12th | Admission of a partner  | Question No. 51 To 55 | Ts Grewal Solution 2024-2025

(a)

An extract of the Balance Sheet of Murari and Vohra sharing profits & losses in the ratio of 3 :2 was as under:

Liabilities	`	Assets	`
General Reserve	30,000	Investments (Market Value ` 1,14,000)	1,20,000
Contingency Reserve	2,700	Advertisement Expenditure	6,000
Profit & Loss A/c	18,000	| (Deferred Revenue
Investment Fluctuation Reserve	9,000
Workmen Compensation Reserve	7,200
Employees Provident Fund	20,000

New Partner Krishna was admitted for 1/5th share of profits. A claim on account of Workmen Compensation Reserve is estimated for Rs. 900.

Journal entries to adjust accumulated profits and losses.

 

(b) 

A, B and C were partners sharing profits and losses in the ratio of 6 : 3 : 1. They decide to take D into partnership with effect from 1st April, 2024. The new profit-sharing ratio between A, B, C and D will be 3 : 3 : 3 : 1. They also decide to record the effect of the following without affecting their book values, by passing a single adjustment entry:

	Book Values  `
General Reserve	1,50,000
Contingency Reserve	60,000
Profit and Loss A/c (Cr.)	90,000
Advertisement Suspense A/c (Dr.)	1,20,000

Pass the necessary single adjustment entry through the Partner's Current Account. 

 

Case (a)

Journal
Date	Particulars		L.F.	Debit    `	Credit    `
(i)
	Investment Fluctuation Reserve A/c	Dr.		6,000
	To Investment A/c				6,000
	(Being )
(ii)
	Workmen Compensation Reserve A/c	Dr.		900
	To Workmen Compensation Claim A/c				900
(iii)	General Reserve	Dr.		30,000
	Contingency Reserve	Dr.		2,700
	Profit & Loss A/c	Dr.		18,000
	Investment Fluctuation Reserve A/c	Dr.		3,000
	Workmen Compensation Reserve A/c	Dr.		6,300
	To Murari’s Capital A/c				36,000
	To Vohra’s Capital A/c				24,000
	(Being balance of reserves transferred to capital accounts )
(iv)	Murari’s Capital A/c	Dr.		3,600
	Vohra’s Capital A/c	Dr.		2,400
	To Advertisement Expenditure				6,000

 

Case (b)

 

Journal
Date	Particulars		L.F.	Debit `	Credit `
(A)
(i)	General Reserve A/c	Dr.		36,000
	Contingency Reserve A/c	Dr.		6,000
	Profit & Loss A/c	Dr.		18,000
	To X’s Capital A/c				30,000
	To Y’s Capital A/c				18,000
	To Z’s Capital A/c				12,000
	(Reserves distributed)
(ii)	X’s Capital A/c	Dr.		12,000
	Y’s Capital A/c	Dr.		7,200
	Z’s Capital A/c	Dr.		4,800
	To Advertisement Suspense A/c				24,000
	(Advertisement Suspense distributed)
(B)
April 1	Workmen Compensation Reserve A/c	Dr.		72,000
	To X’s Capital A/c				36,000
	To Y’s Capital A/c				36,000
	(Workmen Compensation Reserve distributed)
(C)
April 1	Workmen Compensation Reserve A/c	Dr.		72,000
	To Workmen Compensation Claim A/c				48,000
	To X’s Capital A/c				12,000
	To Y’s Capital A/c				12,000
	(Surplus Workmen Compensation Reserve distributed)
(D)
April 1	Investment Fluctuation Reserve A/c	Dr.		24,000
	To Investment A/c				10,000
	To X’s Capital A/c				7,000
	To Y’s Capital A/c				7,000
	(Surplus Investment Fluctuation Reserve distributed)
(E)
April 1	General  Reserve A/c	Dr.		4,800
	To Investment Fluctuation Reserve A/c				960
	To X’s Capital A/c				1,920
	To Y’s Capital A/c				1,920
	(Surplus General Reserve distributed)
(F)
April 1	C’s Current A/c	Dr.		36,000
	D’s Current A/c	Dr.		18,000
	To A’s Current A/c				54,000
	(Adjustment entry made)

 

Working Notes:

WN1: Calculation of Sacrifice or Gain

A :B :C=6:3:1 (Old Ratio)

A :B :C :D:=3:3:3:1 (New Ratio)

Sacrificing (or Gaining) Ratio = Old Ratio - New Ratio

A's share=6/10−3/10=6−3/10=3/10 (Sacrifice)

