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Question
A, B, and C are partners sharing profits in the ratio of `4/9: 3/9: 2/9`. B retires and his capital after making adjustments for reserves and gain (profit) on revaluation stands at ₹ 1,39,200. A and C agreed to pay him ₹ 1,50,000 in full settlement of his claim. Record necessary journal entry for adjustment of goodwill if the new profit-sharing ratio is decided at 5: 3.
Solution
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Journal Entries |
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Date |
Particulars |
L.F. |
Debit Amount Rs |
Credit Amount Rs |
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A’s Capital A/c |
Dr. |
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5,850 |
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C’s Capital A/c |
Dr. |
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4,950 |
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To B’s Capital A/c |
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10,800 |
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(Adjustment of B’s share of goodwill) |
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Working Notes:
i) Calculation of B’s share of goodwill:
A, B, and C are sharing profits in ratio `4/9: 3/9: 2/9`
B retires from the firm. The remaining partners agreed to pay him Rs 1,50,000
B’s capital after making necessary adjustments Rs 1,39,200
Therefore, Hidden Goodwill is Rs (1,50,000 – 1,39,200) i.e. Rs 10,800
ii) Gaining Ratio:
New profit sharing ratio between A and B is 5: 3
A's gain = `5/8 - 4/9 = 13/72`
C's gain = `3/8 - 2/9 = 11/72`
Gaining ratio = 13: 11
Thus, B’s share of goodwill will be brought in by A and C in the gaining ratio 13: 11 i.e.
A is to be debited with `10,800 xx 13/24 = 5,850`.
C is to be debited with `10,800 xx 11/24 = 4.950`.
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Assets | Amount (₹) |
|
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Assets | Amount (₹) |
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Trade creditors |
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
|||
| Sundry Creditors |
13,800 |
Cash at Bank | 11,000 | |||
| Capital A/cs: | Sundry Debtors | 10,000 | ||||
| X |
45,000 |
|
Less: Provision for Doubtful Debts | 200 | 9,800 | |
| Y | 30,000 | Stock | 16,000 | |||
| Z |
15,000 |
90,000 |
Plant and Machinery |
17,000 |
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|
|
Land and Building |
50,000 |
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1,03,800 |
1,03,800 |
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
|||
| Creditors |
1,65,000 |
Cash | 1,20,000 | |||
| General Reserve | 90,000 | Debtors | 1,35,000 | |||
| Capitals: | Less: Provision | 15,000 | 1,20,000 | |||
| N | 2,25,000 | Stock | 1,50,000 | |||
| S | 3,75,000 | Machinery | 4,50,000 | |||
| G |
4,50,000 |
10,50,000 |
Patents |
90,000 |
||
| Building | 3,00,000 | |||||
|
|
|
Profit and Loss Account |
75,000 |
|||
|
13,05,000 |
13,05,000 |
|||||
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| Liabilities | Amount (₹) |
Assets | Amount (₹) |
|
| Trade Creditors | 30,000 | Cash in Hand | 15,000 | |
| Bills Payable | 45,000 | Cash at Bank | 75,000 | |
| Expenses Owing | 45,000 | Debtors | 1,50,000 | |
| General Reserve | 1,35,000 | Stock | 1,20,000 | |
| Capital A/cs: | Factory Premises | 2,25,000 | ||
|
X |
1,50,000 | Machinery | 80,000 | |
|
Y |
1,50,000 | Loose Tools | 40,000 | |
|
Z |
1,50,000 | 4,50,000 | ||
| 7,05,000 | 7,05,000 | |||
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
| General Reserve |
12,000 |
Bank | 7,600 | ||
| Sundry Creditors |
15,000 |
Debtors |
6,000 |
|
|
| Bills Payable |
12,000 |
Less: Provision for Doubtful Debts |
400 |
5,600 |
|
| Outstanding Salary | 2,200 | Stock | 9,000 | ||
| Provision for Legal Damages | 6,000 | Furniture | 41,000 | ||
| Capital A/cs: | Premises | 80,000 | |||
| Pankaj |
46,000 |
|
|||
| Naresh | 30,000 | ||||
| Saurabh |
20,000 |
96,000 |
|||
|
1,43,200 |
1,43,200 |
||||
Additional Information:
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
| Creditors |
30,000 |
Cash in Hand | 18,000 | ||
| Bills Payable |
16,000 |
Debtors |
25,000 |
|
|
| General Reserve |
12,000 |
Less: Provision for Doubtful Debts |
3,000 |
22,000 |
|
| Capital A/cs: | Stock | 18,000 | |||
| A |
40,000 |
|
Furniture | 30,000 | |
| B | 40,000 | Machinery | 70,000 | ||
| C |
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1,10,000 |
Goodwill |
10,000 |
|
|
1,68,000 |
1,68,000 |
||||
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| Creditors | 50,000 | Cash at Bank | 40,000 | |
| Employees' Provident Fund | 10,000 | Sundry Debtors | 1,00,000 | |
| Profit and Loss A/c | 85,000 | Stock | 80,000 | |
| Capital A/cs: | Fixed Assets | 60,000 | ||
| X | 40,000 | |||
| Y | 62,000 | |||
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| 2,80,000 | 2,80,000 | |||
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|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
|
Bills Payable |
2,000 |
Cash at Bank |
5,800 |
||
|
Employees' Provident Fund |
5,000 |
Bills Receivable |
800 |
||
|
Workmen Compensation Reserve |
6,000 |
Stock | 9,000 | ||
| General Reserve | 6,000 | Sundry Debtors | 16,000 | ||
| Loans | 7,100 | Furniture | 2,000 | ||
|
Capital A/cs: |
Plant and Machinery | 6,500 | |||
| X | 22,750 | Building | 30,000 | ||
| Y |
15,250 |
Advertising Suspense | 6,000 | ||
| Z |
12,000 |
50,000 |
|||
|
76,100 |
76,100 |
||||
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| Liabilities | Amount (₹) |
Assets | Amount (₹) |
||
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| 1,47,200 | 1,47,200 | ||||
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Assets | Amount (₹) |
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| Advertisement Suspense A/c | 800 | ||
| 1,26,800 | 1,26,800 |
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