Question

Snehal and Meenal are equal partners in a business. Their Balance sheet is as follows :

                 Balance Sheet as on 31^st March, 2012

Liabilities	Amount (Rs)	Amount (Rs)	Assets	Amount (Rs)	Amount (Rs)
Capital A/c’s			Premises		20500
Snehal	80000	125000	Investments		10500
Meenal	45000		Equipments		5000
Creditors		26000	Bills Receivable		18000
Bank Loan (Taken on 1.1.2012)		40000	Debtors	110000	99000
			(-) R.D.D	11000
			Profit and Loss A/c		6600
			Bank		31400
		191000			191000

They agreed to admit Kamal on 1^st April, 2012 on the following terms.

1) He should bring 50,000 towards his capital for 1/4^th share in future profit.

2) Goodwill A/c be raised in the books of the firm Rs 40,000/-

3) R.D.D to be maintained at 5% on debtors.

4) Premises to be valued at Rs 30,000 and Equipments to be written off fully.

5) Interest at the rate of 15% p.a. is due on bank loan.

6) Creditors allowed a discount of Rs 1100/- and they were paid off immediately.

Pass necessary journal entries to record the above scheme of admission.

Answer 1

Journal Entry

Date	Particulars	L.F.	Debit Amount Rs.	Credit Amount Rs.
	Reserve for Doubtful Debts A/c                Dr    To Profit and Loss Adjustment  A/c (Being Reserve for Doubtful Debts maintained @ 5%)		5500	5500
	Premises A/c           Dr    To Profit and Loss Adjustment  A/c (Being Premises Appreciated by Rs 9,500)		9500	9500
	Creditors A/c          Dr.    To Profit and Loss Adjustment  A/c (Being Creditors paid off)		1100	1100
	Profit and Loss Adjustment  A/c     Dr.    To Equipment A/c (Being Equipments written off)		5000	5000
	Profit and Loss Adjustment  A/c     Dr.    To Outstanding Interest on Loan (Being Interest on Bank Loan outstanding for 3 months @ 15% per annum)		1500	1500
	Profit and Loss Adjustment  A/c     Dr.    To Snehal’s Capital A/c    To Meenal’s Capital A/c (Being Profit on Profit and Loss Adjustment  A/c, distributed among existing partners in the equal ratio)		9600	4800 4800
	Snehal’s Capital A/c  Dr. Meenal’s Capital A/c Dr.     To Profit and Loss A/c (Being Profit and Loss (Dr.) A/c transferred to existing Partner’s Capital A/c in the equal ratio)		3300 3300	6600
	Cash A/c                    Dr.    To Kamal's Capital A/c (Being Kamal brought his share of Capital in Cash)		50000	50000
	Goodwill A/c             Dr.    To Snehal’s Capital A/c   To Meenal’s Capital A/c (Being Goodwill A/c is to be raised in the book of the firm)		40000	20000 20000

Working Notes:

Calculation of New Profit Sharing Ratio

Old Ratio = Snehal : Meenal = 1 : 1

Kamal's Share = `1/4`

Let the total share of firm = 1

Remaining share of firm = `1-1/4 = 3/4`

Snehal's New Share = `3/4 xx 1/2 = 3/8`

Meenal's New Share = `3/4 xx 1/2 = 3/8`

New Profit Sharing Ratio = `3/8 : 3/8 : 1/4 = (3:3:2)/8`

Sacrificing Ratio = Old Ratio - New Ratio

Snehal's Sacrifice = `1/2 - 3/8 = 1/8`

Meenal's Sacrifice = `1/2 - 3/8 = 1/8`

Sacrificing Ratio = 1 : 1

WN 1: Distribution of Profit and Loss A/c

Snehal will give = `6600 xx 1/2 = "Rs" 3300`

Meenal will give = `6600 xx 1/2 = "Rs" 3300`

WN 2: Distribution of Kamal’s Share of Goodwill 

Snehal will get = `40000 xx 1/2 = "Rs." 20000`

Meenal will get = `40000 xx 1/2 = "Rs" 20000`

WN 3 : Profit and Loss Adjustment Account

                      Profit and Loss Adjustment Account

Dr.                                                                                          Cr.

 

Particulars		Amount (Rs)	Particulars	Amount (Rs)
Equipments		5000	Reserve for Doubtful Debts	5500
Outstanding  Interest on Loan		1500	Premises	9500
Profit transferred to:			Creditors	1100
Snehal’s Capital `(9600 xx 1/2)`	4800	9600
Meenal’s Capital `(9600 xx 1/2)`	4800
		16100		16100