Académique Documents
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PARTNERSHIP ACCOUNTING
Question: What is Reconstitution of Firm?
Answer: Reconstitution of firm means any change in agreement between the partners that takes place
during Change in Profit Sharing Ratio, Admission of new partner, Retirement and death of partner,
Sale of firm and Amalgamation of firm
Question: What are adjustments required for reconstitution of firm?
Answer:
1.
2.
3.
4.
5.
Question 3: Type 1: A and B share profit and loss in 4:3. C is joined for 1/8th share. Calculate the
new profit and loss ratio
Answer:
Particulars
Formula
Let the total share be
Balance after Cs share for A and B Total share Cs share
As share in the balance
Calculations Answer
1
1-
: :
4:3:1
Question 4: Type 2: A and B share P/L in 4:3 C is joined for 1/8th share. After Cs admission A and
B share profit and loss in the ratio of 3:4. Calculate the new profit and loss ratio
Answer:
Financial Accounting
6.2.1
Particulars
Formula
Let the total share be
Balance after Cs share for A and B Total share Cs share
Calculations Answer
1
1-
: :
3:4:1
Question 5: Type 3: A and B share profit and loss in the ratio of 4:3. C is admitted as new partner. A
sacrifices 1/2 of his share for C, and B sacrifices 1/3 of his share for C. Calculate new profit and loss
ratio.
Answer: As sacrificing ratio = 4/7 x 1/2 = 4/14
Bs sacrificing ratio = 3/7 x 1/3 = 3/21
As new ratio [old ratio sacrificing ratio] = 4/7 4/14 = 8-4/14 = 4/14
Bs new ratio [old ratio sacrificing ratio] = 3/7 3/21 = 9-3/21 = 6/21
New ratio A, B and C = 4/14 : 6/21 : [4/14 + 3/21]
= 4/14:6/21:18/42
=6:6:9
=2:2:3
Question 6: Type 4: A and B share profit and loss in the ratio of 4:3. C is admitted for 3/7th share. C
gets 2/3 of his share from A and 1/3 of his share from B. Calculate new profit and loss ratio
A sacrifices 2/3rd of Cs share = 3/7 2/3 = 6/21
B sacrifices 1/3rd of Cs share = 3/7 1/3 = 3/21
As ratio after sacrificing = 4/7 6/21 = 12 6/21 = 6/21
Bs ratio after sacrificing = 3/7 3/21 = 9 3/21 =6/21
New ratio = 6/21 : 6/21 : 3/7 = 2 : 2 : 3
[CMA INTER J04, 6 Marks]
Question 7: R & S are in partnership sharing profit and losses at the ratio 3: 2. They take T as a new
partner. Calculate the new profit sharing ratio if:
1. T purchases
th
share from R.
th
th
share of profit.
Old ratio
Less
Partnership Accounting
th
from R
Nil
6.2.2
New Ratio
New Ratio of R, S & T
Old ratio
-/(+)
Sacrifice / (gets)
New Ratio
28:17:5
1 (1/10)
= 9/103/5
= 9/10
= 27/50
Financial Accounting
6.2.3
1.
2.
3.
4.
5.
Valuation
1 Location
Treatment
1 Non-cash method
2 Size
3 Patent
Revaluation Method
Memorandum
Method
Know-
Revaluation
Premium Method
5 Management
6 Market Situation
4 Capitalization Method
5 Annuity Method
Profit
Weight
Weighted Profit
2009-10
10,000
30,000
2008-09
8,000
16,000
2007-08
6,000
6,000
Total
24,000
52,000
Average Profit
8,000
8,667
16,000
17,334
Years of Purchase
Goodwill
Question 10: Calculation of Goodwill: [Super Profit Method, Capitalisation Method and
Annuity Method]: Calculate goodwill under three years purchase of super profit method and
Partnership Accounting
6.2.4
capitalization method from the details given. Capital employed 10,000, Normal Rate of Return 10%
and Actual Profit 1,500.
Annuity factor [AF] for 1 invested every year will fetch 2.486 in the end of third year
Particulars
Formula
Calculation
10,000
10%
CE NRR
10,00010%
1,000
1,500
1,500 1,000
500
1,500
Goodwill = 3 SP
Capitalisation Method
5,000
Goodwill
OR
Goodwill
CE
- 10,000
5,000
Goodwill
1243
FMP
10% PVF
PV
10,000
0.909
9090
10,000
0.826
8260
10,000
0.751
7510
Goodwill
2.486 24860
Or
Financial Accounting
2.
Mem. 3. Premium Method
Revaluation
6.2.5
the GW
GW A/c
Dr. GW A/c
To
Old
Partners
Capital A/c
To
Old
Partners
Capital A/c
To
Sacrificing
Partner Capital
A/c
the GW
Not Applicable
To
Sacrificing
Partners Capital
A/c
Dr.
To GW A/c
[Full GW is Shared
in New Ratio]
Calculation of Hidden Goodwill
A Incoming Partners Capital / His share of profit
B
Question 12: Revaluation Method [no goodwill in B/S]: Show the journal entry to adjust the
goodwill on admission of the new partner C. The existing partners A and B share profit and loss in the
ratio of 3 : 2 and C is admitted for 1/5th share of profit. The balance sheet of the firm is given below
Balance Sheet
Liabilities
Assets
Capital A
70,000 Goodwill
Capital B
Current Liabilities
-100,000
50,000
150,000
150,000
Goodwill of the firm valued at 25,000. C is not able to bring cash for his share of goodwill but cash
brought in for capital is 40, 000
Answer:
Premium for Goodwill = Goodwill New Partners share
1) Good Will A/c
To As Capital A/c
15,000
To Bs Capital A/c
10,000
2) Cash A/c
To Cs Capital
Partnership Accounting
Dr 25,0000
Dr
40,000
40,000
6.2.6
Balance Sheet
Assets
Liabilities
Capital A [70+15]
85,000 Goodwill
Capital B [60+10]
Capital C
Current Liabilities
20,000
25,000
100,000
90,000
215,000
215,000
Question 13: Memorandum revaluation [no goodwill in B/S]: Keep the above illustration as it is,
except that the partners decided to write off goodwill from the books.
1) Good Will A/c
Dr 25,000
To As Capital A/c
15,000
To Bs Capital A/c
10,000
Dr 12,000
Bs Capital A/c
Dr 8,000
Cs Capital A/c
Dr 5,000
To Goodwill A/c
25,000
Dr 40,000
To Cs Capital
40,000
Assets
Capital A [70+15-12]
Capital B [60+10-8]
Capital C [40-5]
Current Liabilities
20,000
190,000
---100,000
90,000
190,000
Question 14: Non-cash premium method [no goodwill in B/S]: Keep the above illustration as it is
except that the partners decided to adjust the goodwill without opening it.
Financial Accounting
6.2.7
Answer:
1) Cs Capital A/c
Dr
5,000
To As Capital A/c
3,000
To Bs Capital A/c
2,000
Dr 40,000
To Cs Capital
40,000
Liabilities
Assets
Capital A [70-3]
Capital B [60-2]
Capital C [40-5]
Current Liabilities
20,000
190,000
---100,000
90,000
190,000
Question 15: Cash premium method [no goodwill in B/S]: Keep the above illustration as it is
except that the new partner C can bring his share of goodwill also in cash apart from his capital.
1) Cash A/c
Cs Capital A/c
Dr 5,000
Dr 5,000
To As Capital A/c
3,000
To As Capital A/c
3,000
To Bs Capital A/c
2,000
To Bs Capital A/c
2,000
Or
Dr 40,000
To Cs Capital
Cash A/c
40,000
Dr 45,000
To Cs Capital
45,000
Assets
Capital A
73,000 Goodwill
Capital B
Capital C
Current Liabilities
20,000
195,000
---100,000
95,000
195,000
Note: If goodwill is given in the B/S, then it can be solved either the goodwill can be written off first
and then proceed as usual or adjustment entry to be passed to the difference only
Partnership Accounting
6.2.8
Dr 20,000
Goodwill A/c
Dr 60,000
To A Capital A/c
16,000
To A Capital A/c
36,000
To B Capital A/c
4,000
To B Capital A/c
24,000
2) Revaluation method
Goodwill A/c
Dr 60,000
A Capital A/c
Dr 20,000
B Capital A/c
Dr 20,000
Dr 20,000
To A Capital A/c
36,000
C Capital A/c
To B Capital A/c
24,000
To Goodwill A/c
60,000
Question 17: A and B share profit and loss in the ratio of 4:3. They admitted C into the firm and the
new profit and loss ratio is 1:2:1. The goodwill is valued at 10,000 and the new partner C failed to
bring cash for his share of goodwill. The partners decided to adjust goodwill account without opening
the goodwill account.
