NCERT Solution for Class 12 Accountancy Chapter 3 - Reconstitution Of A Partnership Firm - Admission Of A Partner

NCERT Solutions are said to be an extremely helpful book while preparing for the CBSE Class 12 Accountancy examinations. This study material owns a deep knowledge and the Solutions collected by the subject matter wizards are no distinct.

NCERT Solution for Class 12 Accountancy Chapter 3 – Reconstitution Of A Partnership Firm – Admission Of A Partner furnishes us with an all-inclusive data to all the concepts. As the students would have learnt the basic fundamentals about the subject of accountancy in class 11, this curriculum for class 12 is a continual part of it; which explains the concepts in a great way.

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ncert sol class 12 accountancy chapter 3
ncert sol class 12 accountancy chapter 3
ncert sol class 12 accountancy chapter 3
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ncert sol class 12 accountancy chapter 3
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Access the solution for class 12 Accountancy Chapter 3 – Reconstitution Of A Partnership Firm – Admission Of A Partner

Short Questions for NCERT Accountancy Solutions Class 12 Part 1 Chapter 3

1. Identify various matters that need adjustments at the time of admission of a new partner.

Following matters need adjustment when adding a new partner

1. Capital Adjustment among partners

2. Revised calculation of profit sharing ratio

3. Evaluating and adjusting the goodwill of partners who are sacrificing their share

4. Accumulated profits, reserves and losses should be distributed to old partners as per the old ratio that was agreed upon.

5. Revaluation of the Liabilities and Assets to determine the current value and distribution of profit or loss as per the old ratio

2. Why is it necessary to ascertain new profit sharing ratio even for old partners when a new partner is admitted?

At the time of admission of a new partner, the existing partners sacrifice their present profit sharing ratio to make way for a share in profit sharing to new partner which results in reducing their profit. Therefore it is essential to determine the new profit sharing ratio for old partners on the occasion of adding a new partner as it creates a more justified share of profit.

3. What is sacrificing ratio? Why is it calculated?

The portion of profit sharing ratio that is sacrificed by current partners when a new partner joins the firm is called as sacrificing ratio. It is calculated as the difference between old profit sharing ratio and new profit sharing ratio.

Sacrificing ratio = Old profit sharing ratio – New profit sharing ratio

It is compulsory to determine this ratio as the new partner has to reimburse the existing partner for making the sacrifice of profit. It is paid to them as goodwill.

4. On what occasions sacrificing ratio is used?

Sacrificing ratio needs to be used in these occasions:

1. When it is mutually decided by partners of the firm to change profit sharing ratio among the partners.

2. A new partner is introduced in the firm and accordingly the sum contributed by the new partner is distributed as goodwill based on the sacrificing ratio of existing partners.

5. If some goodwill already exists in the books and the new partner brings in his share of goodwill in cash, how will you deal with existing amount of goodwill?

Goodwill that exists in the firms before arrival of a new partner must be written off between the existing partners in the ratio of their profit sharing as previously decided. The following journal entry needs to be passed.

Old Partner’s Capital A/c

Dr.

To Goodwill A/c

(Being goodwill written off in the old ratio between existing partners) 

6. Why is there need for the revaluation of Liabilities and Assets on the admission of a partner?

When a new partner gets admitted in the firm, there is a need to revalue the Liabilities and Assets of the firm for determining the true value on that day. Revaluation is helpful as the value of Liabilities and Assets may increase or decrease and as such their values in old balance sheet may be not justified, also some assets or liabilities may not be recorded at all. Hence, for recording the changes in market value for the Liabilities and Assets, a revaluation account is needed to be prepared and the associated profits or losses needs to be distributed between the existing partners of firm.

Long Questions for NCERT Accountancy Solutions Class 12 Part 1 Chapter 3

1. Do you advise that Liabilities and Assets must be revalued at the time of admission of a partner? If so, why? Also describe how is this treated in the book of account?

It is logical to revalue Liabilities and Assets when a new partner gets admitted in the firm, as it is helpful in determining the true value of them on that day. Revaluation is helpful as the value of Liabilities and Assets may increase or decrease and as such their values in existing balance sheet may be not justified, also some assets or liabilities may not be recorded at all. Hence, for recording the changes in market value for the Liabilities and Assets, a revaluation account is needed to be prepared and the associated profits or losses needs to be distributed between the existing partners of firm.

 

Following journal entries are added to the account on the date a new partner is admitted in a firm.

i. When asset value increases:

Assets A/c Dr.

To Revaluation A/c

(For increase in asset value) 

ii) When asset value decreases:

Revaluation A/c

Dr.

 

To Asset A/c

 

(For Decrease in asset value)

 

 

iii) When Liabilities increase:

Revaluation A/c

Dr.

 

To Liabilities A/c

 

(For increase in liabilities value)

 

 

iv) When liabilities decrease:

Liability A/c

Dr.

 

To Revaluation A/c

 

(For decrease in liabilities value)

 

 

v) To record assets that are unrecorded:

Unrecorded Assets A/c

Dr.

 

To Revaluation A/c

 

(Recording unrecorded assets)

 

 

vi) To record liabilities that are unrecorded :

Revaluation A/c

Dr.

 

To Unrecorded Liabilities A/c

 

(To record unrecorded liabilities)

 

 

 

vii) Transferring credit balance of Revaluation account:

Revaluation

Dr.

 

To Old Partner’s Capital A/c

 

(Transfer of profit earned from Revaluation to Old Partners as per existing profit sharing ratio)

 

 

 

vii) Transferring debit balance of Revaluation account:

Old Partner’s Capital A/c

Dr.

 

To Revaluation A/c

 

(Transfer of loss on revaluation to Old Partners as per existing profit sharing ratio)

 

 

 2. What is goodwill? What are the factors that affect goodwill?

Goodwill refers to the intangible asset that represents the firms value and reputation and the brand name that it carries in the market. Goodwill is earned by a firm from the work it does which helps earn people trust by meeting all customer demands both in quality and quantity. Having a positive goodwill is very much helpful for a firm to earn extraordinary profits in comparison to its competitors. It also ensures profits that keep coming in the future and helps in retaining old customers.

Factors affecting firms’ goodwill are:

1. Product Quality: A firm which is constantly delivering the best product for its customers will have a greater goodwill.

2. Location: A central location makes it easy to reach and attracts more footfalls which leads to higher sales and more goodwill.

3. Management: Cost efficiency and higher productivity can be achieved by having an efficient management in place, also it ensures quality products at less price which increases goodwill.

4. Market Structure: A firm will enjoy more benefits of goodwill if the market is monopolistic in nature and there are no substitutes, it will add more goodwill to the firm.

5. Other Advantages: A firm that is getting benefits such as continuous supply of fuel, power and raw materials and uses it to produce quality goods enjoys a higher goodwill.

3. Explain various methods of valuation of goodwill.

There are four different methods of goodwill valuation:

1. Average Profit Method: In this method, the calculation of goodwill is done based on the average profits of the past years. It can be calculated as

Goodwill = Average Profit × No. of Years Purchase

NCERT Act Class 12 Chp 3-1

Here, the number of years of purchase signifies the years till which the firm expects profits to generate in the same way as current period

Following steps are involved in this method

1. Determine total profit of past years

2. Add all losses which are abnormal in nature such as theft, fire etc.

3. Add all normal income, if not done previously

4. Deduct all incomes that are not obtained from business, and all such abnormal incomes for e.g winning a lottery

5. Deduct all normal expenses, if not deducted previously

6. Calculate the average profit, by dividing total profit determined in the previous step

7. Multiply the average profit hence obtained to the number of year’s purchases in order to determine goodwill.

Example:

Last 5 years profits are 3,00,000,  9,00,000,   (6,00,000),  15,00,000,  24,00,000.

Goodwill calculated as:

NCERT Act Class 12 Chp 3-2

Goodwill = 9, 00,000 × 4 = 36, 00,000

2. Weight Average Method: In this method, weights are allocated to each year’s profit with the highest weight given to recent year’s profit and lower weights marked for past years profits. The product of the profits and weights are added and divided by the total weight to determine weighted average profits. It is a modified version of Average Profit Method. The following formulae is used.

NCERT Act Class 12 Chp 3-3

The following steps are involved:

1. Assign highest weightage to recent year’s profit and lowest weightage to past years profits.

2. Multiply weights with the profits corresponding to each year

3. Determine product total

4. Divide the product total with total of weightage to find Weighted Average Profit

5. Multiply the weighted average profit with number of years purchase

For example:

Last 5 years profits are ₹ 3,00,000,   ₹ 9,00,000,   ₹ (6,00,000),   ₹ 15,00,000,   ₹ 24,00,000.

      

Goodwill calculated as:      

Profit/Loss

Weights

Product

3,00,000

1

3,00,000 × 1 = 3,00,000

9,00,000

2

9,00,000 × 2 = 18,00,000

(6,00,000)

3

(6,00,000) × 3 = (18,00,000)

15,00,000

4

15,00,000 × 4  = 60,00,000

24,00,000

5

24,00,000× 5  = 1,20,00,000

Total

15

₹ 1,83,00,000

NCERT Act Class 12 Chp 3-4

3. Super Profit Method:  In this method, goodwill is determined on excess profit earned by a firm as compared to profit earned by rivals in the same industry. The excess profit earned over normal profit is called as Super Normal Profit

Following steps are involved:

1. Calculate the average profit

2. Calculating average capital engaged

NCERT Act Class 12 Chp 3-5

3. Calculating normal profit

NCERT Act Class 12 Chp 3-6

4. Calculation of Super Normal Profit using the formulae: Super Normal Profit = Average Profit – Normal Profit

5. Multiply super normal profit with number of years purchase to determine goodwill.

4. Capitalisation Method: Goodwill is determined by two ways as follows:

a) By Average Profit capitalisation. b) By Super Profit capitalisation.

 a) By Average Profit capitalisation

Following steps are involved:

1. Average profit is calculated

2. Calculating average profits capitalised value using the formulae

NCERT Act Class 12 Chp 3-7

3. Determine Actual Capital Employed

4. Deduct Actual Capital Employed from Capitalised Average Profit to calculate goodwill.

Goodwill = Capitalised Average Profit – Actual Capital Employed

b) By Super Profit capitalisation.

