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of Bini and Mini, who will share profits in future in the ratio of 5:4. The assets and liabilities valued as: Inventories ₹1,30,000; Machinery ₹ 82,000; Furniture ₹1,95,000 and Building

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Question

Gini, Bini and Mini were in partnership sharing profits and losses in the ratio of 5:2:2. Their Balance Sheet as at 31st March, 2021 was as follows:

Balance Sheet as at 31st March,2021
Liabilities Amount (₹) Assets Amount (₹)
Sundry Creditors   56,500 Cash   1,17,300
Bank Overdraft   61,500 Debtors 38,000  
Workmen’s Compensation Reserve   32,000 Less: Provision For Doubtful Debts (2,300) 35,700
Capitals:     Inventories   1,34,000
Gini 4,60,000   Machinery   1,00,000
Bini 3,00,000   Furniture   1,80,000
Mini 2,90,000 10,50,000 Building   5,70,000
      Goodwill   63,000
    12,00,000     12,00,000

On 31st March, 2021, Gini retired from the firm. All the partners agreed to revalue the assets and liabilities on the following basis:

  1. Bad debts amounted to ₹ 5,000. A provision for doubtful debts was to be maintained at 10% on debtors.
  2. Partners have decided to write off existing goodwill.
  3. Goodwill of the firm was valued at ₹ 54,000 and be adjusted into the Capital Accounts of Bini and Mini, who will share profits in future in the ratio of 5:4.
  4. The assets and liabilities valued as: Inventories ₹1,30,000; Machinery ₹ 82,000; Furniture ₹1,95,000 and Building ₹ 6,00,000.
  5. Liability of ₹23,000 is to be created on account of Claim for Workmen Compensation.
  6. There was an unrecorded investment in shares of ₹ 25,000. It was decided to pay off Gini by giving her unrecorded investment in full settlement of her part payment of ₹ 28,000 and remaining amount after two months.

Prepare Revaluation Account and Partners’ Capital Accounts as on 31st March, 2021.

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Solution

REVALUATION A/C
Dr.                                                                                                                                    Cr.
Particulars Amount(₹) Particulars Amount(₹)
To Baddebt A/c     By Furniture A/c 15,000
To Provision for doubtful
debts A/c
    By Building A/c 30,000
To Inventories A/c     By Investment A/c 28,000
To Machinery A/c        
To Partner’s Capital A/c:        
Gini 25,000      
Bini 10,000      
Mini 10,000 45,000    
    73,000   73,000

 

Dr. Partner’s Capital A/c
Cr.
Particulars Gini Bini Mini Particulars Gini Bini Mini
To Goodwill A/c 35,000 14,000 14,000  By Balance b/d 4,60,000 3,00,000 2,90,000
To Gini’s Capital A/c   18,000 12,000 By Workmen Compensation Reserve A/c 5,000 2,000 2,000
To Investment A/c 28,000     By Bini’s Capital A/c 18,000    
To Gini’s Loan A/c 4,57,000     By Mini’s Capital A/c 12,000    
To Balance c/d       By Revaluation A/c 25,000 10,000 10,000
  5,20,000 3,12,000 3,02,000   5,20,000 3,12,000 3,02,000
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2021-2022 (March) Term 2 Sample

RELATED QUESTIONS

State any three circumstances other than (i) admission of a new partner; (ii) retirement of a partner and (iii) death of a partner, when need for valuation of goodwill of a firm may arise.


Vivek, Viney and Vijay were partners in a firm sharing profits in the ratio of 2:1:2. The firm closes its books on 31st March every year. On 31-12-2014 Viney died. On that date his capital account showed a debit balance of Rs 10,000 and Goodwill of the firm was valued at Rs 2, 40,000. There was a debit balance of Rs 7,000 in the profit and loss account. Viney's share of profit in the year of his death will be calculated on the basis of average profit of last 5 years which was Rs 90,000.

Pass necessary journal entries in the books of the firm on Viney's death.


On1.4.2014 the Balance Sheet of Anant, Sampat and Gunvant was as follows :

Liabilities

Amount

Rs

Assets

Amount

Rs

Sundry Creditors

General Reserve

Capital Reserve

    Anant    30,000

   Sampat   15,000

   Gunvant  15,000

9,000

9,600

 

 

 

60,000

Bank

Bills Receivables

Stock

Tools

Furniture

 

15,600

18,000

18,000

3,000

24,000

 

  78,600   78,600

Gunvant died on 30.9.2014. Under the terms of Partnership Deed, the executors of the deceased partner were entitled to:

(a) The amount standing to the credit of partner's capital account.
(b) Interest on capital @12% per annum.
(c) A share of goodwill on the basis of twice the average of past three years profits.
(d) A share of profit from the closing of last financial year to the date of death on the basis of last year's profit.

The profits of the last three years were as follows:

Year Profit
2011 - 2012 18.000
2012 - 2013 21,000
2013 - 2014 24,000

The firm closes its books on 31st March every year. Partners share profits in the ratio of their capitals.
Prepare Gunvant's Capital Account to be presented to his executors


For which share of Goodwill a partner is entitled at the time of his retirement?


How does the nature of business affect the value of goodwill of a firm? 


What is a Goodwill?

 


Select the most appropriate answer from the alternative given below and rewrite the sentence.

When goodwill is withdrawn by old partners ________________ a/c is credited.


State 'True' or 'False'
When goodwill is paid privately, no entry in the books of account is required.


State 'True' or 'False'
On admission of a partner, the amount of goodwill brought in cash is credited to goodwill account.


Aparna, Manisha and Sonia are partners sharing profits in the ratio of 3:2:1. Manisha retires and goodwill of the firm is valued at Rs 1,80,000. Aparna and Sonia decided to share future in the ratio of 3:2. Pass necessary Journal entries.


