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Question
Kriti and Atif are partners sharing profits and losses equally. On 31st March, 2024, they admitted David as a third partner for `1/5` share in the profits.
It is decided that on David’s admission:
- Atif would retain his original share
- Goodwill would be valued by the super profit method on the basis of the following information:
-
Balance Sheet of Kriti and Atif (an extract) As at 31st March, 2024 Liabilities Amount (₹) Amount (₹) Assets Amount (₹) General Reserve 25,000 Current A/c: Capital A/c: 4,25,000 Atif 10,000 Kriti 2,50,000 Atif 1,75,000 Current A/c: Kriti 40,000 - The normal rate of return is 12% per annum.
- Average profits of the firm for last four years are ₹ 74,000.
You are required to calculate:
- The sacrificing ratio of the partners.
- The value of goodwill of the firm at four years’ purchase of the super profit.
Solution
- Sacrificing Ratio = `1/5 : 0`
- Normal profit = `"Capital employed" xx "Normal Rate of Return"/100`
Capital employed = ₹ 4,80,000
Normal profit = `4,80,000 xx 12/100`
= ₹ 57,600
Super profit = Average Profit − Normal Profit
= 74,000 − 57,600
= ₹ 16,400
Goodwill = 16,400 × 4
= ₹ 65,600
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RELATED QUESTIONS
The Balance Sheet of Meena and Heena who shared the profits and losses in the ratio of 2 : 1 is as under :
Balance Sheet as on 31st March, 2016
| Liabilities | Amount | Assets | Amount |
| Capital : | Leasehold property | 20,000 | |
| Meena | 1,34,000 | Livestock | 6,600 |
| Heena | 1,20,000 | Loose tools | 90,200 |
| Creditors | 53,800 | Stock | 86,800 |
| Rent outstanding | 10,000 | Debtors 48,000 | |
| Reserve fund | 7,200 | Less : R.D.D. 2,000 | 46,000 |
| Bank | 75,400 | ||
| 3,25,000 | 3,25,000 |
On 1st April, 2016 Seema was admitted as `1/4` th partner on the following terms :
1. Seema should bring in Rs 1,20,000 towarsds her capital.
2.Firm's goodwill is valued at Rs 1,44,000 and Seema agreed to bring her share in the firm's goodwill by a cheque.
3.Reserve for doubtful bebts should be maintained at 7.5% on debtors.
4.Increase live stock by Rs 4,400 and write off loose tools by 20%.
5.Outstanding rent Rs 9,040 is paid in full settlement.
Prepare :
1. Profit and Loss Adjustment Account.
2. Partners' Capital Account .
3. Balance Sheet of the new firm
Ram and Madan were partners in a firm sharing profits and losses equally. Following was their balance sheet as on 31.03.2012:
Balance Sheet as on 31.03.2012
| Liabilities | Amount | Assets | Amount |
| Capital: | Plant and machinery | 90,000 | |
| Ram | 1,00,000 | Furniture | 15,000 |
| Madan | 1,00,000 | Sundry debtors 92,600 | |
| General reserve | 40,000 | Less: R.D.D. 1,600 | 91,000 |
| Sundry creditors | 55,300 | Stock | 68,000 |
| Cash in hand | 4,200 | ||
| Cash at bank | 27,100 | ||
| 2,95,300 | 2,95,300 |
On 1st April, 2012, Soham was admitted as a partner in the firm on the following terms:
(1) Soham is to bring in Rs. 1,00,000 as his capital. He is to be given 1/3rd share in future profits.
(2) Goodwill of the firm to be raised at Rs. 30,000. It was decided that ‘goodwill’ should not appear in the books of the new firm.
(3) Furniture to be depreciated by 10%. Stock was valued at `Rs . 70,500.
Prepare:
(1) Profit and Loss Adjustment Account.
(2) Partners’ Capital Accounts.
(3) Balance Sheet of the new firm.
