NCERT Solutions for Class 12 Accounts Part 1 Chapter 2: Reconstitution of a Partnership Firm – Admission of a Partner

NCERT Solutions for Class 12 Accounts Part 1 Chapter 2: Reconstitution of a Partnership Firm – Admission of a Partner deals with the complexities involved in the admission of a new partner into an already existing firm by the old partners. This chapter is on Class 12 accounts 2 and describes the procedures and adjustments for the admission of a new partner; it covers areas such as changes in profit-sharing ratios and goodwill valuation. Class 12 accounts 2 pdf gives elaborative theories and examples that would make students better equip to understand the impact of admitting a new partner on the financial position of the firm. The major areas the book looks into include the revaluation of assets and liabilities, treatment of accumulated profits, and reserves, among others.

Download PDF For NCERT Solutions for Accountancy Reconstitution of a Partnership Firm – Admission of a Partner

The NCERT Solutions for Class 12 Accounts Part 1 Chapter 2: Reconstitution of a Partnership Firm – Admission of a Partner are tailored to help the students master the concepts that are key to success in their classrooms. The solutions given in the PDF are developed by experts and correlate with the CBSE syllabus of 2023-2024. These solutions provide thorough explanations with a step-by-step approach to solving problems. Students can easily get a hold of the subject and learn the basics with a deeper understanding. Additionally, they can practice better, be confident, and perform well in their examinations with the support of this PDF.

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Access Answers to NCERT Solutions for Class 12 Accounts Part 1 Chapter 2: Reconstitution of a Partnership Firm – Admission of a Partner

Students can access the NCERT Solutions for Class 12 Accounts Part 1 Chapter 2: Reconstitution of a Partnership Firm – Admission of a Partner. Curated by experts according to the CBSE syllabus for 2023–2024, these step-by-step solutions make Accountancy much easier to understand and learn for the students. These solutions can be used in practice by students to attain skills in solving problems, reinforce important learning objectives, and be well-prepared for tests.

Reconstitution of a Partnership Firm – Admission of a Partner

Question 1 :

 On what occasions sacrificing ratio is used?

 

Answer :

The calculation of the sacrificing ratio is made during the time of the admission of the new partner and it is referred to as the difference between the old and the new share of the profit of the existing partners of the firm. The profit sharing ratio of the partners is calculated between the old partners and the new partners. Thus the sacrificing ratio is used when the old partners decide to change the profit-sharing ratio. The second case is when new partners bring goodwill with them; it is transferred among the old partners sacrificing the ratio of the old partners.

 


Question 2 :

If some goodwill already exists in the books and the new partner brings in his share of goodwill in cash, how will you deal with the existing amount of goodwill?

Answer :

 Goodwill is an intangible asset of the organisation and hence is considered to be the most important item of a business. There are various methods for the valuation of goodwill and many ways of treating them in the book of accounts. The goodwill has to be written off among the old partners in their Profit Sharing Ratio in cases when the value of goodwill already exists in the books. The journal entry will be the Old partner’s capital account to the Goodwill account.

 


Question 3 :

Why there is need for the revaluation of assets and liabilities on the admission of a partner?

 

Answer :

Revaluation of assets and liabilities is done to ascertain the increment or the decrement in the value of assets and liabilities for some time before the admission to get and maintain fair dealings. Such adjustments result in either an increase in the book values of assets and liabilities or a decrease in the book value of assets and liabilities. These adjustments are done with the help of a new account called a revaluation account. This is done because the value of assets and liabilities may have been increased or decreased and the corresponding figures in the old balance sheet may have been understated or overstated. The profit or loss derived from this account is distributed among the partners.

 


Question 4 :

Identify the various matters that need adjustments at the time of admission of a new partner.

 

Answer :

The various matters that are required to be adjusted during the time of the admission of the new partner are :

  • Profit sharing ratio – During the time of the admission of the new partner, the calculation of the new profit sharing ratio has to be made.

  • The revaluation of the assets and liabilities is made to ascertain the value of the current time of the assets and the liabilities.

  • The valuation of the Goodwill is made and is further adjusted between the old sacrificing partners.

  • The accumulated profits, reserves, and losses are distributed in the old Profit Sharing Ratio among the old partners.

  • Capital of all the partners is adjusted

 


Question 5 :

 Why is it necessary to ascertain a new profit sharing ratio even for old partners when a new partner is admitted? 

 

Answer :

It is necessary to ascertain the new profit sharing ratio even for the old partners when the new partner is admitted to the firm because, with the admission of the new partner in the firm, the new profit sharing ratios are introduced as the new partner gains the profit sharing ratio from the old partners of the firm. Thus the old partners sacrifice their share of profit to benefit the new partner and hence there is a reduction of the share of the profit of the old partners which makes it necessary for the partners to determine the new profit sharing ratio post-admission.

 


Question 6 :

 What is sacrificing ratio? Why is it calculated?

 

Answer :

 The sacrificing ratio is referred to as the ratio of the profit or loss sharing among the partners which is calculated during the time of the admission of the new partner. On account of the admission of the new partner, old partners have to sacrifice their profit or loss sharing ratio in the favour of the new partner. This ratio is referred to as the sacrificing ratio. In other words, the ratio in which the old partners have decided to sacrifice their existing ratios of profit or loss to benefit the admission of the new partner is known as the sacrificing ratio.

 


Question 7 :

Do you advise that assets and liabilities must be revalued at the time of admission of a partner? If so, why? Also, describe how is this treated in the book of account.

 

Answer :

Any organisation should reevaluate the amount of the assets and liabilities of the organisation during the time of the admission of the new partner in the organisation. The admission of the new partner in the organisation reconstitutes the partnership of the organisation and hence the organisation should evaluate the value of the assets and the liabilities of the organisation to pertain to the true value of the business. With the admission of the new partner in the organisation if the value of the assets of the organisation increases, the amount of the capital of the existing partner increases and in the case of a decrease in the value of the assets of the organisation, there will be a decline to the value of the capital of the existing partners. Thus the revaluation account is prepared to determine the profits or losses which arise with such reconstitution of the partnership.

  • The revaluation is treated in the books of account as follows: Increase in the value of the asset: The asset is debited and the revaluation account is credited.

  • Decrease in the value of the asset: The asset is credited and the revaluation account is debited.

  • Increase in the value of liabilities: Liabilities are credited and the revaluation account is debited

  • Decrease in the value of liabilities: Liabilities are debited and the revaluation account is credited.

  • Recording unrecorded liabilities: The revaluation account is debited and unrecorded liabilities are credited.

  • For transferring credit balance i.e. profit on revaluation: the Revaluation Account is debited and the old partners’ capital account is credited (old PSR)

  • For transferring debit balance i.e. loss on revaluation: The old partners’ capital account is debited and the Revaluation Account is credited (old PSR)

 


Question 8 :

What is goodwill? What factors affect goodwill? 

 

Answer :

Goodwill is a real intangible asset that is the result of the efforts of all the partners to bring name, reputation, and fame to the business. It garners the attention of the customers and the audience and thus creates value for the organisation as it raises the earning capacity of any organisation. The factors which affect the value of goodwill are as follows:

  • Time: The amount and the period since which the business is in the market impacts and influences the goodwill of the organisation. Thus, the old business will have considerably more value compared to the business that is new in the market.

  • Location: The location of any business is responsible for enhancing the value of the goodwill of the organisation. Thus in cases when the business is located in a favourable position, it will have a favourable goodwill amount.

  • Risks Involved: The more the risk is involved in any business the lesser will be the amount of the goodwill of the organisation.

  • Monopolistic Nature of Business: Monopoly renders the assurance of profits and thus it brings a tremendous amount of goodwill to the business.

  • Nature of Goods: The nature of the goods that the organisation deals with brings stability to the business. Hence the more stable business will create a good value for goodwill compared to the business that has less stable goods.

  • Efficient Business: The goodwill of any organisation depends upon the efficiency of the management of the organisation. Thus in the cases when any business has efficient management practices in the organisation.

  • Personal and Impersonal Factors: The value of the goodwill for any business organisation increases as more and more importance to the impersonal factors is given and it thus decreases as more and more importance to the personal factors is given.

 


Question 9 :

 Explain various methods of valuation of goodwill.

 

Answer :

 The various methods for the valuation of the goodwill are as follows:

(i) Simple profit method: Under the simple profit method, goodwill is expressed to be the purchase of a certain number of years of profit based on the average of a given period. This method involves the following two steps:-

  1. Calculation of the average profit by taking into consideration the profit of the previous three or four years.

  2. Multiplying the average profit by the calculation of the above (a) by the number of years purchase of profits Average profit = Total profits for all the years/number of years.

