Snehal and Meenal are equal partners in a business. Their Balance sheet is as follows :
Balance Sheet as on 31^{st} March, 2012
Liabilities | Amount (Rs) |
Amount (Rs) | Assets | Amount (Rs) |
Amount (Rs) |
Capital A/c’s | Premises | 20500 | |||
Snehal | 80000 | 125000 |
Investments |
10500 | |
Meenal | 45000 | Equipments | 5000 | ||
Creditors | 26000 | Bills Receivable | 18000 | ||
Bank Loan (Taken on 1.1.2012) | 40000 | Debtors | 110000 | 99000 | |
(-) R.D.D | 11000 | ||||
Profit and Loss A/c | 6600 | ||||
Bank | 31400 | ||||
191000 | 191000 |
They agreed to admit Kamal on 1^{st} April, 2012 on the following terms.
1) He should bring 50,000 towards his capital for 1/4^{th} share in future profit.
2) Goodwill A/c be raised in the books of the firm Rs 40,000/-
3) R.D.D to be maintained at 5% on debtors.
4) Premises to be valued at Rs 30,000 and Equipments to be written off fully.
5) Interest at the rate of 15% p.a. is due on bank loan.
6) Creditors allowed a discount of Rs 1100/- and they were paid off immediately.
Pass necessary journal entries to record the above scheme of admission.
Solution
Journal Entry
Date | Particulars | L.F. | Debit Amount Rs. | Credit Amount Rs. |
Reserve for Doubtful Debts A/c Dr To Profit and Loss Adjustment A/c (Being Reserve for Doubtful Debts maintained @ 5%) |
5500 | 5500 | ||
Premises A/c Dr To Profit and Loss Adjustment A/c (Being Premises Appreciated by Rs 9,500) |
9500 | 9500 | ||
Creditors A/c Dr. To Profit and Loss Adjustment A/c (Being Creditors paid off) |
1100 | 1100 | ||
Profit and Loss Adjustment A/c Dr. To Equipment A/c (Being Equipments written off) |
5000 | 5000 | ||
Profit and Loss Adjustment A/c Dr. To Outstanding Interest on Loan (Being Interest on Bank Loan outstanding for 3 months @ 15% per annum) |
1500 | 1500 | ||
Profit and Loss Adjustment A/c Dr. To Snehal’s Capital A/c To Meenal’s Capital A/c (Being Profit on Profit and Loss Adjustment A/c, distributed among existing partners in the equal ratio) |
9600 |
4800 4800 |
||
Snehal’s Capital A/c Dr. Meenal’s Capital A/c Dr. To Profit and Loss A/c (Being Profit and Loss (Dr.) A/c transferred to existing Partner’s Capital A/c in the equal ratio) |
3300 3300 |
6600 | ||
Cash A/c Dr. To Kamal's Capital A/c (Being Kamal brought his share of Capital in Cash) |
50000 | 50000 | ||
Goodwill A/c Dr. To Snehal’s Capital A/c To Meenal’s Capital A/c (Being Goodwill A/c is to be raised in the book of the firm) |
40000 |
20000 20000 |
Working Notes:
Calculation of New Profit Sharing Ratio
Old Ratio = Snehal : Meenal = 1 : 1
Kamal's Share = `1/4`
Let the total share of firm = 1
Remaining share of firm = `1-1/4 = 3/4`
Snehal's New Share = `3/4 xx 1/2 = 3/8`
Meenal's New Share = `3/4 xx 1/2 = 3/8`
New Profit Sharing Ratio = `3/8 : 3/8 : 1/4 = (3:3:2)/8`
Sacrificing Ratio = Old Ratio - New Ratio
Snehal's Sacrifice = `1/2 - 3/8 = 1/8`
Meenal's Sacrifice = `1/2 - 3/8 = 1/8`
Sacrificing Ratio = 1 : 1
WN 1: Distribution of Profit and Loss A/c
Snehal will give = `6600 xx 1/2 = "Rs" 3300`
Meenal will give = `6600 xx 1/2 = "Rs" 3300`
WN 2: Distribution of Kamal’s Share of Goodwill
Snehal will get = `40000 xx 1/2 = "Rs." 20000`
Meenal will get = `40000 xx 1/2 = "Rs" 20000`
WN 3 : Profit and Loss Adjustment Account
Profit and Loss Adjustment Account
Dr. Cr.
Particulars | Amount (Rs) | Particulars | Amount (Rs) | |
Equipments | 5000 | Reserve for Doubtful Debts | 5500 | |
Outstanding Interest on Loan | 1500 | Premises | 9500 | |
Profit transferred to: |
Creditors |
1100 | ||
Snehal’s Capital `(9600 xx 1/2)` |
4800 | 9600 | ||
Meenal’s Capital `(9600 xx 1/2)` |
4800 | |||
16100 | 16100 |