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Question 81 Chapter 5 of +2-A
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81. Atul and Amit are partners sharing profits in the ratio of 3 : 2. Their Balance Sheet as at 31st March, 2019 is as follows:
| Liabilities | Assets | |||
| Capital A/cs: | Plant and Machinery | 1,80,000 | ||
| Atul | 1,00,000 | Furniture | 30,000 | |
| Amit | 1,00,000 | 2,00,000 | Computer | 10,000 |
| Current A/cs: | Stock | 40,000 | ||
| Atul | 70,000 | Debtors | 50,000 | |
| Amit | 50,000 | 1,20,000 | Bills | 10,000 |
| Creditors | 40,000 | Cash | 10,000 | |
| Bills Payable | 10,000 | Bank | 40,000 | |
| 3,70,000 | 3,70,000 |
Abhay is admitted as a partner for 1/4th share on 1st April, 2019 on the following terms:
(a) Abhay is to bring 65,000 as capital after adjusting amount due to him included in creditors and his share of Goodwill.
(b) 10,000 included in creditors is payable to Abhay which is to be transferred to his Capital Account.
(c) Furniture is to reduced by 3,000 and Plant and Machinery is to be increased to 1,98,000.
(d) Stock is overvalued by 4,000.
(e) A Provision for Doubtful Debts is to be created @ 5%.
(f) Goodwill is to be valued at 2 years’ purchase of average profit for four years. Profits of four years ended 31st March were as follows: 2018-19 − 25,000, 2017-18 − 10,000, 2016-17 − 2,500, and 2015-16 − 2,500. Pass the Journal entries for the above arrangement.
The solution of Question 81 Chapter 5 of +2-A: –
| Date | Particulars | L.F. | Debit | Credit | |
| Creditors A/c | Dr | 10,000 | |||
| To Abhay’s Capital A/c | 10,000 | ||||
| (Being amount due to Abhay transferred to his Capital A/c) | |||||
| Cash A/c | Dr | 60,000 | |||
| To Abhay’s Capital A/c | 55,000 | ||||
| To Premium for Goodwill A/c (WN1) | 5,000 | ||||
| (Being Capital and goodwill paid by the new partner | |||||
| Premium for Goodwill A/c | Dr | 5,000 | |||
| To Atul’s Capital A/c | 3,000 | ||||
| To Amit’s Capital A/c | 2,000 | ||||
| (Being premium for goodwill adjusted in 3:2) | |||||
| Revaluation A/c | Dr | 9,500 | |||
| To Furniture A/c | 3,000 | ||||
| To Stock A/c | 4,000 | ||||
| To Provision for Doubtful Debts A/c | 2,500 | ||||
| (Being assets revalued and liabilities reassessed) | |||||
| Plant & Machinery A/c | Dr | 18,000 | |||
| To Revaluation A/c | 18,000 | ||||
| (Being appreciation in plant & machinery provided for) | |||||
| Revaluation A/c (WN2) | Dr | 8,500 | |||
| To Atul’s Capital Ac | 5,100 | ||||
| To Amit’s Capital A/c | 3,400 | ||||
| (Being revaluation profit transferred to partner’s capital A/c) | |||||
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Working Note:-
Calculation of Goodwill brought in by Abhay:
| Average Profits | = | (Normal profits from 31st March, 2016 to 31st March, 2019)/2 |
| = | (25,000 + 10,000 + 2,500 + 2,500)/4 | |
| = | 10,000 | |
| Goodwill | = | Average Profits × No. of years of Purchase |
| = | (10,000 × 2) | |
| = | 20,000 | |
| Goodwill brought in by Abhay | = | (20,000 × 1/4 |
| = | 5,000 |
Calculation of Revaluation Profit/Loss:
| Debit side total | = | (3,000 + 4,000 + 2,500) |
| = | 9,500 | |
| Credit side total | = | 18,000 |
| Gain on Revaluation | = | (18,000 – 9,500) |
| = | 8,500 |
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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