(ii) Weighted average method: As per the weighted average method of goodwill the profit of the recent year is represented by the highest weights and the profits of the previous year get the lowest weights. The profit of each year gains some weight. Further, the products of the profits and the weights are added which are divided by the total weights to calculate the Weighted Average Profits. The formula for calculating goodwill by this method is:

Weighted average profit = Total product of profits / Total weights

Goodwill is calculated by multiplying the weighted average profit and number of years of purchase.

(i) Super Profit Method: The super profit method is calculated by making the difference between the average profit which is earned by the business and its normal profit. Calculating the value of the goodwill of the organisation is dependent upon the normal rate of return; the estimated future of the profit or the average profit of the previous few years and the value of the capital employed. Super profit = Average profit - normal profit.

To calculate the super profit, the following steps have to be followed:

  1. Ascertain or calculate the capital employed or average capital employed.

  2. Calculate the normal profit of the organisation.

  3. Calculate the actual maintainable profit of the organisation.

  4. Calculate the difference between the actual maintainable profit and normal profit.

  5. The value of the goodwill is calculated by multiplying the super profit and years of purchase.

 

(ii) Capitalisation method: Under the capitalisation method, instead of ordinary profit the super profit is taken into consideration. This super profit is considered to be the difference between the normal and the average profit. Thus the value of goodwill = Super profit/ Normal rate of returns*100

(iii) Sliding scale valuation method: The distribution of the profit in this method is related to the super profits which varies from year to year. Thus to find the value of the goodwill the super profit of each of the years is multiplied by the corresponding year and the total of the sum profit of each year is taken into account.

 


Question 10 :

 If it is agreed that the capital of all the partners should be proportionate to the new profit sharing ratio, how will you work out the new capital of each partner?

Give examples and state how necessary adjustments will be made.

 

Answer :

 During the time of the admission of any new partner, it is sometimes decided that the capital of all the partners of the organisation must be made in proportion to the new incoming partner.

The calculation of the new capital of each partner is reliant upon the below-given conditions

  1. When the capital of the new partner is given

  2. When the total capital of the firm is given

1) When the capital of the new partner is given: In this case, the firm’s capital is made based on the capital which is brought by the new partner of the organisation. Thus the total capital of the firm is divided by the individual new profit shares to determine the new capital of each of the partners. Adjustments, if any, are posted in the partners’ capital account. The new capital calculated is written as balance c/d on the credit side of the old partner's capital account. If new capital exceeds the old capital, it is the deficit, it is to be brought in by the old partners and if new capital is less than old capital, it is surplus. The difference is returned to old partners.

2) When the total capital of the firm is given: In this case the old capital of the old partners is calculated after making the adjustments. The total of the capital of the old partners is multiplied by the reciprocal of the total share of the old partners. The total Capital of the new firm is multiplied by the new profit sharing ratio individually for all the partners (including the new partner).

 


Question 11 :

Explain how will you deal with goodwill when new partner is not in a position to bring his share of goodwill in cash.

 

Answer :

In the cases when the new partner is not in the position to bring his share of goodwill in cash, the adjustment of the goodwill account is made through the capital account of the old partners. Thus, the new partner’s account, current or capital is debited and the account of the old partners is credited in their sacrificing ratio. The journal entry for the same will be:-

New partners’ capital A/c To old partners’ capital (sacrifice ratio)

12. Explain various methods for the treatment of goodwill on the admission of a new partner.

Ans: The various methods for the valuation of the goodwill are as follows:

  • Premium Method: This method is adopted in the cases when the newly admitted partner brings along with him/herself the cash which is equal to the amount of the goodwill. There are three manners of using this method :

(i) When the amount of premium is paid privately which hence does not require the need of passing the journal entry.

(ii) When the premium is retained by the organisation, two journal entries are passed in the books of accounts. Firstly the cash should be debited and the capital accounts of the new partner and secondly new partners’ capital accounts should be debited and old partners’ capital accounts should be credited in sacrificing ratio.

(iii) When the amount of the premium is withdrawn by the old partners of the organisation.

  • Revaluation method: In the revaluation method the new partner does not bring along with him/herself the share of the cash for the goodwill and hence the old partners will raise the value of the goodwill in the books. Thus the goodwill account will be debited by crediting the Capital account of the old partners in their profit or loss sharing ratio. The new value of the goodwill will appear on the balance sheet of the organisation.

  • Memorandum method: Under this method, goodwill is firstly raised after which it is written off among all partners (including the new one) in a new profit sharing ratio. The journal entry for the same will require the capital accounts of all partners to be debited and the goodwill account to be credited.

 


Question 12 :

How will you deal with the accumulated profits and losses and reserves on the admission of a new partner?

 

Answer :

 Since the new partner is not liable for any past accumulated profit and losses in the firm, they are all divided among old partners in their old profit sharing ratio.

Accounting treatment for accumulated profits and losses and reserves on the admission of a new partner:

i) Distributing accumulated profits and reserves Profit and loss A/c General reserve A/c Reserve Fund A/c Workmen’s compensation Fund A/c Contingency reserve A/c

To old partners' capital account (in old PSR)

ii)Distributing accumulated losses Old Partners capital account Dr ( in Old PSR) To Profit and loss (debit balance) To deferred advertisement expenses To preliminary expenses

 


Question 13 :

 P and Q are partners sharing profits in 2:1 ratio. They admitted R into partnership giving him 1/5 share which he acquired from P and Q in 1:2 ratio. Calculate new profit sharing ratio? 

 

Answer :

Old ratio = P : Q = 2 : 1 = 2/3 : 1/3

R admits to 1/5 share in the new firm which he takes 1/3 

from P and 2/3 from Q

P’s sacrifice = 1/5 x 1/3 = 1/15

Q’s sacrifice = 1/5 x 2/3 = 2/15

New ratio = Old ratio – Sacrificing ratio

P = 2/3 – 1/15 = (10 – 1)/15 = 9/15 = 3/5

Q = 1/3 – 2/15 = (5 – 2)/15 = 3/15 = 1/5

New ratio = P : Q : R = 3/5 : 1/5 : 1/5 = 3 : 1 : 1

 


Question 14 :

 At what figures the value of assets and liabilities appear in the books of the firm after revaluation has been due? Show with the help of an imaginary balance sheet.

 

Answer :

When revaluation is done, the balance sheet of the reconstituted firm reflects new revised values. A and B are partners sharing profits in the ratio of 3:2, the balance sheet as of 31st March 2017: 

Balance Sheet

Liabilities

Amount

Assets

Amount

Creditors Outstanding liabilities Capital:-

A 19000

B 14000

28500

3000

 

 

33000

Cash Stock

Prepaid insurance Debtors

8400

Less: provision 400

Machinery

Buildings Furniture

1000

14000

500

 

8000

18000

14000

9000

Total

64500

Total

64500



C is admitted as a new partner introducing a capital of Rs 16000. The new profit sharing ratio is 5:3:2. Following revaluations are made:-

  • Stock to depreciate @5%

  • Provision for doubtful debts is to be Rs500

  • Furniture to depreciate @10%

  • The building is valued at Rs.19000 

Solution:

Revaluation Account

Particulars

Amount

Particulars

Amount

To stock

To provision for doubtful debts To Furniture To profit transferred to partners capital account

A 1980

B 1320

700

100

900

 

 

3300

By building

5000

Total

5000

Total

5000



Revaluation Account

Liabilities

 

Amount

Assets

 

Amount

Creditors

 

28500

Cash

 

17000

Outstanding  liabilities

 

3000

Stock Less :

14000

13300

Capital:- A

19000

 

depreciation

700

500

Add: profit On revaluation

1980

20980

Prepaid

8400

7900

   

 

insurance

500

 

 

 

 

Debtors

 

18000

 

14000

 

Less

 

19000

B

 

15320

: provision

 

9000

Add: profit on revaluation

1320

16000

 

 

 

 

 

 

Machinery

 

 

 

 

 

Buildings

 

 

 

 

 

Furniture

 

 

C

 

 

 

 

 

Total

83800

Total

83800

 

 


Question 15 :

 A and B were partners in a firm sharing profits and losses in the ratio of 3:2. They admit C into the partnership with 1/6 share in the profits. Calculate the new profit sharing ratio?

 

Answer :

   A: B

Old Ratio 3: 2 Or 

              3/5 : 2/5

C admits for 1/6 share of net profit in the new firm.

Let new firm profit = 1

Remaining share of A and B in the new firm = 1 – C’s share = 1 – 1/6 = 5/6

New ratio = Old ratio x Remaining share of A and B

A = 3/5 x 5/6 = 3/6

B = 2/5 x 5/6 = 2/6

                          A: B: C

New ratio = 3/6 : 2/6 : 1/6 = 3:2:1

 


Question 16 :

A, B, and C were partners in a firm sharing profits in a 3:2:1 ratio. They admitted D for 10% profits. Calculate the new profit sharing ratio?

