Question

The Balance Sheet of Ramakant and Shyamkant who shared the profits in the ratio of 2:1 is as under

Balance Sheet as on 31^st March, 2012

Liabilities		Amount(Rs)	Assets		Amount(Rs)
Capitals:			Leasehold Property		20000
Ramakant	134000	254000	Live Stock		6600
Shyamkant	120000		Loose Tools		90200
Creditors		51000	Stock		84800
Rent Outstanding		10000	Debtors	48000	46000
Reserve Fund		7200	(-) R.D.D	2000
Current A/c			Bank		75400
Ramakant		2800	Current A/c
			Shyamkant		2000
		325000			325000

On 1^st April, 2012 Umakant was admitted as 1/4^th partner on the following terms:

1) He brings equipments of Rs 80,000 as his capital.

2) Firm’s goodwill is valued at Rs 1,44,000 and Umakant agreed to bring his share in firm’s goodwill by cheque.

3) R.D.D. should be maintained at 7.5% on debtors.

4) Increase live stock by Rs 2,600 and write off loose tools by 20%.

5) Outstanding rent paid Rs 9,040 in full settlement.

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
	Profit and Loss Adjustment  A/c      Dr   To  Reserve for Doubtful Debts A/c (Being Reserve for Doubtful Debt is maintained @ 7.5% on Debtors)		1600	1600
	Loose tools A/c      Dr    To Profit and loss Adjustment A/c (Being Loose Tools written off by 20%)		18040	18040
	Stock A/c                Dr.     To Profit and Loss Adjustment  A/c (Being Stock increased by Rs 2,600)		2600	2600
	Outstanding Rent A/c Dr    To Profit and Loss Adjustment  A/c (Being Outstanding Rent Paid)		9040	9040
	Profit and Loss Adjustment  A/c     Dr.      To Ramakant’s Current A/c     To Shyamkant’s Current A/c (Being Loss on  Profit and Loss Adjustment  A/c transferred to existing Partner’s Current Accounts)		16080	10720 5360
	Reserve Fund         Dr.      To  Rajkumar’s Current A/c     To Shyamkant’s Current A/c (Being Reserve fund transferred to existing Partner’s Current Account)		7200	4800 2400
	Bank A/c                 Dr   To Goodwill A/c (Benig Goodwill brought in by Umakant by cheque)		36,000	36,000
	Goodwill A/c           Dr.   To Ramakant’s Current A/c   To Shyamkant’s Current A/c (Being Goodwill distributed among existing Partner’s in their sacrificing ratio i.e. 2:1)		36000	24000 12000
	Equipment A/c        Dr   To Umakant’s Capital A/c (Being Umakant brought his share of Capital in kind i.e. Equipment)		80000	80000

Working Notes:

Calculation of Profit Sharing Ratio 

Old Ratio = Ramakant : Shyamkant  = 2 : 1
Umakant's Share = `1/4`

Let the Total share of firm = 1

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

Ramakant's New share = `3/4 xx 2/3 = 6/12`

Shyamkant's New Share = `3/4 xx 1/3 = 3/12`

New profit Sharing Ratio of Ramakant , Shyamkant and Umakant = `6/12 : 3/12 : 1/4 = (2 : 1 : 1)/12`

Sacrificing Ratio = Old Ratio - New Ratio

Ramakant's Sacrifice = `2/3 - 6/12 = 2/12`

Shyamkant's Sacrifice = `1/3 - 3/12 = 1/12`

Sacrificing Ratio of Ramakant and Shyamkant = 2 : 1

WN 2 : Distribution of Reserve Fund 

Ramakant will get = `7200 xx 2/3 = "Rs" 4800`

Shyamkant will get =`7200 xx 1/3 = "Rs" 2400`

WN 3 : Distribution of Umakant’s Share of Goodwill 

Ramakant will get = `36000 xx 2/3 = "Rs" 24000`

Shyamkant will get = `36000 xx 1/3 = "Rs" 12000`

WN 4 : Profit and Loss Adjustment Account 

           Profit and Loss Adjustment Account
Dr.                                                                                 Cr.

Particulars	Amount(Rs)	Particulars		Amount(Rs)
Reserve for Doubtful Debts	1600	Stock		2600
Loose Tools	18040	Outstanding Rent		960
		Loss transferred to:
		Ramamkant’s Current A/c	10720	16080
		Shyamkant’s Current A/c	5360
	19640			19640