Following steps are involved:

1. Capital Employed for calculation

2. Calculation of Normal profit

NCERT Act Class 12 Chp 3-8

3. Calculation of average profit

4. Calculating Super Normal Profit:

Super Normal Profit = Average Profit – Normal Profit

Step 5: Goodwill calculation by the following formula: 

NCERT Act Class 12 Chp 3-9
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4. If it is agreed that the capital of all the partners be proportionate to the new profit sharing ratio, how will you work out the new capital of each partner? Give examples and state how necessary adjustments will be made.

When a new partner is admitted to the firm, the capital of all partners must be determined using new profit sharing ratio. In such cases new capital of each partner is determined and is dependent on the following instances:

1. New partner’s capital is given

2. Firm’s total capital is given

1) New partner’s capital is given

It involves the following steps

1. Calculation of total capital of firm based on the new partners’ capital

2. Divide total capital of the firm by individual share of partner’s profits to determine each partner’s new capital

3. After posting adjustments determine each partner’s capital balance

4. The capital determined previously is written in Partners Capital account on the credit side

5. Calculation of surplus or deficit. If new capital is more than the old share, then it needs to be contributed by old partners and is termed deficit and if new capital is less than old capital, it is called surplus and the difference is paid to old partners.

Let us understand the above steps with the help of an example.

A & B are partners in business who share profits and losses equally. They agree to admit C for 
https://img-nm.mnimgs.com/img/study_content/curr/1/15/17/2430/15050/Gr12_Acc_Book1_Chap3_NCERTsol_TQ_Ami_Ami_Ad_html_m6dbf2043.gifshare in profit. C brings ₹ 1, 00,000 as capital. A and B have old capital of ₹ 80,000 and ₹ 60,000 respectively, at the time admission of C.

NCERT Act Class 12 Chp 3-10

Step 3:

 

A

B

New Capital

100,000

100,000

Less: Existing Capital

(80,000)

(60,000)

Withdrawal (deposit)

(20,000)

(40,000)

 

So both A and B need to pay 20,000 and 40,000 more as share for their new capital.

2) When new firms’ total capital is known:

When new partner’s capital is not mentioned, then new capital is determined based on the total capital of the firm on a proportionate basis. The amount that is determined has to be brought in by the new partner as capital. Following steps are taken to determine the new partners’ capital:

1. Finding the total old capital of the existing partners after performing all adjustments.

2. Finding total capital of the new firm by multiplying old capital of existing partners with the reciprocal of old partners total share.

NCERT Act Class 12 Chp 3-10

3. The new capital of each partner is determined on the basis of total capital calculated which is multiplying new profit ratio with the total capital, individually for all partners. Here is an example to help understand the concept.

Ram and Shyam are partners in a firm sharing profit and loss equally. They agree to admit Anil for 1/3rd share in profit and decided to share future profit and loss equally. X’s capital is ₹ 1, 00,000 and Y’s capital is ₹ 50,000. Z brings sufficient capital for his share in profit. 

1. Old Capital= ₹ 1, 00,000 + 50,000 = 1, 50,000

2. Calculation of total capital

NCERT Act Class 12 Chp 3-11

NCERT Act Class 12 Chp 3-12

3. New Partners Capital

NCERT Act Class 12 Chp 3-13

5. Explain how will you deal with goodwill when new partner is not in a position to bring his share of goodwill in cash?

The situation in which a new partner is unable to bring his share of goodwill in cash, the goodwill account gets adjusted through Old Partners account. New partners’ capital account is debited with the share of goodwill and the same gets credited to Old Partner’s account.

 

New Partner’s Capital A/c

Dr.

 

To Old Partners’ Capital A/c

 

(New Partner account debited)

 

Note: According to Para 16 of Accounting Standard 10, Goodwill is recorded only when it is any transaction equivalent to money or money’s worth. It is a mandatory practice that is followed. 

6. Explain various methods for the treatment of goodwill on the admission of a new partner?

Goodwill is treated in the following ways on introduction of a new partner:

1. Premium Method

2. Revaluation Method

When a new partner pays the share of goodwill in the form of cash, it is called as premium method. There can be two scenarios:

1. New partners pays directly to old partners

2. Partner brings goodwill in form of cash and it is retained in the business.

The corresponding entries are:

(i) When goodwill brought in cash by new partner

Cash/Bank A/c Dr.

To Premium for Goodwill A/c

(Amount of goodwill brought in by new partner)

(ii)When goodwill is retained by business:

Premium for Goodwill A/c Dr

To Sacrificing Partners’ Capital A/c

(Goodwill brought by new partner distributed among old partners as per the sharing ratio)

Revaluation Method: Situations when new partner is unable to bring goodwill in form of cash

New Partner’s Capital A/c Dr. (Goodwill amount not brought by new partner)

To Old Partners’ Capital A/c

(Goodwill of new partner distributed to old partners as per their sharing ratio)

Note: According to Para 16 of Accounting Standard 10, Goodwill is recorded only when it is any transaction equivalent to money or money’s worth. It is a mandatory practice that is followed. 

7. How will you deal with the accumulated profit and losses and reserves on the admission of a new partner?

A new partner is not entitled to bear the losses or enjoy the profits of a previous business. Hence, when a new partner is added to the firm, the accumulated profits or losses, reserves needs to be distributed to current partners (partners of old firm) in their profit sharing ratio.

Treatment of accumulated losses, profits and reserve

Profit and Loss A/C Dr.

General Reserve A/C Dr.

Contingency Reserve A/C Dr.

When losses accumulate over a period.

For Profits and losses

Deferred Advertising expense Dr.

(Losses accumulated shared to old partners as per sharing ratio)

 

 8. At what figures the value of Liabilities and Assets appear in the books of the firm after revaluation has been done? Show with the help of an imaginary balance sheet.

After revaluation has been done, the Liabilities and Assets appear at their current market values in the Balance Sheet of the reconstituted firm. This can be better explained with the help of the below explained example.

 

Anil & Bijay shares profit and loss equally.

 

Balance Sheet of A and B as on April 01, 2019

 

 

Liabilities

Amount

Assets

Amount

Sundry Creditors

1,00,000

Cash in Hand

8,000

Capital Accounts

 

Cash at Bank

1,78,000

Anil 1,50,000

 

Debtors

40,000

Bijay 1,50,000

3,00,000

Stock

36,000

 

 

 

 

Furniture

38,000

 

 

 

Plant and Machinery

1,00,000

 

4,00,000

 

4,00,000

 

 

 

 

 

 

 

 

 

 

 

 

 

1) On that date Chetan is admitted as new partner for 1/3rd share and offers 2, 00,000 as capital.

2) Value of stocks increased by ₹ 7,000.

3) A ₹ 2,000 provision has been created against Debtors.

4) ₹ 35,000 value obtained after revaluating furniture.

5) A machinery costing ₹ 100,000 purchased is not recorded in books.

6) Outstanding rent ₹ 2,000.

Prepare Revaluation Account, Partners’ Capital Account, Cash Account and Balance Sheet.

 

                            

               

                                                                                                      

Revaluation Account

Dr.

 

 

Cr.

Particular

Amount

Particular

Amount

Rent Outstanding A/c

2,000

Stock

7,000

Provision for Debtors

2,000

Machinery

100,000

Furniture

35,000

 

 

Profit transferred:

 

 

 

 

Anil’s Capital A/c

50,000

 

 

 

 

Bijay’s Capital A/c

50,000

100,000

 

 

 

107,000

 

107,000

 

 

 

 

                                                                                                                                                

Anil’s Capital Account

Dr.

 

 

 

 

 

Cr.

Date

Particular

J.F.

Amount

Date

Particular

J.F.

Amount

 

Balance c/d

 

2,00,000

 

Balance b/d

 

150,000

 

 

 

 

 

Revaluation A/c

 

50,000

 

 

 

2,00,000

 

 

 

2,00,000

 

 

 

 

 

 

 

 

 

Bijay’s Capital Account

Dr.

 

 

 

 

 

 

Cr.

Date

Particular

J.F.

Amount

Date

Particular

J.F.

Amount

 

Balance c/d

 

2,00,000

 

Balance b/d

 

150,000

 

 

 

 

 

Revaluation A/c

 

50,000

 

 

 

 

2,00,000

 

 

 

2,00,000

 

 

 

 

 

 

 

 

 

Chetan’s Capital Account

Dr.

 

 

 

 

 

 

Cr.

Date

Particular

J.F.

Amount

Date

Particular

J.F.

Amount

 

Balance c/d

 

2,00,000

 

Cash A/c

 

2,00,000

 

 

 

 

 

 

 

 

 

 

 

 

2,00,000

 

 

 

2,00,000

 

 

 

 

 

 

 

 

 

Cash Account

Dr.

 

 

 

 

 

 

Cr.

Date

Particular

J.F.

Amount

Date

Particular

J.F.