 

Answer :

  A: B: C

Old Ratio 3: 2: 1 Or

              3/6 : 2/6 : 1/6

D admits for 10/100 shares of new profit in the new firm.

Let new firm profit = 1

The remaining share of A, B, and C in the new firm = 1 – D’s share = 1 – 10/100 = 90/100 = 9/10

New ratio = Old ratio x Remaining share of A, B and C

A = 3/6 x 9/10 = 27/60 = 9/20

B = 2/6 x 9/10 = 18/60 = 6/20

C = 1/6 x 9/10 = 9/60 = 3/20

A: B: C : D

New ratio = 9/20: 6/20: 3/20: 1/10 (or 2/20) = 9 : 6 : 3 : 2

 


Question 17 :

X and Y are partners sharing profits in 5:3 ratio admitting Z for 1/10 share which he acquired equally for X and Y. Calculate the new profit sharing ratio?

 

Answer :

 Old ratio = X : Y = 5 : 3 = 5/8 : 3/8

Z admits for 1/10 share of the new firm

X and Y each sacrifice = 1/10 x 1/2 = 1/20

New ratio = Old ratio – Sacrificing ratio

X = 5/8 – 1/20 = (25 – 2)/40 = 23/40

Y = 3/8 – 1/20 = (15 – 2)/40 = 13/40

New ratio = X : Y : Z = 23/40 : 13/40 : 1/10 (or 4/40) = 23 : 13 : 4

 


Question 18 :

A, B, and C are partners sharing profits in 2:2:1 ratio admitted D for 1/8 share which he acquired entirely from A. Calculate new profit sharing ratio?

 

Answer :

 Old ratio = A : B : C = 2 : 2 : 1 = 2/5 : 2/5 : 1/5

D admits for 1/8 share in new firm which he takes from A

New ratio = Old ratio – Sacrificing ratio 

A = 2/5 – 1/8 = (16-5)/40 = 11/40

New ratio = A : B : C : D = 11/40 : 2/5 (or 16/40) : 1/5 (or 8/40) : 1/8 (or 5/40) = 11 : 16 : 8 : 5

 


Question 19 :

A, B and C are partners sharing profits in 3:2:2 ratio. They admitted D as a new partner for 1/5 share which he acquired from A, B and C in 2:2:1 ratio respectively. Calculate new profit sharing ratio?

 

Answer :

Old ratio = A : B : C = 3 : 2 : 2 = 3/7 : 2/7 : 2/7

D admits to 1/5 share in the new firm which he takes 1/5 in the ratio 2 : 2: 1 from A, B, and C.

A’s sacrifice = 1/5 x 2/5 = 2/25

B’s sacrifice = 1/5 x 2/5 = 2/25

C’s sacrifice = 1/5 x 1/5 = 1/25

New ratio = Old ratio – Sacrificing ratio

A = 3/7 – 2/25 = 61/175

B = 2/7 – 2/25 = 36/175

C = 2/7 – 1/25 = 43/175

New ratio = A: B: C : D = 61/175: 36/175: 43/175: 1/5 = 61: 36: 43: 35

 


Question 20 :

A and B were partners in a firm sharing profits in 3:2 ratio. They admitted C for 3/7 share which he took 2/7 from A and 1/7 from B. Calculate new profit sharing ratio?

 

Answer :

Old ratio = A : B = 3 : 2 = 3/5 : 2/5

C admits for 3/7 share in the new firm

A’s sacrifice = 2/7

B’s sacrifice = 1/7

New ratio = Old ratio – Sacrificing ratio

A = 3/5 – 2/7 = 11/35

B = 2/5 – 1/7 = 9/35

New ratio = A : B : C = 11/35 : 9/35 : 3/7 = 11 : 9 : 15

 


Question 21 :

A, B and C were partners in a firm sharing profits in 3:3:2 ratio. They admitted D as a new partner for 4/7 profit. D acquired his share 2/7 from A. 1/7 from B and 1/7 from C. Calculate new profit sharing ratio? 

 

Answer :

Old ratio = A : B : C = 3 : 3 : 2 = 3/8 : 3/8 : 2/8

D admits for 4/7 share of profit in new firm

New ratio = Old ratio – Sacrificing ratio

A = 3/8 – 2/7 = 5/56

B = 3/8 – 1/7 = 13/56

C = 2/8 – 1/7 = 6/56

New ratio = A : B : C : D = 5/56 : 13/56 : 6/56 : 4/7 = 5 : 13 : 6 : 32

 


Question 22 :

Radha and Rukmani are partners in a firm sharing profits in 3:2 ratio. They admitted Gopi as a new partner. Radha surrendered 1/3 of her share in favour of Gopi and Rukmani surrendered 1/4 of her share in favour of Gopi. Calculate new profit sharing ratio?

 

Answer :

 Old ratio = Radha : Rukmani = 3 : 2 = 3/5 : 2/5

Radha surrendered in favour of Gopi = 1/3 of her share

Rukmani surrendered in favour of Gopi = 1/4 of her share

Sacrificing ratio = Old ratio x Surender’s ratio

Radha = 3/5 x 1/3 = 1/5

Rukmani = 2/5 x 1/4 = 1/10

New ratio = Old ratio – Sacrificing ratio

Radha = 3/5 – 1/5 = 2/5

Rukmani = 2/5 – 1/10 = 3/10

Gopi’s share = Radha sacrificing ratio + Rukmani sacrificing ratio = 1/5 + 1/10 = 3/10

New ratio = Radha : Rukmani : Gopi = 2/5 (or 4/10) : 3/10 : 3/10 = 4 : 3 : 3

 


Question 23 :

 Singh, Gupta and Khan are partners in a firm sharing profits in 3:2:3 ratio. They admitted Jain as a new partner. Singh surrendered 1/3 of his share in favour of Jain: Gupta surrendered 1/4 of his share in favour of Jain and Khan surrendered 1/5 in favour of Jain. Calculate new profit sharing ratio? 

 

Answer :

 Old ratio = Singh : Gupta : Khan = 3 : 2 : 3 = 3/8 : 2/8 : 3/8

Singh surrender = 1/3 of his share

Gupta surrender = 1/4 of his share

Khan surrender = 1/5 of his share

Sacrificing ratio = Old ratio x Surrender ratio

Singh = 3/8 x 1/3 = 3/24

Gupta = 2/8 x 1/4 = 2/32

Khan = 3/8 x 1/5 = 3/40

New ratio = Old ratio – Sacrificing ratio

Singh = 3/8 – 3/24 = 6/24

Gupta = 2/8 – 2/32 = 6/32

Khan = 3/8 – 3/40 = 12/40

Jain share = Sacrificing ratio of other partners = 3/24 + 2/32 + 3/40 = 21/80

New ratio = Singh : Gupta : Khan : Jain = 6/24 : 6/32 : 12/40 : 21/80 = 20 : 15 : 24 : 21

 


Question 24 :

 Sandeep and Navdeep are partners in a firm sharing profits in 5:3 ratio. They admit C into the firm and the new profit sharing ratio was agreed at 4:2:1. Calculate the sacrificing ratio?

 

Answer :

Old ratio = Sandeep : Navdeep = 5 : 3 = 5/8 : 3/8

New ratio = Sandeep : Navdeep : C = 4 : 2 : 1 = 4/7 : 2/7 : 1/7

Sacrificing ratio = Old ratio – New ratio

Sandeep = 5/8 – 4/7 = 3/56

Navdeep = 3/8 – 2/7 = 5/56

Sacrificing ratio = Sandeep : Navdeep = 3/56 : 5/56 = 3 : 5

 


Question 25 :

 Rao and Swami are partners in a firm sharing profits and losses in 3:2 ratio. They admit Ravi as a new partner for 1/8 share in the profits. The new profit sharing ratio between Rao and Swami is 4:3. Calculate new profit sharing ratio and sacrificing ratio? 