B's share=3/10−3/10=0

C's share=1/10−3/10=1−3/10=−2/10 (Gain)

D's share=0−1/10=−1/10 (Gain)

WN2: Calculation of Net Effect

General Reserve	1,50,000
Contingency Reserve	60,000
Profit and Loss A/c (Cr.)	90,000
	3,00,000
Less: Advertisement Suspense A/c (Dr.)	1,20,000
	1,80,000

 

WN 3: Adjustment of Net Effect
Amount credited in A's Current A/c = 1,80,000×3/10=​    ` 54,000

Amount debited in C's Current A/c = 1,80,000×2/10=​    ` 36,000

Amount debited in D's Current A/c = 1,80,000×1/10= ​   ` 18,000

Liabilities	`	Assets	`
Sundry Creditors	58,000	Cash in Hand	5,000
General Reserve	12,000	Cash at Bank	45,000
Capital Acs:		Sundry Debtors	60,000
Amit 1,80,000 Anil 1,50,000	3,30,000	Machinery	1,00,000
		Stock	40,000
		Building	1,50,000
	4,00,000		4,00,000

Ankit is admitted as a partner on the date of the Balance Sheet on the following terms:

(a) Ankit will bring in 1,00,000 as his capital and 60,000 as his share of goodwill for 1/4th share in profits.

(b) Machinery is to be appreciated to 1,20,000 and the value of building is to be appreciated by 10%.

(c) Stock is found overvalued by 4,000.

(d) General Reserve will continue to appear in the books of the reconstituted firm at its original value.

(e) A Provision for Doubtful Debts is to be created at 5% of debtors.

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

Prepare Revaluation Account and Partners Capital Accounts.

 

 

Revaluation Account
Particulars	`	Particulars	`
Stock	4,000	Machinery	20,000
Provision for Doubtful Debts	3,000	Building	15,000
Creditors	1,000
Gain	27,000
	35,000		35,000

 

Capital account
Particulars	Amit	Anil	Ankit	Particulars	Amit	Anil	Ankit
To Balance c/d	2,40,000	1,80,000	1,00,000	By Balance b/d	1,80,000	1,50,000	-
				By Bank A/c	-	-	1,00,000
				By Premium A/c	40,000	20,000	-
				By Revaluation A/c	18,000	9,000	-
				By Ankit’s Current A/c	2,000	1,000
	2,40,000	1,80,000	1,00,000		2,40,000	1,80,000	1,00,000

 

Working note:

1.      Goodwill 60,000 shared in 2:1 in sacrificing ratio

Amit=60,000×2/3=40,000

Anil=60,000×1/3=20,000

 

Ankit’s Current A/c	Dr.	3,000
To Amit’s capital A/c			2,000
To Anil’s capital A/c			1,000
(Being sacrificing partners compensated for sacrifice)

 

 

2.      Profit of Revaluation shared in old ratio (2:1)

Amit=27,000×2/3=18,000

Anil=27,000×1/3=9,000

 

3.      General Reserve 12,000 adjusted in gaining and sacrificing ratio

Share of Ankit=12,000×1/4=3,000

 

3,000 compensated in 2:1 in sacrificing ratio

Amit=3,000 ×2/3=2,000

Anil=3,000 ×1/3=1,000

 

Note: since no information regarding how Ankit will compensate, will be compensated through Ankit’s current account.

 

 

Liabilities	`	Assets	`
Vimal's Capital	32,000	Goodwill	8,000
Nirmal's Capital	34,000	Machinery	38,000
General Reserve	8,000	Furniture	5,000
Bank Loan	6,000	Debtors	23,000
Creditors	6,000	Stock	7,000
		Cash	5,000
	86,000		86,000

Terms of Kailash's admission were as follows:

(i) Kailash will bring ` 30,000 as his share of capital and will be entitled to 1/3rd share in the profits.

(ii) Kailash is not to bring goodwill in cash, Vimal and Nirmal raise the goodwill in the books.

(iii) Goodwill of the firm is valued on the basis of 2 years' purchase of the average profit of the last three years. Average profit of the last three years is ` 6,000.

(iv) Machinery and stock are revalued at ` 45,000 and ` 8,000 respectively.

Prepare a Revaluation Account and Partners' Capital Accounts incorporating the above adjustments.

