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Question
Mr. Kishor & Mr. Lal were in partnership sharing profits & losses in the proportion of 3/4 and 1/4 respectively.
| Balance Sheet as on 31 March 2018 | |||||
| Liabilities | Amt (₹) |
Amt (₹) |
Assets | Amt (₹) |
Amt (₹) |
| Creditors | 1,20,000 | Land and Building | 75,000 | ||
| General Reserve | 12,000 | Furniture | 6,000 | ||
| Capital A/c: | Stock | 60,000 | |||
| Kishor | 90,000 | Debtors | 60,000 | ||
| Lal | 48,000 | 1,38,000 | Bills Receivable | 39,000 | |
| Cash at Bank | 30,000 | ||||
| 2,70,000 | 2,70,000 | ||||
They decided to admit Ram on 1 April 2018 on following terms:
1. He should be given 1/5th share in profit and for that he brought in ₹ 60,000 as capital through RTGS.
2. Goodwill should be raised at ₹ 60,000
3. Appreciate Land and Building by 20%
4. Furniture and Stock are to be depreciated by 10%
5. The Capitals of all partners should be adjusted in their new profit sharing ratio through Bank A/c.
Pass necessary Journal Entries in the books of the Partnership firm and a Balance sheet of the new firm.
Solution
In the books of the firm
| Journal entries | |||||
| Date | Particulars | L.F | Debit (₹) | Credit (₹) | |
|
2018 April 1 |
General Reserve A/c | Dr. | 12,000 | ||
| To Mr. Kishor’s Capital A/c | 9,000 | ||||
| To Mr. Lal’s Capital A/c | 3,000 | ||||
| (Being general reserve distributed among old partners) | |||||
| 1 | Profit and Loss Adjustment A/c | Dr. | 6,600 | ||
| To Furniture A/c | 600 | ||||
| To Stock A/c | 6,000 | ||||
| (Being decrease in the value of assets) | |||||
| 1 | Land and Building A/c | Dr. | 15,000 | ||
| To Profit and Loss Adjustment A/c | 15,000 | ||||
| (Being appreciation in the value of assets) | |||||
| 1 | Profit and Loss Adjustment A/c | Dr. | 8,400 | ||
| To Mr. Kishor’s Capital A/c | 6,300 | ||||
| To Mr. Lal’s Capital A/c | 2,100 | ||||
| (Being profit on revaluation distributed in profit sharing ratio) | |||||
| 1 | Bank A/c | Dr. | 60,000 | ||
| To Ram’s Capital A/c | 60,000 | ||||
| (Being capital amount brought in through RTGS) | |||||
| 1 | Goodwill A/c | Dr. | 60,000 | ||
| To Kishor’s Capital A/c | 45,000 | ||||
| To Lal’s Capital A/c | 15,000 | ||||
| (Being the goodwill raised and transferred to capital A/cs in their old ratio) | |||||
| 1 | Bank A/c | Dr. | 29,700 | ||
| To Kishor’s Capital A/c | 29,700 | ||||
| (Being deficit in capital account settled in cash by Kishor) | |||||
| 1 | Lal’s Capital A/c | Dr. | 8,100 | ||
| To Bank A/c | 8,100 | ||||
| (Being surplus capital amount paid to Lal) | |||||
| 1,99,800 | 1,99,800 | ||||
| Balance Sheet as on 1st April, 2018 | |||||||
| Liabilities | Amount (₹) | Amount (₹) | Assets | Amount (₹) | Amount (₹) | ||
| Capital Accounts: | Land and Building | 75,000 | |||||
| Mr. Kishor | 1,80,000 | (+) Appreciation | 15,000 | 90,000 | |||
| Mr. Lal | 60,000 | Furniture | 6,000 | ||||
| Ram | 60,000 | 3,00,000 | (-) Depreciation | 600 | 5,400 | ||
| Creditors | 1,20,000 | Stock | 60,000 | ||||
| (-) Depreciation | 6,000 | 54,000 | |||||
| Debtors | 60,000 | ||||||
| Goodwill | 60,000 | ||||||
| Bills Receivable | 39,000 | ||||||
| Cash at Bank | 1,11,600 | ||||||
| 4,20,000 | 4,20,000 | ||||||
Working Notes :
(1)
| Dr. | Profit and Loss Adjusment A/c | Cr. | |||
| Particulars | Amount (₹) | Amount (₹) | Particulars | Amount (₹) | Amount (₹) |
| To Furniture | 600 | To land and Building A/c | 15,000 | ||
| To Stock | 6000 | ||||
| To Profit on Revolution | 8,400 | ||||
| Kishor's Capital A/c (8400 × `3/4`) |
6,300 | ||||
| Lal's Capital A/c (8400 × `1/4`) |
2100 | ||||
| 15000 | 15000 | ||||
| Dr. | Partners’ Capital Accounts | Cr. | |||||||
| Particulars | Kishor (₹) | Lal (₹) |
Ram (₹) | Particulars | Kishor (₹) | Lal (₹) |
Ram (₹) | ||
| To Bank A/c | − | 8,100 | − | By Balance b/d | 90,000 | 48,000 | − | ||
| To Balance c/d | 1,80,000 | 60,000 | 60,000 | By Bank A/c | − | − | 60,000 | ||
| By Goodwill A/c | 45,000 | 15,000 | − | ||||||
| By General Reserve A/c | 9,000 | 3,000 | − | ||||||
| By Revaluation A/c (Profit) | 6,300 | 2,100 | − | ||||||
| By Bank A/c | 29,700 | − | − | ||||||
| 1,80,000 | 68,100 | 60,000 | 1,80,000 | 68,100 | 60,000 | ||||
| Dr. | Bank Account | Cr. | |
| Particulars | Amount (₹) | Particulars | Amount (₹) |
| To Balance b/d | 30,000 | By Lal’s Capital A/c | 8,100 |
| To Ram’s Capital A/c | 60,000 | By Balance c/d | 1,11,600 |
| To Kishor’s Capital A/c | 29,700 | ||
| 1,19,700 | 1,19,700 | ||
(2) Calculation of new profit sharing ratio:
New Ratio = (Balance of 1) × (old ratio)
Kishor’s New ratio = `(1 – 1/5) × 3/4 = 4/5 × 3/4 = 3/5`
Lal’s New ratio = `( 1 – 1/5) × 1/4 = 4/5 × 1/4 = 1/5`
Ram’s ratio = `1/5`
(3) Total capital of the firm = (Reciprocal of Ram’s ratio) × (His capital contribution)
= `5/1 × 60,000` = ₹ 3,00,000
Kishor’s new closing capital balance = `3,00,000 × 3/5` = ₹ 1,80,000
Lal’s new closing capital balance = `3,00,000 × 1/5` = ₹ 60,000
Ram’s new closing capital balance = ₹ 60,000
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| Balance Sheet as on 31st March, 2018 | |||||
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capitals: |
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Building |
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||
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|
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| Balance Sheet As On 31st March 2018 |
|||
| Liabilities | Amount (₹) | Assets | Amount (₹) |
| Creditors | 30,000 | Cash | 3,000 |
| Capital A/c | Building | 15,000 | |
| Om | 21,000 | Machinery | 21,000 |
| Jay | 21,000 | Furniture | 900 |
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| 79,200 | 79,200 | ||
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2. He should bring 9,000 as capital for 1/4th share in future profits.