 

Answer :

 Old ratio = Rao : Swami = 3 : 2

Ravi admits to 1/8 share of profit in the new firm

Let the new firm profit = 1

Combined share of Rao and Swami in new firm = 1 – Ravi’s share = 1 – 1/8 = 7/8

New ratio = Combined share x Proportion in the combined share

Rao = 7/8 x 4/7 = 28/56

Swami = 7/8 x 3/7 = 21/56

New ratio = Rao : Swami : Ravi = 28/56 : 21/56 : 1/8 = 4 : 3 : 1

Sacrificing ratio = Old ratio – New ratio

Rao = 3/5 – 4/8 = 4/40

Swami = 2/5 – 3/8 = 1/40

Sacrificing ratio = Rao : Swami = 4/40 : 1/40 = 4 : 1

 


Question 26 :

Compute the value of goodwill on the basis of four years’ purchase of the average profits based on the last five years? The profits for the last five years were as follows:

Rs:

2015 -  40,000

2016 -  50,000

2017 -  60,000

2018 -  50,000

2019 -  60,000

 

Answer :

Average profit = Sum of given years profit/Number 

of given years

Year

Profit 

2013

40000

2014

50000

2015

60000

2016

50000

2017

60000

The sum of 5 years of profit

260000



Average profit = 260000/5 = 52000

Goodwill = Average profit x Number of year’s purchases = 

52000 x 4 = 208000

 


Question 27 :

Firm’s Capital in a business is Rs. 2,00,000. The normal rate of return on firm’s capital is 15%. During the year 2015 the firm earned a profit of Rs. 48,000. Calculate goodwill on the basis of 3 years purchase of super profit.

 

Answer :

 Capital employed = 200000

Actual profit = 48000

Normal rate of return = 15%

Normal profit = Capital employed x (Normal rate of return/100) = 200000 x 5/100 = 30000

Super profit = Actual profit – Normal profit = 48000 = 30000 = 18000

Goodwill = Super profit x Number of years purchase = 18000 x 3 = Rs.54000

 


Question 28 :

 The books of Ram and Bharat showed that the firm’s capital on 31.12.2016 was Rs. 5,00,000 and the profits for the last 5 years: 2015 Rs. 40,000; 2014 Rs. 50,000; 2013 Rs. 55,000; 2012 Rs. 70,000 and 2011 Rs. 85,000. Calculate the value of goodwill on the basis of 3 years purchase of the average super profits of the last 5 years assuming that the normal rate of return is 10%? 

 

Answer :

 Average actual profit = Sum of given years profit/Number of given years

Year

Profit 

2015

40000

2014

50000

2013

55000

2012

70000

2011

85000

The sum of 5 years of profit

300000



Average actual profit = 300000/5 = 60000

Normal profit = Capital employed x (Normal rate of return/100) = 500000 x 10/100 = 50000

Average super profit = Average actual profit – Normal profit = 60000 – 50000 = 10000

Goodwill = Average super profit x Number of years purchase = 10000 x 3 = Rs.30000

 


Question 29 :

Rajan and Rajani are partners in a firm. Their capitals were Rajan Rs. 3,00,000; Rajani Rs. 2,00,000. During the year 2015 the firm earned a profit of Rs. 1,50,000. Calculate the value of goodwill of the firm by capitalisation method assuming that the normal rate of return is 20%?

 

Answer :

Rajan’s capital = 300000

Rajni’s capital = 200000

Total capital employed = 500000

Normal rate of return = 20%

Capitalised value = Actual profit x 100/Normal rate of return = 150000 x 100/20 = 750000

Goodwill = Capitalised value – Capital employed = 750000 – 500000 = 250000

 


Question 30 :

A business has earned average profits of Rs. 1,00,000 during the last few years. Find out the value of goodwill by capitalisation method, given that the assets of the business are Rs. 10,00,000 and its external liabilities are Rs. 1,80,000. The normal rate of return is 10%?

 

Answer :

 Capital employed = Assets – External Liabilities = 100000 – 180000 = 820000

Capitalised value = Actual profit x 100/Normal rate of return = 100000 x 100/10 = 1000000

Goodwill = Capitalised value – Capital employed = 1000000 – 820000 = Rs.180000

 


Question 31 :

 Verma and Sharma are partners in a firm sharing profits and losses in the ratio of 5:3. They admitted Ghosh as a new partner for 1/5 share of profits. Ghosh is to bring in Rs. 20,000 as capital and Rs. 4,000 as his share of goodwill premium. Give the necessary journal entries: 

a) When the amount of goodwill is retained in the business. 

b) When the amount of goodwill is fully withdrawn.

c) When 50% of the amount of goodwill is withdrawn

d) When goodwill is paid privately.

 

Answer :

 

Journal Entries

S.No.

Particulars

L.F.

Debit

Amount Rs.

Credit

Amount Rs.

Case (a)

Cash A/c Dr

 

24000

 

 

To Ghosh's Capital A/c

 

20000

 

To Premium of Goodwill

A/c (Capital and goodwill of

his share brought by Ghosh)

 

 

4000

 

Premium of Goodwill A/c Dr

 

4000

 

 

To Verma's Capital A/c

 

2500

 

To Sharma's Capital A/c

(Goodwill brought by

Ghosh credited to old partners in sacrificing ratio)

 

1500

Case (b)

Cash A/c Dr

24000

 

 

To Ghosh's Capital A/c

 

20000

 

To Premium of Goodwill

A/c (Capital and goodwill of his share brought by Ghosh for 1/5 share of profit)

 

 

4000

 

Premium of Goodwill A/c Dr

 

 

 

4000

 

To Verma's Capital A/c

 

 

2500

 

To Sharma's Capital A/c

(Goodwill brought by

Ghosh credited to old partners in sacrificing ratio)

 

 

1500

 

Verma's Capital A/c Dr

 

 

2500

 

Sharma's Capital A/c Dr

 

 

1500

 

To Cash A/c

(Amount of premium of

goodwill withdrawn by old partners)

 

 

4000

Case (c)

Cash A/c Dr

 

 

24000

 

To Ghosh's Capital A/c

 

 

20000

 

To Premium of Goodwill

A/c (Capital and goodwill of

his share brought by Ghosh for 1/5 share of profit)

 

 

 

4000

 

Premium of Goodwill A/c Dr

 

 

4000

 

 

To Verma's Capital A/c

 

2500

 

To Sharma's Capital A/c

(Goodwill brought by

Ghosh credited old partners for sacrificing

ratio)

 

1500

 

Verma's Capital A/c Dr

1250

 

 

Sharma's Capital A/c Dr

750

 

 

To Cash A/c (Half of the amount of

the premium of goodwill withdrawn by the old

partners)

 

2000

Case (d)

No entry (Goodwill was not bought

into firm)

 

 

 


Question 32 :

A and B are partners in a firm sharing profits and losses in the ratio of 3:2. They decide to admit C into partnership with 1/4 share in profits. C will bring in Rs. 30,000 for capital and the requisite amount of goodwill premium in cash. The goodwill of the firm is valued at Rs, 20,000. The new profit sharing ratio is 2:1:1. A and B withdraw their share of goodwill. Give necessary journal entries?

Answer :

 

Journal Entries

Date

Particulars

L.F.

Debit

Amount Rs.

Credit

Amount Rs.

 

Cash A/c Dr

 

35000

 

To C's Capital A/c

 

30000

To Premium of Goodwill

A/c (Capital and goodwill

share brought by C)

 

 

5000

Premium of Goodwill A/c Dr

 

5000

 

To A's Capital A/c

 

2000

To B's Capital A/c

(Goodwill brought by C

credited to A & B in 2:3 sacrificing ratio)

 

3000

 

 

A's Capital A/c Dr

2000

 

B's Capital A/c Dr

3000

 

To Cash A/c

(Amount of premium of

goodwill withdrawn by old partners)

 

5000



Sacrificing ratio = Old ratio – New ratio A = 3/5 – 2/4 = 2/20

B = 2/5 – 1/4 = 3/20

Sacrificing ratio = A : B = 2/20 : 3/20 = 2 : 3

Goodwill of the firm = 20000

C’s share of goodwill = 20000 x 1/4 = 5000

A will receive = 5000 x 2/5 = 2000

B will receive = 5000 x 3/5 = 3000

 


Question 33 :

Arti and Bharti are partners in a firm sharing profits in 3:2 ratio, They admitted Sarthi for 1/4 share in the profits of the firm. Sarthi brings Rs. 50,000 for his capital and Rs. 10,000 for his 1/4 share of goodwill. Goodwill already appears in the books of Arti and Bharti at Rs. 5,000. the new profit sharing ratio between Arti, Bharti and Sarthi will be 2:1:1. Record the necessary journal entries in the books of the new firm?

Hint:Existinggoodwillwritten−offinoldprofitsharingratio

Hint:Existinggoodwillwritten−offinoldprofitsharingratio

 

Answer :

 

Journal Entries

Date

Particulars

L.F.

Debit Amount

Rs.

Credit Amount

Rs.