Amount

 

Balance b/d

 

8,000

 

Balance c/d

 

2,08,000

 

Chetan’s Capital A/c

 

2,00,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,08,000

 

 

 

2,08,000

 

 

 

 

 

 

 

 

 

Balance Sheet of Anil, Bijay & Chetan as at April

 

Liabilities

Amount

Assets

Amount

Sundry Creditors

1,00,000

Cash in hand

2,08,000

Rent Outstanding

2,000

Cash at Bank

178,000

 

 

Debtors

40,000

 

 

 

Less: Provision

2,000

38,000

Capital Account

 

 

 

Anil

2,00,000

 

Stock

43,000

Bijay

2,00,000

 

Furniture

35,000

Chetan

2,00,000

6,00,000

Plant and Machinery

2,00,000

 

 

 

 

 

7,02,000

 

7,02,000

 

 

 

 

 

 

Numerical Question for NCERT Accountancy Solutions Class 12 Part 1 Chapter 3

1. A and B were partners in a firm sharing profits and losses in the ratio of 3:2. They admit C into the partnership with 1/6 share in the profits. Calculate the new profit sharing ratio?

The solution is as follows:

NCERT Act Class 12 Chp 3-14

NCERT Act Class 12 Chp 3-16

NCERT Act Class 12 Chp 3-17

2. A, B, C were partners in a firm sharing profits in 3:2:1 ratio. They admitted D for 10% profits. Calculate the new profit sharing ratio?

The solution is as follows:

NCERT Act Class 12 Chp 3-18

D admits for 
NCERT Act Class 12 Chp 3-19 share in the new firm

Let new firm profit = 1

Remaining share of A, B and C in new firm = 1 − D’s share

NCERT Act Class 12 Chp 3-20

New Ratio = Old Ratio × Remaining Share of A, B and C in new firm

NCERT Act Class 12 Chp 3-21

NCERT Act Class 12 Chp 3-22

3. X and Y are partners sharing profits in 5:3 ratio admitted Z for 1/10 share which he acquired equally for X and Y. Calculate new profit sharing ratio?

The solution is as follows:

NCERT Act Class 12 Chp 3-23

NCERT Act Class 12 Chp 3-24

4. A, B and C are partners sharing profits in 2:2:1 ratio admitted D for 1/8 share which he acquired entirely from A. Calculate new profit sharing ratio?

The solution for this question is as follows:

NCERT Act Class 12 Chp 3-25

5. P and Q are partners sharing profits in 2:1 ratio. They admitted R into partnership giving him 1/5 share which he acquired from P and Q in 1:2 ratio. Calculate new profit sharing ratio?

The solution for this question is as follows:

NCERT Act Class 12 Chp 3-27

NCERT Act Class 12 Chp 3-28

NCERT Act Class 12 Chp 3-29

NCERT Act Class 12 Chp 3-30

6. A, B and C are partners sharing profits in 3:2:2 ratio. They admitted D as a new partner for 1/5 share which he acquired from A, B and C in 2:2:1 ratio respectively. Calculate new profit sharing ratio?

The solution for this question is as follows:

NCERT Act Class 12 Chp 3-31

NCERT Act Class 12 Chp 3-32

New Ratio = Old Ratio − Sacrificing Ratio

NCERT Act Class 12 Chp 3-33

NCERT Act Class 12 Chp 3-34

7. A and B were partners in a firm sharing profits in 3:2 ratio. They admitted C for 3/7 share which he took 2/7 from A and 1/7 from B. Calculate new profit sharing ratio?

The solution for this question is as follows:

NCERT Act Class 12 Chp 3-36

New Ratio = Old Ratio − Sacrificing Ratio

NCERT Act Class 12 Chp 3-34

NCERT Act Class 12 Chp 3-37

8. A, B and C were partners in a firm sharing profits in 3:3:2 ratio. They admitted D as a new partner for 4/7 profit. D acquired his share 2/7 from A. 1/7 from B and 1/7 from C. Calculate new profit sharing ratio?

The solution for this question is as follows:

NCERT Act Class 12 Chp 3-40

NCERT Act Class 12 Chp 3-41

New Ratio = Old Ratio − Sacrificing Ratio

NCERT Act Class 12 Chp 3-42

NCERT Act Class 12 Chp 3-43

9. Radha and Rukmani are partners in a firm sharing profits in 3:2 ratio. They admitted Gopi as a new partner. Radha surrendered 1/3 of her share in favour of Gopi and Rukmani surrendered 1/4 of her share in favour of Gopi. Calculate new profit sharing ratio?

NCERT Act Class 12 Chp 3-44

NCERT Act Class 12 Chp 3-46

NCERT Act Class 12 Chp 3-47

NCERT Act Class 12 Chp 3-48

10. Singh, Gupta and Khan are partners in a firm sharing profits in 3:2:3 ratio. They admitted Jain as a new partner. Singh surrendered 1/3 of his share in favour of Jain: Gupta surrendered 1/4 of his share in favour of Jain and Khan surrendered 1/5 in favour of Jain. Calculate new profit sharing ratio?

The solution for this question is as follows:

https://img-nm.mnimgs.com/img/study_content/curr/1/15/17/2430/14866/Gr12_Acc_NCERT_Book1-Chp3_Vas_Dilpreet_html_2c18aac8.gif

NCERT Act Class 12 Chp 3-51

NCERT Act Class 12 Chp 3-52

NCERT Act Class 12 Chp 3-53

NCERT Act Class 12 Chp 3-54

11. Sandeep and Navdeep are partners in a firm sharing profits in 5:3 ratio. They admit C into the firm and the new profit sharing ratio was agreed at 4:2:1. Calculate the sacrificing ratio?

The solution for this question is as follows


NCERT Act Class 12 Chp 3-55

NCERT Act Class 12 Chp 3-56

Sacrificing Ratio = Old Ratio − New Ratio

NCERT Act Class 12 Chp 3-57

NCERT Act Class 12 Chp 3-58

12. Rao and Swami are partners in a firm sharing profits and losses in 3:2 ratio. They admit Ravi as a new partner for 1/8 share in the profits. The new profit sharing ratio between Rao and Swami is 4:3. Calculate new profit sharing ratio and sacrificing ratio?

The solution for this question is as follows

NCERT Act Class 12 Chp 3-57

New Ratio = Combined Share of Rao and Swami × Proportion of Rao and Swami in the combined share

NCERT Act Class 12 Chp 3-58

NCERT Act Class 12 Chp 3-58

NCERT Act Class 12 Chp 3-59

4:3:1

Sacrificing Ratio = Old Ratio − New Ratio

NCERT Act Class 12 Chp 3-60

NCERT Act Class 12 Chp 3-61

13. Compute the value of goodwill on the basis of four years’ purchase of the average profits based on the last five years? The profits for the last five years were as follows:

 

 

2013

40,000

2014

50,000

2015

60,000

2016

50,000

2017

60,000

NCERT Act Class 12 Chp 3-62

 

Year

Profit

2013

40,000

2014

50,000

2015

60,000

2016

50,000

2017

60,000

Sum of 5 years profit

2,60,000

 

Average Profit =  = 52,000

 

Goodwill = Average Profit × Number of Year’s Purchases = 52,000 × 4 = ₹ 2, 08,000

 

14. Capital employed in a business is ₹. 2, 00,000. The normal rate of return on capital employed is 15%. During the year 2015 the firm earned a profit of ₹. 48,000. Calculate goodwill on the basis of 3 years purchase of super profit?

The solution for this question is as follows

NCERT Act Class 12 Chp 3-63

15. The books of Ram and Bharat showed that the capital employed on 31.12.2016 was ₹. 5,00,000 and the profits for the last 5 years : 2015 ₹. 40,000; 2014 ₹. 50,000; 2013 ₹. 55,000; 2012 ₹. 70,000 and 2011 ₹. 85,000. Calculate the value of goodwill on the basis of 3 years purchase of the average super profits of the last 5 years assuming that the normal rate of return is 10%?

The solution for this question is as follows:

NCERT Act Class 12 Chp 3-64

Year

Profit

2015

40,000

2014

50,000

2013

55,000

2012

70,000

2011

85,000

Sum of 5 years profit

3,00,000

 

NCERT Act Class 12 Chp 3-65

Average Super Profit = Average Actual Profit – Normal Profit

= 60,000 – 50,000

= ₹ 10,000

 

Goodwill = Average Super Profit × Number of year purchase

= 10,000 × 3

= ₹ 30,000

 

 

16. Rajan and Rajani are partners in a firm. Their capitals were Rajan ₹. 3, 00,000; Rajani ₹. 2, 00,000. During the year 2015 the firm earned a profit of ₹. 1, 50,000. Calculate the value of goodwill of the firm assuming that the normal rate of return is 20%?

The solution for this question is as follows

Rajan’s Capital

3,00,000

Rajni’s Capital

2,00,000

Total Capital Employed

5,00,000

Normal Rate of Return = 20%

NCERT Act Class 12 Chp 3-66

Alternative Method

Normal Profit = Capital Employed × 
NCERT Act Class 12 Chp 3-68

= 5,00,000 ×
https://img-nm.mnimgs.com/img/study_content/curr/1/15/17/2430/14872/Gr12_Acc_NCERT_Book1-Chp3_Vas_Dilpreet_html_4f8f1ff1.gif

= ₹ 1,00,000

Super profit = Actual Profit − Normal Profit

= 1, 50,000 − 1, 00,000

= ₹ 50,000

Goodwill = Super Profit × 
NCERT Act Class 12 Chp 3-69

= 50,000 ×
https://img-nm.mnimgs.com/img/study_content/curr/1/15/17/2430/14872/Gr12_Acc_NCERT_Book1-Chp3_Vas_Dilpreet_html_m1cac3f38.gif

= ₹ 2, 50,000

17. A business has earned average profits of ₹. 1, 00,000 during the last few years. Find out the value of goodwill by capitalisation method, given that the assets of the business are ₹. 10, 00,000 and its external liabilities are ₹. 1, 80,000. The normal rate of return is 10%?

