Question

Given below is the Balance Sheet of S as at 31st March, 2024:

Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Capital		2,00,000	Building		1,50,000
Sundry Creditors		75,000	Furniture and Fittings		50,000
			Bills Receivable		10,000
			Sundry Debtors	25,000	20,000
			Less: Provision for Doubtful Debts	5,000
			Cash at Bank		45,000
		2,75,000			2,75,000

T was admitted as a partner for a half share of profits on the following conditions:

1. Building to be appreciated by 20%.
2. Furniture and fittings to be written down to ₹ 45,000.
3. Bills receivable not to be taken over by the new partnership.
4. Provision for doubtful debts was found to be in excess by ₹ 3,000.
5. A liability of ₹ 2,000 included in creditors was not likely to arise.
6. There is an additional liability of ₹ 5,000 being outstanding salary payable to employees of the firm.

T is to bring 30,000 as a premium for goodwill and further cash to make his capital equal to `3/5`th of S’s capital.

Pass journal entries and prepare the opening Balance Sheet of the partnership.

Answer 1

Dr.	Revaluation Account		Cr.
Particulars	Amount	Particulars	Amount
To Furniture and Fittings A/c	5,000	By Building A/c	30,000
To Outstanding Salary A/c	5,000	By Provision for Doubtful Debts A/c	3,000
To Gain transferred to S’s Capital A/c	25,000	By Sundry Creditors A/c	2,000
	35,000		35,000

 

Dr.	Partners’ Capital Account				Cr.
Particulars	S (₹)	T (₹)	Particulars	S (₹)	T (₹)
To Bills Receivable A/c	10,000		By Balance b/d	2,00,000
To Balance c/d	2,45,000	1,47,000	By Revaluation A/c	25,000
			By Goodwill A/c	30,000
			By Bank A/c		1,47,000
	2,55,000	1,47,000		2,55,000	1,47,000

 

Balance Sheet
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Capital Accounts:		3,92,000	Building		1,80,000
S	2,45,000		Furniture and Fittings		45,000
T	1,47,000		Sundry Debtors		23,000
Sundry Creditors		73,000	Cash at Bank		2,22,000
Outstanding Salary		5,000
		4,70,000			4,70,000

 

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	Building A/c   ...Dr.		30,000
	Provision for Doubtful Debts A/c   ...Dr.		3,000
	Sundry Creditors A/c   ...Dr.		2,000
	To Revaluation A/c			35,000
	(Gain on revaluation of building, provision for doubtful debts, and creditors recorded)
	Revaluation A/c   ...Dr.		10,000
	To Furniture and Fittings A/c			5,000
	To Outstanding Salary A/c			5,000
	(Loss on revaluation of furniture and outstanding salary recorded)
	Revaluation A/c   ...Dr.		25,000
	To S’s Capital A/c			25,000
	(Net gain on revaluation transferred to S’s capital account)
	Bank A/c   ...Dr.		30,000
	To Premium for Goodwill A/c			30,000
	(Premium for goodwill brought in by T)
	Premium for Goodwill A/c   ...Dr.		30,000
	To S’s Capital A/c			30,000
	(Premium for goodwill credited to S’s capital account)
	Bank A/c   ...Dr.		1,47,000
	To T’s Capital A/c			1,47,000
	(Capital brought in by new partner T)
	S’s Capital A/c   ...Dr.		10,000
	To Bills Receivable A/c			10,000
	(Bills receivable not taken over by the new partnership and transferred to S’s capital account)

Working Note:
Building Appreciated by 20%.

Gain on Revaluation = `1,50,000 xx 20/100`

= 30,000

Furniture and Fittings Written down to ₹ 45,000

Loss on Revaluation = 50,000 − 45,000

= 5,000