 

Arti's Capital A/c Dr

 

3000

 

Bharti's Capital A/c Dr

2000

 

To Goodwill A/c (Goodwill written off)

 

5000

Cash A/c Dr

60000

 

To Sarthi's Capital A/c

 

50000

To Premium of Goodwill

A/c (Amount of capital and share of goodwill bought by Sarthi)

 

 

10000

 

Premium of Goodwill A/c Dr

 

 

 

 

 

10000

 

To Arti's Capital A/c

4000

To Bharti's Capital A/c 

(Premium of goodwill

credited to Arti's and Bharti's capital account)

6000



Old ratio = Arti : Bharti = 3 : 2

Sarthi admitted for ¼ share in new firm

New ratio = Arti : Bharti : Sarthi = 2 : 1 : 1

Sacrificing ratio = Old ratio – New ratio

Arti = 3/5 – 2/4 = 2/20

Bharti = 2/5 – 1/4 = 3/20

Arti will receive = 10000 x 2/5 = 4000

Bharti will receive = 10000 x 3/5 = 6000

 


Question 34 :

 X and Y are partners in a firm sharing profits and losses in 4:3 ratio. They admitted Z for 1/8 share. Z brought Rs. 20,000 for his capital and Rs. 7,000 for his 1/8 share of goodwill. Goodwill already appears in the books at Rs. 40,000. Show necessary journal entries in the books of X, Y and Z? 

 

Answer :

 

Journal Entries

Date

Particulars

L.F.

Debit Amount Rs.

Credit Amount Rs.

 

Cash A/c Dr

 

27000

 

To Z's Capital A/c

 

20000

To Premium of Goodwill

A/c (Amount of capital and

share of goodwill bought by Z)

 

 

7000

Premium of Goodwill A/c Dr

 

7000

 

To X's Capital A/c

 

4000

To Y's Capital A/c

(Premium of goodwill

credited to old partners in sacrificing ratio)

Goodwill Rs.40000 cannot be raised. According to AS - 10, Goodwill can

be shown in the book if money and

money values are paid for it. Here no money or

money value has been paid for goodwill)

 

3000

 


Question 35 :

Aditya and Balan are partners sharing profits and losses in 3:2 ratio. They admitted Christopher for 1/4 share in the profits. The new profit sharing ratio agreed was 2:1:1. Christopher brought Rs. 50,000 for his capital. His share of goodwill was agreed to at Rs. 15,000. Christopher could bring only Rs. 10,000 out of his share of goodwill. Record necessary journal entries in the books of the firm? 

 

Answer :

 

Journal Entries

Date

Particulars

L.F.

Debit Amount

Rs.

Credit Amount

Rs.

 

Cash A/c Dr

 

60000

 

To Christopher's Capital

A/c

 

 

50000

To Premium of Goodwill

A/c (Amount of capital and

share of goodwill bought by Christopher)

 

 

10000

Premium of Goodwill A/c Dr

 

10000

 

Christoher's Capital A/c

Dr

 

5000

 

To Aditya's Capital A/c

 

6000

To Balam's Capital A/c

(Christopher's Premium

of goodwill credited

to old partners in

sacrificing ratio)

 

9000



Sacrificing ratio = Old ratio – New ratio

Aditya = 3/5 – 2/4 = 2/20

Balam = 2/5 – 1/4 = 3/20

Sacrificing ratio = 2/20 : 3/20 = 2 : 3

 


Question 36 :

 Amar and Samar were partners in a firm sharing profits and losses in 3:1 ratio. They admitted Kanwar for 1/4 share of profits. Kanwar could not bring his share of goodwill premium in cash. The Goodwill of the firm was valued at Rs. 80,000 on Kanwar’s admission. Record necessary journal entry for goodwill on Kanwar’s admission.

 

Answer :

Old ratio = Amar : Samar = 3 : 1

Kanwar admitted for 1/4 share of profit

Journal Entries

Date

Particulars

L.F.

Debit Amount Rs.

Credit Amount Rs.

 

Kanwar's Capital A/c Dr

 

20000

 

To Amar's Capital A/c

15000

To Samar's Capital A/c

(Kanwar's share of goodwill

charged from his capital account by Amar

and Samar in their sacrificing ratio)

5000



New firms goodwill = Rs.80000

Kanwar’ share of goodwill = 80000 x 1/4 = 20000

Kanwar’s goodwill will be taken by Amar and Samar in their sacrificing ratio here.

The sacrificing ratio will be equal to the old ratio because the new and sacrificing ratio is not given.

If the sacrificing ratio and new ratio are not given, it is assumed that old partners sacrificed in their old ratio.

 


Question 37 :

Mohan Lal and Sohan Lal were partners in a firm sharing profits and losses in 3:2 ratio. They admitted Ram Lal for 1/4 share on 1.1.2013. It was agreed that goodwill of the firm will be valued at 3 years purchase of the average profits of last 4 years which were Rs. 50,000 for 2013, Rs. 60,000 for 2014, Rs. 90,000 for 2015 and Rs. 70,000 for 2016. Ram Lal did not bring his share of goodwill premium in cash. Record the necessary journal entries in the books of the firm on Ram Lal’s admission when: 

a) Goodwill already appears in the books at Rs. 2,02,500. 

b) Goodwill appears in the books at Rs. 2,500. 

c) Goodwill appears in the books at Rs. 2,05,000.

 

Answer :

 

Year

Profit

2013

50000

2014

60000

2015

90000

2016

70000

The sum of 4 years of profit

270000



Average profit = 270000/4 = 67500

Goodwill = Average profit x No. of years purchase = 67500 

x = 202500

Ram Lal entered into the firm for 1/4 share of profit

Ram Lal’s share of goodwill = 202500 x 1/4 = 50625

Here, the sacrificing ratio of Mohan Lal and Sohan Lal will be equal to the old ratio because the new and sacrificing ratio is not given.

Mohan Lal will get = Ramlal’s share of goodwill x 3/5 = 50625 x 3/5 = 30375

Sohan Lal will get = Ramlal’s share of goodwill x 1/5 = 50625 x 1/5 = 20250

Journal Entries

S.No.

Particulars

L.F

Debit Amount Rs.

Credit Amount Rs.

Case (a)

 

Mohan Lal's Capital A/c Dr

 

 

121500

 

 

202500

 

Sohan Lal's Capital A/c Dr

81000

 

To Goodwill A/c

(Goodwill appeared in the old firm written off) account and distributed

between Mohan Lal and Sohan Lal in sacrificing ratio)

 

Case (b)

 

Mohan Lal's Capital A/c Dr

 

 

1500

 
 

Sohan Lal's Capital A/c Dr

 

1000

 

 

To Goodwill A/c

(Goodwill already appeared

in the books of firms written off in old ratio)

 

2500

 

 

Ramlal's Capital A/c Dr

 

50625

 

 

To Mohan Lal's Capital A/c

 

30375

 

 

 

To Sohan Lal's Capital A/c

(Ramlal's share of goodwill

charged from his account and distributed

between Mohan Lal and Sohan Lal in sacrificing ratio)

 

 

20250

 

 

Case (c)

 

Mohan Lal's Capital A/c Dr

 

 

123000

 
 

Sohan Lal's Capital A/c Dr

 

82000

 

To Goodwill A/c (Goodwill already appeared

in the books of firms written off in old ratio)

 

205000

Ramlal's Capital A/c Dr

50625

 

To Mohan Lal's Capital A/c

 

30375

To Sohan Lal's Capital A/c (Ramlal's share of goodwill

charged from his account and distributed

between Mohan Lal and Sohan Lal in sacrificing

ratio)

 

20250

 


Question 38 :

Rajesh and Mukesh are equal partners in a firm. They admit Hari into partnership and the new profit sharing ratio between Rajesh, Mukesh and Hari is 4:3:2. On Hari’s admission goodwill of the firm is valued at Rs. 36,000. Hari is unable to bring his share of goodwill premium in cash. Rajesh, Mukesh and Hari decided not to show goodwill in their balance sheet. Record necessary journal entries for the treatment of goodwill on Hari’s admission.

 

Answer :

 

Journal Entries

Date

Particulars

L.F.

Debit Amount

Rs.

Credit Amount

Rs.

 

Hari's Capital A/c Dr

 

8000

 

To Rajesh's Capital A/c

2000

To Mukesh's Capital A/c

(adjustment of Hari's

share of goodwill)

6000



Working Notes:

1. Goodwill of the firm = 36000

Hari’s share in goodwill = Goodwill of firm x admitted 

partner share = 36000 x 2/9 = 8000

2. Sacrificing ratio = Old ratio – New ratio

Rajesh = 1/2 – 4/9 = 1/18

Mukesh = 1/2 – 3/9 = 3/18

Sacrificing ratio between Rajesh and Mukesh = 1 : 3

 


Question 39 :

 Amar and Akbar are equal partners in a firm. They admitted Anthony as a new partner and the new profit sharing ratio is 4:3:2. Anthony could not bring this share of goodwill Rs. 45,000 in cash. It is decided to do adjustment for goodwill without opening goodwill account. Pass the necessary journal entry for the treatment of goodwill? 

