Admission25-26

A and B are partners in a firm. The net profit of the firm is divided as follows: 1/2 to A, 1/3 to B and 1/6 carried to a Reserve. They admit C as a partner on 1st April, 2024 on which date, the Balance Sheet of the firm was:

Liabilities		`	Assets	`
Capital A/cs:			Building	50,000
A	50,000		Plant and Machinery	30,000
B	40,000	90,000	Stock	18,000
Reserve		10,000	Debtors	22,000
Creditors		20,000	Bank	5,000
Outstanding Expenses		5,000
		1,25,000		1,25,000

Following are the required adjustments on admission of C:
(a) C brings in` 25,000 towards his capital.
(b) C also brings in` 5,000 for 1/5th share of goodwill.
(c) Stock is undervalued by 10%.
(d) Creditors include a liability of   ` 4,000, which has been decided by the court at   ` 3,200.
(e) In regard to the Debtors, the following Debts proved Bad or Doubtful−
` 2,000 due from X−bad to the full extent;
` 4,000 due from Y−insolvent, estate expected to pay only 50%.
You are required to prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the new firm.

Answer:

Revaluation Account
Dr.			Cr.
Particulars	`	Particulars	`
Bad Debts	2,000	Stock	2,000
Provision for Doubtful Debts	2,000	Creditors (4,000 – 3,200)	800
(4,000 × 50%)
		Loss transferred to
		A Capital	720
		B Capital	480
	4,000		4,000

 

Partners’ Capital Accounts
Dr.							Cr.
Particulars	A	B	C	Particulars	A	B	C
Revaluation	720	480		Balance b/d	50,000	40,000
				Reserve	6,000	4,000
				Bank			25,000
Balance c/d	58,280	45,520	25,000	Premium for Goodwill	3,000	2,000
	59,000	46,000	25,000		59,000	46,000	25,000

 

Balance Sheet as on April 01, 2024 after C’s admission
Liabilities		`	Assets		`
Capital A/cs:			Building		50,000
A	58,280		Plan and Machinery		30,000
B	45,520		Stock (18,000 × 100/90)		20,000
C	25,000	1,28,800	Debtors	22,000
Creditors (20,000 – 800)		19,200	Less: Bad Debts	2,000
Outstanding Expenses		5,000	Less: Prov. for D. Debts	2,000	18,000
			Bank (5,000 + 30,000)		35,000
		1,53,000			1,53,000

Working Notes

WN1
old ration ; ½:1/3=3:2

Sacrificing ratio=3:2

WN2
Distribution of Reserve
A will get =10,000×3/5=6,000

B will get =10,000×2/5=4,000

WN3
Distribution of Premium for Goodwill
A will get =5,000×3/5=3,000

B will get =5,000×2/5=2,000

 

Deepika and Rajshree are partners in a firm sharing profits and losses in the ratio of 3 : 2. On 31st March, 2025 their Balance Sheet was:

Liabilities		`	Assets		`
Sundry Creditors		16,000	Cash in Hand		1,200
Public Deposits		61,000	Cash at Bank		2,800
Bank Overdraft		6,000	Stock		32,000
Outstanding Liabilities		2,000	Prepaid Insurance		1,000
Capital A/cs:			Sundry Debtors	28,800
Deepika	48,000		Less: Provision for Doubtful Debts	800	28,000
Rajshree	40,000	88,000	Plant and Machinery		48,000
			Land and Building		50,000
			Furniture		10,000
		1,73,000			1,73,000

On 1st April, 2025 the partners admit Anshu as a partner on the following terms:
(a) The new profit-sharing ratio of Deepika, Rajshree and Anshu will be 5 : 3 : 2 respectively.
(b) Anshu shall bring in   ` 32,000 as his capital.
(c) Anshu is unable to bring in any cash for his share of goodwill. Partners, therefore, decide to calculate the goodwill on the basis of Anshu's share in the profits and the capital contribution made by her to the firm.
(d) Plant and Machinery is to be valued at   ` 60,000, Stock at   ` 40,000 and the Provision for Doubtful Debts is to be maintained at   ` 4,000. Value of Land and Building has appreciated by 20%. Furniture has been depreciated by 10%.
(e) There is an additional liability of   ` 8,000 being outstanding salary payable to employees of the firm. This liability is not included in the outstanding liabilities, stated in the above Balance Sheet. Partners decide to show this liability in the books of account of the reconstituted firm.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of Deepika, Rajshree and Anshu.