The solution for this question is as follows

Capital Employed = Assets − External Liabilities

= 10, 00,000 − 1, 80,000

= Rs 8, 20,000

Normal Profit = Capital Employed × 
NCERT Act Class 12 Chp 3-70

NCERT Act Class 12 Chp 3-71

= Rs 82,000

Super Profit = Actual Profit − Normal Profit

= 1, 00,000 − 82,000

= Rs 18,000

Goodwill = Super Profit × 
NCERT Act Class 12 Chp 3-72

https://img-nm.mnimgs.com/img/study_content/curr/1/15/17/2430/14873/Gr12_Acc_NCERT_Book1-Chp3_Vas_Dilpreet_html_m17bdff58.gif

= Rs 1, 80,000

Alternative Method

NCERT Act Class 12 Chp 3-73

18. Verma and Sharma are partners in a firm sharing profits and losses in the ratio of 5:3. They admitted Ghosh as a new partner for 1/5 share of profits. Ghosh is to bring in ₹. 20,000 as capital and ₹. 4,000 as his share of goodwill premium. Give the necessary journal entries:

a) When the amount of goodwill is retained in the business.

b) When the amount of goodwill is fully withdrawn.

c) When 50% of the amount of goodwill is withdrawn.

d) When goodwill is paid privately.

 

The solution for this question is as follows

Journal Entries

S.No.

 

Particulars

 

L.F.

Debit Amount ₹

Credit Amount ₹

Case (a)

 

 

 

 

 

 

 

Cash A/c

Dr.

 

24,000

 

 

 

To Ghosh’s Capital A/c

 

 

 

20,000

 

 

To Premium for Goodwill A/c

 

 

 

4,000

 

(Capital and Goodwill his share brought

 by Ghosh)

 

 

 

 

 

 

 

 

 

 

 

 

Premium for Godwill A/c

Dr.

 

4,000

 

 

 

To Verma’s Capital A/c

 

 

 

2,500

 

 

To Sharma’s Capital A/c

 

 

 

1,500

 

(Goodwill brought by Ghosh credited to Old Partners

 in Sacrificing ratio)

 

 

 

 

 

 

 

 

 

 

Case (b)

Cash A/c

Dr.

 

24,000

 

 

 

To Ghosh Capital A/c

 

 

 

20,000

 

 

To Premium for Goodwill A/c

 

 

 

4,000

 

(Capital and Goodwill brought by Ghosh for (1/5)

share of profit)

 

 

 

 

 

 

 

 

 

 

 

 

Premium for Goodwill A/c

Dr.

 

4,000

 

 

 

To Verma’s Capital A/c

 

 

 

2,500

 

 

To Sharma’s Capital A/c

 

 

 

1,500

 

(Goodwill brought by Ghosh credited

 in Old  Partner in Sacrificing Ratio)

 

 

 

 

 

 

 

 

 

 

 

Verma’s Capital A/c

Dr.

 

2,500

 

 

Sharma’s Capital A/c

Dr.

 

1,500

 

 

 

To Cash A/c

 

 

 

4,000

 

(Amount of Premium for Goodwill withdrawn by

 Old Partners)

 

 

 

 

 

 

 

 

 

 

Case (c)

Cash A/c

Dr.

 

24,000

 

 

 

To Ghosh’s Capital A/c

 

 

 

20,000

 

 

To Premium for Goodwill A/c

 

 

 

4,000

 

(Capital and Goodwill brought by Ghosh for (1/5)

share of profit)

 

 

 

 

 

 

 

 

 

 

 

 

Premium for Goodwill A/c

Dr.

 

4,000

 

 

 

To Verma’s Capital A/c

 

 

 

2,500

 

 

To Sharma’s Capital A/c

 

 

 

1,500

 

(Premium for Goodwill credited to Old Partner’s

Captial Account in sacrificing ratio)

 

 

 

 

 

 

 

 

 

 

 

Verma’s Capital A/c

Dr.

 

1,250

 

 

Sharma’s Capital A/c

 

 

750

 

 

 

To Cash A/c

 

 

 

2,000

 

(Half of the amount of premium for goodwill  withdrawn by Old partners)

 

 

 

 

 

 

 

 

 

 

Case (d)

No entry: Goodwill was not brought in to firm

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 19. A and B are partners in a firm sharing profits and losses in the ratio of 3:2. They decide to admit C into partnership with 1/4 share in profits. C will bring in ₹. 30,000 for capital and the requisite amount of goodwill premium in cash. The goodwill of the firm is valued at ₹, 20,000. The new profit sharing ratio is 2:1:1. A and B withdraw their share of goodwill. Give necessary journal entries?

The solution for this question is as follows

Journal Entries

Date

Particulars

L.F.

Debit Amount ₹

Credit Amount ₹

 

 

 

 

 

 

Cash A/c

Dr.

 

35,000

 

 

To C’s Capital A/c

 

30,000

 

To Premium for Goodwill A/c

 

5,000

 

(Amount of Capital and Share of Goodwill brought by C)

 

 

 

 

 

 

 

Premium for Goodwill A/c

Dr.

 

5,000

 

 

To A’s Capital A/c

 

2,000

 

To B’s Capital A/c

 

3,000

 

(C’s Share of Goodwill credited to A and B in 2:3,

Sacrificing Ratio)

 

 

 

 

 

 

 

A’s Capital A/c

Dr.

 

2,000

 

 

B’s Capital A/c

Dr.

 

3,000

 

 

To Cash A/c

 

5,000

 

(Share of Goodwill withdrawn by Old  Partners)

 

 

 

 

 

 

 

 

 

 

 Sacrificing Ratio = Old Ratio − New Ratio

NCERT Act Class 12 Chp 3-74

NCERT Act Class 12 Chp 3-75

Goodwill of the firm = Rs 20,000

C’s share of Goodwill = 
NCERT Act Class 12 Chp 3-76

A will receive 
NCERT Act Class 12 Chp 3-77

Or
NCERT Act Class 12 Chp 3-78

B will receive 
NCERT Act Class 12 Chp 3-80

Or 
NCERT Act Class 12 Chp 3-81

20. Arti and Bharti are partners in a firm sharing profits in 3:2 ratio, they admitted Sarthi for 1/4 share in the profits of the firm. Sarthi brings ₹. 50,000 for his capital and ₹. 10,000 for his 1/4 share of goodwill. Goodwill already appears in the books of Arti and Bharti at ₹. 5,000. the new profit sharing ratio between Arti, Bharti and Sarthi will be 2:1:1. Record the necessary journal entries in the books of the new firm?

 The solution for this question is as follows

Journal Entries

Date

Particulars

L.F.

Debit Amount ₹

Credit Amount ₹

 

 

 

 

 

 

Arti’s Capital A/c

Dr.

 

3,000

 

 

Bharti’s Capital A/c

Dr.

 

2,000

 

 

To Goodwill A/c

 

5,000

 

(Goodwill written off)

 

 

 

 

 

 

Cash A/c

Dr.

 

60,000

 

 

To Sarthi’s Capital A/c

 

50,000

 

To Premium for Goodwill A/c

 

10,000

 

(Amount of capital and share of goodwill brought by Sarthi)

 

 

 

 

 

 

 

Premium for Goodwill A/c

Dr.

 

10,000

 

 

To Arti’s Capital A/c

 

4,000

To Bharti’s Capital A/c

6,000

 

(Premium for Goodwill credited Arti’s Capital Account)

 

 

 

 

 

 

 

 

 

 

NCERT Act Class 12 Chp 3-82

Sarthi admitted for 
NCERT Act Class 12 Chp 3-82 share in new firm.

NCERT Act Class 12 Chp 3-83

Sacrificing Ratio = Old Ratio − New Ratio

NCERT Act Class 12 Chp 3-84

Arti will receive 
NCERT Act Class 12 Chp 3-85

Bharti will receive 
NCERT Act Class 12 Chp 3-86

21. X and Y are partners in a firm sharing profits and losses in 4:3 ratio. They admitted Z for 1/8 share. Z brought ₹. 20,000 for his capital and ₹. 7,000 for his 1/8 share of goodwill. Subsequently X, Y and Z decided to show goodwill in their books at ₹. 40,000. Show necessary journal entries in the books of X, Y and Z?

 

The solution for this question is as follows

Journal Entries

Date

Particulars

L.F.

Debit Amount ₹

Credit Amount ₹

 

 

 

 

 

 

Cash A/c

Dr.

 

27,000

 

 

To Z’s Capital A/c

 

20,000

 

To Premium for Goodwill A/c

 

7,000

 

(Amount of Capital and his share of Goodwill

 brought by Z)

 

 

 

 

 

 

 

Premium for Goodwill A/c

Dr.

 

7,000

 

 

To X’s Capital A/c

 

4,000

 

To Y’s Capital A/c

 

3,000

 

(Premium for Goodwill credit to Old Partners in Sacrificing Ratio)

 

 

 

 

 

 

 

Goodwill ₹ 40,000 cannot be raised. According to AS-10 Goodwill

can be shown in the book if money and money value is paid for it.

Here no money or money value has been paid for Goodwill.

 

 

 

 

 

 

 

 

 

 

22. Aditya and Balan are partners sharing profits and losses in 3:2 ratio. They admitted Christopher for 1/4 share in the profits. The new profit sharing ratio agreed was 2:1:1. Christopher brought ₹. 50,000 for his capital. His share of goodwill was agreed to at ₹. 15,000. Christopher could bring only ₹. 10,000 out of his share of goodwill. Record necessary journal entries in the books of the firm?