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| 10,00,000 | 10,00,000 |
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| Shreya’s Current A/c Dr. | 24,000 | |||
| To Navya’s Capital A/c | 8,000 | |||
| To Radhey’s Capital A/c | 16,000 | |||
| (Being entry for goodwill treatment passed) |
The new profit-sharing ratio of Navya, Radhey and Shreya will be ______.
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| Liabilities | Amount (₹) | Assets | Amount (₹) |
| Investment Fluctuation Reserve |
80,000 | Investment (Market Value ₹ 80,000) |
90,000 |
Which of the following is the correct accounting treatment of 'investment fluctuation reserve' at the time of Subhash's admission?
A, B and C who were sharing profits and losses in the ratio of 4:3:2 decided to share the future profits and losses in the ratio to 2:3:4 with effect from 1st April 2023. An extract of their Balance Sheet as at 31st March 2023 is:
| Liabilities | Amount (₹) | Assets | Amount (₹) |
| Workmen Compensation Reserve | 65,000 |
At the time of reconstitution, a certain amount of Claim on workmen compensation was determined for which B’s share of loss amounted to ₹ 5,000. The Claim for workmen compensation would be:
Hansa and Kavya share profits and losses in the ratio of 3: 2 respectively. Their Balance Sheet as on 31st March, 2023 was as under:
| Balance Sheet as on 31st March, 2023 | |||
| Liabilities | Amount (₹) | Assets | Amount (₹) |
| Bills Payable | 90,000 | Cash at Bank | 1,500 |
| Reserve fund | 60,000 | Sundry Debtors | 1,33,500 |
| Capital A/c: | Stock | 51,000 | |
| Hansa | 2,16,000 | Furniture | 72,000 |
| Kavya | 1,44,000 | Plant | 1,80,000 |
| Building | 72,000 | ||
| 5,10,000 | 5,10,000 | ||
They admit Munir into partnership on 1-4-2023. The terms being that:
(1) He shall have to bring in ₹ 1,20,000 as his Capital for 1/4th share in future profits.
(2) Value of Goodwill of the firm is to be fixed at the average profits for the last three years.
The Profits were:
| 2019-20 | ₹ 96,000 |
| 2020-21 | ₹ 1,62,000 |
| 2021-22 | ₹ 1,47,000 |
(3) Reserve for Doubtful debts is to be created at ₹ 3,000.
(4) Closing stock is valued at ₹ 45,000.
(5) Plant and Building is to be depreciated by 5%.
Prepare Profit and Loss Adjustment Alc, Capital Accounts of Partners and Balance Sheet of the new firm.
The following is the Balance Sheet of Vivaan and Vihaan sharing Profits and Losses in the ratio of 3 : 2 as on 31 March, 2023.
| Balance Sheet as on 31st March, 2023 | ||||
| Liabilities | Amount (₹) | Assets | Amount (₹) | Amount (₹) |
| Capital Accounts: | Building | 1,08,000 | ||
| Vivaan | 1,20,000 | Plant and Machinery | 90,000 | |
| Vihaan | 1,50,000 | Stock | 72,000 | |
| Sundry Creditors | 90,000 | Debtors | 63,000 | 60,000 |
| Bank Overdraft | 15,000 | Less: R.D .D. | 3,000 | |
| Bank | 30,000 | |||
| Investments | 15,000 | |||
| 3,75,000 | 3,75,000 | |||
On 1-4-2023, Prihaan is admitted on the following terms:
(1) He is to pay ₹ 1,50,000 as his capital and ₹ 60,000 as his share of Goodwill.
(2) The new profit sharing ratio is to be 5 : 3 : 2.
(3) The assets are to be revalued as under:
Building ₹ 1,50,000, Plant and Machinery ₹ 72,000.
(4) R.D.D. to be increased up to ₹ 6,000
(5) The old partners decided to keep half of the amount of goodwill in the business.
(6) Sundry creditors are to be revalued at ₹ 99,000.
Prepare Revaluation Account, Capital Accounts of Partners and Balance Sheet of new [um.
