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Question

A and B share profits in the proportions of 3/4 and 1/4. Their Balance Sheet on Dec. 31, 2016 was as follows:

Balance Sheet of A and B as on December 31, 2016

Liabilites

Amount

(Rs)

Assets

Amount

(Rs)

Sundry creditors

41,500

Cash at Bank

26,500

Reserve fund

4,000

Bills Receivable

3,000

Capital Accounts

Debtors

16,000

A

30,000

Stock

20,000

B

16,000

Fixtures

1,000

Land & Building

25,000

91,500

91,500

On Jan. 1,2017, C was admitted into partnership on the following terms:

(a) That C pays Rs 10,000 as his capital.

(b) That C pays Rs 5,000 for goodwill. Half of this sum is to be withdrawn by A and B.

(c) That stock and fixtures be reduced by 10% and a 5%, provision for doubtful debts be created on Sundry Debtors and Bills Receivable.

(d) That the value of land and buildings be appreciated by 20%.

(e) There being a claim against the firm for damages, a liability to the extent of Rs 1,000 should be created.

(f) An item of Rs 650 included in sundry creditors is not likely to be claimed and hence should be written back.

Record the above transactions (journal entries) in the books of the firm assuming that the profit sharing ratio between A and B has not changed. Prepare the new Balance Sheet on the admission of C.

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Solution

Books of A, B and C

Journal

Date

Particulars

L.F.

Amount

Rs

Amount

Rs

2017

Jan. 01

Bank A/c

Dr.

15,000

To Cā€™s Capital A/c

10,000

To Premium for Goodwill A/c

5,000

(Capital and Premium for goodwill brought by C

for 1/5 th share)

Jan. 01

Premium for Goodwill A/c

5,000

To Aā€™s Capital A/c

3,750

To Bā€™s Capital A/c

1,250

(Amount of goodwill brought by C is transferred to old

partnersā€™ capital account in their sacrificing ratio, 3:1)

Jan. 01

Aā€™s Capital A/c

Dr.

1,875

Bā€™s Capital A/c

Dr.

625

To Bank A/c

2,500

(Half of amount withdrawn by old partners)

Jan. 01

Revaluation A/c

Dr.

4,050

To Stock A/c

2,000

To Fixture A/c

100

To Provision for doubtful Debts on Debtors A/c

800

To provision for doubtful Debts on Bills Receivable A/c

150

To Claim for Damages A/c

1,000

(Assets and liabilities are revalued)

Jan. 01

Land and Building A/c

Dr.

5,000

Sundry Creditors A/c

650

To Revaluation A/c

5,650

(Asset and liability are revalued)

Jan. 01

Revaluation A/c

Dr.

1,600

To Aā€™s Capital A/c

1,200

To Bā€™s Capital A/c

400

(Profit on Revaluation transferred to old partnersā€™ capital)

Jan. 01

Reserve Fund A/c

Dr.

4,000

To Aā€™s Capital A/c

3,000

To Bā€™s Capital A/c

1,000

(Reserve Fund distributed among old partners)

Balance Sheet as on January 01, 2007

Liabilities

Amount

(Rs)

Assets

Amount

(Rs)

Sundry Creditors

40,850

Cash at Bank

39,000

Claim for Damages

1,000

Bills Receivable

3,000

A

36,075

Less: Provision

150

2,850

B

18,025

Debtors

16,000

C

10,000

64,100

Less: Provision

800

15,200

Stock

18,000

Fixtures

900

Land and Building

30,000

1,05,950

1,05,950

Working Note:

1)

Partnersā€™ Capital Account

Dr.

Cr.

Particulars

A

B

C

Particulars

A

B

C

Bank

1,875

625

Balance b/d

30,000

16,000

Balance c/d

36,075

18,025

10,000

Bank

10,000

Premium for Goodwill

3,750

1,250

Revaluation

1,200

400

Reserve Fund

3,000

1,000

37,950

18,650

10,000

37,950

18,650

10,000

2)

Bank Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Balance b/d

26,500

Aā€™s Capital A/c

1,875

Cā€™s Capital A/c

10,000

Bā€™s Capital A/c

625

Premium for Goodwill

5,000

Balance c/d

39,000

41,500

41,500

3)

Sacrificing ratio = Old Ratio āˆ’ New Ratio

Note: Assuming that ratio between A and B has not change hence sacrificing ratio should be same as old ratio.


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Q.

Ashok, Babu and Chetan are in partnership sharing profit in the proportion of 1/2, 1/3, 1/6 respectively. They dissolve the partnership of the December 31, 2017, when the balance sheet of the firm as under:

Balance Sheet of Ashok, Babu and Chetan as on December 31, 2017

Liabilities

Amount

Rs

Assets

Amount

Rs

Sundry Creditors

20,000

Bank

7,500

Bills payable

25,500

Sundry Debtors

58,000

Babu’s loan

30,000

Stock

39,500

Capital’s:

Machinery

48,000

Ashok

70,000

Investment

42,000

Babu

55,000

Freehold Property

50,500

Chetan

27,000

1,52,000

Current Accounts :

Ashok

10,000

Babu

5,000

Chetan

3,000

18,000

2,45,500

2,45,500

The Machinery was taken over by Babu for Rs 45,000, Ashok took over the Investment for Rs 40,000 and Freehold property was taken over by Chetan at Rs 55,000. The remaining Assets realised as follows: Sundry Debtors Rs 56,500 and Stock Rs 36,500. Sundry Creditors were settled at discount of 7%. A Office computer, not shown in the books of Accounts realised Rs 9,000. Realisation expenses amounted to Rs 3,000.

Prepare Realisation Account, Partners Capital Account, Bank Account.

Q.

Shilpa, Meena and Nanda decided to dissolve their partnership on March 31,2017. Their profit sharing ratio was 3:2:1 and their Balance Sheet was as under:

Balance Sheet of Shilpa, Meena and Nanda as on March 31, 2017

Liabilities

Amount

Rs

Assets

Amount

Rs

Capitals:

Land

81,000

Shilpa

80,000

Stock

56,760

Meena

40,000

Debtors

18,600

Bank loan

20,000

Nanda’s Capital Account

23,000

Creditors

37,000

Cash

10,840

Provision for doubtful debts

1,200

General Reserve

12,000

1,90,200

1,90,200

The stock of value of Rs 41,660 are taken over by Shilpa for Rs 35,000 and she agreed to discharge bank loan. The remaining stock was sold at Rs 14,000 and debtors amounting to Rs 10,000 realised Rs 8,000. land is sold for Rs 1,10,000. The remaining debtors realised 50% at their book value. Cost of Realisation amounted to Rs 1,200. There was a typewriter not recorded in the books worth Rs 6,000 which were taken over by one of the Creditors at this value. Prepare Realisation Account.

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