Answer:
Journal Entry
Dr
Cr
Note
Bs Capital A/c
Dr
714
(10,000 -2/28)
Cs Capital A/c
Dr
2,500
(10,000 -7/28)
To As Capital
3,214
(10,000 9/28)
B
C
Alternatively
A
5,714
4,286
----
2,500
5000
2,500
3,214
(714)
(2,500)
Financial Accounting
6.2.9
Question 18: Treatment of Goodwill (cash) Premium Received: A & B are equal partners. C is
coming as a new partner who pays 8,000 as premium for goodwill. The new profit sharing ratio
among A, B & C is 4:3:2. Pass necessary journal entries showing the appropriation of premium
money assuming that the premium for goodwill is immediately withdrawn by the old partners.
Answer:
Journal Entries
1)
Cash A/c
Dr
8,000
3)
8,000
A Capital A/c
Dr
2,000
B Capital A/c
Dr
6,000
To Cash A/c
Premium for Goodwill A/c
Dr
8,000
Cash A/c
To A Capital A/c
2,000
To B Capital A/c
6,000
1+2
2)
8,000
Dr
8,000
To As Capital A/c
2,000
To B Capital A/c
6,000
Question 19: Treatment of Goodwill (cash and non-cash) Premium Paid Partly: A and B are
partners in a firm sharing profits & losses in the ratio of 3:2. C is coming for 1/3rd share, is to pay
30,000 as premium for goodwill but pays only 15,000. As between A and B, they decided to share
profits & losses equally.
Answer:
Journal Entries Under Premium Method
For cash portion of 15,000
1) Cash A/c
3)
15,000
12,000
To B Capital
3,000
12,000
To B Capital A/c
3,000
Note1: Revaluation or memorandum revaluation method can also be used for adjusting non-cash
portion of goodwill
Note2: Cash for premium can be withdrawn by partners fully or partly
Question 20: A and B share profit and loss in the ratio of 5:4. They admit C for 1/4 th share. The
goodwill is valued at 90,000. C is able to bring cash for his capital and 10,000 for his share of
goodwill.
Working Note 1:
Accounting Treatment
Cs share of goodwill
90000 1/4
22,500
10,000
12,500
Partnership Accounting
6.2.10
Total share
Cs share
Balance
Balance share (a) Partners old share (b) Partners new share (a) (b)
As new share
5/9
15/36
Bs new share
4/9
12/36
Cs share
9/36
15:12:9
SR = OR NR
5/9
15/36
4/9
12/36
Cash A/c
To As Capital
27,778
To Bs Capital
22,222
Dr
10000
To As Capital
5556
To Bs Capital
4444
Dr
50,000
As Capital
Dr
20,833
Bs Capital
Dr
16,667
i. Revaluation method
Cs Capital
Dr
12,500
To Goodwill
Dr 50,000
To As Capital
27,778
To Bs Capital
22,222
50,000
Dr
12,500
To As Capital
6,944
To Bs Capital
5,556
Question 21: Treatment of goodwill when change in profit-sharing ratio: A and B share profit and
loss in the ratio of 3:2. They decided to share their future profit and loss in the ratio of 4:5. Goodwill
is valued at 45,000. Pass the journal entry/s to adjust the goodwill to show the impact of change in
profit and loss ratio.
i. Revaluation method
Goodwill A/c
Dr 45,000
Dr
45,000
To As Capital
27,000
To As Capital
27,000
To Bs Capital
18,000
To Bs Capital
18,000
As Capital
Dr
20,000
Bs Capital
Bs Capital
Dr
25,000
Financial Accounting
Dr 7,000
6.2.11
To As Capital
7,000
To Goodwill
45,000
Examples
Purpose
General Reserve
Multi
Specific Reserve
Specific
Capital Reserve
Secret Reserve
Investment Fluctuation Reserve: surplus if any, after adjusting p/l on revaluation of investments to
reflect its market value, should be transferred to old partners in old ratio
Workmen Compensation Reserve: surplus if any, after adjusting any liability for workmen
compensation, should be transferred to old partners in old ratio
Distribution of Accumulated Profits, Reserves and Losses: transferred to old partners in the old
ratio
Partnership Accounting
6.2.12
Machinery Replacement Fund: is in the nature of Accumulated Depreciation and not Accumulated
Profits and hence it is not transferred to partners.
Adjustment of Partners Capitals: either Adjusting the Capitals of Old Partners on the basis of
Capital of Incoming Partner or Calculating new Capital on the basis of combined of old partners
Retirement of a Partner: For firms acts after his retirement a retiring partner is not liable to third
party only if Public notice of his retirement is given by himself or by any other partner, [Sec.32(3)] or
Third party deals with firm without knowing that retiring partner was partner [Sec.32(4)]
[CMA RTP D11]
Question 22: The Balance Sheet of G and S, who share profits and losses in the ratio of 3 : 2, as on
31.3.2011 appears as below
liabilities
Assets
Capital G
Capital S
32,000
Reserve
10,000 Cash
Creditors
40,000
1,30,000
10,000
1,30,000
They admit R as a partner on 1.4.2011. You are required to prepare Partners Capital Accounts and
the Balance Sheet of the new firm under each of the following cases. Assume partners withdrawn the
premium for Goodwill paid by R.
a. R is to contribute to the firm 27,000 for 1/6th share in the partnership.
b. R is to purchase 1/6th share in the partnership from the existing partners G and S in the ratio of 3 :
2, for 27,000.
Answer: Case a: R is admitted by investing additional capital in the partnership. In effect, both the
total assets and the total capital of the firm are increased by the amount of capital brought in by R.
Since R is given 1/6th share, G and S get 5/6th share in the partnership.
Following is the calculation of premium for goodwill brought in by R
90,000
1,08,000
18,000
27,000
Financial Accounting
9,000
6.2.13
Cr
Particulars
To
Date
- By
Cash A/c
5,400
3,600
Balance b/d
Premium
Goodwill
48,000 32,000
Reserve A/c
(premium
withdrawn)
To Balance c/d
Particulars
for
6,000
4,000
5,400
3,600
Cash A/c
- 18,000
Liabilities
Assets
Gs Capita
54,000
Other assets
1,20,000
s Capital
36,000
Cash
28,000
Rs Capital 18,000
1,08,000 [10,000+27,000-9,000]
Creditors
40,000
1,48,000
1,48,000
Case b: R is admitted by purchasing of an interest from the old partners G and S. Since the capital
interest of the incoming partner R is obtained from the old partners G and S, neither the total assets
nor the total capital of the partnership firm is affected
Total capital after Rs admission is same as before (48,000 + 32,000 + 10,000) 90,000
R is to bring in 1/6th of 90,000
15,000
27,000
12,000
Cr
Particulars
To
Particulars
- By Balance b/d
Premium
Goodwill
To Balance c/d
Cash A/c
Partnership Accounting
48,000 32,000
Reserve A/c
Cash A/c (Bal. 16,200 10,800
figure)
for
6,000
4,000
7,200
4,800
- 15,000
6.2.14
Liabilities
Assets
Gs Capita
45,000
Other assets
Ss Capital
30,000
Cash
Rs Capital
15,000
1,20,000
10,000
90,000
Creditors
40,000
1,30,000
1,30,000
Note: total capital of the firm is same as before. Out of 90,000, R gets , 15,000. The balance of
capital of 75,000 is shared by G and S in the ratio of 3:2
Admission of Partner
Question 23: Rain and Storm are partners in a firm sharing profits and losses as 3:2 respectively.