 

 

Revaluation Account
Particulars	`	Particulars	`
Gain	8,000	Machinery	7,000
Vimal’s cap-5,000		Stock	1,000
Nirmal’s cap- 3,000
	8,000		8,000

Capital account
Particulars	Vimal	Nirmal	Kailash	Particulars	Vimal	Nirmal	Kailash
To Goodwill A/c	5,000	3,000	-	By Balance b/d	32,000	34,000	-
To Goodwill A/c	5,000	3,000	-	By Cash A/c	-	-	30,000
To Balance c/d	39,500	38,500	30,000	By Goodwill A/c	7,500	4,500	-
				By Revaluation A/c	5,000	3,000	-
				By General reserve A/c	5,000	3,000
	49,500	44,500	30,000		49,500	44,500	30,000

 

Working note:

1.      Goodwill valuation

Goodwill = 6,000×2=12,000

 

2.      Goodwill 12,000 raised in 3:2 in sacrificing ratio

Vimal =12,000×3/5=7,500

Nirmal =12,000×2/5=4,500

 

Goodwill  A/c	Dr.	12,000
To Vimal’s capital A/c			7,500
To Nirmal’s capital A/c			4,500
(Being goodwill raised)

 

Goodwill 12,000 written off in 5:3:4 in sacrificing ratio

Vimal =12,000×5/12=5,000

Nirmal =12,000×3/12=3,000

                  Kailash = 12,000×4/12=4,000

 

Vimal’s capital A/c	Dr.	5,000
Nirmal’s capital A/c	Dr.	3,000
Kailash’s current A/c	Dr.	4,000
To Goodwill  A/c			12,000
(Being goodwill written off)

 

1.      Profit of Revaluation shared in old ratio (3:2)

Vimal =8,000×3/5=5,000

Nirmal =8,000×3/5=3,000

 

2.      General reserve shared in old ratio (3:2)

Vimal =8,000×3/5=5,000

Nirmal =8,000×3/5=3,000

 

 

Note: Since, Kailash is not to bring goodwill in cash, will be compensated through Kailash’s current account.

 

 

 X, Y and Z are equal partners with capitals of `15,000; `17,500 and `20,000 respectively. They agree to admit W into equal partnership upon payment in cash `15,000 for 1/4th share of the goodwill and `18,000 as his capital, both sums to remain in the business. The liabilities of the old firm were `30,000 and the assets, apart from cash, consist of Motors `12,000, Furniture `4,000, Stock `26,500 and Debtors `37,800. The Motors and Furniture were revalued at `9,500 and `3,800 respectively.

Pass Journal entries to give effect to the above arrangement and also show Balance Sheet of the new firm.

 

Journal
Date	Particulars		L.F.	Debit    `	Credit    `
	Cash A/c	Dr.		3,3000
	To W’s capital A/c To Premium for Goodwill A/c				1,8000 1,5000
	(Being C’s brought his share of goodwill and capital in cash)
	Premium for Goodwill A/c	Dr.		1,5000
	To X’s Capital A/c To Y’s Capital A/c To Z’s Capital A/c				5000 5000 5000
	(Being w’s share of Goodwill transferred in their sacrificing Ratio)
	Revaluation A/c                                        Dr.   To Motor A/c   To Furniture A/c (Being decrease in value assets transferred to Revaluation A/c)			2700	2500 200
	X’s Capital A/c                              Dr. Y’s Capital A/c                              Dr. Z’s Capital A/c                              Dr.   To Revaluation A/c          (Being loss of Revaluation of transferred to old partners capital A/c)			900 900 900	2700

 

Balance sheet of new firm
Liabilities		`	Assets	`
Liabilities		30,000	Cash balance (2,200+33,000)	35,200
X's Capital	19,100		Motor	9,500
Y's Capital Z’s Capital	21,600 24,100		furniture Stock	3,800 26,500
Z’s Capital	18,000	82,800	Debtors	37,800
		1,12,800		1,12,800

 

 

Working notes;

 

WN-1

Memorandum balance sheet is prepared to find out Cash balance.

Liabilities		`	Assets	`
Liabilities		30,000	Cash balance (Balancing figure)	2200
X's Capital	15,000		Motor	12,000
Y's Capital Z’s Capital	17,500 20,000	52,500	furniture Stock	4,000 26,500
			Debtors	37,800
		82,500		82,500

 

WN-2

Old ratio of X:Y:Z=1;1;1

W is admitted for ¼ share

Let total profit =1

Remaining profit after W’s admission= 1-1/4=3/4

X=3/4×1/3=3/12

Y=3/4×1/3=3/12

Z=3/4×1/3=3/12

W=1/4×3/3=3/12

Therefore share of X, Y , Z and W=3:3:3:3=1:1:1:1

Sacrificing ratio= old –new

X=1/3-1/4=1/12

Y=1/3-1/4=1/12

Z=1/3-1/4=1/12

Sacrificing ratio of X, Y , Z = 1:1:1

 

