Question

Uma and Umesh were partners in a firm sharing profits and losses in the ratio of 2 : 3. On 31st March, 2024, their Balance Sheet was as follows:

Balance Sheet of Uma and Umesh as at 31st March, 2024
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Capitals:			Land and Building		10,00,000
Uma	5,00,000		Furniture		1,00,000
Umesh	7,50,000	12,50,000	Debtors	80,000
Creditors		50,000	Less: Provision for Doubtful Debts	5,000	75,000
General Reserve		75,000	Stock		40,000
Workmen Compensation Reserve		25,000	Bank		1,95,000
Outstanding Electricity Bill		10,000
Total		14,10,000	Total		14,10,000

On the above date, Daya was admitted as a new partner on the following terms:

1. The new profit-sharing ratio of Uma, Umesh and Daya will be 3 : 2 : 5.
2. Daya will bring ₹ 10,00,000 as her capital and ₹ 2,00,000 as her share of goodwill premium.
3. The value of Land and Building will be increased by ₹ 2,00,000.
4. Liability against Workmen Compensation was estimated at ₹ 35,000.
5. ₹ 3,000 bad debts will be written off and a provision for bad and doubtful debts created @ 5% of debtors.
6. Outstanding electricity bill will be paid off.

Pass necessary journal entries for the above transactions on Daya's admission.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Bank A/c		12,00,000
	To Daya's Capital A/c			10,00,000
	To Premium for Goodwill A/c			2,00,000
	(Being capital and goodwill premium brought in cash by Daya)
2.	Premium for Goodwill A/c		2,00,000
	To Uma's Capital A/c (₹ 2,00,000 × 1/5)			40,000
	To Umesh's Capital A/c (₹ 2,00,000 × 4/5)			1,60,000
	(Being premium for goodwill distributed in sacrificing ratio 1:4)
3.	General Reserve A/c		75,000
	To Uma's Capital A/c (₹ 75,000 × 2/5)			30,000
	To Umesh's Capital A/c (₹ 75,000 × 3/5)			45,000
	(Being undistributed general reserve credited to old partners in old ratio)
4.	Land and Building A/c		2,00,000
	To Revaluation A/c			2,00,000
	(Being appreciation in value of Land and Building recorded)
5.	Revaluation A/c		10,000
	Workmen Compensation Reserve A/c		25,000
	To Provision for Workmen Compensation Claim A/c			35,000
	(Being creation of claim liability, shortfall debited to Revaluation)
6.	Bad Debts A/c		3,000
	To Sundry Debtors A/c			3,000
	(Being bad debts written off)
7.	Provision for Doubtful Debts A/c		3,000
	To Bad Debts A/c			3,000
	(Being bad debts adjusted from old provision)
8.	Revaluation A/c		1,850
	To Provision for Doubtful Debts A/c			1,850
	(Being net additional provision required debited to Revaluation)
9.	Revaluation A/c		1,88,150
	To Uma's Capital A/c (₹ 1,88,150 × 2/5)			75,260
	To Umesh's Capital A/c (₹ 1,88,150 × 3/5)			1,12,890
	(Being gain on Revaluation distributed in old ratio)
10.	Outstanding Electricity Bill A/c		10,000
	To Bank A/c			10,000
	(Being payment of existing outstanding electricity liability)

Working note:

Calculation of Sacrificing Ratio & Revaluation Gain

Sacrificing ratio: Sacrifice = Old Share − New Share

Uma's Sacrifice = `2/5 - 3/10 = (4 - 3)/10 = 1/10`

Uma's Sacrifice = `3/5 - 2/10 = (6 - 2)/10 = 4/10`

Sacrificing ratio = 1 : 4

Net Debtors Adjustment:

New Debtors = 80,000 − 3,000 (Bad Debts) = 77,000

Required Provision (5%) = 5% of 77,000 = 3,850

Total Amount Needed = 3,000 + 3,850 = 6,850

Net Debit to Revaluation = 6,850 − 5,000 (Old Provision) = 1,850