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
Liabilites			Amount (Rs)	Assets	Amount (Rs)
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 Rs 1,00,000 as his capital and Rs 60,000 as his share of goodwill for 1/4 share in the profits.

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

(iii) Stock is found over valued by Rs 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 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

Books of A, B and C Journal
Date	Particulars				L.F.	Amount Rs	Amount Rs
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
	(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
	(Profit on revaluation transferred to old partners capital account)

Revaluation Account
Dr.				Cr.
Particulars			Amount Rs		Particulars	Amount Rs
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 (Rs)	Assets		Amount (Rs)
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

Sacrificing ratio between A and B = 2:1.