Question

Given below is the Balance Sheet of A and B, who are carrying on partnership business on 31.12.2016. A and B share profits and losses in the ratio of 2:1.         

Balance Sheet of A and B as on December 31, 2016
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)
Bills Payable		10,000	Cash in Hand	10,000
Creditors		58,000	Cash at Bank	40,000
Outstanding Expenses		2,000	Sundry Debtors	60,000
Capitals:		3,30,000	Stock	40,000
A	1,80,000		Plant	1,00,000
B	1,50,000		Buildings	1,50,000
		4,00,000		4,00,000

C is admitted as a partner on the date of the balance sheet on the following terms:

1. C will bring in Rs. 1,00,000 as his capital and Rs. 60,000 as his share of goodwill for 1/4 share in the profits.
2. Plant is to be appreciated to Rs. 1,20,000 and the value of buildings is to be appreciated by 10%.
3. Stock is found over valued by Rs. 4,000.
4. A provision for bad and doubtful debts is to be created at 5% of debtors.
5. Creditors were unrecorded to the extent of Rs. 1,000.

Pass the necessary journal entries, prepare the revaluation account and partners’ capital accounts, and show the Balance Sheet after the admission of C.

Answer 1

In the books of A, B and C
Date	Particulars	L.F.	Amount (₹)	Amount (₹)
2016
Dec 31	Bank A/c           ...Dr.		1,60,000	-
	To C’s Capital A/c		-	1,00,000
	To Premium for Goodwill A/c		-	60,000
	(Being Capital and premium for goodwill brought by C for 1/4 th share)
	Premium for Goodwill A/c      ...Dr.		60,000	-
	To A’s Capital A/c		-	40,000
	To B’s Capital A/c		-	20,000
	(Being Premium for Goodwill brought by C transferred to old partners’ capital account in their sacrificing ratio, 3:1)
	Plant A/c          ...Dr.		20,000	-
	Building A/c      ...Dr.		15,000	-
	To Revaluation A/c		-	35,000
	(Being Value of assets increased)
	Revaluation A/c        ...Dr.		8,000	-
	To Stock A/c		-	4,000
	To Provision for Doubtful Debts A/c		-	3,000
	To Creditors A/c		-	1,000
	(Being Assets and liabilities revalued)
	Revaluation A/c          ...Dr.		27,000	-
	To A’s Capital A/c		-	18,000
	To B’s Capital A/c		-	9,000
	(Being revaluation profit credited to partners in 2 : 1)

  

Revaluation A/c
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)
To Stock A/c		4,000	By Plant A/c	20,000
To Provision for Doubtful Debts A/c		3,000	By Building A/c	15,000
To Creditors A/c		1,000
To Profit transferred to Capital A/c		27,000
A	18,000
B	9,000
		35,000		35,000

 

Dr.	Partner’s Capital A/c						Cr.
Particulars	A	B	C	Particulars	A	B	C
To Balance c/d	2,38,000	1,79,000	1,00,000	By Balance b/d	1,80,000	1,50,000	-
				By Bank A/c	-	-	1,00,000
				By Premium for Goodwill A/c	40,000	20,000	-
				By Revaluation A/c	18,000	9,000
	2,38,000	1,79,000	1,00,000		2,38,000	1,79,000	1,00,000

 

Balance Sheet as on December 31, 2016
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Bills Payable		10,000	Cash in Hand		10,000
Creditors		59,000	Cash at Bank		2,00,000
Outstanding Expenses		2,000	Sundry Debtors	60,000	57,000
Capital:		5,17,000	Less: Provision for Doubtful Debt	3,000
A	2,38,000		Stock		36,000
B	1,79,000		Plant		1,20,000
C	1,00,000		Building		1,65,000
		5,88,000			5,88,000

Working Note:

1) Sacrificing ratio = Old Ratio − New Ratio

A’s Sacrificing ratio = `2/3 - 2/4 = [ 8 - 6]/12 = 2/12`

B’s Sacrificing ratio = `1/3 - 1/4 = [ 4 -3]/12 = 1/12`

Sacrificing ratio between A and B = 2:1.