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Question
Rajinder and Vijay were partners in a firm sharing profits in the ratio 3:2. On 31st March 2023 their balance sheet was as follows:
| Liabilities | Amount (₹) | Assets | Amount (₹) | ||
| Capital A/cs: | Fixed Assets (Tangible) |
3,60,000 | |||
| Rajinder | 3,00,000 | 4,50,000 | Goodwill | 50,000 | |
| Vijay | 1,50,000 | Investments | 40,000 | ||
| Current A/cs: | Stock | 74,000 | |||
| Rajinder | 50,000 | 60,000 | Debtors | 1,00,000 | 96,000 |
| Vijay | 10,000 | Less: Provision for Doubtful Debts |
4,000 | ||
| Creditors | 75,000 | Bank | 25,000 | ||
| General Reserve | |||||
| 6,45,000 | 6,45,000 |
With an aim to expand business it is decided to admit Ranvijay as a partner on 1st April 2023 on the following terms:
- Provision for doubtful debts is to be increased to 6% of debtors.
- An outstanding bill for repairs ₹ 50,000 to be accounted in the books.
- An unaccounted interest accrued of ₹ 7500 be provided for.
- Investment were sold at book value.
- Half of stock was taken by Rajinder at ₹ 42,000 and remaining stock was also to be revalued at the same rate.
- New profit-sharing ratio of partners will be 5:3:2.
- Ranvijay will bring ₹ 1,00,000 as capital and his share of goodwill which was valued at twice the average profit of the last three years ended 31st March 2023, 2022 and 2021 were ₹ 1,50,000, ₹ 1,30,000 and ₹ 1,70,000 respectively.
Pass necessary journal entries.
Solution
| Journal Entries in the Books of Rajinder, Vijay and Ranvijay | ||||
| Date | Particulars | L.F | Debit (₹) | Credit (₹) |
| i) | Revaluation A/c ...Dr. | 52,000 | ||
| To Prov. For Doubtful Debts A/c | 2,000 | |||
| To Outstanding Bill for Repairs A/c | 50,000 | |||
| (Being increase in PDD and O/S bill accounted) | ||||
| ii) | Accrued Interest A/c ...Dr. | 7,500 | ||
| Stock A/c ...Dr. | 10,000 | |||
| To Revaluation A/c | 17,500 | |||
| (Being increase in Stock and Accrued Interest accounted) | ||||
| iii) | Rajinder’s Current A/c ...Dr | 20,700 | ||
| Vijay’s Current A/c ...Dr | 13,000 | |||
| To Revaluation A/c | 34,500 | |||
| (Being loss on revaluation transferred to partner’s current A/c) | ||||
| iv) | Bank A/c ...Dr | 40,000 | ||
| To Investment A/c | 40,000 | |||
| (Being Investment sold at book value) | ||||
| v) | Rajinder’s Current A/c ...Dr. | 42,000 | ||
| To Stock A/c | 42,000 | |||
| (Being stock taken over by Rajinder) | ||||
| vi) | General Reserve A/c ...Dr. | 60,000 | ||
| To Rajinder’s Current A/c | 36,000 | |||
| To Vijay’s Current A/c | 24,000 | |||
| (Being General Reserve distributed) | ||||
| vii) | Rajinder’s Current A/c ...Dr. | 30,000 | ||
| Vijay’s Current A/c ...Dr. | 20,000 | |||
| To Goodwill A/c | 50,000 | |||
| (Being Goodwill written off) | ||||
| viii) | Bank A/c ...Dr. | 1,60,000 | ||
| To Ranvijay’s Capital A/c | 1,00,000 | |||
| To Premium for Goodwill A/c | 60,000 | |||
| (Being new partner brings capital and share of goodwill) | ||||
| ix) | Premium for Goodwill A/c ...Dr. | 60,000 | ||
| To Rajinder’s Current A/c | 30,000 | |||
| To Vijay’s Current A/c | 30,000 | |||
| (Being premium distributed in Sacrificing Ratio) | ||||
RELATED QUESTIONS
Why is there need for the revaluation of assets and liabilities on the admission of a partner?
At the time of admission of a partner C, assets and liabilities of A and B were revalued as follows:
(a) A Provision for Doubtful Debts @10% was made on Sundry Debtors (Sundry Debtors ₹ 50,000).
(b) Creditors were written back by ₹ 5,000.
(c) Building was appreciated by 20% (Book Value of Building ₹ 2,00,000).
(d) Unrecorded Investments were valued at ₹ 15,000.
(e) A Provision of ₹ 2,000 was made for an Outstanding Bill for repairs.
(f) Unrecorded Liability towards suppliers was ₹ 3,000.
Pass necessary Journal entries.