The solution for this question is as follows

 

Journal Entries

Date

Particulars

L.F.

Debit Amount ₹

Credit Amount ₹

 

Cash A/c

Dr.

 

60,000

 

 

To Christopher’s Capital A/c

 

50,000

 

To Premium for Goodwill A/c

 

10,000

 

(Amount of Capital and Premium for Goodwill brought by

Christopher)

 

 

 

 

 

 

 

Premium for Goodwill A/c

Dr.

 

10,000

 

 

Christopher’s Capital A/c

Dr.

 

5,000

 

 

To Adiya’s Capital A/c

 

6,000

 

To Balam’s Capital A/c

 

9,000

 

(Goodwill Christopher’s Share taken by Old Partner’s in

Sacrificing Ratio)

 

 

 

 

 

 

 

 

Sacrificing Ratio = Old Ratio − New Ratio

NCERT Act Class 12 Chp 3-88

23. Amar and Samar were partners in a firm sharing profits and losses in 3:1 ratio. They admitted Kanwar for 1/4 share of profits. Kanwar could not bring his share of goodwill premium in cash. The Goodwill of the firm was valued at ₹. 80,000 on Kanwar’s admission. Record necessary journal entry for goodwill on Kanwar’s admission.

The solution for this question is as follows

 

Amar

:

Samar

Old Ratio

3

:

1

 

Kanwar admitted for 1/4 share of profit.

  

Journal Entries

Date

Particulars

L.F.

Debit Amount ₹

Credit Amount ₹

 

 

 

 

 

 

Kanwar’s Capital A/c

Dr.

 

20,000

 

 

To Amar’s Capital A/c

 

15,000

 

To Samar’s Capital A/c

 

5,000

 

(Kanwar’s share of goodwill charged from his capital account by

Amar and Kanwar in sacrificing ratio)

 

 

 

 

 

 

 

 

New Firm’s Goodwill = ₹ 80,000

Kanwar’s Share of Goodwill = 80,000 × (1/4) = 20,000

 

Kanwar’s Goodwill will be taken by Amar and Samar in their sacrificing ratio here. Sacrificing Ratio will be equal to old ratio because new and sacrificing ratio is not given, if sacrificing and new ratio is not given it is assumed that old partners sacrificed in their old ratio.

 

 

 

24. Mohan Lal and Sohan Lal were partners in a firm sharing profits and losses in 3:2 ratio. They admitted Ram Lal for 1/4 share on 1.1.2013. It was agreed that goodwill of the firm will be valued at 3 years purchase of the average profits of last 4 years which were ₹. 50,000 for 2013, ₹. 60,000 for 2014, ₹. 90,000 for 2015 and

₹. 70,000 for 2016. Ram Lal did not bring his share of goodwill premium in cash. Record the necessary journal entries in the books of the firm on Ram Lal’s admission when:

a) Goodwill already appears in the books at ₹. 2, 02,500.

b) Goodwill appears in the books at ₹. 2,500.

c) Goodwill appears in the books at ₹. 2, 05,000.

The solution for this question is as follows:

  

Year

Profit

2013

50,000

2014

60,000

2015

90,000

2016

70,000

Sum of 4 years profit

2,70,000

 

NCERT Act Class 12 Chp 3-89 

 

Goodwill = Average Profit × No. of Years Purchases = 67,500 × 3 = 2, 02,500

 

Ram Lal entered into the firm for 1/4 share of Profit.

Ram Lal’s share of goodwill = 2, 02, 500 × (1/4) = ₹ 50,625

 

Here sacrificing ratio of Mohan Lal and Sohan Lal will be equal to old ratio because new and sacrificing ratio is not given.

 

Mohan Lal will get = Ram Lal’s Share of Goodwill × (3/5) = 50,625 × (3/5) = 10,125 × 3 = ₹ 30,375

 

Sohan Lal will = Ramlal Share of Goodwill × (1/5) = 50,625 × (1/5) = ₹ 10,125 × 2 = ₹ 20,250

  

Case (a)

Journal Entries

Date

 

Particulars

L.F.

Debit Amount ₹

Credit Amount ₹

 

Mohan Lal’s Capital A/c

Dr.

 

1,21,500

 

 

Sohan Lal’s Capital A/c

Dr.

 

81,000

 

 

 

To Goodwill A/c

 

 

 

2,02,500

 

(Goodwill appeared in the old firm written off)

 

 

 

 

 

 

 

 

 

 

Ramlal’s Capital A/c

Dr.

 

50,625

 

 

 

To Mohan Lal’s Capital A/c

 

 

30,375

 

 

To Sohan Lal’s Capital A/c

 

 

20,250

 

(Ram Lal’s Shares of Goodwill charged  from his account

and Distrbuted between  in Mohan Lal and Sohan Lal in

Sacrificing Ratio)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Case (b)

Journal Entries

Date

Particulars

L.F.

Debit Amount

Credit Amount ₹

 

Mohan Lal’s Capital A/c

Dr.

 

1,500

 

 

Sohan Lal’s Capital A/c

Dr.

 

1,000

 

 

 

To Goodwill A/c

 

 

 

2,500

 

(Goodwill already appeared in the books of firm

written off in old ratio)

 

 

 

 

 

 

 

 

 

Ramlal’s Capital A/c

Dr.

 

50,625

 

 

To Mohan Lal’s Capital A/c

 

 

30,375

 

To Sohan Lal’s Capital A/c

 

 

20,250

 

(Ram Lal’s Shares of Goodwill charged  from his

capital by Mohan Lal and Sohan Lal in sacrificing ratio)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Case (c)

Journal Entries

Date

 

Particulars

L.F.

Debit Amount

Credit Amount ₹

 

Mohan Lal’s Capital A/c

Dr.

 

1,23,000

 

 

Sohan Lal’s Capital A/c

Dr.

 

82,000

 

 

To Ram Lal’s Capital A/c

 

 

 

2,05,000

 

(Goodwill already appeared in the books of firm written off in Old Ratio)

 

 

 

 

 

 

 

 

 

 

Ramlal’s Capital A/c

Dr.

 

50,625

 

 

To Mohan Lal’s Capital A/c

 

 

30,375

 

To Sohan Lal’s Capital A/c

 

 

20,250

 

(Ram Lal’s Shares of Goodwill charged  from his capital

by Mohan Lal and Sohan Lal in sacrificing ratio)

 

 

 

 

 

 

 

 

 

25. Rajesh and Mukesh are equal partners in a firm. They admit Hari into partnership and the new profit sharing ratio between Rajesh, Mukesh and Hari is 4:3:2. On Hari’s admission goodwill of the firm is valued at ₹ 36,000. Hari is unable to bring his share of goodwill premium in cash. Rajesh, Mukesh and Hari decided not to show goodwill in their balance sheet. Record necessary journal entries for the treatment of goodwill on Hari’s admission.

The solution for this question is as follows:

 

Books of Rajesh, Mukesh and Hari

Journal

 

Date

Particulars

L.F.

Amount

Amount

 

Hari’s Capital A/c

Dr.

 

8,000

 

 

To Rajesh’s Capital A/c

 

 

 

2,000

 

To Mukesh’s Capital A/c

 

 

 

6,000

 

(Adjustment of Hari’s share of goodwill)

 

 

 

 

 

 

 

 

  

Working Notes:

1) Goodwill of a firm = 36,000

Hari’s share in goodwill

= Goodwill of firm × admitting Partner Share

NCERT Act Class 12 Chp 3-90

2) Sacrificing Ratio = Old Ratio − New Ratio

NCERT Act Class 12 Chp 3-91

Sacrificing Ratio between Rajesh and Mukesh 1:3.

26. Amar and Akbar are equal partners in a firm. They admitted Anthony as a new partner and the new profit sharing ratio is 4:3:2. Anthony could not bring this share of goodwill ₹ 45,000 in cash. It is decided to do adjustment for goodwill without opening goodwill account. Pass the necessary journal entry for the treatment of goodwill?

 The solution for this question is as follows

 

Books of Amar, Akbar and Anthony

Journal

 

Date

Particulars

L.F.

Amount

Amount

 

Anthony’s Capital A/c

Dr.

 

45,000

 

 

To Amar’s Capital A/c

 

 

 

11,250

 

To Akbar’s Capital A/c

 

 

 

33,750

 

(Adjustment of Anthony’s share of goodwill between

Amar and Akbar in sacrificing ratio)

 

 

 

 

 

 

 

 

 

Working Notes:

1) Sacrificing Ratio = Old Ratio − New Ratio

NCERT Act Class 12 Chp 3-92

Sacrificing Ratio between Amar and Akbar = 1:3.

 

27. 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

(₹)

Assets

Amount

(₹)

Bills Payable

 

10,000

Cash in Hand

10,000

Creditors

 

58,000

Cash at Bank

40,000

Outstanding

 

2,000

Sundry Debtors

60,000

Expenses

 

 

Stock

40,000

Capitals:

 

 

Plant

1,00,000

 

A

1,80,000

 

Buildings

1,50,000

 

B

1,50,000

3,30,000

 

 

 

 

 

4,00,000

 

4,00,000

 

 

 

 

 

 

 

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

 

(i) C will bring in ₹ 1, 00,000 as his capital and ₹ 60,000 as his share of goodwill for 1/4 share in the profits.

(ii) Plant is to be appreciated to ₹ 1, 20,000 and the value of buildings is to be appreciated by 10%.

(iii) Stock is found over valued by ₹ 4,000.

(iv) A provision for bad and doubtful debts is to be created at 5% of debtors.