Their Balance sheet on 31.12.2000 stands as under:
Liabilities
Creditors
Capital Accounts:
Rain
Storm
Balance Sheet
Assets
35,000 Cash
Debtors
40,000
(-) Provision for doubtful debts
20,000 60,000 Stock
Machinery
Land & Building
95,000
4,000
22,000
2000 20,000
18,000
20,000
33,000
95,000
Financial Accounting
Dr
Dr
Cr
9,000
9,000
6.2.15
Dr
7,300
To Machinery A/c
5,000
1,000
1,300
(Being machinery written down and provision for DD and damages created)
3 Revaluation A/c (9,000 7,300)
Dr
1,700
To Rain Capital A/c
To Storm Capital A/c
(Being revaluation profit transferred to partners capital a/c)
4 Cash A/c
To Premium for Goodwill A/c (WN2)
Dr
1,020
680
20,000
5,000
15,000
Dr
5,000
3,000
2,000
5,320
Dr
3,120
2,200
3,120
2,200
Assets
Partnership Accounting
6.2.16
R S D
3
Old ratio
New ratio
Combined new ratio
2
3
(2)
(3)
The partners old profit sharing ratio (3:2) is their sacrificing ratio.
(4)
Total capital of the new firm = Opening capital + Capital and premium brought in by Dust +
Revaluation profit
=(60,000 + 15,000 +5,000 + 1,700) = 81,700
Rains share = 81,700 9/19 = 38,700
Storms share = 81,700 6/19 = 25,800
Dusts share = 81,700 4/19 = 17,200.
(5) Partners Capital A/c
Particulars
To Current 5,320
a/c
(bal)
Rain
Storm
----
----
Dust
Particulars
By Bal. b/d
Bank A/c.
Premium
for
Goodwill
Revaluation A/c
Current a/c (Bal)
Rain
Storm
Dust
40,000 20,000
---3,000
---
---- 15,000
2,000
----
1,020
680
------- 3,120 2,200
44,020 25,800 17,200
Credit
To Decrease in plant and machinery 5,000 By Increase in land and building 9,000
Provision for bad debts A/c.
1,000
Liability for damages
1,300
Partners Capital A/cs Profit
1,700
(Rain 1,020; Storm 680
9,000
9,000
Question 24: Ranu & Mili are partners in a firm sharing profits & losses in the ratio of 2:1
Balance sheet of the firm on 31.12.2002 was as follows:
Liabilities
Assets
Creditors
7,000 Investments
25,000
Investment provision
2,000 Stock
15,000
General Reserve
10,500 Debtors
20,000
Workmen compensation Fund
6,000 Less: Provision for bad debts 2,500 17,500
Capital A/c: Ranu
30,000
Bills Receivable
12,500
Capital A/c: Mili
24,500 54,500 Bank
10,000
80,000
80,000
th
On the above date, Manisha is admitted for 2/5 share in the profits or losses of the firm. Following
adjustments were made at the time of admission:
a. Manisha is required to bring in 50,000 as capital.
Financial Accounting
6.2.17
Credit
Ranu
30,000
20,833
7,000
20,000
---77,833
Mili Manisha
24,500
---10,417
---3,500
---10,000
------50,000
48,417
50,000
Assets
Capital A/c
Machinery
15,000
Ranu
65,833
Investment
25,000
Mili
42,417
Stock
15,000
Manisha
38,000
Debtors
20,000
Creditors + HP installment
7,500
(-) Provision for
3,000
17,000
(7,000+500)
Doubtful Debt
Investment Provision
2,500
Bills Receivable
12,500
(2,000 + 500)
Workmen Comp Fund
750
Joint Life Policy
12,000
(6,000-5,250)
Accrued Income
500
Bank (10+50)
60,000
1,57,000
1,57,000
Partnership Accounting
6.2.18
Working Notes:
1. Since there is a fall in the market value of investments of 2,500, investment provision is
increased form 2,000 to 2,500.
2. Workmen compensation fund is nothing but retained profit. Therefore, it is credited to
Revaluation A/c. Alternatively, it could have been credited to partners Capital A/c in the old
profit sharing ratio.
3. Since Manisha is not paying the required amount of premium for goodwill. Therefore, 30,000
goodwill will be adjusted through the Capital Accounts of the partners.
4. There will be no entry for the promise made by S, Since it is an event and not a transaction.
Admission of Partner with Memorandum Revaluation Method
[CA INTER N07, 16 marks]
Question 25: Following was the B/S of A&B, who were sharing profit & loss in the ratio of 2:1 on
31.12.2006:
Balance Sheet
Liabilities
Capital Accounts
A
B
Reserve fund
Sundry creditors
Bills payable
10,00,000
5,00,000
9,00,000
4,00,000
Assets
Plant and machinery
Building
Sundry debtors
Stock
Cash
1,00,000
29,00,000
12,00,000
9,00,000
3,00,000
4,00,000
1,00,000
29,00,000
Financial Accounting
Particulars
40,000 By Building
1,80,000
6.2.19
To
Particulars
Revaluation
Loss
Reserve
Fund
A (W.N.3)
B (W.N.3)
Balance
W.N2
c/d
A
7,500
B
3,750
4,50,000
2,25,000
2,25,000
17,500
8,750
11,70,000
5,85,000
5,85,000
16,27,500
8,13,750
8,40,000
Reserve
Fund
C (W.N.3)
Revaluation
Profit
Cash (Bal)
A
10,00,000
B
5,00,000
6,00,000
3,00,000
17,500
10,000
8,750
5,000
8,40,000
16,27,500
8,13,750
8,40,000
11,70,000
5,85,000
5,85,000
9,00,000
4,00,000
1,00,000
37,40,000
Assets
37,40,000
Working Notes:
1.
Partnership Accounting
6.2.20
2.
3.
Effect
Goodwill as Goodwill as
per old ratio per new ratio
70,000
52,500 + 17,500
35,000
26,250 + 8,750
26,250
- - 26,250
1,05,000
1,05,000
26,250
26,250
Adjustment entry:
Cs Capital A/c
Dr. 26,250
To As Capital A/c
17,500
To Bs Capital A/c
8,750
Profit / (loss) on revaluation, accumulated profits / reserves / losses on retirement of a partner is
credited (debited) to all the partners in their old profit sharing ratio
Special point to be noted: Adjustment of the capitals of continuing partners
Payment to retiring partner: immediately paid on retirement or holding as loan to be repayable in
the later period.
Retirement of Partner
Question 26: On 31-3-1995, the Balance Sheet of M/s A, B and C sharing profits and losses in
proportion to their capitals, stood as follows:
Balance Sheet
Liabilities
Sundry Creditors.
Assets
Capital A/cs.
Machinery
3,00,000
2,00,000
Stock
1,00,000
3,00,000
Sundry Debtors
1,00,000
1,00,000
8,00,000
8,00,000
On 31 March 1995, A desired to retire from the firm and the remaining partners decided to carry
on. It was agreed to revalue the assets and liabilities on that date on the following basis:
st
6.2.21
4.
5.
6.
7.
Particulars
To Machinery A/c
tock A/c
Particulars
60,000
25,000
20,000
Partners Capital
10,000
5,000
90,000
2,857
4,286
A
---Capital(GW)
Bank (50% ) 1,30,000
10,000
To Revaluation
A Loan A/c
1,30,000
Balance
(required)
30,000
-------
Particulars
J.L.P A/c
22,857
34,286
22,857
B Capital
(GW)
C Capital
(GW)
Bank (Bal)
10,000
----
----
30,000
----
----
----
30,000 1,60,000
Partnership Accounting
6.2.22
Liabilities
Partners capital A/cs
B
C
As Loan A/c
Sundry Creditors
Assets
Assets
As Capital
49,000
Bs Capital
4,800
Cs Capital
22,800
Sundry creditors
21,600
1,000
Cash at bank
200
99,400
99,400
They share profits and losses in the ratio of 2:2:1 on 1st April, 1993, C retired from the firm and
claimed his share of secret reserve/profits arising out of the following.
a. During the year ended 31.3.1993 purchase of Machinery at a cost of 10,000 was charged to
purchase account, the erection charges of 600 being charged to machinery repairs account.