Sanjana and Alok were partners in firm sharing profits and losses in the ratio 3: 2. On 31st March 2018 their Balance Sheet was as follows:
Balance Sheet of Sanjana and Alok as on 31.3.2018
| Liabilities |
Amount (₹) |
Assets | Amount (₹) |
| Creditors | 60,000 | Cash | 1,66,000 |
| Work men's Compensation Fund | 60,000 | Debtors - 1,46,000 | |
| Less: Provision for doubtful debts - 2,000 | 1,44,000 | ||
| Capitals: | Stock | 1,50,000 | |
| Sanjana - 5,00,000 | Investments | 2,60,000 | |
| Alok - 4,00,000 | 9,00,000 | Furniture | 3,00,000 |
| 10,20,000 | 10,20,000 |
On 1st April 2018, they admitted Nidhi as a new partner for 1/4th share in the profits on the following terms:
(a) Goodwill of the firm was valued at ₹ 4,00,000 and Nidhi brought the necessary amount in cash for her share of goodwill premium, half of which was withdrawn by the old partners.
(b) Stock was to be increased by 20% and furniture was to be reduced to 90%.
(c) Investments were to be valued at ₹ 3,00,000. Alok took over investments at this value.
(d) Nidhi brought ₹ 3,00,000 as her capital and the capitals of Sanjana and Alok were adjusted in the new profit sharing ratio.
Prepare Revaluation Account, Partners Capital Accounts, and the Balance Sheet of the reconstituted firm on Nidhi's admission.
Write the Word/Term/Phrase which can substitute of the following statement:
Credit balance of Profit and Loss Adjustment Account.
Write the Word/Term/Phrase which can substitute of the following statement:
Partner’s Account where Loss or Profit on revaluation is transferred.
Rohan, Rohit, and Sachin are partners in a firm sharing profit and losses in the proportion 3:1:1 respectively. Their balance sheet as on 31st March 2018 is as shown below
| Balance Sheet as on 31st March 2018 | |||||
| Liabilities | Amount ₹ | Assets | Amount ₹ | ||
| Creditors | 40,000 | Bank | 12,500 | ||
| General Reserve | 50,000 | Debtors | 60,000 | ||
| Bills payable | 25,000 | Live Stock | 50,000 | ||
| Capital Accounts : | Building | 75,000 | |||
| Rohan | 1,25,000 | Plant and Machinery | 35,000 | ||
| Rohit | 1,00,000 | Motor Truck | 1,00,000 | ||
| Sachin | 50,000 | Goodwill | 57,500 | ||
| 3,90,000 | 3,90,000 | ||||
On 1st April 2018, Sachin retired and the following adjustments have been agreed upon.
1. Goodwill was revalued at ₹ 50,000
2. Assets and Liabilities were revalued as follows. Debtors ₹ 50,000, Live Stock, ₹ 45,000; Building ₹ 1,25000, Plant and Machinery ₹ 30,000, Motor Truck ₹ 95,000 and Creditors ₹ 30,000
3. Rohan and Rohit contributed additional capital through Net Banking of ₹ 50,000 and ₹ 25,000 respectively.
4. Balance of Sachin’s Capital Account is transferred to his Loan Account
Give Journal entries in the books of new firm.
Shah, Lodha, and Dhole were partners sharing profits and losses in the ratio of 4:3:3. Their Balance Sheet as on 31st March 2019 is a given below.
| Balance Sheet as on 31st March, 2019 | |||||||
| Liabilities | Amount ₹ | Amount ₹ | Assets | Amount ₹ | Amount ₹ | ||
| Sundry Creditors | 20,000 | Cash | 9,000 | ||||
| Bills payable | 4,000 | Sundry Debtors | 10,000 | ||||
| Capital Account: | (−) R.D.D. | 1,000 | 9,000 | ||||
| Shah | 45,000 | Furniture | 25,000 | ||||
| Lodha | 35,000 | Computers | 43,000 | ||||
| Dhole | 27,000 | Vehicles | 45,000 | ||||
| 1,31,000 | 1,31,000 | ||||||
On 1st April 2019, Mr. Lodha retired from the firm on the following terms.
1. Goodwill is to be valued at average Profits and Losses of the last five years which were as follows.
| Years | Profit/Loss |
| 2015 | ₹ 35,000 |
| 2016 | ₹ 20,000 |
| 2017 | ₹ 30,000 |
| 2018 | ₹ 20,000 |
| 2019 | ₹ 25,000 |
2. Computers to be depreciated by 10%
3. Furniture to be revalued at ₹ 27,500
4. Vehicles appreciated by 20%
5. R.D.D. was no longer necessary
6. Shah and Dhole will share the future profits and losses in the ratio of 2:1
7. It was decided that goodwill should not appear in the books of a new firm and amount payable to Lodha is to be transferred to his Loan A/c
Prepare: Profit and Loss adjustment A/c, Partners capital accounts, Balance sheet of new firm.
