Question

Given below is the Balance Sheet of A and B, who are carrying on partnership business on 31st March, 2019. A and B share profits and losses in the ratio of 2 : 1.

BALANCE SHEET OF A AND B
as at 31st March, 2019

Liabilities		₹	Assets	₹
Bills Payable		10,000	Cash in Hand	10,000
Creditors		58,000	Cash at Bank	40,000
Outstanding Expenses		2,000	Sundry Debtors	60,000
Capital A/cs:			Stock	40,000
A	1,80,000		Plant	1,00,000
B	1,50,000	3,30,000	Building	1,50,000
		4,00,000		4,00,000

C is admitted as a partner on 1st April, 2019 on the following terms:
(a) C will bring ₹ 1,00,000 as his capital and ₹ 60,000 as his share of goodwill for 1/4th share in the profits.
(b) Plant is to be appreciated to ₹ 1,20,000 and the value of building is to be appreciated by 10%.
(c) Stock is found overvalued by ₹ 4,000.
(d) A provision for doubtful debts is to be created at 5% of sundry debtors.
(e) 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.

Answer 1

Journal
Date	Particulars		L.F.	Amount (₹)	Amount (₹)
2019	Bank A/c	Dr.		1,60,000
Mar 31	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 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 transferred to old partners’ capital account in their sacrificing ratio)
	Plant A/c	Dr.		20,000
	Building A/c	Dr.		15,000
	To Revaluation A/c				35,000
	(Increase in value of assets)
	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)

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
Revaluation Profit
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 March 31, 2019
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

Note: Since no information is given about the share of sacrifice, it is assumed that the old partners are sacrificing in their old profit sharing ratio.