Question

Following is the Balance Sheet of X and Y as at 31st March, 2019 who are partners in a firm sharing profits and losses in the ratio of 3 : 2 respectively:

Liabilities		Amount (₹)	Assets		Amount (₹)
Creditors		45,000	Cash at Bank		15,000
General Reserve		36,000	Debtors	60,000
Capital A/cs:			Less: Provision for Doubtful Debts	2,400	57,600
X	1,80,000		Patents		44,400
Y	90,000	2,70,000	Investments		24,000
Current A/cs:			Fixed Assets		2,16,000
X	30,000		Goodwill		30,000
Y	6,000	36,000
		3,87,000			3,87,000

Z is admitted as a new partner on 1st April, 2019 on the following terms:
(a) Provision for doubtful debts is to be maintained at 5% on Debtors.
(b) Outstanding rent amounted to ₹ 15,000.
(c) An accrued income of ₹ 4,500 does not appear in the books of the firm. It is now to be recorded.
(d) X takes over the Investments at an agreed value of ₹ 18,000.
(e) New Profit-sharing Ratio of partners will be 4 : 3 : 2.
(f) Z will bring in ₹ 60,000 as his capital by cheque.
(g) Z is to pay an amount equal to his share in firm's goodwill valued at twice the average profit of the last three years which were ₹ 90,000; ₹ 78,000 and ₹ 75,000 respectively.
(h) Half of the amount of goodwill is to be withdrawn by X and Y.
You are required to pass Journal entries, prepare Revaluation Account, Partners' Capital and Current Accounts and the Balance Sheet of the new firm.

Answer 1

Revaluation Account
Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
Prov. for D. Debts	600	Accrued Income	4,500
Outstanding Rent	15,000	Loss transferred to
Investments	6,000	X’s Current A/c	10,260
		Y’s Current A/c	6,840
	21,600		21,600

Partners’ Capital Accounts
Dr.							Cr.
Particulars	X	Y	Z	Particulars	X	Y	Z
				Balance b/d	1,80,000	90,000
Balance c/d	1,80,000	90,000	60,000	Bank			60,000
	1,80,000	90,000	60,000		1,80,000	90,000	60,000

Partners’ Current Accounts
Dr.									Cr.
Particulars		X	Y	Z	Particulars	X	Y	Z
Revaluation		10,260	6,840		Balance b/d	30,000	6,000
Goodwill		18,000	12,000		General Reserve	21,600	14,400
Bank		12,600	5,400		Premium for Goodwill	25,200	10,800
Investments		18,000
Balance c/d		17,940	6,960
		76,800	31,200			76,800	31,200

Balance Sheet as on 1st April, 2019
Liabilities		Amount (₹)	Assets		Amount (₹)
Capital A/cs:			Patents		44,400
X	1,80,000		Fixed Assets		2,16,000
Y	90,000		Accrued Income		4,500
Z	60,000	3,30,000	Cash at Bank (15,000 + 96,000 – 18,000)		93,000
Outstanding Rent		15,000	Debtors	60,000
Current A/cs:			Less: 5% Reserve for D. Debts	3,000	57,000
X	17,940
Y	6,960	24,900
Creditors		45,000
		4,14,900			4,14,900

Journal
Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
Bank A/c	Dr.		96,000
To Z’s Capital				60,000
To Premium for Goodwill				36,000
(Z brought Capital and share of goodwill)
Premium for Goodwill A/c	Dr.		36,000
To X’s Current A/c				25,200
To Y’s Current A/c				10,800
(Premium for Goodwill transferred to partners current account in sacrificing ratio i.e. 7:3)
X's Current A/c Dr.			12,600
Y's Current A/c Dr.			5,400
To BankA/c				18,000
(Half of goodwill withdrawn by partners)

Working Notes:

WN1 Calculation of Z's Share of Premium for Goodwill

$$\begin{gathered} \mathrm{Average}\mathrm{Profits}=\frac{90,000+78,000+75,000}{3}=\mathrm{Rs}81,000 \\ \mathrm{Firm}\text{'}\mathrm{s}\mathrm{Goodwil}=81,000\times 2=\mathrm{Rs}1,62,000 \\ \mathrm{Z}\text{'}\mathrm{s}\mathrm{share}=1,62,000\times \frac{2}{9}=\mathrm{Rs}36,000 \\ \mathrm{Rs}36,000\mathrm{will}\mathrm{be}\mathrm{distributed}\mathrm{between}\mathrm{X}\mathrm{and}\mathrm{Y}\mathrm{in}\mathrm{sacrificing}\mathrm{ratio}. \end{gathered}$$

WN2 Calculation of Sacrificing Ratio

$$\begin{gathered} \mathrm{Sacrificing}\mathrm{Ratio}=\mathrm{Old}\mathrm{Ratio}-\mathrm{New}\mathrm{Ratio} \\ \mathrm{X}\text{'}\mathrm{s}\mathrm{sacrifice}=\frac{3}{5}-\frac{4}{9}=\frac{7}{45} \\ \mathrm{Y}\text{'}\mathrm{s}\mathrm{sacrifice}=\frac{2}{5}-\frac{3}{9}=\frac{3}{45} \\ \mathrm{Sacrificing}\mathrm{Ratio}=7:3 \end{gathered}$$

WN3 Calculation of Share of Premium of Goodwill

$$\begin{gathered} \mathrm{X}\text{'}\mathrm{s}\mathrm{share}=36,000\times \frac{7}{10}=\mathrm{Rs}25,200 \\ \mathrm{Y}\text{'}\mathrm{s}\mathrm{share}=36,000\times \frac{3}{10}=\mathrm{Rs}10,800 \end{gathered}$$

WN4 Distribution of Loss on Revaluation

$$\begin{gathered} \mathrm{X}\text{'}\mathrm{s}\mathrm{share}=17,100\times \frac{3}{5}=\mathrm{Rs}10,260 \\ \mathrm{Y}\text{'}\mathrm{s}\mathrm{share}=17,100\times \frac{2}{5}=\mathrm{Rs}6,840 \end{gathered}$$