Excess of the credit side over the debit side of the revaluation account.
Balance sheet prepared after new partnership agreement, assets and liabilities are recorded at:
Profit or loss on revaluation is borne by:
Profit or Loss on revaluation of assets and reassessment of liabilities is transferred to Partners' Capital Accounts in their:
In case of admission of a partner, the entry for unrecorded investments will be:
Arun and Vijay are partners in a firm sharing profits and losses in the ratio of 5:1.
| Balance Sheet (Extract) | |||
| Liabilities | ₹ | Assets | ₹ |
| Machinery | 40,000 | ||
If the value of machinery reflected in the balance sheet is overvalued by `33 1/3%,` find out the value of Machinery to be shown in the new Balance Sheet.
Vedesh Ltd. purchased a running business of Vibhu Enterprises for a sum of ₹ 12,00,000. Vedesh Ltd. paid ₹ 60,000 by drawing a promissory note in favour of Vibhu Enterprises., ₹1,90,000 through bank draft and balance by issue of 8% debentures of ₹ 100 each at a discount of 5%. The assets and liabilities of Vibhu Enterprises consisted of Fixed Assets valued at ₹ 17,30,000 and Trade Payables at ₹ 3,20,000. You are required to pass necessary journal entries in the books of Vedesh Ltd.
What would be the journal entry for revaluation of an unrecorded liability?
The sum due to the retiring partner (in case of retirement) and to the legal representatives/executors (in case of death) includes which of the following cases?
Ajay, Vijay and Sanjay were partners sharing profits and losses in the ratio of 3 : 3 : 2. Their Balance Sheet as on 31st March 2020 is as follows:
| Balance Sheet as on 31st March, 2020 | |||
| Liabilities | Amount (₹) | Assets | Amount (₹) |
| Creditors | 32,700 | Bank | 19,800 |
| Reserve Fund | 12,000 | Stock | 19,800 |
| Capital Accounts: | Debtors | 15,000 | |
| Ajay | 33,000 | Livestock | 30,000 |
| Vijay | 45,000 | Plant and Machinery | 62,100 |
| Sonjay | 24,000 | ||
| 1,46,700 | 1,46,700 | ||
On 1st April 2020 Sanjay retired from the firm on the following terms:
- R.D.D. is to be maintained at 10% on debtors.
- ₹ 300 to be written off from creditors.
- Goodwill of the firm is to be valued at ₹ 12,000. however only Sanjay's share in it is to be raised in the books and written off immediately.
- Assets to be revalued as: Stock ₹ 18,900, Plant and machinery ₹ 60,000, Live Stock ₹ 30,600.
- The amount payable to Sanjay is to be transferred to his Loan account after retirement:
Prepare:
- Revaluation Account
- Partners' Capitol Account
- Balance Sheet of the New firm.
On the reconstitution of a firm the value of furniture increased from ₹ 7,00,000 to ₹ 8,00,000 and stock reduced to ₹ 4,00,000 from ₹ 4,20,000. Gain or loss on revaluation will be ______.
On admission of a new partner, the old partners share the gain or loss on revaluation of assets and reassessment of liabilities in which of the following ratio :
Madhav and Girdhari were partners in a firm sharing profits and losses in the ratio of 3:1. Their balance sheet as at 31st March; 2022 was as follows :
| Balance Sheet of Madhav and Girdhari as on 31st March, 2022 | |||||
| Liabilities | Amount (₹) | Amount (₹) | Assets | Amount (₹) | Amount (₹) |
| Capital: | Machinery | 4,70,000 | |||
| Madhav | 3,00,000 | 5,00,000 | Investment | 1,10,000 | |
| Girdhari | 2,00,000 | Debtors | 1,20,000 | 1,10,000 | |
| Workmen's Compensation Fund | 60,000 | Less: Provision for Doubtful Debts | 10,000 | ||
| Creditors | 1,90,000 | Stock | 1,40,000 | ||
| Employee's Provident Fund | 1,10,000 | Cash | 30,000 | ||
| 8,60,000 | 8,60,000 | ||||
On 1st April, 2022, they admitted Jyoti into partnership for 1/4th share in the profits of the firm. Jyoti brought ₹ 1,86,000 as her capital and ₹ 40,000 as her of goodwill premium in cash. The following terms were agreed upon:
- Stock was found undervalued by ₹ 23,000.
- 20% of the investments were taken over by Girdhari at book value.
- Claim on account of workmen's compensation amounted to ₹ 70,000, which was to be paid later.