 

Answer:

 

 

Revaluation Account
Dr.				Cr.
Particulars		`	Particulars	`
Reserve for D. Debts	4,000		Plant and Machinery	12,000
Less: Old Reserve	800	3,200	(60,000 – 48,000)
Furniture          10,000 × 10%		1,000	Stock (40,000 – 32,000)	8,000
Outstanding salary		8,000
Profit transferred to			Land and Building	10,000
Deepika Capital - 10,680			(50,000 × 20%)
Rajshree Capital - 7,120		17,800
		30,000		30,000

 

Partners’ Capital Accounts
Dr.							Cr.
Particulars	Deepika	Rajshree	Anshu	Particulars	Deepika	Rajshree	Anshu
Balance c/d	58,680	47,120	32,000	Balance b/d	48,000	40,000
(before adjustment of Goodwill)
				Revaluation	10,680	7,120
				Cash			32,000
	58,680	47,120	32,000		58,680	47,120	32,000
				Balance b/d	58,680	47,120	32,000
				Anshu’s Current A/c (Goodwill)	2,220	2,220	-
Balance c/d	60,900	49,340	32,000
	60,900	49,340	32,000		60,900	49,340	32,000

 

Balance Sheet as on March 31, 2025 after Anshu’s admission
Liabilities		`	Assets		`
Outstanding Salaries		8,000	Cash in Hand		1,200
Sundry Creditors		16,000	Cash at Bank		28,800
Public Deposits		61,000	Stock		40,000
Outstanding Liabilities		2,000	Prepaid Insurance		1,000
			Anshu’s Current A/c		4,440
Capital A/cs:			Sundry Debtors	28,800
Deepika	60,900		Less: Prov. for D. Debts	4,000	24,800
Rajshree	49,340		Plant and Machinery		60,000
Anshu	32,000	1,42,240	Land and Building		60,000
			Furniture		9,000
		2,29,240			2,29,240

Working notes:

 

WN1: Calculation of Sacrificing Ratio

	Deepika	Rajshree	Anshu
OLD RATION	3        :	2    :	0
NEW RATIO	5        :	3     :	2

Sacrificing Ratio = Old Ratio − New Ratio
Deepika = 3/5-5/10=1/10

Rajshree =2/5-3/10=1/10

	Deepika	Rajshree
Sacrificing Ratio =	1     :	1

WN2: Valuation of Goodwill

Capitalised value on the basis of Anshu’s share=32,000×10/2=1,60,000
Actual Capital of all partners before adjustment of Goodwill = 58,680 + 47,120 + 32,000=  ` 1,37,800
Goodwill = Capitalised value − Actual Capital of all partners before adjustment of Goodwill
= 1,60,000 − 1,37,800
=   ` 22,200
Anshu’s share of Goodwill =22,200×2/10=4,440
Deepika and Rajshree each will entitle for Goodwill share to be compensated = 4,440×1/2=2,220

 

Entry

Particulars		`	`
Anshu’s Current A/c	Dr.	4,440
To Deepika’s Capital A/c			2,220
To Rajshree’s Capital A/c			2,220
(Being old partners compensated)

 

 

Liabilities		`	Assets		`
Capital A/cs:			Plant and Machinery		1,20,000
Sunaina Tamanna	60,000 80,000	1,40,000	Land and Building		1,40,000
Current A/cs: Sunaina Tamanna	10,000 30,000	40,000	Debtors Less: Provision for Doubtful Debts	1,90,000 40,000	1,50,000
General Reserve Workmen Compensation Reserve Creditors		1,20,000 50,000 1,50,000	Stock Cash Goodwill		40,000 30,000 1,50,000
		5,00,000			5,00,000

 

They agreed to admit Pranav into partnership for 1/5th share of profits on 1st April, 2020, on the following terms:

(a) All Debtors are good.

(b) Value of Land and Building to be increased to `1,80,000.

(c) Value of Plant and Machinery to be reduced by `20,000.

(d) The liability against Workmen's Compensation Fund is determined at `20,000 which is to be paid later in the year.

(e) Anil, to whom `40,000 were payable (already included in above creditors), drew a bill of exchange for 3 months which was duly accepted.