(Depreciation is to be charged at 10% p.a.)
b. 600 received from Mr. X on 31.3.93 towards rent of the property sublet was credited to his
personal accounts instead of to rent account so as to reduce his debit balance from 1,000 to 400
debit on 31.3.93.
c. Interest on mortgage loan was paid in advance up to 31.5.93 and the whole amount was charged
to interest account during the year ended 31.3.93.
d. After rectifying the above errors, it was mutually decided as under:
1. The goodwill of the firm is valued at 5 times the average profits of the last 3 years. Such profits
should be correct profits & not the book profits. The book profits for the last 3 financial year
were: 1990-91 18,380; 1991-92 32,000; 1992-93 ,7,471.
Financial Accounting
6.2.23
2. Plant & Machinery to be depreciated by 10% and provision for bad doubtful debts to be made at
5% on sundry debtors.
3. The goodwill should not appear in the books.
4. There is a liability for 501 for bill discounted. This has to be accounted for.
5. C should be paid half of his dues in cash which shall be brought in by A and B in their profit
sharing proportion and the other half shall be left in the business as Cs loan fetching an interest
of 18% p.a.
Prepare Profit & Loss A/c, Revaluation A/c, Capital A/c of the partners and the Balance Sheet of
A & B after Cs retirements
Answer:
Profit and Loss Adjustment A/c
Particulars
Particulars
Particulars
Capital A/c
C
Particulars
1,493 By Balance b/d
Particulars
A
B
To Revaluation A/c 2,986 2,986
(loss)
Cs Capital A/c 11,401 11,401
( GW)
Cash A/c
- 17,710
Cs Loan A/c
- 17,710
Balance c/d
P/L Adjustment
A/c
As Capital A/c
Bs Capital A/c
(GW)
Cash A/c
A
B
C
33,600 25,200 12,000
4,222
-
4,222
2,111
- 11,401
- 11,401
32,290 23,890
8,855 8,855
46,677 38,277 36,913
46,677 38,277 36,913
Cash paid 17,710 to C is out of the receipts from B and C [ 8,855 each]
Balance Sheet of M/s A and B as on 1.4.1993
Liabilities
Assets
Capital A/c :
Plant and Machinery
A
32,290 Less: Depreciation
B
23,890 Furniture and Fittings
Cs Loan a/c
17,710 Stock in Trade
15% Mortgage Loan
16,600 Sundry Debtors
Liabilities
for
bills
501 Less: Provision
discounted
Partnership Accounting
58,540
5,854
22,200
1,110
52,686
4,800
22,800
21,090
6.2.24
Creditors
415
1,000
200
1,02,991
Working Notes:
Sundry Debtors
Opening Debtors as on 31.3.1993 21,600
600
Adjusted Debtors
22,200
Calculation of Goodwill
2
Profit
Year
1990-91
18,380
1991-92
32,000
1992-93 [7,471+10,555]
18,026
68,406
22,802
Goodwill = AP 5
114,010
22,802
3
Add
Machinery Purchased
Add
Installation charge
49,000
10,000
600
Total
10,600
Less Depreciation
1,060
9,540
Assets
Capital Accounts:
Cash in hand
Ram
1,00,000 Cash in Bank
Rahim
1,50,000 Sundry Debtors
Financial Accounting
20,000
1,00,000
5,00,000
6.2.25
Robert
General Reserve
Sundry Creditors
Loan from Richard
2,00,000
3,00,000
5,30,000
16,50,000
The firms goodwill to be valued at 2 years purchase of the average profits of the last 3 years.
The relevant figures are:
1. Year ended 31.3.2002
Profit 50,000
Profit 60,000
Profit 55,000
g. Out of the amount due to Robert 2,00,000 would be retained as loan by the firm and the
balance will be settled immediately.
h. Richards capital should be equal to 50% of the combined capital of Ram and Rahim.
Prepare: (i) Capital accounts of the partners; and (ii) Balance Sheet of the reconstit uted firm.
Answer:
Dr
To
Revaluation
A/c
Roberts
Loan1
Bank
Balance c/d
Ram
10,000
Robert
6,000
4,000
200,000
245,000
255,000
237,000
243,000
58,000
262,000
55,000
36,667
18,333
Goodwill
Bal. c/d
Rahim
190,000
200,333
245,000
237,000
195,167
213,500
Balance
b/d
General
reserve
Goodwill2
Balance
b/d
Loan A/c
transfer
Bank
Ram
Rahim
Robert
Cr.
Richard
100,000
150,000
200,000
100,000
60,000
40,000
55,000
33,000
22,000
255,000
243,000
262,000
245,000
237,000
200,000
245,000
237,000
13,500
213,500
Assumptions:
1. Richards loan is considered as part of his capital
2. Memorandum revaluation method is followed for goodwill treatment. Hence it is raised and
cancelled.
Balance Sheet of Ram, Rahim and Robert as at 31.3.2005 after the admission of Richard
Liabilities
Assets
Capital Accounts:
Land and Building
6,00,000
Partnership Accounting
6.2.26
Ram
Rahim
Richard
Sundry Creditors
Loan from Robert
1,90,000
2,00,333
1,95,167
8,00,000
2,00,000
15,85,500
2,70,000
1,90,000
4,50,000
55,500
20,000
15,85,500
Particulars
50,000
60,000
55,000
165,000
55,000
2
110,000
Particulars
To Balance b/d
1,00,000 By Roberts Capital A/c
58,000
Richards Capital A/c
13,500
Balance c/d
55,500
1,13,500
1,13,500
Joint Life Policy
Question 29: X, Y and Z are partners sharing profits and losses in the ratio of 2:2:1. On 1st January
2000, they took out a joint life policy of 100,000. Annual premium of 5,000 was payable on 1 st
January each year. Last premium was paid on 1.1.2003. Y died on 1.3.2003, and policy money was
received on 31st March, 2003.
The surrender values of policy as on 31st December of each year were as follows:
2000 Nil; 2001-1,000; 2002-2,500.
Show necessary accounts and Balance sheet as on 31st Dec, each year, assuming that:
1. premium is charged to profit and loss Account every year.
2. premium is debited to Joint Life Policy A/c and the balance of the Joint Life Policy A/c is
adjusted every year to its surrender Value.
3. premium is debited to JLP A/c & a sum equal to premium is debited to JLP Revenue
Financial Accounting
6.2.27
Answer:
Year Premium
Cumulative
Current
Loss of
Surrender Value
Value
Premium
2000
5,000
5,000
2001
5,000
*1,000
1,000
4,000
2002
5,000
2,500
1,500
3,500
2003
5,000
Note: Sum assured of 100,000 is received on 1.3.2003 the date of death of one of the partners.
Case I. Joint Life Policy
JLP Premium is treated as expenses and debited to profit and loss a/c and
receipt of the claim will be credited to partners capital account
01.01.2000
i.
Joint Life Policy a/c
Dr
5,000
To Cash
31.12.2000
ii.
5,000
5,000
i.
5,000
Dr
5,000
To cash a/c
31.12.2001
ii.
5,000
5,000
i.
5,000
Dr
5,000
To cash a/c
31.12.2002
ii.
5,000
5,000
i.
5,000
Dr
5,000
To Cash
31.03.2003
ii.
5,000
Cash a/c
100,000
iii.
100,000
Dr
95,000
To Xs Capital a/c
38,000
To Ys Capital a/c
38,000
To Zs Capital a/c
19,000
Debit
01.01.00 To Cash
01.01.01 To Cash
Partnership Accounting
Date
Credit
5,000
5,000
5,000
5,000
5,000
5,000
6.2.28
01.01.02 To Cash
01.01.03 To Cash
5,000
5,000
5,000
1,00,000
31.03.03
95,000
1,00,000
i.