Following is the Trial Balance of Jitesh and Pritesh. The partners share profits and losses equally.
|
Trial Balance as on 31st March, 2010 |
||
|
Particulars |
Debit |
Credit |
|
Capital - Jitesh - Pritesh Bills Receivable and Bills Payable Opening Stock Purchases and Sales Returns Salaries Wages Conveyance Commission Miscellaneous Expenses Warehouse Rent Brokerage Dock Charges Insurance Goodwill Land and Building Shares in Bajaj Ltd. Cash in hand Sundry Debtors and Creditors Motor Van |
40,000 70,000 1,94,000 3,000 15,600 28,400 2,200 − 3,200 9,000 3,000 4,200 4,800 76,000 1,80,000 50,000 3,600 56,000 60,000 |
2,00,000 1,20,000 50,000 − 3,63,000 4,000 − − − 6,000 − − − − − −
60,000 − |
|
8,03,000 |
8,03,000 |
|
Adjustments−
(1) Closing stock was valued at Rs. 75,000.
(2) Depreciate land and building and motor van at 5% p. a.
(3) Insurance is paid for the year ended 31st May, 2010.
(4) Jitesh has taken goods of Rs. 3,000 for his personal use.
(5) Books of Rs. 8,000 were destroyed by fire and the Insurance Company admitted a claim of Rs. 6,400 only.
(6) Commission due but not received Rs. 1,600.
Prepare after taking into account the adjustments:
Ram and Krishna were partners sharing profits and losses in the proportion of 2/3 and 1/3 respectively. Their balance sheet is as follows :
Balance sheet as on 31st March , 2013
| Liabilities | Amount (₹) | Assets | Amount (₹) |
||
| Capital A/c | Building | 100000 | |||
| Ram | 96000 | 160000 | Furniture | 30000 | |
| Krishna | 64000 | Sundry Debtors | 63000 | 60000 | |
| General Reserve | 18000 | Less : R.D.D | (3000) | ||
| Profit and loss A/c | 6000 | Stock | 84000 | ||
| Sundry Creditors | 80000 | Cash | 16000 | ||
| Ram's loan | 26000 | ||||
| 290000 | 290000 | ||||
On 1st April 2013 , Hari is admitted in the partnership on the following terms :
(1) Hari should bring in cash ₹ 48000 as capital for 1/5 share in future profit.
(2) Goodwill was raised in the books of the firm for ₹ 18000.
(3) Building is revalued at ₹ 112000 and the value of stock to be reduced by ₹ 6000.
(4) Reserve for doubtful debts be maintained at ₹ 1800.
(5) Ram's loan is to be repaid.
Prepaid : Revaluation account , Capital accounts of partners and Balance sheet of the new firm.
What would be the journal entry for the transfer of accumulated profits?
What would be the journal entry for the transfer of accumulated Losses?
The accumulated profit of the firm will be recorded in which of the following accounts at the time of admission of a new partner?
Pooja and Meher are partners in a firm. They admit Rati into the firm on the following terms:
- Unrecorded Debtors of ₹ 1,000 to be brought into the books.
- Provision for doubtful debts to be created @ 5% on Debtors.
The recorded debtors in the Balance Sheet of Pooja and Meher on the date of Rati's admission were ₹ 25,000.
What will be the net debtors to be shown in the Balance Sheet of the reconstituted firm?
Benu and Leena are partners in a firm sharing profits and losses in the ratio of 5 : 3. They admit Deepa and Erica as two new partners.
The new profit-sharing ratio is decided to be 3 : 2 : 2 : 3.
Both the new partners introduce ₹ 1,00,000 each as capital.
Deepa pays ₹ 40,000 in cash for her share of goodwill but Erica is unable to contribute any amount for her share of goodwill.
At the time of Deepa's and Erica's admission, the firm had an Advertisement Suspense Account of ₹ 56,000 which is written off.
You are required to pass necessary journal entries to record the above adjustments at the time of admission of Deepa and Erica.
