Question

A and B are partners in the ratio of 3 : 2. Their Balance Sheet as at 31st March, 2024 appeared as follows:

Liabilities	₹	₹	Assets	₹	₹
Creditors		30,000	Plant		3,00,000
Workmen’s Compensation Reserve		15,000	Stock		2,00,000
Capitals:		6,00,000	Debtors		1,00,000
A	4,00,000		Bank		45,000
B	2,00,000
		6,45,000			6,45,000

The partners decide to admit C with effect from 1st April, 2024, on the following terms:

1. C is to bring ₹ 1,00,000 as capital and ₹ 20,000 as his share of goodwill.
2. C can bring only ₹ 5,000 as goodwill in cash.
3. Plant is depreciated by 10% and the stock by ₹ 10,000.
4. The liability on the Workmen’s Compensation Reserve is determined at ₹ 6,000. However, the book value of the Workmen’s Compensation Reserve appearing in the Balance Sheet is not to be altered. Adjustment is to be made through C’s Current A/c.
5. Creditors include an amount of ₹ 8,000 received as commission.
6. A contingent liability of ₹ 5,000 not included in the above balance sheet had to be cleared.
7. The new profit-sharing ratio of A, B and C is 4 : 3 : 2.

Pass entries and prepare Capital Accounts and Balance Sheet of the new firm.

Answer 1

Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	C’s Current A/c   ...Dr. `(9,000 xx 2/9)`		2,000
	To A’s Capital A/c			1,400
	To B’s Capital A/c			600
	(Excess of Workmen’s Compensation adjusted in sacrificing ratio of 7 : 3)
	Bank A/c   ...Dr.		1,05,000
	To C’s Capital A/c			1,00,000
	To Premium A/c			5,000
	(Amount of capital and premium for goodwill brought in by C)
	Premium A/c   ...Dr.		5,000
	To A’s Capital A/c			3,500
	To B’s Capital A/c			1,500
	(Premium for goodwill credited to A and B in sacrificing ratio of 7 : 3)
	C’s Current A/c		15,000
	To A’s Capital A/c			10,500
	To B’s Capital A/c			4,500
	(Goodwill credited to old partners in their sacrificing ratio of 7 : 3)
	Revaluation A/c   ...Dr.		45,000
	To Plant A/c			30,000
	To Stock A/c			10,000
	To Bank A/c (Payment of Contingent Liability)			5,000
	(Decrease in the value of assets)
	Creditors A/c   ...Dr.		8,000
	To Revaluation A/c			8,000
	(Decrease in Creditors)
	A’s Capital A/c   ...Dr.		22,200
	B’s Capital A/c   ...Dr.		14,800
	To Revaluation A/c			37,000
	(Transfer of loss on revaluation)

 

Dr.	Capital Accounts						Cr.
Particulars	A (₹)	B (₹)	C (₹)	Particulars	A (₹)	B (₹)	C (₹)
To Revaluation	22,200	14,800		By Bal. b/d	4,00,000	2,00,000
To Bal. c/d	3,93,200	1,91,800	1,00,000	By C’s Current A/c	1,400	600
				By Bank			1,00,000
				By Premium	3,500	1,500
				By C’s Current A/c (Goodwill)	10,500	4,500
	4,15,400	2,06,600	1,00,000		4,15,400	2,06,600	1,00,000

 

Balance Sheet as at 1st April, 2024
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Creditors		22,000	Plant		2,70,000
Workmen’s Compensation Reserve		15,000	Stock		1,90,000
Capitals:		6,85,000	Debtors		1,00,000
A	3,93,200		Bank		1,45,000
B	1,91,800		C’s Current A/c		17,000
C	1,00,000
		7,22,000			7,22,000