/d 30,000 30,000 25,000
To C’s Capital A/c 2,250 9,000 - By
General Reserve 10,000 10,000 10,000
To C’s Loan A/c - - 46,116 By Workmen A/c 2,667 2,667 2,666
Compensation
Fund
To Balance c/d 40,000 60,000 - By Revalue A/c (profit) 3,200 3,200 3,200
By
A’s Capital A/c - - 2,250
By
B’s Capital A/c - - 9,000
By
Cash A/c (Deficiency) 2,383 29,133 -
48,250 75,000 52,116 48,250 75,000 52,116
By
Balance b/d 40,000 60,000 -
BALANCE SHEET
as at 31.12.07
Liabilities Rs. Assets Rs.
Bills Payable 15,000 Debtors Rs. 43,000
Creditors 17,400 Less: Provision Rs. 4,000 39,000
Employees Provident Fund 60,000 Bills Receivables 25,000
C’s Loan 46,116 Land & Buildings 69,000
A’s Capital 40000 Plant & Machinery 36,000
B’S Capital 60000 1,00,000 Cash 69,516
2,38,516 2,38,516