(f) Pranav to bring in capital of `1,00,000 and `10,000 as premium for goodwill in cash.

Journalise. (CBSE Sample Paper 2020)

 

Answer:

Date	Particulars		`(Dr.)	`(Cr.)
	Debtors A/c Land and Building A/c   To Revaluation A/c (Being Increase in Value of Debtors ,Land and Building )	Dr. Dr.	40,000 40,000	80,000
	Revaluation A/c   To Plant and Machinery A/c (Being Decrease in Value of Plant and Machinery )	Dr.	20,000	20,000
	Revaluation A/c   To Sunaina’s Current A/c   To Tamanna’s Current A/c (Being Distribution of revolution profit )	Dr.	60,000	36,000 24,000
	Creditors A/c   To Bills Payables A/c (Being Bills exchange accepted )	Dr.	40,000	40,000
	Workmen Compensation Reserve A/c To Workmen Compensation Claim A/c To Sunaina’s Current A/c To Tamanna’s Current A/c (Being Workmen Compensation Claim is transferred to Workmen Compensation Reserve A/c and balance is transferred to partners Current A/c)		50,000	20,000 18,000 12,000
	General Reserve A/c To Sunaina’s Current A/c To Tamanna’s Current A/c (Being general reserve is transferred to partners Current A/c)	Dr.	1,20,000	72,000 48,000
	Cash A/c To Sunaina’s Current A/c To Tamanna’s Current A/c (Being Premium for goodwill is transferred to partners Current A/c in sacrificing ratio)		1,10,000	6,000 4,000
	Sunaina’s Current A/c Tamanna’s Current A/c To Goodwill  A/c (Being old goodwill is Written off in old ratio)		12,000 8,000	20,000

 

X and Y were partners in the profit-sharing ratio of 3 : 2. Their balance sheet as at 31st March, 2022 as follows:

 

BALANCE SHEET as at 31st March, 2022
Liabilities	`	Assets	`
Creditors	56,000	Plant and Machinery	70,000
General Reserve	14,000	Buildings	98,000
Capital A/cs:		Stock	21,000
X-1,19,000		Debtors        42,000
Y-1,12,000	2,31,000	Less: Provision 7,000	35,000
		Cash in Hand	77,000
	3,01,000		3,01,000

Z was admitted for 1/6th share on the following terms:

(i) Z will bring ` 56,000 as his share of capital, but was not able to bring any amount to compensate the sacrificing partners.

(ii) Goodwill of the firm is valued at ` 84,000.

(iii) Plant and Machinery were found to be undervalued by ` 14,000 Building was to brought up to ` 1,09,000.

(iv) All debtors are good.

(v) Capitals of X and Y will be adjusted on the basis of Z's share and adjustments will be done by opening necessary current accounts.

You are required to prepare Revaluation Account and Partners' Capital Accounts. (CBSE Sample Paper 2023)

 

Answer:

Revaluation Account
Dr.				Cr.
Particulars		`	Particulars	`
Profit transferred to			Plant and Machinery	14,000
X’s Capital - 19,200			Building	11,000
Y’s Capital - 12,800		32,000	Provision for Doubtful debts	7,000
		32,000		32,000

 

Partners’ Capital Accounts
Dr.							Cr.
Particulars	X	Y	Z	Particulars	X	Y	Z
Y’s Current A/c	-	24,000	-	Balance b/d	1,19,000	1,12,000	-
Balance c/d	1,68,000	1,12,000	56,000	Revaluations A/c	19,200	12,800	-
				General Reserve  A/c	8,400	5,600	-
				Cash A/c	-	-	56,000
				Z’s Current A/c	8,400	5,600
				X’s Current A/c	13,000
	1,68,000	1,36,000	56,000		1,68,000	1,36,000	56,000

 

Working notes:

1.     Treatment of goodwill

Z’s Share of Goodwill =84,000×1/6=14,000

S and Y Will be compensated as follows:

X =14,000×3/5=8,400

Y =14,000×2/5=5,600

 

Journal entry for adjustment of Goodwill

Z’s capital A/c	Dr.	14,000
ToX’s capital A/c ToY’s capital A/c			8,400 5,600

 

2.     Capital adjustments

 

New capital of firm on the basis of Z’s capital

=56,000×6/1=3,36,000

 