 

Answer :

 

Journal Entries

Date

Particulars

L.F.

Debit Amount

Rs.

Credit Amount

Rs.

 

Anthony's Capital A/c Dr

 

8000

 

 

To Amar's Capital A/c

 

 

2000

 

To Akbar's Capital A/c

(Adjustment of Anthony's

share of goodwill)

 

 

6000



Working Notes:

1. Sacrificing ratio = Old ratio – New ratio

Amar = 1/2 – 4/9 = 1/18

Akbar = 1/2 – 3/9 = 3/18

Sacrificing ratio between Amar and Akbar = 1 : 3

 


Question 40 :

 Given below is the Balance Sheet of A and B, who are carrying on partnership business on 31.12.2016. A and B share profits and losses in the ratio of 2:1.

Balance Sheet of A and B as on December 31, 2016

Liabilities

Amount (Rs)

Assets

Amount (Rs)

 

Bills Payable

10,000

Cash in Hand

10,000

 

Creditors

58,000

Cash at Bank

40,000

 

Outstanding

2,000

Sundry Debtors

60,000

 

Expenses

 

 

 

3,30,000

Stock

40,000

Capitals:

 

Plant

1,00,000

A

1,80,000

Buildings

1,50,000

B

1,50,000

 

 

 

 

4,00,000

 

4,00,000



C is admitted as a partner on the date of the balance sheet on the following terms: 

(i) C will bring in Rs. 1,00,000 as his capital and Rs. 60,000 as his share of goodwill for 1/4 share in the profits.

(ii) Plant is to be appreciated to Rs. 1,20,000 and the value of buildings is to be appreciated by 10%. 

(iii) Stock is found over valued by Rs. 4,000. 

(iv) A provision for bad and doubtful debts is to be created at 5% of debtors. 

(v) Creditors were unrecorded to the extent of Rs. 1,000. 

Pass the necessary journal entries, prepare the revaluation account and partners’ capital accounts, and show the Balance Sheet after the admission of C.

 

Answer :

 

Journal Entries

Date

Particulars

L.F

Debit Amount Rs.

Credit Amount Rs.

2006

 

 

To C's Capital A/c

 

 

 

100000

 

 

To Premium for Goodwill

A/c

(Capital and premium for

goodwill brought by c for 1/4th share)

 

 

60000

 

 

The premium for Goodwill A/c Dr

 

 

60000

 

 

To A's Capital A/c

 

40000

 

 

To B's Capital A/c

(Premium for Goodwill

brought by C transferred to the old partner's capital

account in their sacrificing ratio 3: 1)

 

20000

 

 

Plant A/c Dr

 

20000

 

 

Building A/c Dr

 

15000

 

 

To Revaluation A/c

(Value of assets increased)

 

35000

 

 

Revaluation A/c Dr

 

8000

 

 

To Stock A/c

 

4000

 

 

To Provision for Doubtful

Debts A/c

 

 

3000

 

 

To Creditors A/c

(Unrecorded assets and liabilities revalued)

 

1000

 

 

Revaluation A/c Dr

 

 

 

27000

 

To A's Capital A/c

18000

To B's Capital A/c

(Profit on revaluation

transferred to old partner capital account)

9000



Revaluation A/c

Particular

Amount

Particular

Amount

Stock

4000

Plant

20000

provision for Doubtful Debts

 

3000

 

Building

 

15000

Creditors (Unrecorded)

 

1000

 

 

Profit trf to:

 

 

 

A's Capital A/c 18000

 

 

 

B's Capital A/c 9000

 

27000

 

 

 

35000

 

35000



Partner's Capital A/c

Particular

A

B

C

Particular

A

B

C

Balance c/d

238000

179000

100000

Balance b/d

180000

150000

 

 

 

 

 

Revaluation

18000

9000

 

 

238000

179000

100000

 

238000

179000

100000



Balance Sheet as on Dec 31, 2006

Particular

Amount

Particular

Amount

Bills Payable

10000

Cash in hand

10000

Creditors

59000

Cash at bank

200000

O/s Expenses

2000

Sundry Debtors 60000

 

Capital:

 

(-) Prov for Bad Debts 3000

57000

A 238000

 

Stock

36000

B 179000

 

Plant

120000

C 100000

517000

Building

165000

 

588000

 

588000



Working Notes:

Sacrificing ratio = Old ratio – New ratio

A = 2/3 – 2/4 = 2/12

B = 1/3 – 1/4 = 1/12

Sacrificing ratio between A and B = 2 : 1

 


Question 41 :

 Leela and Meeta were partners in a firm sharing profits and losses in the ratio of 5:3. In April 2017 they admitted Om as a new partner. On the date of Om’s admission the balance sheet of Leela and Meeta showed a balance of Rs. 16,000 in general reserve and Rs. 24,000 (Cr) in Profit and Loss Account. Record necessary journal entries for the treatment of these items on Om’s admission. The new profit sharing ratio between Leela, Meeta and Om was 5:3:2. 

 

Answer :

 

Journal Entries

Date

Particulars

L.F

Debit

Amount Rs.

Credit

Amount Rs.

2007
Jan-01

 

General Reserve A/c Dr

 

 

16000

 

 

Profit and Loss A/c Dr

24000

 

 

To Leela's Capital A/c

 

25000

 

To Meeta's Capital A/c

(General reserve and

balance in P/L credited to old partners capital account

in their old ratio i.e. 5 : 3)

 

15000



 


Question 42 :

 Amit and Viney are partners in a firm sharing profits and losses in 3:1 ratio. On 1.1.2017 they admitted Ranjan as a partner. On Ranjan’s admission the profit and loss account of Amit and Viney showed a debit balance of Rs. 40,000. Record necessary journal entry for the treatment of the same. 

 

Answer :

Journal Entries

Date

Particulars

L.F

Debit Amount Rs.

Credit Amount Rs.

2007 Jan-01

Amit's Capital A/c Dr

 

30000

40000

 

Viney's Capital A/c Dr

10000

 

To Profit and Loss A/c

(Debit balance in profit and

loss account written off)

 



 


Question 43 :

A and B share profits in the proportions of 3/4 and 1/4. Their Balance Sheet on March 31, 2016 was as follows:

Balance Sheet of A and B as on December 31, 2016

Liabilities

Amount (Rs)

Assets

Amount (Rs)

Sundry creditors

41,500

Cash at Bank

26,500

Reserve fund

4,000

Bills Receivable

3,000

Capital Accounts

 

Debtors

16,000

A

30,000

Stock

20,000

B

16,000

Fixtures

1,000

 

 

Land & Building

25,000

 

91,500

 

91,500



On April 1, 2017, C was admitted into partnership on the following terms: 

(a) That C pays Rs. 10,000 as his capital. 

(b) That C pays Rs. 5,000 for goodwill. Half of this sum is to be withdrawn by A and B. 

(c) That stock and fixtures be reduced by 10% and a 5%, provision for doubtful debts be created on Sundry Debtors and Bills Receivable. 

(d) That the value of land and buildings be appreciated by 20%. 

(e) There being a claim against the firm for damages, a liability to the extent of Rs. 1,000 should be created. 

(f) An item of Rs. 650 included in sundry creditors is not likely to be claimed and hence should be written back.

Record the above transactions (journal entries) in the books of the firm assuming that the profit sharing ratio between A and  B has not changed. Prepare the new Balance Sheet on the admission of C.

 

Answer :

Journal Entries

Date

Particulars

L.F

Debit Amount Rs.

Credit Amount Rs.

2007 Jan-01

Bank A/c Dr

 

15000

 

 

To C's Capital A/c

 

10000

 

To Premium for Goodwill

A/c

(Capital and premium for

goodwill brought by C for 1/5th share)

 

5000

 

The premium for Goodwill A/c Dr

 

5000

 

 

To A's Capital A/c

 

3750

 

To B's Capital A/c

(Premium for Goodwill

brought by C transferred to old partner's capital

account in their sacrificing ratio 3 : 1)

 

1250

 

A's Capital A/c

1875

 

 

B's Capital A/c

625

 

 

To Bank A/c

(Half of amount withdrawn by old partners)

 

2500

 

Revaluation A/c Dr

 

4050

 
 

To Stock A/c

   

2000

 

To Fixture A/c

   

100

 

To Provision for Doubtful

Debts on Debtor A/c

   

800

 

To Provision for Doubtful

Debts on B/R A/c

   

150

 

To Claim for Damages A/c
(Assets and liabilities are revalued)

   

1000

 

Land and Building A/c Dr

 

5000

 
 

Sundry Creditors A/c Dr

 

650

 
 

To Revaluation A/c

(Assets and liabilities are revalued)

   

5650

 

Revaluation A/c Dr

 

1600

 
 

To A's Capital A/c

   

1200

 

To B's Capital A/c
(Profit on revaluation

transferred to old partner's capital account)

   

400

 

Reserve Fund A/c Dr

 

4000

 
 

To A's Capital A/c

   

3000

 

To B's Capital A/c
(Reserve fund distributed among old partners)

   

1000



Balance Sheet as on Jan 1, 2007

Particular

Amount

Particular

Amount

Sundry Creditors

40850

Cash at bank

39000

Claim for Damages

1000

Bills Receivables 3000

 

Capital:

 

(-) Prov. For B/R 150

2850

A

36075

 

Debtors 16000

 

B

18025

 

(-) Prov. 800

15200

C

10000

64100

Stock

18000

 

 

Fixtures

900

 

 

Land and Building

30000

 

105950

 

105950



Working Notes: 1.