Asin and Shreyas are partners in a firm. They admit Ajay as a new partner with 1/5th share in the profits of the firm. Ajay brings ₹ 5,00,000 as his share of capital. The value of the total assets of the firm was ₹ 15,00,000 and outside liabilities were valued at ₹ 5,00,000 on that date. Give the necessary Journal entry to record goodwill at the time of Ajay's admission. Also show your workings.


A and B are partners sharing profits in the ratio of 3 : 2. Their books show goodwill at ₹ 2,000. C is admitted as partner for 1/4th share of profits and brings in ₹ 10,000 as his capital but is not able to bring in cash for his share of goodwill ₹ 3,000. Draft Journal entries.


On the admission of Rao, goodwill of Murty and Shah is valued at ₹ 30,000. Rao is to get 1/4th share of profits. Previously Murty and Shah shared profits in the ratio of 3 : 2. Rao is unable to bring amount of goodwill. Give Journal entries in the books of Murty and Shah when:
(a) there is no Goodwill Account and
(b) Goodwill appears in the books at ₹ 10,000.


A and B are partners sharing profits in the ratio of 2 : 1. They admit C for a `1/4`th share in profits. C brings in ₹ 30,000 for his capital and ₹ 8,000 out of his share of ₹ 10,000 for goodwill. Before admission, goodwill appeared in books at ₹ 18,000. Give Journal entries to give effect to the above arrangement.

Hints:

  1. Goodwill of ₹ 18,000 written off by A and B in 2 : 1.
  2. Goodwill of ₹ 8,000 brought in cash by C will be credited to the Premium for Goodwill A/c.
  3. Premium for Goodwill A/c will be debited by ₹ 8,000 and C’s Current A/c will be debited by ₹ 2,000 and the Capital Accounts of A and B will be credited in 2 : 1.

Anu and Bhagwan were partners in a firm sharing profits in the ratio of 3 : 1. Goodwill appeared in the books at ₹ 4,40,000. Raja was admitted to the partnership. The new profit-sharing ratio among Anu, Bhagwan and Raja was 2 : 2 : 1. Raja brought ₹ 1,00,000 for his capital and necessary cash for his goodwill premium. Goodwill of the firm was valued at ₹ 2,50,000. Record necessary Journal entries in the books of the firm for the above transactions.


A and B are partners sharing profits and losses in the ratio of 2 : 1. They take C as a partner for 1/5th share. Goodwill Account appears in the books at ₹ 15,000. For the purpose of C's admission, goodwill of the firm is valued at ₹ 15,000. C is to pay proportionate amount as premium for goodwill which he pays to A and B privately. Pass necessary entries.


Goodwill given in the old balance sheet will be:


Amount brought by a new partner for his share in goodwill is known as _____________.


Which items may appear on the credit side of the partner's current account?


Old partnership will dissolve if:


When there is no Goodwill Account in the books and goodwill is raised, ____________ account will be debited.


Which method is followed when the new partner does not bring in his share of goodwill in cash.


Jaya, Kirti, Ekta and Shewta are partners in the firm sharing profits and losses in the ratio of 2:1:2:1. On Jaya's retirement, the goodwill of the firm is valued at Rs. 36,000. Kirti, Ekta and Shewta decided to share future profits equally. What will be the necessary journal entry for the treatment of goodwill without opening a 'Goodwill Account'.


Harry, Pammy and Sunny are partners sharing profits in the ratio of 3:2:1. Goodwill is appearing in the books at a value of Rs. 60, 000. What is the journal entry for the following case?


If goodwill is not brought in cash by the new partner, it should be debited to his ______ Account.


Analyse the case given below and answer the question that follow:

Alia, Karan and Shilpa were partners in a firm sharing profits in the ratio of 5 : 3 : 2. Goodwill appeared in their books at the value of ₹ 60,000. Karan decided to retire from the firm. On the date of his retirement, goodwill of the firm was valued at ₹ 2,40,000. The new profit sharing ratio decided among Alia and Shilpa was 2 : 3. Give the answer to the question given below:

How much will be transferred to Karan's Capital Account of the existing goodwill?


When the incoming partner brings his share of premium for goodwill in cash, it is adjusted by crediting to ______.


Chaman, Raman, and Suman are partners sharing profits in the ratio of 5:3:2. Raman retires. The new profit-sharing ratio between Chaman and Suman will be 1:1. The goodwill of the firm is valued at ₹1,00,000. Raman's share of goodwill will be adjusted.


Mohit and Govind were partners in a firm with a ratio of 1:2. They admitted Ravi for 1/5th share in profits. He brought ₹2,50,000 for capital but could not bring goodwill. The goodwill of the firm was valued at ₹3,00,000. What Journal Entry will be passed for the treatment of goodwill?


How is Goodwill of the firm created?


Profit for 2015, 2016 & 2017 is ₹ 10,000, ₹ 15,000 & ₹ 25,000. Calculate average profit.


Find out super profit, if capital employed is ₹ 4,00,000, normal rate of return is 12% and average profit is ₹ 60,000.


______ means profit which is earned over and above the normal profit.


Aman and Vinod are partners in a firm. Their Balance Sheet showed:

Gross Debtors: ₹ 1,52,000

Provision for doubtful debts: ₹ 1,000

On Milin’s admission as a new partner, the assets and liabilities are to be revalued as:

  1. Unaccounted accrued income of ₹ 10,000 to be provided for.
  2. Bills Payable of ₹ 10,000 which were recorded, to be discharged at a rebate of 10%.
  3. Debtors of ₹ 2,000 to be irrecoverable.
  4. Provision for doubtful debts to be provided @ 2% of the debtors.

What is the net effect of revaluation of assets and liabilities?


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