Share of each partner in new capital of firm

Z’s Share of capital is 56,000

Remaining capital of X and Y (3,36,000-56,000=2,80,000)

X =2,80,000×3/5=1,68,000

Y =2,80,000×2/5=1,12,000

 

Journal entry for adjustment of Capital

X’s Current A/c	Dr.	13,000
ToX’s capital A/c (Being Capital increased by adjustments)			13,000
Y’s Capital A/c	Dr.	24,000
ToY’s Current A/c (Being Capital Decreased by adjustments)			24,000

 

 

BALANCE SHEET OF BADAL AND BIJLI as at 31st March, 2019
Liabilities		`	Assets	`
Capital A/cs:			Building	1,50,000
Badal Bijli	1,50,000 90,000	2,40,000	Investments Stock	73,000 43,000
Badal's Current A/c Investment Fluctuation Reserve Bills Payable Creditors		12,000 24,000 8,000 26,000	Debtors Cash Bijli's Current A/c	20,000 22,000 2,000
		3,10,000		3,10,000

Raina was admitted on the above date as a new partner for 1/6th share in the profits of the firm. The terms of agreement were as follows:

(i) Raina will bring `40,000 as her capital and capitals of Badal and Bijli will be adjusted on the basis of Raina's capital by opening Current Accounts.

(ii) Raina will bring her share of goodwill premium for `12,000 in cash.

(iii) The building was overvalued by 15,000 and stock by `3,000.

(iv) A provision of 10% was to be created on debtors for bad debts.

Prepare the Revaluation Account and Current and Capital Accounts of Badal, Bijli and Raina. (CBSE 2020)

Answer:

Revaluation A/c
Particulars	`	Particulars	`
To Building A/c To Stock To Prevision for doubtful Debts	15,000 3,000 2,000	By Loss Transferred to: Badal’s Capital A/c   -  12,000 Bijli’s Capital A/c   -  8,000	20,000
	20,000		20,000

 

Partners’ Capital A/c
Particulars	Badal	Bijli	Raina	Particulars	Badal	Bijli	Raina
To Badal’s Current A/c To Bijli’s Current A/c To Balance c/d	30,000 - 1,20,000	- 10,000 80,000	- - 40,000	By Balance B/d By Cash A/c	1,50,000 -	90,000 -	- 40,000
	1,50,000	90,000	40,000		1,50,000	90,000	40,000

 

Partners’ Current A/c
Particulars	Badal	Bijli	Raina	Particulars	Badal	Bijli	Raina
To Balance B/d To Revaluation A/c To Balance c/d	- 12,000 51,600	2,000 8,000 14,400	- - -	By Balance B/d By I. F . R By Premium By Badal’s Capital A/c By Bijli’s Capital A/c	12,000 14,400 7,200 3,000 -	- 9,600 4,800 - 10,000	- - - - -
	1,05,600	62,400	-		1,05,600	62,400	-

 

Working Notes:

 

1. Calculation of Sacrificing Ratio

Sacrifice = Old Profit Share - New Profit Share

Old Ratio of Badal and Bijli = 3 :2

Share of Raina is 1/6

 

Calculation of new profit sharing ratio

Assuming whole profit sharing ratio is 1/1

Remaining profit sharing ratio is 1/1-1/6=5/6

Share share of Badal and Bijli in Remaining share

Badal= 5/6×3/5=15/30

Bijali= 5/6×2/5=10/30

	Badal	:	Bijli	:	Raina
	15/30	:	10/30	:	1/6
	15/30	:	10/30	:	5/30
New ratio =	3	:	2	:	1

 

Badal’s Sacrifice = 3

Bijli’s Sacrifice = 2;

Raina’s gaining  = 1/6

 

2.  Goodwill for 1/6th share of Raina = `12,000

 

Goodwill payable to Badal and Bijli

Badal=12,000×3/5=7,200

Bijli=12,000×2/5=4,800

 

3. Capital of the Partners in the New firm on the basis of Raina's Capital:

Raina's Capital `40,0000

Raina 's Share of Profit 1/6 for that he brings 40,000

Total Capital of the New Firm = 40,000×6/1=2,40,000

Thus,

Badal's Capital = 2,40,000 × 3/6 = `1,20,000;

Bijli's Capital = 2,40,000 × 2/6 = `80,000;

Raina's Capital = 2,40,000 × 1/6 = `40,000;