Dr
5,000
To Cash
31.12.00
ii.
5,000
5,000
i.
5,000
Dr
5,000
To cash a/c
31.12.01
ii.
5,000
4,000
i.
4,000
Dr
5,000
To cash a/c
31.12.02
ii.
5,000
3,500
i.
3,500
Dr
5,000
To Cash
31.12.03
ii.
5,000
Cash a/c
100,000
iii.
100,000
Dr
92,500
To Xs Capital a/c
37,000
To Ys Capital a/c
37,000
To Zs Capital a/c
18,500
Debit
01.01.00 To Cash
01.01.01 To Cash
Date
Credit
5,000
5,000
5,000
4,000
Balance c/d
1,000
5,000
5,000
3,500
01.01.02
5,000
2,500
Cash
Financial Accounting
Balance c/d
6.2.29
6,000
6,000
01.01.03
Cash
5,000
31.03.03
1,00,000
95,000
Liabilities
1,00,000
Assets
Joint Life Policy a/c
2001 02
Joint Life Policy a/c
2002 03
Joint Life Policy a/c
Nil
1,000
2,500
Dr
5,000
To Cash
Profit and Loss a/c
5,000
Dr
5,000
5,000
Dr
5,000
5000
Year 2001
ii.
5,000
Dr
5,000
To Cash
Profit and Loss a/c
5,000
Dr
5,000
5,000
Dr
4,000
4,000
Year 2002
iii.
Dr
5,000
To Cash
Profit and Loss a/c
5,000
Dr
5,000
5,000
Dr
3,500
3,500
Year 2003
iv.
Partnership Accounting
Dr
5,000
5,000
6.2.30
Cash a/c
Dr
100,000
7,500
To JLP Reserve
92,500
Dr
95,000
95,000
Debit
01.01.00 To Cash
01.01.01 To Cash
Date
Credit
5,000
5,000
5,000
4,000
Balance c/d
1,000
5,000
5,000
4,000
01.01.02
5,000
2,500
Cash
Balance c/d
6,000
6,000
01.01.03
Cash
5,000
31.03.03
1,00,000
92,500
1,00,000
1,00,000
Debit
Date
Credit
5,000
5,000
5,000
5,000
1,000
5,000
5,000
1,000
31.12.02
2,500 31.12.02
5,000
Balance c/d
6,000
6,000
Financial Accounting
2,500
6.2.31
Death of a Partner
Deceased partners share of profit: is calculated based on the previous year/s profit, proportionate
up to the date of death to the extent of his share. Journal entry:
P/L Suspense A/c
Dr
Right to Carry on Competing Business: Unless otherwise agreed, every outgoing partner has a right
to carry on competing business and to advertise such business but he cannot: Use the firms name,
Represent the firm and Solicit the firms customer [Sec.36(1)]
Partnership Accounting
6.2.32
Dissolution on Death: Unless otherwise agreed, a firm is dissolved on the death of a partner [Sec
42(c)]
No Liability of Estate of Deceased Partner to third parties for firms act after his death (Sec. 35)
No Public Notice is required on the death of partner
Special considerations for a retiring partner and the estate of a deceased partner in relation to
debts contracted by the partnership firm:
1. debts due on the date of retirement/death: the retiring partner and the estate of the
deceased partner is liable for the whole of the debts due by the firm at the date of
retirement or death, to the extent of their share.
2. debts incurred after retirement: where the notice of retirement is not published in
accordance with law, the retiring partner is liable for debts contracted after retirement.
3. deceased/ insolvent partner: the estate of a deceased or bankrupt partner will not be
liable for debts contracted by the firm after the death or bankruptcy.
Question 30: A, B and C were partners of a firm sharing profits and losses in the ratio of 3:4:3.
Balance Sheet as at 31st March,1998
Liabilities
Capital Accounts:
Assets
Fixed Assets
100,000
48,000
Current Assets
64,000
Stock
30,000
48,000 160,000
Debtors
60,000
Cash in hand
30,000 120,000
Reserves
20,000
Sundry Creditors
40,000
220,000
220,000
The firm had taken a joint life policy for 100,000; the premium periodically paid was charged to
Profit and Loss Account. Partner C died on 30th September 1998. It was agreed between the surviving
partners and the legal representatives of C that:
1. Goodwill of the firm will be taken at 60,000
2. Fixed Assets will be written down by 20,000
3. In lieu of profits, C should be paid at the rate of 25% p.a. on his capital as on 31-3-98,
Policy money was received and the legal heirs were paid off. The profits for the year ended 31-3-99,
after charging depreciation of 10,000 (depreciation up to 30-Sep was agreed to be 6,000), were
48,000.
Partners Drawings Accounts showed balances as under:
1. As drawings - 18,000 (drawn evenly over the year)
2. Bs drawings - 24,000 (drawn evenly over the year)
3. Cs drawings - (up-to-date of death) 20,000
Financial Accounting
6.2.33
On the basis of the above figures, please indicate the entitlement of the legal heirs of C, assuming that
they had not been paid anything other than the share in the Joint Life Policy.
Answer: Determination of entitlement of legal heirs of C
Profits for the half year ended 31st March, 1999:
st
Profits for the year ended 31 March, 1999 (after depreciation)
48,000
10,000
Add Depreciation
Profits before depreciation
58,000
Period
01.04.98- 01.10.9830.09.98 31.03.99
Profit split for two half years (assumed: evenly spread)
29,000
29,000
6,000
4,000
Less Depreciation [I half 6,000 and II half 4,000]
Profits
23,000
25,000
B
C
64,000 48,000
8,000 6,000
24,000 18,000
- 6,000
96,000 78,000
(3) Application of Section 37 of the partnership Act: Legal heir of C has not been paid anything
other than the share in joint life policy. Amount due to the deceased partner carries interest at the
mutually agreed rate. If there is no agreement the representatives of the deceased partner can receive
at their option interest at the rate of 6% per annum or the share of profit earned for the amount due to
the deceased partner.
Therefore, the representatives of C can Choose: - Either,
(i)
(ii)
Profit earned out of unsettled capital (in the second half year ended 3s1t march, 1999)
(Or)
52,000
7,027
59,027
Partnership Accounting
6.2.34
(b) Regarding Assets: The assets of the firm, including any sums contributed by the partners to
make up deficiencies of capital, shall be applied in the following manner and order in paying:
1. the debts of the firm to third parties;
2. each partner ratably what is due to him from the firm for advances as distinguished from capital ;
3. to each partner ratably what is due to him as capital; and
4. The residue shall be divided among the partners in the proportions in which they are entitled to
share profits.
Asset
Plant &machinery
80,000
50,000
furniture
10,000
40,000
Stock
40,000
30,000 1,20,000 Trade Debtors
52,000
30,000 Less; provision
(2,000)
50,000
20,000
40,000
Bank
30,000
1,20,000
1,20,000
(i)
Furniture and Machinery were to be depreciated and appreciated and appreciated by 5% and 10%
respectively.
(ii) Provision for bad debts was to be increased by 3,000.
(iii) P&L A/c of the firm for the year ended 31.3.10 showed a net profit of 68,700.
(iv) A contingent liability of 10,000 was to be treated as actual liability.
The partners decided not to alter the book values of the assets, liabilities and reserves but recorded
the change by passing one single journal entry.
You are required:
a) To show a single journal entry adjusting the capitals of the partners as on 1-4-09, and
b) To show the P&L A/C for the year ended 31.3.10 after considering the following adjustments:
(i)
(ii)
(iii)
Interest on capital at 5%
Interest on Bs loan and
Transfer 20% of the divisible profit to the reserves after charging such reserve.
