Question

Following was the Balance Sheet of $A$ and $B$ who were sharing profits in the ratio of $2:1$ as at ${31}^{st}$March,2018:

Liabilities	(Rs.)	Assets	(Rs.)
Capital A/c: A 15,000 B 10,000 Sundry Creditors	25,000 32,950	Building Plant and Machinery Stock Sundry Debtors Cash in Hand	25,000 17,500 10,000 4,850 600
	57,950		57,950

They agree to admit $C$ into the partnership on the following terms:
(a) $C$ was to bring in $Rs.7,500$ as his capital and $Rs.3,000$ as goodwill for $1/4^{th}$ share in the firm.
(b) Values of the Stock and Plant and Machinery were to be reduced by $5$.
(c) A provision for Doubtful Debts was to be created in respect of Sundry Debtors $Rs.375$.
(d) Building Account was to be appreciated by $10$.
Pass necessary Journal entries to give effect to the arrangements. Prepare Profit and Loss Adjustment Account (or Revaluation Account), Capital Accounts and Balance Sheet of the new firm.

Answer 1

(i) JOURNAL

1. Cash a/c... Dr. 10500

To C's Capital a/c 7500

To Premium for goodwill a/c 3000

(Being capital and premium for goodwill brought in by C)

2. Premium for goodwill a/c... Dr. 3000

To A's Capital a/c 2000

To B's Capital a/c 1000

(Being premium for goodwill distributed among the partners in the ratio of 2:1)

3. Building a/c... Dr. 2500

To Revaluation a/c 2500

(Being increase in asset transferred to revaluation account)

4. Revaluation a/c.... Dr. 1750

To Plant and Machinery a/c 875

To Stock a/c 500

To Provision for doubtful debts a/c 375

(Being decrease in assets and increase in liabilities transferred to revaluation account)

5. Revaluation a/c... Dr. 750

To A's Capital a/c 500

To B's Capital a/c 250

(Being profit on revaluation transferred to the partner's capital accounts)

(ii) REVALUATION A/C

Dr. Cr.

Particulars	Amount (in Rs.)	Particulars	Amount (in Rs.)
To Stock a/c	500	By Building a/c	2500
To Plant and Machinery a/c	875
To Provision for doubtful debts a/c	375
To Profit transferred to - A's Capital a/c - B's Capital a/c	500 250
TOTAL	2500	TOTAL	2500

(iii) PARTNER'S CAPITAL A/C

Particulars	A	B	C	Particulars	A	B	C
				By Balance b/d	15000	10000	-
				By Cash a/c	-	-	7500
To Balance c/d	17500	11250	7500	By Premium for goodwill a/c	2000	1000	-
				By Revaluation a/c	500	250	-

(iv) BALANCE SHEET

(after admission of C)

Liabilities	Amount (in Rs.)	Assets	Amount (in Rs.)
		Building (25000+2500)	27500
Capital - A - B - C	17500 11250 7500	Plant and Machinery (17500-875)	16625
Sundry Creditors	32950	Stock (10000-500)	9500
		Debtors 4850 -- Provision for Doubtful debts (375)	4475
		Cash (600+10500)	11100
TOTAL	69200	TOTAL	69200