Question 95 Chapter 5 of +2-A
95. A and B are partners in a firm sharing profits in the ratio of 3 : 2. They decide to admit C as a new partner w.e.f. 1st April, 2019. In future, profits will be shared equally. The Balance Sheet of A and B as at 1st April, 2019 and the terms of admission are:
| Liabilities | Assets | |||
| Sundry Creditors | 60,000 | Cash in Bank | 40,000 | |
| Outstanding Expenses | 15,000 | Sundry Debtors | 36,000 | |
| Capital A/cs: | Stock | 84,000 | ||
| A | 3,00,000 | Furniture and Fittings | 65,000 | |
| B | 3,00,000 | 6,00,000 | Plant and Machinery | 4,50,000 |
| 6,75,000 | 6,75,000 |
(a)Capital of the firm is fixed at 6,00,000 to be contributed by partners in the profit-sharing ratio. The difference will be adjusted in cash.
(b) C to bring in his share of capital and goodwill in cash. Goodwill of the firm is to be valued on the basis of two years’ purchases of super profit. The average net profits expected in the future by the firm 90,000 per year. The normal rate of return on capital in similar business is 10%.
(c) The partners agreed to help maintain the plants and keep the area clean. Calculate goodwill and prepare Partners’ Capital Accounts and Bank Account.
The solution of Question 95 Chapter 5 of +2-A: –
| Partners’ Capital Account |
|||||||
| Parti culars |
A | B | C |
Partic |
A | B | C |
| To Bank A/c | 1,16,000 | 1,04,000 | – | By Balance B/d | 3,00,000 | 3,00,000 | – |
| By Bank | – | – | 2,00,000 | ||||
| By Premium for Goodwill | 16,000 | 14,000 | – | ||||
| To Balance c/d | 2,00,000 | 2,00,000 | 2,00,000 | ||||
| 3,16,000 | 3,04,000 | 2,00,000 | 3,16,000 | 3,04,000 | 2,00,000 | ||
| Bank A/c | |||||
| Particulars |
Amount | Particulars | Amount | ||
| To balance b/d | 40,000 | By A’s Capital A/c | 1,16,000 | ||
| To C’s Capital A/c | 2,00,000 | By B’s Capital A/c | 1,04,000 | ||
| To Premium for Goodwill A/c | 20,000 | By balance c/d | 40,000 | ||
| 2,60,000 | 2,60,000 | ||||
Working Note:-
Calculation of Sacrificing Ratio
Old Ratio of A and B= 3 : 2
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| A’s Sacrificing Ratio | = | 3 | – | 1 |
| 5 | 3 |
| = | 9 – 5 | |
| 15 |
| = | 4 | |
| 15 |
| B’s Sacrificing Ratio | = | 2 | – | 1 |
| 5 | 3 |
| = | 6 – 5 | |
| 15 |
| = | 1 | |
| 15 |
Sacrifice Ratio of A and B = 4 : 1
Calculation of C’s Capita
| Average Net Profits | = | 90,000 |
| Capital Employed | = | 6,00,000 |
| Normal Profits | = | (Capital Employed × Normal rate of return/100 |
| = | (6,00,000 × 10/100) | |
| = | 60,000 | |
| Super Profits | = | Average Net Profits – Normal Profits |
| = | (90,000 – 60,000) | |
| = | 30,000 | |
| Goodwill | = | Super Profits × No. of years of Purchase |
| = | (30,000 × 2) | |
| = | 60,000 |
Calculation of C’s Capita
| C’s Share of Goodwill | = | 60,000 | X | 1 |
| 3 | ||||
| = | 20,000 |
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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