Answer:
Memorandum Revaluation A/c
Particulars
500 By Machiery
3,000
Reserves
10,000
Particulars
To Furniture
Provision for Debtors
Contingent Liability
Partners Capital A/C
Asha
8/20
9,800
Bipasha 7/20
8,575
Chitra
5/20
6,115 24,500
Financial Accounting
8,000
30,000
6.2.35
Machinery
38,000
8,000
Reserves
30,000
38,000
38,000
500
3,000
10,000
Furniture
Provision for Debtors
Contingent Liability
Partners capital A/C
Asha 5/10
12,250
Bipasha 4/10
9,800
Chitra 1/10
2,450 24,500
38,000
Net Effect
Cr
Dr
9,800 12,250 2,450 Dr
A
8,575 9,800 1,225 Dr
B
6,115 2,450 3,675 Cr
C
Adjustment Entry
Ashas Capital A/c
Dr 2,450
Bipashas Capital A/c
Dr 1,225
To Chitras Capital A/c
3,675
68,700
68,700
ADDITIONAL PROBLEMS
ADMISSION OF A PARTNER
Partnership Accounting
6.2.36
30
25
Current Assets
Less : Current Liabilities
140
65
Financed by:
Loan from Zed Ltd. carrying interest at 15% p.a
Reserves
Current accounts of partners :
X Ltd.
Y Ltd.
Capital Accounts :
X Ltd.
Y Ltd.
55
75
150
40
30
3
2
40
35
75
150
On 1st December, 2001 they decided to admit Z Ltd. as a partner. The following terms were agreed
upon:
You are asked to pass necessary accounting entries through the journal of the firm on the morning of
December 1, 2001 and prepare the balance sheet before any other transaction takes place on
December 1, 2001. The balance sheet should also show the comparative position before admission of
Zed Ltd.
Financial Accounting
6.2.37
Answer:
Journal Entries in the Books of XY & Co. Ltd. [ In crores]
Particulars
L.F Dr. Cr.
1.
Zed Ltd Loan A/c
Dr.
40
To Zed Capital A/c
40
(Being transferred of Loan to Zed Capital)
2.
3.
4.
5.
6.
7.
8.
9.
Goodwill A/c
Dr.
To X A/c
To Y A/c
(Being Goodwill raised in old Ratio)
50
X A/c
Dr.
Y A/c
Dr.
Z A/c
Dr.
To Goodwill A/c
(Being Goodwill written off in new ratio)
25
15
10
30
30
20
50
18
12
X A/c
Dr.
15
Y A/c
Dr.
9
Z A/c
Dr.
6
To Fixed Assets A/c
(Being Fixed Assets revaluation transferred in
new profit sharing ratio amount among all partners)
Reserve A/c
Dr.
To X A/c
To Y A/c
(Being Reserves distributed in old ratio)
30
X A/c
Dr.
Y A/c
Dr.
Z A/c
Dr.
To reserves Assets A/c
(Being Reserve debited in new ratio at 5:3:2)
15
9
6
X A/c
Dr.
To Investment A/c
To Realisation A/c
(Being investments in A Ltd. takeover by X Ltd.)
70
Y A/c
To Investment on B Ltd. A/c
To Realisation A/c
60
Partnership Accounting
Dr.
30
18
12
30
30
40
25
35
6.2.38
11.
Realisation A/c
Dr.
To X A/c
To Y A/c
(Being Profit on takeover of investments credited
to partners capital in old profit sharing ratio)
75
45
30
Bank A/c
Dr.
60
To X A/c
34
To Y A/c
20
To Z A/c
6
(Being fixed capital introduced by the three partners
in pursuance of clause of partnership deed dated Dec 1, 2001)
Balance Sheet
Particulars
After
Before
Admission
Admission
60
60
I. Assets
Less : Accumulated Depreciation
40 20
40 20
Investment at Cost
A Ltd (M.V. 80 cr.)
Nil Nil
30
B Ltd (M.V.70 cr.)
Nil Nil
25 55
140
140
Current Assets
Bank
60 135
65
Current Liability
65 155
150
Financed by :Loan from Z Ltd.
Owners fund
Reserves
Current A/c
X
Y
Capital A/c (W.N.1)
X
Y
Z
3
2
Nil
40
30
30
3
2
60
36 120
24
155
40
35
Nil
75
150
Working Note 1
Particulars
To Goodwill
Fixed Asset A/c
Reserve A/c
Investment A/c
Investment A/c
Balance c/d
Financial Accounting
X
40
-30
18
18
45
Y
Z
35 --- 40
20 -12 -12 -30 -6.2.39
Bank A/c
185 129 46
34 20 6
185 129 46
Capital Account :
Goodwill
14,000
P
26,400
Land and Building
14,400
R
33,600 60,000 Furniture
2,200
Contingency Reserve
6,000 Stock
26,000
Sundry Creditors
9,000 Sundry Debtors
6,400
Cash at Bank
12,000
75,000
75,000
P & R share Profits and Losses as 1:2. They agree to admit S (who is also in business of his own) as a
third partner from 01.04.2003.
The Assets are revalued as under:
Goodwill 18,000, Land and Building 30,000, Furniture 6,000. S brings the following Assets into
Partnership Goodwill 6,000, Furniture 2,800, Stock 13,600.
Profits in the new firm are to be shared equally by the three Partners and the Capital Accounts are to
be so adjusted as to be equal.
Prepare Revaluation A/c, Partners Capital A/c and Balance Sheet after the admission of S.
Answer:
Revaluation A/c
Particulars
Amount
Particulars
Amount
To Partner Capital A/c
By Goodwill A/c
4,000
Ps Capital
7,800
Land & Building A/c
15,600
Rs Capital
15,600
23,400
Furniture A/c
3,800
23,400
23,400
Partner Capital A/c
Particulars
P
R
S
Particulars
P
R
S
To Balance c/d 53,200 53,200 53,200 By Balance b/d
26,400 33,600
-Contingency
2,000 4,000
-Revaluation
Profit & Loss 7,800 15,600
-Goodwill A/c
--- 6,000
Furniture A/c
--- 2,800
Stock A/c
--- 13,600
Bank A/c
17,000
-- 30,800
53,200 53,200 53,200
53,200 53,200 53,200
Note: It is assumed that Rs Capital is taken as base to calculate remaining Partners Capital.
Partnership Accounting
6.2.40
Balance Sheet
Liabilities
Amount
Asset
Amount
Sundry Creditors
9,000 Goodwill
24,000
Partner Capital A/c
Land & Buildings
30,000
P
53,200
Furniture
8,800
R
53,200
Stock
39,600
S
53,200 1,59,600 Sundry Debtors
6,400
Cash and Bank
59,800
1,68,600
1,68,600
A 29,000 Buildings
35,000
B 15,000 Machinery
19,000
Reserve
10,000 Furniture
5,000
Creditors
28,500 Stock
15,000
Outstanding Expenses
4,000 Debtors
9,400
Less : Provision for Bad Debts
400 9,000
Prepaid Insurance
1,500
Cash
2,000
86,500
86,500
Liabilities
Capital Accounts
C is admitted as a new partner introducing a capital of 21,000. The capitals of the partners are to be
adjusted in the new profit sharing ratio, which is 5 : 3 : 2 taking Cs capital as base. C is to bring
premium for goodwill in cash. Goodwill amount is being calculated on the basis of Cs share in the
profits and capital contributed by him. Following revaluations are made:
i.
ii.
iii.
iv.
Prepare necessary Ledger Accounts and the Balance Sheet of the new firm.
Answer:
Revaluation A/c
Particulars
Amount
Particulars
To Stock A/c
750 By Building A/c
Furniture A/c
500
Provision for Bad Debts A/c
100
Partner Capital A/c
A 3,000
B 2,000
5,000
6,350
Financial Accounting
Amount
6,350
6,350
6.2.41
Balance Sheet
Liabilities
Amount
Asset
Amount
Building
41,350
Capital A/c
A
52,500
Machinery
19,000
B
31,500
Furniture
4,500
C
21,000 1,05,000 Stock
14,250
Creditors
28,500 Sundry Debtors
9,400
Outstanding Expenses
4,000 Less: Provision
500
8,900
Prepaid insurance
1,500
Cash (WN1)
48,000
1,37,500
1,37,500
Working Notes:
Capital
Reserve
Revaluation Profit
1 Total
2 Total Capital [using Cs capital base]
Goodwill of A and B [2 1]
Total Goodwill of the firm
A
B
C
29,000 15,000
6,000 4,000
3,000 2,000
38,000 21,000 21,000
Total
80,000
1,05,000
25,000
Partnership Accounting
35,000
30,000
10,000
25,000
Assets
Land and Building
Plant and Machinery
Stock
Debtors
30,000
20,000
10,000
20,000
6.2.42
Less : PDD
Bank
Cash
1,000
1,00,000
19,000
11,000
10,000
1,00,000
i.
ii.
iii.
iv.
v.