(v) Creditors were unrecorded to the extent of ₹ 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.

 

The solution for this question is as follows

  

Books of A, B and C

Journal

 

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

 

(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

 

(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

 

(Value of assets increased)

 

 

 

 

 

 

 

 

 

 

 

 

Revaluation A/c

Dr.

 

8,000

 

 

 

To Stock

 

 

 

4,000

 

 

To Provision for Doubtful Debts A/c

 

 

3,000

 

 

To Creditors A/c (Unrecorded)

 

 

 

1,000

 

(Liabilities and Assets revalued)

 

 

 

 

 

 

 

 

 

 

 

 

Revaluation A/c

Dr.

 

27,000

 

 

 

To A’s Capital A/c

 

 

 

18,000

 

 

To B’s Capital A/c

 

 

 

9,000

 

(Profit on revaluation transferred to old partners’ capital account)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Revaluation Account

 

Dr.

Cr.

Particulars

Amount

Particulars

Amount

Stock

4,000

Plant

20,000

Provision for Doubtful Debts

3,000

Building

15,000

Creditors (Unrecorded)

1,000

 

 

Profit transferred to

 

 

 

 

A’s Capital

18,000

 

 

 

 

B’s Capital

9,000

27,000

 

 

 

35,000

 

35,000

 

 

 

 

 

 

 

 

 

 

 

 

Partners’ Capital Account 

Dr.

Cr.

Particulars

A

B

C

Particulars

A

B

C

Balance c/d

2,38,000

1,79,000

1,00,000

Balance b/d

1,80,000

1,50,000

 

 

 

 

 

Bank

 

 

1,00,000

 

 

 

 

Premium for Goodwill

40,000

20,000

 

 

 

 

 

Revaluation

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

(₹)

Assets

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

 

Capital:

 

Less: Provision for Doubtful Debt

3,000

57,000

 

A

2,38,000

 

Stock

 

36,000

 

B

1,79,000

 

Plant

 

1,20,000

 

C

1,00,000

5,17,000

Building

 

1,65,000

 

5,88,000

 

 

5,88,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Working Note:

1) Sacrificing ratio = Old Ratio − New Ratio

NCERT Act Class 12 Chp 3-92

Sacrificing ratio between A and B = 2:1.

28. Leela and Meeta were partners in a firm sharing profits and losses in the ratio of 5:3. On Is Jan. 2017 they admitted Om as a new partner. On the date of Om’s admission the balance sheet of Leela and Meeta showed a balance of ₹ 16,000 in general reserve and ₹ 24,000 (Cr) in Profit and Loss Account. Record necessary journal entries for the treatment of these items on Om’s admission. The new profit sharing ratio between Leela, Meeta and Om was 5:3:2.

The solution for this question is as follows

 

Books of Leela, Meeta and Om

Journal

 

Date

Particulars

L.F.

Amount

Amount

2017

 

 

 

 

 

Jan 1

General Reserve A/c

Dr.

 

16,000

 

 

Profit and Loss A/c

Dr.

 

24,000

 

 

 

To Leela’s Capital A/c

 

 

 

25,000

 

 

To Meeta’s Capital A/c

 

 

 

15,000

 

(General reserve and balance in Profit and Loss credited to old

partners’ capital account in their old ratio, 5:3)

 

 

 

 

 

 

 

 

 

 

29. Amit and Viney are partners in a firm sharing profits and losses in 3:1 ratio. On 1.1.2017 they admitted Ranjan as a partner. On Ranjan’s admission the profit and loss account of Amit and Viney showed a debit balance of ₹ 40,000. Record necessary journal entry for the treatment of the same.

The solution for this question is as follows

  

Books of Amit, Viney and Ranjan

Journal

 

Date

Particulars

L.F.

Amount

Amount

2017

 

 

 

 

 

Jan 1

Amit’s Capital A/c

Dr.

 

30,000

 

 

Viney’s Capital A/c

Dr.

 

10,000

 

 

 

To Profit and Loss A/c

 

 

 

40,000

 

(Debit Balance in Profit and Loss Account written off)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30. A and B share profits in the proportions of 3/4 and 1/4. Their Balance Sheet on Dec. 31, 2016 was as follows:

 

Balance Sheet of A and B as on December 31, 2016

 

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Sundry creditors

41,500

Cash at Bank

26,500

Reserve fund

4,000

Bills Receivable

3,000

Capital Accounts

 

Debtors

16,000

 

A

30,000

Stock

20,000

 

B

16,000

Fixtures

1,000

 

 

Land & Building

25,000

 

91,500

 

91,500

 

 

 

 

 

On Jan. 1, 2017, C was admitted into partnership on the following terms:

 

(a) That C pays ₹ 10,000 as his capital.

(b) That C pays ₹ 5,000 for goodwill. Half of this sum is to be withdrawn by A and B.

(c) That stock and fixtures be reduced by 10% and a 5%, provision for doubtful debts be created on Sundry Debtors and Bills Receivable.

(d) That the value of land and buildings be appreciated by 20%.

(e) There being a claim against the firm for damages, a liability to the extent of ₹ 1,000 should be created.

(f) An item of ₹ 650 included in sundry creditors is not likely to be claimed and hence should be written back.

 

Record the above transactions (journal entries) in the books of the firm assuming that the profit sharing ratio between A and B has not changed. Prepare the new Balance Sheet on the admission of C.

 

 The solution for this question is as follows

Books of A, B and C

Journal

 

Date

Particulars

L.F.

Amount

Amount

2017

 

 

 

 

 

Jan. 01

Bank A/c

Dr.

 

15,000

 

 

 

To C’s Capital A/c

 

 

 

10,000

 

 

To Premium for Goodwill A/c

 

 

 

5,000

 

(Capital and Premium for goodwill brought by C

for 1/5 th share)

 

 

 

 

 

 

 

 

 

 

Jan. 01

Premium for Goodwill A/c

 

 

5,000

 

 

 

To A’s Capital A/c

 

 

 

3,750

 

 

To B’s Capital A/c

 

 

 

1,250

 

(Amount of goodwill brought by C is transferred to old

partners’ capital account in their sacrificing ratio, 3:1)

 

 

 

 

 

 

 

 

 

 

 

Jan. 01

A’s Capital A/c

Dr.

 

1,875

 

 

B’s Capital A/c

Dr.

 

625

 

 

 

To Bank A/c

 

 

 

2,500

 

(Half of amount  withdrawn by old partners)

 

 

 

 

 

 

 

 

 

 

 

Jan. 01

Revaluation A/c

Dr.

 

4,050

 

 

 

To Stock A/c

 

 

 

2,000

 

 

To Fixture A/c

 

 

 

100

 

 

To Provision for doubtful Debts on Debtors A/c

 

 

 

800

 

 

To provision for doubtful Debts on Bills Receivable A/c

 

 

 

150

 

 

To Claim for Damages A/c

 

 

 

1,000

 

(Liabilities and Assets are revalued)

 

 

 

 

 

 

 

 

 

 

 

Jan. 01

Land and Building A/c

Dr.

 

5,000

 

 

Sundry Creditors A/c

 

 

650

 

 

 

To Revaluation A/c

 

 

 

5,650

 

(Asset and liability are revalued)

 

 

 

 

 

 

 

 

 

 

 

Jan. 01

Revaluation A/c

Dr.

 

1,600

 

 

 

To A’s Capital A/c

 

 

 

1,200

 

 

To B’s Capital A/c

 

 

 

400

 

(Profit on Revaluation transferred to old partners’ capital)

 

 

 

 

 

 

 

 

 

 

 

Jan. 01

Reserve Fund A/c

Dr.

 

4,000

 

 

 

To A’s Capital A/c

 

 

 

3,000

 

 

To B’s Capital A/c

 

 

 

1,000

 

(Reserve Fund distributed among old partners)

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Balance Sheet as on January 01, 2007

 

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Sundry Creditors

 

40,850

Cash at Bank

39,000

Claim for Damages

 

1,000

Bills Receivable

3,000

 

 

A

36,075

 

Less: Provision

150

2,850

 

B

18,025

 

Debtors

16,000

 

 

C

10,000

64,100

Less: Provision

800

15,200

 

 

 

 

Stock

18,000

 

 

 

 

Fixtures

900

 

 

 

 

Land and Building

30,000

 

 

 

1,05,950

 

1,05,950

 

 

 

 

 

 

 

 Working Note:

 1)

Partners’ Capital Account

Dr.

Cr.

Particulars

A

B

C

Particulars

A

B

C

Bank

1,875

625

 

Balance b/d

30,000

16,000

 

Balance c/d

36,075

18,025

10,000

Bank

 

 

10,000

 

 

 

 

Premium for Goodwill

3,750

1,250

 

 

 

 

 

Revaluation

1,200

400

 

 

 

 

 

Reserve Fund

3,000

1,000

 

 

37,950

18,650

10,000

 

37,950

18,650

10,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

2)

Bank Account

Dr.

Cr.

Particulars

Amount

Particulars

Amount

Balance b/d

26,500

A’s Capital A/c

1,875

C’s Capital A/c

10,000

B’s Capital A/c

625

Premium for Goodwill

5,000

Balance c/d

39,000

 

41,500

 

41,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

3)

Sacrificing ratio = Old Ratio − New Ratio

NCERT Act Class 12 Chp 3-94

Note: Assuming that ratio between A and B has not change hence sacrificing ratio should be same as old ratio.

