Question 54 Chapter 5 of +2 Part-1 – USHA Publication 12 Class Part – 1

Question 54 Chapter 5 of +2-Part-1

54. ( Investment taken over by old partner ) A & B are sharing profits in the ratio of 5:30 admit C as a partner with 1/3 share in profits. He has to contribute Rs. 25,000 as his capital. The balance sheet of A & B before admission was as follows.

Liabilities		Rs	Assets		Rs
Creditors		21,000	Goodwill		10,000
Bills Payable		6,000	Land & Building		25,000
Capital Account			Plant & Machinery		30,000
A	50,000		Stock		15,000
B	35,000	85,000	Sundry Debtors	20,000
General Reserve		16,000	Less Provision for Bad Debts	1,500	18,500
			Investments		20,000
			Cash		9,500
		1,28,000			1,28,000

Other terms agreed upon were :
(i) Goodwill of the firm to be valued at Rs. 21,000.
(ii) Land and buildings were to be valued at Rs. 35,000 and plant and machinery at Rs. 25,000.
(iii) The provision for bad debts was found to be in excess by Rs. 400.
(iv) A liability for Rs. 1,000 included in sundry creditors was not likely to arise.
(v)Rs. 12,000 of the investments are to be taken over by A and B in their profit sharing ratios.
(vi) B is to withdraw Rs. 3,400 in cash
Give journal entries to record the above transactions and show the balance sheet of the firm after C’s admission

The solution of Question 54 Chapter 5 of +2 Part-1: –

Journal
Date	Particulars		L.F.	Debit	Credit
1	Cash A/c	Dr.		25,000
	To C’s Capital A/c				25,000
	(Being the cash brought in as capital & goodwill )
2	C’s Capital A/c	Dr.		7,000
	To A’s Capital A/c				4,375
	To B’s Capital A/c				2,625
	(Being goodwill adjusted in capital A/c of partners)
3	Land & Building A/c	Dr.		10,000
	Provisional for doubtful debts A/c)	Dr.		400
	Sundry Debtors A/c	Dr.		1,000
	To Revaluation A/c				11,400
	(Being revaluation of assets)
4	Revaluation A/c	Dr.		5,000
	To Plant & Machinery A/c				5,000
	(Being assets revalued )
5	Revaluation A/c	Dr.		6,400
	To A’s Capital A/c				4,000
	To B’s Capital A/c				2,400
	(Being profit on revaluation distributed )
6	B’s Capital A/c	Dr.		3,400
	To Cash A/c				3,400
	(Being drawings of B)
7	General reserve A/c	Dr.		16,000
	To A’s Capital A/c				10,000
	To B’s Capital A/c				6,000
	(Being GENERAL RESERVE distributed )
8	A’s Capital A/c	Dr.		6,250
	B’s Capital A/c	Dr.		3,750
	To Goodwill A/c				10,000
	(Being goodwill written off)

Partners’ Capital Account
Particulars	A	B	C	Particulars	A	B	C
To Cash A/c		3,400		By Balance b/d	50,000	35,000
To Investment A/c	7,500	1,500		By Bank A/c			25,000
To Goodwill A/c	6,250	3,750		By C’s Current A/c	4,375	2,625
				By Revaluation A/c	4,000	2,400
				By General reserve	10,000	6,000
To Balance c/d	54,625	34,375	25,000
	68,375	46,025	25,000		68,375	46,025	25,000

Balance Sheet
Liabilities		Amount	Assets		Amount
Creditors		21,000	Land & Building		35,000
Bills Payable		6,000	Plant & Machinery		25,000
Capital Account			Stock		15,000
A	54,625		Sundry Debtors	20,000
B	34,375		Less Provision for Bad Debts	1,100	18,900
C	25,000	1,14,000	Investments		8,000
			C’s current A/c		7,000
			Cash		31,000
		1,40,000			1,40,000

WORKING NOTES :

(i)Calculation of Hidden Good will
Total Capital of the firm = Rs.32,000X 5 = Rs. 1,6000
Adjusted Capital of David & Bimal ( before goodwill ) & Chander’s capital

Combined Capital:
David	=	20,400
Bimal	=	13,600
Chander	=	16,000
	=	50,000

Value of goodwill = 80,000-50,000
= Rs. 30,000

(ii) Premium for goodwill ( chander) = 30,000X 1/5 = Rs 6,000

Journal entry for adjustment of goodwill

Chander current A/c	Dr	6,000
To David capital A/c			3,000
To Bimal’s capital A/c			3,000

David’s sacrifice	=	3	–	5
		5		10
	=	1
		10

Bimal’s sacrifice	=	2	–	3
		5		10
	=	1
		10

SACRIFICING RATIO = 1 : 1

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Also, Check out the solved question of previous Chapters: –

Usha Publication – Accountancy PSEB (Class 12) – Volume I – Solution

• Chapter No. 1 – Accounting Not for Profit Organisations
• Chapter No. 2 – Partnership Accounts – I (Introduction)
• Chapter No. 3 – Partnership Accounts – II (Goodwill: Nature and Valuation)
• Chapter No. 4 – Partnership Accounts – III (Reconstitution of Partnership)
• Chapter No. 5 – Partnership Accounts – IV (Admission of A Partner)
• Chapter No. 6 – Partnership Accounts – V (Retirement and Death of A Partner)
• Chapter No. 7 – Partnership Accounts – VI (Dissolution of Partnership Firm)
• Chapter No. 8 – Company Accounts (Share Capital)
• Chapter No. 9 – Company Accounts (Issue of Debentures)
• Chapter No. 10 – Company Accounts (Redemption of Debentures)

Usha Publication – Accountancy PSEB (Class 12) – Volume II – Solution

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

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