question_answer
Given below is the balance sheet of A and B Who are partners in a firm sharing profits in the ratio of 3 : 2. Balance Sheet as at. ?.. Liabilities | | Amt (Rs.) | Assets | Amt (Rs.) |
Sundry Creditors | | 3,00,000 | Land and Buildings | 4,00,000 |
Profit and Loss A/c | | 1,00,000 | Plant and Machinery | 3,00,000 |
Capital Accounts | | | Stock | 70,000 |
A | 4,00,000 | | Debtors | 1,80,000 |
B | 2,00,000 | 6,00,000 | Bank | 50,000 |
| | 10,00,000 | | 10,00,000 |
On the date, C is admitted as a partner on the following terms: (i) A gives 1/3rd of his share while B gives 1/10th from his share to C. |
(ii) Goodwill is valued at 2 years? purchase of the average profits of the last 5 years, which were Rs. 50,000 (loss); Rs. 1,20,000; Rs. 10,000 (loss); Rs. 3,00,000 and Rs. 3,40,000 respectively. C does not bring his share of goodwill in cash. |
(iii) C brings in capital in proportion to his share of profit in the firm. |
Pass necessary journal entries.
Answer:
JOURNAL Date | Particulars | | LF | Amt (Dr) | Amt (Cr) |
| Profit and Loss A/c | Dr | | 1,00,000 | |
| To A?s Capital A/c | | | | 60,000 |
| To B?s Capital A/c | | | | 40,000 |
| (Being transfer of profit and loss balance to old partners? capital accounts) | | | | |
| C?s Current A/c | Dr | | 84,000 | |
| To A?s Capital A/c | | | | 56,000 |
| To B?s Capital A/c | | | | 28,000 |
| (Being adjustment for goodwill in sacrificing ratio of 2 : 1) | | | | |
| Bank A/c | Dr | | 3,36,000 | |
| To C?s Capital A/c | | | | 3,36,000 |
| (Being proportionate capital brought in by C) | | | | |
Working Notes 1. Calculation of Sacrificing Ratio Share Surrendered by \[A\,=\,\frac{3}{5}\times \frac{1}{3}\,=\,\frac{1}{5}\] Share Surrendered by \[B\,=\,\frac{1}{10}\] Sacrificing Ratio =\[\frac{1}{5}\,:\,\frac{1}{10}\Rightarrow \,\frac{2}{10}\,:\,\frac{1}{10}\Rightarrow \,2\,:\,1\] 2. Calculation of C?s Share \[\frac{2}{10}\,+\,\frac{1}{10}\,=\,\frac{2-1}{10}=\frac{3}{10}\] 3. Valuation of Goodwill \[\text{Average}\,\text{Profit}\,=\,\frac{(50,000)\,+\,1,20,000\,\times \,(10,000)\,+\,3,00,000\,+\,3,40,000}{5}\,=\,Rs.\,1,40,000\] Goodwill at 2 Years? Purchase = \[1,40,000\times 2\,=\,Rs.\,2,80,000\] C?s Share of Goodwill = \[2,80,000\times \frac{3}{10}\,=\,Rs.\,84,000\] 4. Calculation of C?s Capital A?s Capital : Rs. 4,00,000 + 60,000 + 56,000 | = 5,16,000 |
(+) B?s Capital : Rs. 2,00,000 + 40,000 + 28,000 | = 2,68,000 |
| Rs. 7,84,000 |
For 7/10th share of profits, the Capital is Rs. 7,84,000 \[\therefore \] Total Capital of the Firm = \[7,84,000\times \frac{10}{7}\,=\,Rs.\,11,20,000\] Now C?s Capital for 3/10th Share = \[11,20,000\times \frac{3}{10}\,=\,Rs\,3,36,000\]