Q.No.102 | Chapter 5 – Admission of Partner | T.S. Grewal 12 Class Book Keeping Part - A - Vol. 1

Question 102 Chapter 5 of +2-A

102. A and B are partners sharing profits in the ratio of 3: 2. They admit C as a new partner from 1st April 2019. They have decided to share future profits in the ratio of 4 : 3 : 3. The Balance Sheet as of 31st March 2019 is given below

Liabilities			Assets
A's Capital	1,76,000		Goodwill		34,000
B's Capita	2,54,000	4,30,000	Land and Building		60,000
Workmen Compensation Reserve		20,000	Investment (Market value 45,000)		50,000
Investments Fluctuation Reserve		10,000	Debtor	1,00,000
Employee's Provident Fund		34,000	Less: Provision for Doubtful Debts	10,000	90,000
C's Loan		3,00,000	Stock		3,00,000
			Bank Balance		2,50,000
			Advertising Suspense A/c		10,000
		7,94,000			7,94,000

Terms of C's admission are as follows:
(i) C contributes proportionate capital and 60% of his share of goodwill in cash.
(ii) Goodwill is to be valued at 2 years' purchase of super profit of the last three completed years. Profits for the years ended 31st March were: 2017 − 4,80,000; 2018 − 9,30,000; 2019 − 13,80,000. The normal profit is 5,30,000 with the same amount of capital invested in a similar industry.
(iii) Land and Building were found undervalued by 1,00,000.
(iv) Stock was found overvalued by 31,000.
(v) Provision for Doubtful Debts is to be made equal to 5% of the debtors. (vi) The claim on account of Workmen Compensation is 11,000. Prepare Revaluation Account, Partners' Capital Accounts, and Balance Sheet.

The solution of Question 102 Chapter 5 of +2-A: -

 

Revaluation Account

Particular		Amount	Particular		Amount
Stock		31,000	Land and Building A/c		1,00,000
			Provision for Doubtful Debts		5,000
Profit on Revaluation
A’s Capital	44,400
B’s Capital	29,600	74,000
		1,05,000			1,05,000

 

Partners’ Capital Account

Parti culars	A	B	C	Partic ulars	A	B	C
To Goodwill	20,400	13,600	-	By Balance B/d	1,76,000	2,54,000	-
To Advertise ment Suspense A/c	4,000	4,000		By Cash	-	-	3,06,000
				By General Reserve	36,000	24,000	-
				By C’s Current A/c	64,000	32,000	-
				By Premium for Goodwill	96,000	48,000	-
				By Revaluation	44,400	29,600	-
				By IFR	3,000	2,000	-
				By WCR	5,400	3,600	-
To Balance c/d	3,62,400	3,51,600	3,06,000
	3,88,800	3,69,200	3,06,000		3,88,800	3,69,200	3,06,000

 

Balance Sheet

Liabilities		Amount	Assets		Amount
Workmen Compensation Reserve		11,000	Land & Building		1,60,000
Employees Provident Fund		34,000	Debtors	1,00,000
Capital:			Less: Provision for debtors	5,000	95,000
A	3,62,400		Bank A/c		7,00,000
B	3,51,600		Investment		45,000
C	3,06,000	10,20,000	Stock		2,69,000
C ‘s Loan		3,00,000	C ‘s Current A/c		96,000
		13,65,000			13,65,000

 

Working Note:-

Calculation of Sacrifice or Gain

Old Ratio of A and B = 3 : 2
New Ratio of A , Band C = 4 : 3 : 3
(New Ratio)Sacrificing (or Gaining) Ratio = Old Ratio - New Ratio

A’s Share	=	3	-	4
		5		10

=	6  - 4
	10

=	2
		10

 

B’s Share	=	2	-	3
		5		10

=	4 - 3
	10

=	1
		10

 

Sacrificing Ratio = 2 : 1 

Calculation of Goodwill

Goodwill=Super Profit × No. of Years' Purchase =4,00,000×2=Rs 8,00,000

C Share of Goodwill	=	8,00,000	X	3
				10
	=	2,40,000

 

Goodwill bought in cash	=	2,40,000	X	60
				100
	=	1,44,000

Calculation of C’s Capital

Combined Capital A and B's Capita	=	3,62,400 + 3,51,600
	=	Rs 7,14,000

 

C’s Share of Goodwill	=	7,14,000	x	10	x	3
				7		10
	=	3,06,000

 

T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)

• Chapter No. 1 – Financial Statement of Not-For-Profit Organisations
• Chapter No. 2 – Accounting for Partnership Firms – Fundamentals
• Chapter No. 3 – Goodwill: Nature and Valuation
• Chapter No. 4 – Change in Profit-Sharing Ratio Among the Existing Partners
• Chapter No. 5 – Admission of a Partner
• Chapter No. 6 – Retirement/Death of a Partner
• Chapter No. 7 – Dissolution of a Partnership Firm

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

• Chapter No. 8 – Company Accounts –  Accounting for Share Capital
• Chapter No. 9 – Company Accounts – Issue of Debentures
• Chapter No. 10 – Redemption of Debentures

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

• Chapter No. 1 – Financial Statements of a Company
• Chapter No. 2 – Financial Statement Analysis 
• Chapter No. 3 – Tools of Financial Statement Analysis – Comparative Statements and Common- Size Statements
• Chapter No. 4 – Accounting Ratios
• Chapter No. 5 – Cash Flow Statement

 

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