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 = \[11,20,000\times \frac{3}{10}\,=\,Rs\,3,36,000\]