Question

C and D are the partner in a firm sharing profits in the ratio of 4:1. On 31.3.2016 their Balance Sheet was as follows :

Balance Sheet of C and D As on 31.3.2016
Liabilities	Rs	Assets	Rs
Sundry Creditors Provision for Bad debts Outstanding Salary General Reserve   Capitals C             1,20,000 D                80,000	40,000 4,000 6,000 10,000       2,00,000	Cash Debtors Stock Furniture Plant and Machinery	24,000 36,000 40,000 80,000 80,000
	2,60,000		2,60,000

On the above date, E was admitted for 1/4 th share in the profits on the following terms:

1) E will bring 1, 00,000 as his capital and 20,000 for his share of goodwill premium half of which will be withdrawn by C and D.

2) Debtors 2,000 will be written off as bad debts and a provision of 4% will be created on debtors for bad debts and doubtful debts

3) The stock will be reduced by Rs 2,000, furniture will be depreciated by Rs 4,000 and 10% depreciation will be charged on plant and machinery

4) Investments of 7,000 not shown in the Balance Sheet will be taken into account.

5) There was an outstanding repairs bill of Rs 2,300 which will be recorded in the books.

Pass necessary journal entries for the above transactions in the books of the firm on E’s admission.

Answer 1

Date	Particulars	L.F.	Debit Amount (Rs)	Credit Amount (Rs)
	Cash A/c    Dr    To E’s Capital     To Premium for Goodwill A/c (Being capital and goodwill brought in by E)		120000	100000 20000
	Premium for Goodwill A/c   Dr    To C’s Capital A/c    To D’s Capital A/c (Being goodwill shared in their sacrificing ratio)		20000	16000 4000
	C’s Capital A/c   Dr D’s Capital A/c   Dr     To Cash A/c (Goodwill Withdrawn)		8000 2000	10000
	General Reserve A/c     Dr    To C’s Capital A/c    To D’s Capital A/c (Being general reserve shared among the partners in their old ratio)		10000	8000 2000
	Revaluation A/c  Dr     To Outstanding Repair Bill A/c     To Stock A/c     To Furniture A/c     To Plant & Machinery A/c (Decrease in assets and increase in liabilities debited to Revaluation A/c)		16300	2300 2000 4000 8000
	Investments A/c  Dr. Provision for Doubtful Debts A/c Dr     To Revaluation A/c (Increase in assets and decrease in liabilities credited to Revaluation A/c)		7000 640	7640
	C’s Capital A/c   Dr.  D’s Capital A/c  Dr.      To Revaluation A/c  (Loss on revaluation debited to old partners in old ratio)		6928 1732	8660

Working Notes:

WN 1: Calculation of Excess/ Deficit Provision for Doubtful Debts

Provision required `=36,000-2,000   "(w/off)" × 4/100= 1,360`

Existing Provision (after w/off bad debts)= 2,000

Excess Provision= 640 (i.e., 2,000 - 1,360)