Partner's Capital A/c

Particular

A

B

C

Particular

A

B

C

Bank

1875

625

 

Balance b/d

30000

16000

 

 

 

 

 

Revaluation

1200

400

 

 

 

 

 

Reserve Fund

3000

1000

 

 

37950

18650

10000

 

37950

18650

10000



Working Notes: 2

Bank A/c

Particular

Amount

Particular

Amount

  Balance b/d

26500

A's Capital A/c

1875

C's Capital A/c

10000

B's Capital A/c

625

Premium for Goodwill

5000

Balance c/d

39000

 

41500

 

41500

3. Sacrificing ratio = Old ratio – New ratio

A = 3/4 – 3/5 = 3/20

B = 1/4 – 1/5 = 1/20

Sacrificing ratio of A & B = 3 : 1

 


Question 44 :

 A and B are partners sharing profits and losses in the ratio of 3:1. On I st April. 2017 they admitted C as a new partner for 1/4 share in the profits of the firm. C brings Rs. 20,000 as for his 1/4 share in the profits of the firm. The capitals of A and B after all adjustments in respect of goodwill, revaluation of assets and liabilities, etc. has been worked out at Rs. 50,000 for A and Rs. 12,000 for B. It is agreed that partner’s capitals will be according to new profit sharing ratio. Calculate the new capitals of A and B and pass the necessary journal entries assuming that A and B brought in or withdrew the necessary cash as the case may be for making their capitals in proportion to their profit sharing ratio? 

 

Answer :

 

Journal Entries

Date

Particulars

L.F.

Debit

Amount Rs.

Credit

Amount Rs.

2007

Jan-01

 

A's Capital A/c Dr

 

 

5000

 

 

To Cash A/c
(Excess capital withdrawn

by A)

 

5000

 

Cash A/c Dr

3000

 

 

To B's Capital A/c
(Capital brought in by B to

make in proportion to the profit sharing)

 

3000



Working Notes:

1. Calculation of new profit sharing ratio

C’s share = ¼

Remaining share = 1 – 1/4 = 3/4

A’s new share = 3/4 x 3/4 = 9/16

B’s new share = 1/4 x 3/4 = 3/16

C’s share = 1/4 x 4/4 = 4/16

New profit sharing ratio of A, B, and C = 9 : 3 : 4

2. New capital of A & B

C brings Rs.20000 for 1/4th share of profit in the new firm

Thus, the total capital of the firm based on C’s share = 

20000 x 4/1 = 80000

A’s Capital = 9/16 x 80000 = 45000

Thus, A will withdraw = 50000 – 45000 = 5000

B’s Capital = 3/16 x 80000 = 15000

Thus, B will bring = 15000 – 12000 = 3000

 


Question 45 :

 Pinky, Qumar and Roopa are partners in a firm sharing profits and losses in the ratio of 3:2:1. S is admitted as a new partner for 1/4 share in the profits of the firm, with 1/8 from Pinky, and 1/16 each from Qmar and Roopa. The total capital of the new firm after Seema’s admission will be Rs. 2,40,000. Seema is required to bring in cash equal to 1/4 of the total capital of the new firm. The capitals of the old partners also have to be adjusted in proportion of their profit sharing ratio. The capitals of Pinky, Qumar and Roopa after all adjustments in respect of goodwill and revaluation of assets and liabilities have been made are Pinky Rs. 80,000, Qumar Rs. 30,000 and Roopa Rs. 20,000. Calculate the capitals of all the partners and record the necessary journal entries for doing adjustments in respect of capitals according to the agreement between the partners?

 

Answer :

Calculation of new profit sharing ratio = Old ratio –

Sacrificing ratio

Pinky = 3/6 – 1/8 = 9/24

Qumar = 2/6 – 1/16 = 13/48

Roopa = 1/6 – 1/16 = 5/48

New profit sharing ratio between pinky, Qumar, Roopa and 

Seema = 9/24 : 13/48 : 5/48 : 1/4= 18 : 13 : 5 : 12

Required capital of all partners in the new firm

Pinky = 240000 x 18/48 = 90000

Qumar = 240000 x 13/48 = 65000

Roopa = 240000 x 5/48 = 25000

Seema = 240000 x 12/48 = 60000

Amount to be bought by each partner in the new firm

Pinky = 90000 – 80000 = 10000

Qumar = 65000 – 30000 = 25000

Roopa = 25000 – 20000 = 5000

Seema = 60000

Journal Entries

Date

Particulars

L.F

Debit Amount

Rs.

Credit Amount

Rs.

 

Bank A/c Dr

 

60000

 

 

(Seema bring her share of

capital for 1/4th share of profit)

 

 

 

 

 

50000

60000

To Pinky's Capital A/c

10000

To Qumar's Capital A/c

35000

To Roopa's Capital A/c

(Amount brought by Pinky,

Qumar and Roopa to make capital equal to their proportion)

5000

 

 


Question 46 :

 The following was the Balance Sheet of Arun, Bablu and Chetan sharing profits and losses in the ratio of

6

14

614

5

14

514

3

14

314respectively.

Liabilities

Amount (Rs)

Assets

Amount (Rs)

Creditors

 

9,000

Land and Buildings

24,000

Bills Payable

3,000

Furniture

3,500

Capital

Accounts

 

 

Stock

14,000

Arun

19,000

 

Debtors

12,600

Bablu

16,000

43,000

Cash

900

Chetan

8,000

 

 

 

 

 

55,000

 

55,000



They agreed to take Deepak into partnership and give him a share of 1/8 on the following terms: 

a) that Deepak should bring in Rs. 4,200 as goodwill and Rs. 7,000 as his Capital; 

(b) that furniture be depreciated by 12%;

(c) that stock be depreciated by 10% 

(d) that a Reserve of 5% be created for doubtful debts: 

(e) that the value of land and buildings having appreciated be brought upto Rs. 31,000;

(f) that after making the adjustments the capital accounts of the old partners (who continue to share in the same proportion as before) be adjusted on the basis of the proportion of Deepak’s Capital to his share in the business, i.e., actual cash to be paid off to, or brought in by the old partners as the case may be. 

Prepare Cash Account, Profit and Loss Adjustment Account (Revaluation Account) and the Opening Balance Sheet of the new firm. 

 

Answer :

 

Revaluation A/c

Particular

Amount

Particular

Amount

Furniture

420

Land and Building

7000

Stock

1400

 

 

Reserve for Bad debts

630

 

 

Profit on Revaluation trf to:

 

 

 

Arun's Capital A/c 1950

 

 

 

Bablu's Capital A/c 1625

 

 

 

Chetan's Capital A/c 975

4550

 

 

 

7000

 

7000



Cash A/c

Particular

Amount

Particular

Amount

Balance b/d

900

Arun's Capital A/c

1750

Chetan's Capital A/c

625

Bablu's Capital A/c

1625

Deepak's Capital A/c

7000

Balance c/d

9350

Premium for Goodwill

4200

 

 

 

12725

 

12725



Balance Sheet

Particular

Amount

Particular

Amount

Creditors

9000

Land and Building

31000

Bills Payable

3000

Furniture

3080

Capital:

 

Stock

12600

Arun 21000

 

Debtors 12600

 

Bablu 17500

 

(-) Reserve 630

11970

Chetan 10500

 

Cash

9350

Deepak 7000

56000

 

 

 

68000

 

68000



Working Notes: 1.

