Question

X and Y are partners. They admit Z as a partner and a new profit-sharing ratio is agreed at 3 : 2 : 1. Z brings in Capital of ₹ 1,50,000 and ₹ 40,000 as a premium for goodwill in Cash.

Their Balance Sheet was as follows:

Liabilities	₹	₹	Assets	₹	₹
Creditors		40,000	Cash and Bank		44,000
Capital Accounts:		6,50,000	Debtors	2,00,000	1,86,000
X	4,00,000		Less: Provision	14,000
Y	2,50,000		Stock		2,50,000
Current Accounts:		40,000	Machinery		1,20,000
X	30,000		Building		2,00,000
Y	10,000
Workmen Compensation Reserve		70,000
		8,00,000			8,00,000

The assets and liabilities are revalued as under:

1. Provision for Doubtful Debts is found in excess by ₹ 4,000.
2. Building was found under valued by 20% and Machinery overvalued by 20%.
3. Part of the stock which had been included at a cost of ₹ 10,000 had been badly damaged in storage and could only expect to realise ₹ 2,000.
4. Creditors were written off ₹ 6,000.

Pass necessary journal entries.

Hint:

No. (ii) Dr. Building A/c and Cr. Revaluation A/c by ₹ 50,000
Dr. Revaluation A/c and Cr. Machinery A/c by ₹ 20,000

No. (iii) Dr. Revaluation A/c and Cr. Stock A/c by ₹ 8,000.

Answer 1

Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Building A/c   ...Dr.		50,000
	To Revaluation A/c			50,000
	(Undervaluation of building by 20% rectified)
	Provision for Doubtful Debts A/c   ...Dr.		4,000
	To Revaluation A/c			4,000
	(Provision found to be in excess written back)
	Creditors A/c   ...Dr.		6,000
	To Revaluation A/c			6,000
	(Creditors written off)
	Revaluation A/c   ...Dr.		20,000
	To Machinery A/c			20,000
	(Overvaluation of machinery by 20% rectified)
	Revaluation A/c   ...Dr.		8,000
	To Stock A/c			8,000
	(Loss on damaged stock recorded)
2.	Revaluation A/c   ...Dr.		32,000
	To X’s Capital A/c			16,000
	To Y’s Capital A/c			16,000
	(Gain on revaluation distributed to X and Y in equal proportion)
3.	Cash and Bank A/c   ...Dr.		1,90,000
	To Z’s Capital A/c			1,50,000
	To Premium for Goodwill A/c			40,000
	(Being cash brought in by Z for capital and goodwill)
	Premium for Goodwill A/c   ...Dr.		40,000
	To X’s Capital A/c			40,000
	(Premium for goodwill credited to sacrificing partner X)
4.	Workmen Compensation Reserve A/c   ...Dr.		70,000
	To X’s Capital A/c			35,000
	To Y’s Capital A/c			35,000
	(Workmen Compensation Reserve distributed to old partners)