You are required to prepare the Balance Sheet of the new firm.
Answer:
Balance Sheet of the New Firm as on 31.12.2004
Amount
Asset
Land & Building
50,000
Plant & Machinery
50,000
Stock
50,000 1,50,000 Investment
25,000
(-) Provision
15,000
Sundry Debtors
(-) Prov. for Bad Debts
Bank (W.N.1)
Cash (10,000 + 15,000)
1,90,000
Liabilities
Capital
A
B
C
Creditors
Reserve
Particulars
A
To Reserve A/c
5,000
Prov. for Bad Debts
A/c (WN2)
Prov.
for 600
-2000
Investment (WN3)
Balance c/d
50,000 50,000 50,000
Amount
30,000
20,000
31,000
12,000
2,000
30,000
3,000
10,000
27,000
47,000
25,000
1,90,000
Investment
A/c
Cash A/c
Debtors A/c
Bank A/c
Reserve A/c
55,600 55,400 58,000
Working Note 1:
Bank A/c
Particulars
Amount
Particulars Amount
To Balance b/d
11,000 By Balance c/d
47,000
As Capital A/c
14,600
Bs Capital A/c
21,400
47,000
47,000
Financial Accounting
6.2.43
Working Note 2: Debtors of A & B were 20,000. Provision for Doubtful Debts for is to be
maintained at 10%. Therefore for Doubtful Debtors for these Debtors will be 2,000. To create further
Provision of 1,000 Capital of A & B will debited in the ratio of 3 : 2 respectively. For the Debtors of
10,000 brought in by C, entire provision is to be created by debiting Cs Capital A/c.
Working Note 3: Investment provision is to be created by debiting Cs capital A/c only.
Partnership Accounting
Amount
55,000
55,000
6.2.44
L.F
Dr.
Dr.
55,000
55,000
2. Revaluation A/c
Dr.
To Provision for Doubtful Debts A/c
To Advance A/c
(Being 10% Provision for Doubtful Debts created and written
off 10% of the Advance)
38,250
3. Revaluation A/c
To Sas Capital A/c
To Res Capital A/c
(Being Revaluation Profit distributed equally)
Dr.
16,750
4. Goodwill A/c
Dr.
Financial Accounting
Cr.
25,000
13,250
8,375
8,375
6,00,000
6.2.45
3,00,000
3,00,000
Dr.
Dr.
Dr.
2,00,000
2,00,000
2,00,000
6,00,000
6. Bank A/c
Dr.
To Gas Capital A/c
(Being Cash brought by Ga as Goodwill & Capital and
adjustment his Capital to profit sharing ratio)
7,00,000
7. Bank A/c
Dr.
To Sas Capital A/c
To Res Capital A/c
(Being Cash brought by Sa and Re to adjust their Share of
Capital to Profit sharing ratio)
73,250
7,00,000
36,225
36,225
30,000
30,000
20,000
15,000
5,000
Assets
Land and Building
Plant and Machinery
Furniture & Fixture
Stock
Debtors
Bills Receivable
Bank
1,00,000
Followings are required adjustments on Ds admission:
25,000
20,000
15,000
10,000
15,000
10,000
5,000
1,00,000
Partnership Accounting
6.2.46
Answer:
Revaluation A/c
Particulars
Particulars
To Prov. for Bad Debts (17,000 x 5%)
850 By Insurance Premium A/c
600
Furniture A/c (Dep.)
500
Bs Capital A/c
1,420
Furniture A/c
2,500
Cs Capital A/c
710
(wrongly credited to sales A/c)
5,860
5,860
Particulars
T Revaluati
o on
Revaluati
on
Balance
b/d
A
--
B
1,000
2,130
1,420
28,88
0
27,58
0
31,01
0
30,00
0
19,29
0
20,00
0
25,00
0
25,00
0
A
30,00
0
--
B
30,00
0
--
C
20,00
0
--
Creditors
--
--
--
20,00
0
5,000
Revaluati
on
1,010
30,00
0
20,00
0
25,00
0
31,01
0
D
--
Financial Accounting
Bank A/c
Amount
Particulars
5,000 By Debtors A/c
Amount
2,000
6.2.47
Ds Capital A/c
20,000
25,000
23,000
25,000
50,000
41,000
5,000
5,000
15,000
1,500
1,17,500
Assets
Property
Motor Car
Furniture
Debtors
Stock
Cash
35,000
7,500
1,000
25,000
45,000
4,000
1,17,500
The profit sharing ratio between Sun & Moon was 3: 2. They decided to admit Pluto as a new partner
from 1st April, 2007 on the following terms & conditions:
Property & Motor Car to be revalued at 45,000 & 6,500 respectively and 5% provision to be
created on debtors.
Pluto should pay premium for goodwill to be valued at 2 years purchase of last three years average
profits. Such amount of premium was to be credited to old partners loan accounts.
Pluto should pay 37,500 as capital.
The new profit sharing ratio should be 2 : 1 : 1.
Last three years profits were 5,000, 6,000 and 7,500.
The last three years books of accounts, on verification, disclosed the following discrepancies:
2004 05 Bad debts previously written of recovered 400, credited to Debtors Account, Closing
Stock undervalued by 1,250.
2005 06 Furniture purchased 300 debited to Purchases Account, Depreciation was provided @
10% on reducing balance method but closing stock was overvalued by 2,000.
2006 07 A purchase invoice of 1,000 was omitted from the books and Closing Stock was
undervalued by 1,000.
Pass the journal entries at the time of admission of Pluto and prepare the balance sheet just after his
admission
Answer:
Revaluation A/c
Particulars
Particulars
To Motor Car
1,000 By Property
10,000
Provision for bad debts
1,250
Profit on Revaluation
Sun
4,650
Moon
3,100 7,750
10,000
10,000
Partnership Accounting
6.2.48
New Ratio
3:2:-
Sacrificing Ratio
= - =
=
=
= 6,390
Particulars
1. Property A/c
To Revaluation A/c
(Being Revaluation of property done at the time of admission of Pluto)
Dr.
Dr.
10,000
10,000
2. Revaluation A/c
Dr.
To Motor Car A/c
To Provision for bad debts A/c
(Being Revaluation done of motor car & Provision calculated on debtors
@ 5%)
2,250
3. Revaluation A/c
To Suns Capital A/c
7,750
Financial Accounting
Cr.
Dr.
1,000
1,250
4,650
6.2.49
3,100
4. Cash A/c
To Plutos Capital A/c
(Cash brought in by Pluto as his share of capital)
Dr.
5. Cash A/c
To Plutos Capital A/c
(Being cash brought by Pluto for his share of goodwill)
Dr.
37,500
37,500
3,195
3,195
Capital :
Plant and Machinery
50,000
X
80,000
Investments
31,000
Y
60,000 1,40,000 Sundry Debtors
60,000
Current Account :
Stock and Trade
90,000
X
5,000
Bank
30,000
Y
6,000
11,000
General Reserve
60,000
Sundry Creditors
50,000
2,61,000
2,61,000
Additional Information:
Partnership Accounting
6.2.50
ii. One Creditor for 6,000 is dead and nothing is likely to be paid on this account.
iii. The Capital accounts are to be proportionately adjusted on the basis of Zs capital and his
share of profit, through Current accounts.
iv. Partners decide to maintain the General Reserve in the books of the firm.
Prepare Revaluation account, Bank account, Capital and Current accounts and Balance Sheet of the
new firm.