- Creditor included a sum of ₹ 27,000 which was not likely to be claimed.
Prepare Revaluation A/c and Partners' Capital Accounts on Jyoti's admission.
On reconstitution of a firm, the value of machinery was depreciated by ₹1,00,000 and investments increased to ₹70,000 from ₹20,000. Gain or loss on revaluation will be ______.
On the reconstitution of a firm, the value of the land was appreciated by ₹ 2,00,000 and plant and machinery reduced to ₹ 7,00,000 from ₹ 10,00,000. Gain or loss on revaluation will be ______.
X, Y and Z are partners sharing profits and losses in the ratio of 2: 3: 1. They decided to share future profits in the ratio of 3:2: 1 with effect from 1st April, 2022. At the time of change of profit sharing ratio, unrecorded furniture will be recorded in the books of Accounts by ______.
Atul and Geeta were partners sharing profits in the ratio 3 : 2. Ira was admitted into the firm for `1/4"th"` share of profits. Ira brought ₹ 40,000 as her capital. The capitals of Atul and Geeta after all adjustments relating to goodwill, revaluation of assets and liabilities etc. are ₹ 60,000 and ₹ 40,000 respectively. It is agreed that capitals should be according to the new profit sharing ratio.
Calculate the amount of actual cash to be paid off or brought in by the old partners. Pass the necessary journal entry/entries for the same.
If an asset is depreciated, Revaluation Account is ______.
The Balance Sheet of M, N and 0 who shared profits and Josses as 4 : 3 : 3 respectively.
| Balance Sheet as on 31st March, 2023 | |||||
| Liabilities | Amount (₹) | Amount (₹) | Assets | Amount (₹) | Amount (₹) |
| Creditors | 14,000 | Cash on Hand | 9,000 | ||
| Bank Loan | 10,000 | Sundry Debtors | 10,000 | 9,000 | |
| General Reserve | 12,500 | Less: R.D .D | 1,000 | ||
| Capital Accounts : | Livestock | 25,000 | |||
| M | 40,000 | Motor Car | 8,000 | ||
| N | 30,000 | Furniture | 35,000 | ||
| O | 24,500 | Plant and Machinery | 45,000 | ||
| 1,31,000 | 1,31,000 | ||||
N retires on 1st April, 2023 on the following terms:
(1) The share of N in Goodwill of the firm is valued at ₹ 5,400.
(2) Furniture to be depreciated by 10% and Motor Car by 12.5%.
(3) Livestock to be appreciated by 10% and Plant by 20%.
(4) A provision of ₹ 4,000 to be made for a claim of compensation.
(5) R.D.D. is no longer necessary.
(6) The amount payable to N should be transferred to his Loan A/c.
Prepare Profit and Loss Adjustment Ne, Partner's Capital Ncs and Balance Sheet of the new firm.
The Balance Sheet of Snehal, Samir and Shera is as follows and the partners are sharing profits and losses in the proportion of 2 : 2 : 1 respectively.
| Balance Sheet as on 31st March, 2023 | |||||
| Liabilities | Amount (₹) | Amount (₹) | Assets | Amount (₹) | Amount (₹) |
| Creditors | 12,000 | Bank | 7,500 | ||
| Bills Payable | 3,000 | Debtors | 30,000 | 28,500 | |
| General Reserve | 7,500 | Less: R.D.D. | 1,500 | ||
| Capital Accounts: | Furniture | 22,500 | |||
| Snehal | 60,000 | Machinery | 6,000 | ||
| Samir | 45,000 | Freehold Property | 40,500 | ||
| Shera | 22,500 | Goodwill | 45,000 | ||
| 1,50,000 | 1,50,000 | ||||
Shera retires from the firms on 1st April, 2023 on the following terms:
(1) The assets are to be revalued as: Freehold Property ₹ 45,000, Machinery ₹ 7,500 Furniture ₹ 18,000, All debtors are good.
(2) Goodwill of the firm be valued at thrice the average profit of given below : Profits of the firm for five years.
| 2018-19 | ₹ 1,500 |
| 2019 - 20 | ₹ 15,750 |
| 2020-21 | ₹ 15,000 |
| 2021-22 | ₹ 24,000 |
| 2022-23 | ₹ 15,000 |
(3) Shera should be paid ₹ 4,500 by cheque.
(4) The Balance of Shera's Capital Ale should be kept in the business as his loan.
Prepare Profit and Loss Adjustment A/c, Capital Accounts of Partners, Balance Sheet of the new firm.
Decrease in the value of assets should be ______ to Profit and Loss Adjustment Account.
Decrease in the value of assets should be ______ to Profit and Loss Adjustment Account.