31. A and B are partners sharing profits and losses in the ratio of 3:1. On 1st Jan. 2017 they admitted C as a new partner for 1/4 share in the profits of the firm. C brings ₹ 20,000 as for his 1/4 share in the profits of the firm. The capitals of A and B after all adjustments in respect of goodwill, revaluation of Liabilities and Assets, etc. has been worked out at ₹ 50,000 for A and ₹ 12,000 for B. It is agreed that partner’s capitals will be according to new profit sharing ratio. Calculate the new capitals of A and B and pass the necessary journal entries assuming that A and B brought in or withdrew the necessary cash as the case may be for making their capitals in proportion to their profit sharing ratio?

 

The solution for this question is as follows

Books of A, B and C

Journal

 

Date

Particulars

L.F.

Amount

Amount

2017

 

 

 

 

 

Jan. 01

A’s Capital A/c

 Dr.

 

5,000

 

 

 

To Cash A/c

 

 

 

5,000

 

(Excess capital withdrawn by A)

 

 

 

 

 

 

 

 

 

 

Cash A/c

Dr.

 

3,000

 

 

 

To B’s Capital A/c

 

 

 

3,000

 

(Capital brought in by B to make in proportion to the profit sharing)

 

 

 

 

 

 

 

 

 

 

1) Calculation of New Profit sharing Ratio

NCERT Act Class 12 Chp 3-95

New Profit sharing ratio of A, B and C will be 9:3:4

2) New Capital of A and B.

C bring ₹ 20,000 for 1/4th share of profit in the new firm.

Thus, total capital of firm on the basis of C’s share= 
NCERT Act Class 12 Chp 3-96

NCERT Act Class 12 Chp 3-97

Thus, B’s will bring 15,000 − 12,000 = 3,000

32. Pinky, Qumar and Roopa partners in a firm sharing profits and losses in the ratio of 3:2:1. S is admitted as a new partner for 1/4 share in the profits of the firm, whichs he gets 1/8 from Pinky, and 1/16 each from Qmar and Roopa. The total capital of the new firm after Seema’s admission will be ₹ 2, 40,000. Seema is required to bring in cash equal to 1/4 of the total capital of the new firm. The capitals of the old partners also have to be adjusted in proportion of their profit sharing ratio. The capitals of Pinky, Qumar and Roopa after all adjustments in respect of goodwill and revaluation of Liabilities and Assets have been made are Pinky ₹ 80,000, Qumar ₹ 30,000 and Roopa ₹ 20,000. Calculate the capitals of all the partners and record the necessary journal entries for doing adjustments in respect of capitals according to the agreement between the partners?

The solution for this question is as follows

1) Calculation of new profit sharing Ratio = Old Ratio − Sacrificing Ratio

NCERT Act Class 12 Chp 3-98

New profit sharing ratio between Pinky, Qumar, Roopa and Seema

NCERT Act Class 12 Chp 3-99

2) Required capital of all partners in the new firm

NCERT Act Class 12 Chp 3-100

3) Amount to be brought by each partner

Pinky = 90,000 − 80,000 = 10,000

Qumar = 65,000 − 30,000 = 35,000

Roopa = 25,000 − 20,000 = 5,000

Seema = 2,40,000 
https://img-nm.mnimgs.com/img/study_content/curr/1/15/17/2430/14890/Gr12_Acc_NCERT_Book1-Chp3_Vas_Dilpreet_html_5679cb74.gif 
https://img-nm.mnimgs.com/img/study_content/curr/1/15/17/2430/14890/Gr12_Acc_NCERT_Book1-Chp3_Vas_Dilpreet_html_682bd651.gif=60,000

Books of Pinky, Qumar, Roopa and Seema

Journal

 

Date

Particularss

L.F.

Amount

Amount

 

Bank A/c

Dr.

 

60,000

 

 

 

To Seema Capital A/c

 

 

 

60,000

 

(Seema bring her share of Capital for 1/4 th share of profit)

 

 

 

 

 

 

 

 

 

 

Bank A/c

Dr.

 

50,000

 

 

 

To Pinky’s Capital A/c

 

 

 

10,000

 

 

To Qumar’s Capital A/c

 

 

 

35,000

 

 

To Roopa’s Capital A/c

 

 

 

5,000

 

(Amount brought by Pinky, Qumar and Roopa to make capital

equal to their proportion)

 

 

 

 

 

 

 

 

 

 

33. The following was the Balance Sheet of Arun, Bablu and Chetan sharing profits and losses in the ratio of  respectively.

 

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Creditors

 

9,000

Land and Buildings

24,000

Bills Payable

 

3,000

Furniture

3,500

Capital Accounts

 

 

Stock

14,000

 

Arun

19,000

 

Debtors

12,600

 

Bablu

16,000

 

Cash

900

 

Chetan

8,000

43,000

 

 

 

 

55,000

 

55,000

 

 

 

 

 

 

They agreed to take Deepak into partnership and give him a share of 1/8 on the following terms:

(a) That Deepak should bring in ₹ 4,200 as goodwill and ₹ 7,000 as his Capital;

(b) That furniture be depreciated by 12%;

(c) That stock be depreciated by 10%;

(d) That a Reserve of 5% be created for doubtful debts;

(e) That the value of land and buildings having appreciated be brought up to ₹ 31,000;

(f) That after making the adjustments the capital accounts of the old partners (who continue to share in the same proportion as before) be adjusted on the basis of the proportion of Deepak’s Capital to his share in the business, i.e., actual cash to be paid off to, or brought in by the old partners as the case may be.

 

Prepare Cash Account, Profit and Loss Adjustment Account (Revaluation Account) and the Opening Balance Sheet of the new firm.

 

 

 The solution for this question is as follows

Books of Arun, Bablu, Chetan and Deepak

Profit and Loss Adjustment Account

(Revaluation Account)

Dr.

Cr.

Particulars

Amount

Particulars

Amount

Furniture

420

Land and Buildings

7,000

Stock

1,400

 

 

Reserve for Doubtful Debts

630

 

 

Profit on revaluation

 

 

 

Profit transferred to

 

 

 

 

Arun’s Capital

1,950

 

 

 

 

Bablu’s Capital

1,625

 

 

 

 

Chetan’s Capital

975

4,550

 

 

 

7,000

 

7,000

 

 

 

 

 

 

 

 

 

 

 

 

Cash Account

Dr.

Cr.

Particulars

Amount

Particulars

Amount

Balance b/d

900

Arun’s Capital

1,750

Chetan’s Capital

625

Bablu’s Capital

1,625

Deepak’s Capital

7,000

Balance c/d

9,350

Premium for Goodwill

4,200

 

 

 

 

 

 

 

12,725

 

12,725

 

 

 

 

 

 

 

 

 

  

Balance Sheet

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Creditors

9,000

Land and Buildings

31,000

Bills Payable

3,000

Furniture

3,080

Capital Account

 

Stock

12,600

 

Arun

21,000

 

Debtor

12,600

 

 

Bablu

17,500

 

Less: Reserve for Doubtful Debt

630

11,970

 

Chetan

10,500

 

Cash

 

9,350

 

Deepak

7,000

56,000

 

 

 

 

68,000

 

 

68,000

 

 

 

 

 

 

Working Note:

1)

Partner’s Capital Account

Dr.

Cr.

Particulars

Arun

Bablu

Chetan

Deepak

Particulars

Arun

Bablu

Chetan

Deepak

Bank

1,750

1,625

 

 

Balance b/d

19,000

16,000

8,000

 

Balance c/d

21,000

17,500

10,500

7,000

Cash A/c

 

 

 

7,000

 

 

 

 

 

Premium for goodwill

1,800

1,500

900

 

 

 

 

 

 

Revaluation

1,950

1,625

975

 

 

 

 

 

 

Bank

 

 

625

 

 

 

 

 

 

 

 

 

 

 

 

22,750

19,125

10,500

7,000

 

22,750

19,125

10,500

7,000

 

 

 

 

 

 

 

 

 

 

 

2) Calculation of New Profit Sharing Ratio

NCERT Act Class 12 Chp 3-101

New Profit sharing ratio of Arun, Bablu, Chetan and Deepak

NCERT Act Class 12 Chp 3-102

= 42:35:21:14 or 6:5:3:2

3) Calculation of capital of Arun, Bablu, and Chetan in the new firm

Deepak bring ₹ 7,000 for 
NCERT Act Class 12 Chp 3-103 th share of profit.

Hence total capital of the new firm = 
NCERT Act Class 12 Chp 3-104

NCERT Act Class 12 Chp 3-105

34. Azad and Babli are partners in a firm sharing profits and losses in the ratio of 2:1. Chintan is admitted into the firm with 1/4 share in profits. Chintan will bring in ₹ 30,000 as his capital and the capitals of Azad and Babli are to be adjusted in the profit sharing ratio. The Balance Sheet of Azad and Babli as on December 31, 2016 (before Chintan’s admission) was as follows:

 

Balance Sheet of A and B as on 31.12.2016

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Creditors

 

8,000

Cash in hand

2,000

Bills payable

 

4,000

Cash at bank

10,000

General reserve

 

6,000

Sundry debtors

8,000

Capital accounts:

 

 

Stock

10,000

 

Azad

50,000

 

Funiture

5,000

 

Babli

32,000

82,000

Machinery

25,000

 

 

 

Buildings

40,000

 

 

1,00,000

 

1,00,000

 

 

 

 

 

 

It was agreed that:

i) Chintan will bring in ₹ 12,000 as his share of goodwill premium.

ii) Buildings were valued at ₹ 45,000 and Machinery at ₹ 23,000.

iii) A provision for doubtful debts is to be created @ 6% on debtors.

iv) The capital accounts of Azad and Babli are to be adjusted by opening current accounts.

 

Record necessary journal entries, show necessary ledger accounts and prepare the Balance Sheet after admission.