Answer:
ADDITIONAL PROBLEMS
RETIREMENT OF A PARTNER
[CMA INTER J05, 8 Marks]
Question: Retirement of partner: Morning, Day and Night Carry on business in partnership sharing
the Profits and Losses in the proportion of 25%, 25% and 50% respectively. Their Balance Sheet as
on 31.03.2005 was as under:
Liabilities
Sundry Creditors
General Reserves
Capitals -Morning
24,00,000
Day
24,00,000
Night
Assets
On 1st April, 2005, Morning and Day retired and Night continued the business. Night paid 36,00,000
to Morning and 36,00,000 to Day in full and final discharge of their claim in the partnership. This
amount was brought in Night for the purpose of payment to the retiring partners. None of the assets
and liabilities is to be revalued.
Passing accounting entries in relation to the above in the books of business Unit.
Prepare the Balance Sheet of the business Unit after the above transactions are recorded.
Answer: Journal Entries in the books of Business Unit
Particulars
Bank A/c
To Nights Capital A/c
(Being Capital Brought in by Night for payment to retiring partners)
Dr.
Dr. 72,00,000
72,00,000
Dr. 36,00,000
Dr. 36,00,000
Dr. 24,00,000
Financial Accounting
Cr.
72,00,000
12,00,000
6.2.51
12,00,000
Particulars
T
o
Bank
A/c
Mornin
g
Capital
A/c
Days
Mornin
g
36,00,00
0
Day
36,00,00
0
--- B
y
12,00,000
Balanc
e
Bank
A/c
Nights
Capital
A/c
Capital
A/c
Balance
c
Mornin
g
24,00,00
0
--
Day
Night
24,00,00
0
--
50,00,000
12,00,00
0
12,00,00
0
--
36,00,00
0
36,00,00
0
1,22,00,00
0
72,00,000
12,00,000
98,00,000
36,00,00
0
36,00,00
0
1,22,00,00
0
ADDITIONAL PROBLEMS
ADMISSION CUM RETIREMENT OF PARTNER
[CMA INTER J07, 5+5+2+2=14 Marks]
Question: Admission cum retirement: Pradip and Parimal are equal partners. Pradip, by agreement,
retires and Gopal joins the firm on the basis of one-third share of profits on 01.04.2007. The balances
of the books as on 31st March, 2007 were:
Goodwill
Fixed Assets at Cost
Current Assets :
Stock
Debtors
Bank Balance
Partnership Accounting
Dr.
10,000
1,20,000
--60,000
40,000
8,000
Cr.
-------------
6.2.52
Creditors
Provision for Depreciation
Capital Accounts:
Pradip
Parimal
-----
20,000
12,000
--- 1,04,000
--- 1,02,000
2,38,000 2,38,000
Goodwill and Fixed Assets valued at 30,000 and 1,40,000 respectively and it was agreed to be
written up accordingly before admission of Gopal as partner. Sufficient money is to be introduced so
as to enable Pradip to be paid off and leave 5,000 Cash at Bank; Parimal and Gopal are to provide
such sum as to make their Capitals proportionate to their share of profits. Assuming the agreement
was carried out, show the Journal entries required and prepare the Balance Sheet after admission of
Gopal.
All working should form part of your answer.
Answer:
Balance Sheet of the firm As on (After Admission)
Liabilities
Amount
Asset
Amount
Capital A/cs (WN1)
Fixed Assets
1,20,000
Parimal
1,28,667
(-) Provision for Depn
12,000 1,08,000
Gopal
64,333 1,93,000 Current Assets
Creditors
20,000 Stock
60,000
Debtors
40,000
Bank Balance (W.N.2)
5,000
2,13,000
2,13,000
Working Note 1:
Particulars Pradeep Parimal Gopal
Particulars Pradeep Parimal Gopal
To Goodwill
-20,000 10,000 By Bal b/d
1,04,000 1,02,000
-Bank
1,14,000
--Goodwill
10,000
10,000
-Bal c/d
-- 1,28,667 64,333
Bank A/c
--- 74,333
Bank A/c
-36,667
-1,14,000 1,48,667 74,333
1,14,000 1,48,667 74,333
Working Note 2:
Bank A/c
Particulars
Amount
Particulars
Amount
To Balance b/d
8,000 By Pradip Capital A/c 1,14,000
Gopal Capital A/c
74,333
Balance c/d
5,000
Parimal Capital A/c
36,667
1,19,000
1,19,000
Journal Entries in the books of the Partnership Firm
Particulars
1. Goodwill A/c
To Pradips Capital A/c
To Parimal Capital A/c
(Being Goowill Realised)
Financial Accounting
Dr.
Dr.
20,000
Cr.
10,000
10,000
6.2.53
20,000
10,000
30,000
Dr. 1,14,000
4. Bank A/c
To Gopal Capital A/c
To Parimal Capital A/c
(Being Cash brought by Partners for final settlement)
Dr. 1,11,000
1,14,000
74,333
36,667
ADDITIONAL PROBLEMS
DEATH OF A PARTNER
[CMA INTER D02, 16 Marks]
Question: Death of a partner: A, B and C were in partnership sharing profits and losses in the ratio
of 5:4:3 respectively. A died on 31.12.2001, on which date the balance sheet of the firm was as under:
Liabilities
Capital Accounts:
A
42,500
B
30,000
C
22,500
Current Accounts:
A
4,250
B
6,500
C
5,750
Loan: A
Creditors
Assets
Premises
Less : Prov. for dep.
Plant
95,000 Less : Prov. for dep.
Stock
Debtors
Less : Prov. for dep.
16,500 Bank
20,000
21,250
1,52,750
40,000
4,000
46,000
13,500
21,000
3,750
36,000
32,500
27,000
17,250
40,000
1,52,750
B and C decided to carry on the business sharing profits and losses in the ratio of 7:5 respectively.
The following adjustments were made on 31.12.2001.
a. Plant, Stock and debtors were valued at 34,500, 24,300 and 16,850 respectively.
b. Valuers charge of 700 was to be provided for.
c. Goodwill was to be valued as equal to 3 years purchase of super profits.
The required return was to be calculated as 25% on partners capital current and loan accounts, and
was to be set against weighted average profits of the last three years. Profits were: 2001 = 52,000;
2000 = 46,000; 1999 = 45,250.
Adjustments for goodwill were to be made in and out of the capital accounts.
Partnership Accounting
6.2.54
25,000 was repaid to As executors on 01.01.2002, the balance owing to be a loan to the partnership.
Prepare necessary ledger accounts and the balance sheet on 01.01.2002.
Answer:
Particulars
Amount
Particulars
Amount
To Stock A/c
2,700 By Plant A/c
2,000
Debtors A/c
400
Partner Capital A/c
Prov. for Valuers Charges
700
A
750
B
600
C
450
Balance c/d
1,800
3,800
3,800
Valuation of Goodwill:
Calculate weighted average profit
Year Profit Weight Profit Weight
2001 52,000
3
1,56,000
2000 46,000
2
92,000
1999 45,250
1
45,250
6
2,93,250
Weighted average profit = 2,93,250/6= 48,875
Total of Partner Capital + Current Account + Loan Account = 95,000 + 16,500 + 20,000 = 1,31,500
Normal Return = 1,31,250 25% = 32,875
Super Profit = Weight Average Profit Normal Return = 48,875 32,875 = 16,000
Goodwill = Super Profit x 3 years purchase = 16,000 3 = 48,000/Partner Capital A/c
Particulars
A
B
C
Particulars
To Goodwill a/c
-- 28,000 20,000 By Balance b/d
Bank A/c
25,000
--Current A/c
Loan A/c
61,000
Goodwill A/c
Revaluation
750
600
450
Loan A/c
Balance c/d
-- 23,900 19,800
86,750 52,500 40,250
A
B
C
42,500 30,000 22,500
42,500 6,500 5,750
20,000 16,000 12,000
20,000
--86,750 52,500 40,250
Financial Accounting
40,000
4,000
48,000
13,500
21,000
4,150
36,000
34,500
24,300
16,850
15,000
1,26,650
6.2.55