Question

The Balance Sheet of Rajkumar and Rajendra Kumar as on 31^st March 2012 is set out below, they share profits and losses in the ratio of 2:1.

Balance Sheet as on 31^st March, 2012

Liabilities	Amount (Rs)	Assets	Amount (Rs)
Capital A/c’s - Rajkumar	200000	Buildings	100000
Rajendra Kumar	150000	Furniture	30000
General Reserve	120000	Stock	60000
Creditors	80000	Debtors	300000
		Cash	30000
		Profit and Loss A/c	30000
	550000		550000

They agreed to admit Dhiraj Kumar on 1^st April, 2012 as a partner into the firm on the following terms on.

(1) Dhiraj Kumar to bring Rs 60,000 as capital and Rs 45,000 as a goodwill, which is to be retained in the business. He will be entitled to 1/4^th share of profit of the firm.

(2) 50% of General Reserve is to remain as Reserve for doubtful debts.

(3) Furniture is to be depreciated by 5%.

(4) Stock is to be revalued at Rs 65,000/-

(5) Creditors of Rs 5,000 are not likely to claim and hence should be written off.

(6) Rent of Rs 2,000 due but not received has not been recorded in the books.

Pass the necessary journal entries in the books of new firm and prepare Balance Sheet of the new firm.

Answer 1

Journal Entry

Date	Particulars	L.F.	Debit Amount Rs.	Credit Amount Rs.
	Revaluation A/c      Dr.    To Furniture A/c (Being Furniture depreciated by 5%)		1500	1500
	Stock A/c               Dr.     To Revaluation A/c (Being stock appreciated)		5000	5000
	Creditors A/c          Dr.       To Revaluation A/c (Being creditors written off)		5000	5000
	Accrued Rent A/c   Dr.     To Revaluation A/c (Being due but not received)		2000	2000
	Revaluation A/c      Dr.    To Rajkumar's                capital A/c     To Rajendra      Kumar's Capital A/c (Being Profit of revaluation distributed among existing partners in the ratio 2:1)		10500	7000 3500
	Cash A/c                 Dr.     To Dhirajkumar's Capital A/c     To Goodwill A/c (Being Dhirajkumar brought his share of capital and goodwill)		105000	60000 45000
	Goodwill A/c          Dr.       To Rajkumar’s Capital A/c       To Rajendra Kumar’s Capital A/c (Being Goodwill distributed among sacrificing partner  in their sacrificing ratio old profit sharing i.e. 2:1to compensate for their sacrifice)		45000	30000 15000
	Rajkumar’s Capital A/c Dr. Rajendra Kumar’s Capital A/c             Dr.     To Profit and loss A/c (Being Profit and Loss (Dr.) distributed among existing partners in their old profit sharing ratio 2:1)		20000 10000	30000
	General Reserve A/c  Dr.    To Rajkumar’s Capital A/c     To Rajendra Kumar’s Capital A/c (Being General Reserve distributed among  existing partners in their old profit sharing ratio 2:1)		60000	40000 20000

 

Balance Sheet

as on April 01, 2012 after DhirajKumar’s admission

Liabilities		Amount (Rs)	Assets		Amount (Rs)
Capital A/cs:			Stock		65000
Rajkumar	257000	495500	Cash		135000
Rajendra kumar	178500		Furniture	30000	28500
Dhirajkumar	6000		Less : 5% Depreciation	(1500)
Creditors	80000	75000	Debtors	300000	240000
Less : Creditors written -off	(5000)		Less : 50% Reserve for Doubtful Debts	(60000)
			Accrued Rent		2000
			Building		100000
		570500			570500

Working Notes :

Calculation of Profit Sharing Ratio

Old Ratio = Rajkumar : Rajendra = 2 : 1

Dhirajkumar's Share = `1/4`

Let the total share of firm = 1

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

Rajkumar's New Share = `3/4 xx 2/3 = 6/12`

Rajendera kumar's New share = `3/4 xx 1/3 = 3/12`

New Profit sharing Ratio =`6/12 : 3/12 : 1/4 = (6 : 3 : 3)/12` = 2:1:1. 

Sacrificing Ratio = old ratio - New Ratio

Rajkumar's sacrifice `2/3 - 2/4 = 2/12`

Rajendera kumar's sacrifice = `1/3 - 1/4 = 1/12`

Sacrificing Ratio = 2:1.

Working Notes : 

WN 1- Distribution of General Reserve

Rajkumar will get = `60000 xx 2/3 = "Rs." 40000` 

Rajendera kumar will get = `60000 xx 1/3 = "Rs". 20000`

WN 2 -  Distribution of Profit and Loss A/c

Rajkumar will give = `30000 xx 2/3 = "Rs" 20000`

Rajendera kumar will give = `30000 xx 1/3 = "Rs" 10000`

WN 3 - Distribution of Dhiraj Kumar’s share of Goodwill

Rajkumar will get =`45000 xx 2/3 = "Rs". 30000`

Rajendera kumar will get = `45000 xx 1/3 = "Rs" 15000`

WN 4 - Profit and Loss Adjustment Account

               Profit and Loss Adjustment Account
Dr.                                                                                       Cr.

Particulars		Amount (Rs)	Particulars	Amount (Rs)
Furniture		1500	Stock	5000
Profit transferred to :			Creditors	5000
Rajkumar’s Capital	7000	10500	Accrued Rent	2000
Rajendra Kumar’s Capital	3500
		12000		12000

WN 5 - Cash Account

Dr                                                                                       Cr.

Particulars	Amount (Rs)	Particulars	Amount (Rs)
Balance b/d	30000	Balanced c/d	135000
Dhirajkumar’s Capital A/c	60000
Goodwill A/c	45000
	135000		135000