Partner's Capital A/c

Particular

Arun

Bablu

Chetan

Deepak

Particular

Arun

Bablu

Chetan

Deepak

 

1750

1625

 

 

Balance b/d

19000

16000

8000

 

Bank Balance c/d

21000

17500

10500

7000

 

 

 

 

7000

 

 

 

 

 

Cash

Premium of Goodwill

1800

1500

900

 

 

 

 

 

 

Revaluation Bank

1950

1625

975625 

 

 

22750

19125

10500

7000

 

22750

19125

10500

7000



2. Calculation of new profit sharing ratio:

Deepak share = 1/8

Remaining share = 1 – 1/8 = 7/8

Arun share = 6/14 x 7/8 = 42/112

Bablu share = 5/14 x 7/8 = 35/112

Chetan share = 3/14 x 7/8 = 21/112

New ratio = 42/112 : 35/112 : 21/112 : 1/8 = 6 : 5 : 3 : 2

Calculation of capital in new firm

Deepak bring for 1/8th share = Rs.7000

Total capital = 7000 x 8/1 = 56000

Arun = 56000 x 6/16 = 21000

Bablu = 56000 x 5/16 = 17500

Chetan = 56000 x 3/16 = 10500

 


Question 47 :

Azad and Babli are partners in a firm sharing profits and losses in the ratio of 2:1. Chintan is admitted into the firm with 1/4 share in profits. Chintan will bring in Rs. 30,000 as his capital and the capitals of Azad and Babli are to be adjusted in the profit sharing ratio. The Balance Sheet of Azad and Babli as on March 31, 2016 (before Chintan’s admission) was as follows:

Balance Sheet of A and B as on 31.03.2016

Liabilities

 

Amount (Rs)

Assets

Amount (Rs)

Creditors

 

8,000

Cash in hand

2,000

Bills Payable

 

4,000

Cash at bank

10,000

General Reserve

 

6,000

Sundry debtors

8,000

Capital Accounts:

 

 

Stock

10,000

Azad

50,000

 

Furniture

5,000

Babli

32,000

82,000

Machinery

25,000

 

 

 

Buildings

40,000

 

1,00,000

 

1,00,000

 

 

 

 



It was agreed that: i) Chintan will bring in Rs. 12,000 as his share of goodwill premium. ii) Buildings were valued at Rs. 45,000 and Machinery at Rs. 23,000. iii) A provision for doubtful debts is to be created @ 6% on debtors. iv) The capital accounts of Azad and Babli are to be adjusted by opening current accounts. Record necessary journal entries, show necessary ledger accounts and prepare the Balance Sheet after admission.

 

Answer :

 

Journal Entries

Date

Particulars

L.F

Debit

Amount Rs.

Credit

Amount Rs.

2006 Dec-

31

 

Bank A/c Dr

 

 

42000

 

 

To China's Capital A/c

 

30000

 

 

To Premium of Goodwill

A/c

(Chintan brought capital and

premium of goodwill

for 1/4th share of profit)

 

 

12000

 

 

Premium of Goodwill A/c Dr

 

12000

 

 

To Azad's Capital A/c

 

8000

 

 

To Babli's Capital A/c

(Goodwill brought by

Chintan transferred to old

partners capital account in their sacrificing ratio, 2:1)

 

4000

 

 

General Reserve A/c Dr

 

6000

 

 

To Azad's Capital A/c

 

4000

 

 

To Babli's Capital A/c

(General reserve distributed between old partners)

 

2000

 

 

Building A/c Dr

 

5000

 

 

To Revaluation A/c

(Increase in value of building adjusted)

 

5000

 

 

Revaluation A/c Dr

 

2480

 

To Machinery A/c

 

2000

To Provision for Doubtful

Debts A/c

(Decrease in value of

machinery adjusted and prov.

for doubtful debt created)

 

 

480

Revaluation A/c Dr

2520

 

To Azad's Capital A/c

 

1680

To Babli's Capital A/c

(Profit on revaluation

transferred to Azad and Babli's capital account)

 

840

Azad's Capital A/c Dr

3680

 

To Azad's Current A/c

(Excess of capital

transferred to current account)

 

3680

Babli's Capital A/c Dr

8840

 

To Babli's Current A/c

(Excess of capital

transferred to current account)

 

8840



Revaluation A/c

Particular

Amount

Particular

Amount

Machinery

2000

Building

5000

Prov. For Doubtful Debts

480

 

 

Profit trf to:

 

 

 

Azad's Capital A/c 1680

 

 

 

Babli's Capital A/c 840

2520

 

 

 

5000

 

5000



Balance Sheet

Particular

Amount

Particular

Amount

Creditors

8000

Cash in hand

2000

Bills Payable

4000

Cash at bank

52000

Current A/c:

 

Sundry Debtor 8000

 

Azad 3680

 

(-) Provision 480

7520

Babli 8840

12520

Stock

10000

Capital A/c:

 

Furniture

5000

Azad 60000

 

Machinery

23000

Babli 30000

 

Building

45000

Chintan 30000

120000

 

 

 

144520

 

144520



Working Notes:

1. Calculation of new profit sharing ratio

Chintan share = 1/4

Remaining share = 1 – 1/4 = 3/4

Azad = 2/3 x 3/4 = 6/12

Babli = 1/3 x 3/4 = 3/12

New ratio = 6/12 : 3/12 : 1/4 = 2 : 1 : 1

2. New capital of Azad and Babli

Chintan brings Rs.30000 for 1/4th share of profit

Total capital = 30000 x 4/1 = 120000

Azad’s capital = 120000 x 2/4 = 60000

Babli’s capital = 120000 x 1/4 = 30000

 


Question 48 :

 Ashish and Dutta were partners in a firm sharing profits in 3:2 ratio. On Jan. 01, 2015 they admitted Vimal for 1/5 share in the profits. The Balance Sheet of Ashish and Dutta as on March 31, 2016 was as follows:

Balance Sheet of A and B as on 1.03.2016

Liabilites

Amount Rs

Assets

Amount Rs

Creditors

15,000

Land & Building

35,000

Bills Payable

10,000

Plant

 

45,000

Ashish Capital

80,000

Debtors

22,000

 

Dutta’s Capital

35,000

Less: Provision

2,000

20,000

 

 

Stock

 

35,000

 

 

Cash

 

5,000

 

1,40,000

 

 

1,40,000



It was agreed that:

i) The value of Land and Building be increased by Rs. 15,000. 

ii) The value of plant be increased by 10,000.

iii) Goodwill of the firm be valued at Rs. 20,000. 

iv) Vimal to bring in capital to the extent of 1/5th of the total capital of the new firm. Record the necessary journal entries and prepare the Balance Sheet of the firm after Vimal’s admission. 

 

Answer :

Journal Entries

Date

Particulars

L.F

Debit

Amount Rs.

Credit

Amount Rs.

2007

Jan-01

 

Land and Building A/c Dr

 

 

15000

 

 

Plant A/c Dr

10000

 

 

To Revaluation A/c

(Increase in value of assets)

 

25000

 

Revaluation A/c Dr

25000

 

 

To Ashish's Capital A/c

 

15000

 

To Dutta's Capital A/c

(Profit on revaluation

transferred to partner's capital account)

 

10000

 

Cash A/c Dr

36000

 

 

To Vimal's Capital A/c

(Capital brought by Vimal)

 

36000

 

 

Vimal's Current A/c Dr

 

 

4000

 

To Ashish's Capital A/c

2400

To Dutta's Capital A/c

(Vimal's share of goodwill

adjusted through his current account)

1600



Working Notes: 1.

Partner's Capital A/c

Particular

Ashish

Dutta

Vimal

Particular

Arun

Bablu

Chetan

Balance c/d

97400

46600

36000

Balance b/d

80000

35000

 

 

 

 

 

Revaluation

15000

10000

 

 

 

 

 

Cash

 

 

36000

 

 

 

 

Vimal's

Current A/c

2400

1600

 

 

97400

46600

36000

 

97400

46600

36000



Working Notes: 2.

Vimal's Current A/c

Particular

Amount

Particular

Amount

Ashish's Capital A/c

2400

Balance c/d

4000

Dutta's Capital A/c

1600

 

 

 

4000

 

4000



3. Calculation of new profit sharing ratio

Vimal’s share = 1/5

Remaining share = 1 – 1/5 = 4/5

Ashish’s share = 3/5 x 4/5 = 12/25

Dutta’s share = 2/5 x 4/5 = 8/25

New ratio = 12/25 : 8/25 : 1/5 = 12 : 8 : 5

4. Sacrificing ratio = Old ratio – New ratio

Ashish = 3/5 – 12/25 = 3/25

Dutta =2/5 – 8/25 = 2/25

Sacrificing ratio = 3: 2

5. Capital of new firm on basis of old partners adjusted 

capital

Total adjusted capital of old partners = Ashish + Dutta = 

97400 + 46600 = 144000

The remaining share of Ashish and Dutta = 4/5

Capital of new firm = 144000 x 5/4 = 180000

Vimal’s share in the new firm’s capital = 180000 x 1/5 = 36000

 


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