 

Books of Azad, Babli and Chintan

Journal

Date

Particulars

L.F.

Amount

Amount

2016

 

 

 

 

 

Dec 31

Bank A/c

Dr.

 

42,000

 

 

 

To Chintan’s Capital A/c

 

 

 

30,000

 

 

To Premium for Goodwill A/c

 

 

 

12,000

 

(Chintan brought Capital and Premium for Goodwill for 1/4

share of profit)

 

 

 

 

 

 

 

 

 

 

 

Premium for Goodwill A/c

Dr.

 

12,000

 

 

 

To Azad’s Capital A/c

 

 

 

8,000

 

 

To Babli’s Capital A/c

 

 

 

4,000

 

(Goodwill brought by Chintan transferred to old partners

capital account in their sacrificing ratio, 2:1)

 

 

 

 

 

 

 

 

 

 

 

General Reserve A/c

Dr.

 

6,000

 

 

 

To Azad’s Capital A/c

 

 

 

4,000

 

 

To Babli’s Capital A/c

 

 

 

2,000

 

(General reserve distributed between old partners)

 

 

 

 

 

 

 

 

 

 

 

Building A/c

Dr.

 

5,000

 

 

 

To Revaluation A/c

 

 

 

5,000

 

(Increase in value of Building adjusted)

 

 

 

 

 

 

 

 

 

 

 

 

Revaluation A/c

Dr.

 

2,480

 

 

 

To Machinery A/c

 

 

 

2,000

 

 

To Provision for Doubtful Debt

 

 

 

480

 

(Decrease in value of machinery adjusted and Provision for

Doubtful Debt created)

 

 

 

 

 

 

 

 

 

 

 

Revaluation A/c

Dr.

 

2,520

 

 

 

To Azad is Capital A/c

 

 

 

1,680

 

 

To Babli’s Capital A/c

 

 

 

840

 

(Profit on revaluation transferred to Azad and Babli’s Capital

Account)

 

 

 

 

 

 

 

 

 

 

 

Azad’s Capital A/c

Dr.

 

3,680

 

 

   To Azad’s Current A/c

 

 

 

3,680

 

(Excess of Capital transferred to current account)

 

 

 

 

 

 

 

 

 

 

Babli’s Capital A/c

Dr.

 

8,840

 

 

 

To Babli’s Current A/c

 

 

 

8,840

 

(Excess of Capital transferred to current account)

 

 

 

 

 

 

 

 

  

Revaluation Account

Dr.

Cr.

Particulars

Amount

Particulars

Amount

To Machinery

2,000

Building

5,000

To Provision for Doubtful Debt

480

 

 

To Profit transferred to

 

 

 

 

Azad’s Capital

1,680

 

 

 

 

Babli’s Capital

840

2,520

 

 

 

5,000

 

5,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Partner’s Capital Account

Dr.

Cr.

Particulars

Azad

Babli

Chintan

Particulars

Azad

Babli

Chintan

Current A/c

3,680

8,840

 

Balance b/d

50,000

32,000

 

Balance c/d

60,000

30,000

30,000

Bank

 

 

30,000

 

 

 

 

Premium for Goodwill

8,000

4,000

 

 

 

 

 

General Reserve

4,000

2,000

 

 

 

 

 

Revaluation

1,680

840

 

 

63680

38,840

30,000

 

63680

38,840

30,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Balance Sheet as on December 31, 2006

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Creditors

8,000

Cash in Hand

 

2,000

Bills Payable

4,000

Cash at Bank

 

52,000

Current Accounts:

 

Sundry Debtors

8,000

 

 

Azad

3,680

 

Less: Provision for Doubtful debt

480

7,520

 

Babli

8,840

12,520

Stock

 

10,000

Capital Accounts:

 

Furniture

 

5,000

 

Azad

60,000

 

Machinery

 

23,000

 

Babli

30,000

 

Building

 

45,000

 

Chintan

30,000

1,20,000

 

 

 

 

1,44,520

 

 

1,44,520

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Working Note:

1) Calculation of New Profit Sharing Ratio

NCERT Act Class 12 Chp 3-106

New Profit sharing ratio of Azad, Babli and Chintan

NCERT Act Class 12 Chp 3-107

2) New Capital of Azad, and Babli

Chintan bring ₹ 30,000 for 
https://img-nm.mnimgs.com/img/study_content/curr/1/15/17/2430/14892/Gr12_Acc_NCERT_Book1-Chp3_Vas_Dilpreet_html_682bd651.gifshare of profit. Hence total capital of a firm = 30,000×
NCERT Act Class 12 Chp 3-108=1, 20,000

Azad’s Capital = 
NCERT Act Class 12 Chp 3-109

Babli’s Capital = 
NCERT Act Class 12 Chp 3-110

35. Ashish and Dutta were partners in a firm sharing profits in 3:2 ratio. On Jan. 01, 2015 they admitted Vimal for 1/5 share in the profits. The Balance Sheet of Ashish and Dutta as on Jan. 01, 2016 was as follows:

 

Balance Sheet of A and B as on 1.1.2016

 

Liabilities

Amount

Assets

Amount

Creditors

15,000

Land & Building

35,000

Bills Payable

10,000

Plant

45,000

Ashish Capital

80,000

Debtors

22,000

 

Dutta’s Capital

35,000

Less : Provision

2,000

20,000

 

 

Stock

35,000

 

 

Cash

5,000

 

1,40,000

 

1,40,000

 

 

 

 

 

It was agreed that:

i) The value of Land and Building be increased by ₹ 15,000.

ii) The value of plant be increased by 10,000.

iii) Goodwill of the firm be valued at ₹ 20,000.

iv) Vimal to bring in capital to the extent of 1/5th of the total capital of the new firm.

 

Record the necessary journal entries and prepare the Balance Sheet of the firm after Vimal’s admission.

 

 The solution for this question is as follows

 

Books of Ashish, Dutta and Vimal

Journal

 

Date

Particulars

L.F.

Amount

Amount

2016

 

 

 

 

 

Jan 1

Land and Building A/c

Dr.

 

15,000

 

 

Plant A/c

Dr.

 

10,000

 

 

 

To Revaluation A/c

 

 

 

25,000

 

(Increased in the value of assets)

 

 

 

 

 

 

 

 

 

 

 

Revaluation A/c

Dr.

 

25,000

 

 

 

To Ashish’s Capital A/c

 

 

 

15,000

 

 

To Dutta’s Capital A/c

 

 

 

10,000

 

(Profit on revaluation transferred to partners’ capital account) 

 

 

 

 

 

 

 

 

 

 

 

Cash A/c

Dr.

 

36,000

 

 

 

To Vimal Capital A/c

 

 

 

36,000

 

(Capital brought by Vimal)

 

 

 

 

 

 

 

 

 

 

 

 

Vimal’s Current A/c

Dr.

 

4,000

 

 

 

To Ashish’s Capital A/c

 

 

 

2,400

 

 

To Dutta’s Capital A/c

 

 

 

1,600

 

(Vimal’s share goodwill adjusted through his current account)

 

 

 

 

  

Balance Sheet as on January 01, 2016

 

Liabilities

Amount

Assets

Amount

Creditors

15,000

Land and Building

50,000

Bills Payable

10,000

Plant

55,000

 

 

Debtors

22,000

 

Ashish’s Capital Account

97,400

Less: Provision

2,000

20,000

Dutta’s Capital Account

46,600

Stock

35,000

Vimal’s Capital Account

36,000

Cash

41,000

 

 

Vimal’s Current Account

4,000

 

2,05,000

 

2,05,000

 

 

 

 

 

1) Working Note:

 

Partners’ Capital Account

Dr.

Cr.

Particulars

Ashish

Dutta

Vimal

Particulars

Ashish

Dutta

Vimal

 

 

 

 

Balance b/d

80,000

35,000

 

 

 

 

 

Revaluation

15,000

10,000

 

Balance c/d

97,400

46,600

36,000

Cash

 

 

36,000

 

 

 

 

Vimal Current

2,400

1,600

 

 

 

 

 

 

 

 

 

 

97,400

46,600

36,000

 

97,400

46,600

36,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2)

Vimal Current Account

Dr.

Cr.

Particulars

Amount

Particulars

Amount

Ashish’s Capital A/c

2,400

 

 

Dutta’s Capital A/c

1,600

Balance c/d

4,000

 

 

 

 

 

4,000

 

4,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 3) Calculation of New Profit Sharing Ratio

NCERT Act Class 12 Chp 3-111

 

4) Sacrificing Ratio = Old Ratio – New Ratio

NCERT Act Class 12 Chp 3-112

 

Sacrificing Ratio between Ashish and Dutta is 3:2

 

Note: Here, Goodwill has been adjusted through current account because Vimal has not brought his share of goodwill and he is to bring capital in proportion to total capital of the new firm after adjustment.

 

5) Capital of new firm on the basis of old partners adjusted capital:

 

Total adjusted capital of old partners

 

Ashish’s Capital

=

97,400

Dutta’s Capital

=

46,600

 

 

1,44,000

 
NCERT Act Class 12 Chp 3-113

Concepts covered in this chapter –

  • Modes of Reconstitution of a partnership
  • Admission of a new partner
  • Sacrificing Ratio
  • Goodwill
  • Adjustment of capitals
  • Change in profit sharing ratio among the existing partners

Conclusion

NCERT solutions for class 12 Accountancy chapter 3 provides a wide degree of illustrative examples; which assists the students to comprehend and learn quickly. The above mentioned are the illustrations for class 12 CBSE syllabus. For more solutions and study materials of NCERT solutions for class 12 Accountancy visit BYJU’S or download the app for more information.

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