Question

A and B share profits and losses equally. They have ₹ 20,000 each as capital. They admit C as an equal partner and goodwill was valued at ₹ 30,000. C is to bring in ₹ 30,000 as his capital and necessary cash towards his share of goodwill. The Goodwill Account will not remain open in books. If profit on revaluation is ₹ 13,000, find the closing balance of the capital accounts.

Options

• ₹ 31,500; ₹ 31,500; ₹ 30,000

• ₹ 31,500; ₹ 31,500; ₹ 20,000

• ₹ 26,500; ₹ 26,500; ₹ 30,000

• ₹ 20,000; ₹ 20,000; ₹ 30,000

Answer 1

₹ 31,500; ₹ 31,500; ₹ 30,000

Explanation:

Distribute the revaluation profit:

A’s share of profit = `13,000 xx 1/2`

= 6,500

B’s share of profit = `13,000 xx 1/2`

= 6,500

The total firm’s goodwill is ₹ 30,000. C is admitted for an equal `1/3` share.

C's share of goodwill = `30,000 xx 1/3`

= 10,000

The goodwill premium brought by C (₹ 10,000) is credited to A and B in their sacrificing ratio of 1 : 1.

A’s share of goodwill = `10,000 xx 1/2`

= 5,000

B’s share of goodwill = `10,000 xx 1/2`

= 5,000

Calculate closing capital balance:

Closing Capital = initial + revaluation + goodwill

A’s Closing Capital = 20,000 + 6,500 + 5,000

= 31,500

B’s Closing Capital = 20,000 + 6,500 + 5,000

= 31,500

C’s Closing Capital = 30,000 (capital contribution)