WN-4

 

Particulars	`	Particulars	`
To Motors A/c To Furniture A/c	2500 200	By Loss Capital A/c (In old Ratio) X=2700×1/3=900 Y=2700×1/3=900 Z=2700×1/3=900	2700
	2700		2700

 

WN-5

Partners’ Capital A/c
Particulars	X `	Y `	Z `	W `	Particulars	X `	Y `	Z `	W `
To ravaluation A/c To balance c/d	900 19,100	900 21,600	900 24,100	- 1,8000	By Balance b/d By Cash A/c By Premium A/c	15,000 - 5000	17,500 - 5000	20,000 - 5000	- 18,000 -
	20,000	22,500	25,000	18,000		20,000	22,500	25,000	18,000

 

Following was the Balance Sheet of A and B who were sharing profits in the ratio of 2 : 1 as at 31st March, 2024:

Liabilities		`	Assets	`
Capital A/c’s:			Building	25,000
A	15,000		Plant and Machinery	17,500
B	10,000	25,000	Stock	10,000
Sundry Creditors		32,950	Sundry Debtors	4,850
			Cash in Hand	600
		57,950		57,950

They admit C into partnership on the following terms:
(a) C was to bring   ` 7,500 as his capital and  `3,000 as goodwill for 1/4th share in the firm.
(b) Values of the Stock and Plant and Machinery were to be reduced by 5%.
(c) A Provision for Doubtful Debts was to be created in respect of Sundry Debtor  `375.
(d) Building was to be appreciated by 10%.
Pass necessary Journal entries to give effect to the arrangements. Prepare Profit and Loss Adjustment Account (or Revaluation Account), Partners' Capital Accounts and Balance Sheet of the new firm.

Journal
Date	Particulars		L.F.	Debit `	Credit `
	Profit and Loss Adjustment A/c	Dr.		1,750
	To Stock A/c				500
	To Plant and Machinery A/c				875
	To Reserve for Doubtful Debts A/c				375
	(Decrease in stock and Plant and creation of Reserve for Doubtful Debt transferred to Profit and Loss Adjustment Account)
	Building A/c	Dr.		2,500
	To Profit and Loss Adjustment A/c				2,500
	(Increase in value of Building of transferred to Profit and loss Adjustment Accounts)
	Profit and Loss Adjustment A/c			750
	To A’s Capital A/c				500
	To B’s Capital A/c				250
	(Profit on revaluation of asset and liabilities distributed between A and B in their old ratio)
	Cash A/c	Dr.		10,500
	To C’s Capital A/c				7,500
	To Premium for Goodwill A/c				3,000
	(C brought capital and share of goodwill)
	Premium for Goodwill A/c	Dr.		3,000
	To A’s Capital A/c				2,000
	To B’s Capital A/c				1,000
	(Premium for Goodwill distributed between A and B in their sacrificing ratio i.e 2:1)

 

Profit and Loss Adjustment Account
Dr.			Cr.
Particulars	`	Particulars	`
Stock	500
Plant and Machinery	875	Building	2,500
Reserve for Doubtful Debts	375
Profit transferred to
A Capital	500
B Capital	250
	2,500		2,500

 

Partners’ Capital Accounts
Dr.							Cr.
Particulars	A	B	C	Particulars	A	B	C
				Balance b/d	15,000	10,000
				Cash			7,500
				Premium for Goodwill	2,000	1,000
Balance c/d	17,500	11,250	7,500	Profit and Loss Adjustment (Profit)	500	250
	17,500	11,250	7,500		17,500	11,250	7,500

 

Balance Sheet as on March 31, 2024 after admission of C
Liabilities		`	Assets		`
Capital Accounts:			Building (25,000 + 2,500)		27,500
A	17,500		Plant and Machinery (17,500 – 875)		16,625
B	11,250		Stock (10,000 – 500)		9,500
C	7,500	36,250
Sundry Creditors		32,950	Sundry Debtors	4,850
			Less: Provision for D. Debts	375	4,475
			Cash in Hand (600 + 10,500)		11,100
		69,200			69,200

Working Notes:

WN1

	A	B
Sacrificing ratio	2  :	1

WN2
Distribution of Premium for Goodwill (in sacrificing ratio)
A will get =3,000×2/3=2,000

B will get =3,000×1/3=1,000

WN3
Distribution of Profit from Profit and loss Adjustment Account (in old ratio)

A will get =750×2/3=500

B will get =750×1/3=250