Question

Given below is the Balance Sheet of A and B, who axe carrying on partnership business on 31.12.2006. A and B share profits and losses in the ratio of 2 :1.
$\text{Balance Sheet of A and B}$
$\text{as on December 31, 2016}$
$\begin{array}{cccc}\text{Capital and Liabilities}& \text{Amt. (Rs)}& \text{Assets}& \text{Amt. (Rs)}\\ \text{Bills payable}& 10,000& \text{Cash in hand}& 10,000\\ \text{Creditors}& 58,000& \text{Cash at bank}& 40,000\\ \text{Outstanding}& 2,000& \text{Sundry Debtors}& 60,000\\ \text{Expenses}& & \text{Stock}& 40,000\\ \text{Capitals}& & \text{Plant}& 1,00,000\\ \text{-}& & \text{Building}& 1,50,000\\ \text{A}1,80,000& & & \\ \text{B}\underset{–}{1,50,000}& 3,30,000& & \\ & \overline{\underset{–}{\underset{–}{4,00,000}}}& & \overline{\underset{–}{\underset{–}{4,00,000}}}\end{array}$

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

(i) C will bring Rs. 1,00,000 as his capital and Rs. 60, 000 as his share of goodwill for $\frac{1}{4}$ 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 account and show the balance sheet after the admission of C.

Answer 1

$\text{Journal Entries}$
$\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{L.F}& \text{Amt.(Cr)}& \text{Amt.(Cr)}\\ \left(i\right)& \text{Revaluation A/c}& Dr& & 8,000& \\ & \text{To Stock A/c}& & & & \text{4,000}\\ & \text{To Provision for Doubtful Debts A/c}& & & & \text{3,000}\\ & \text{To Creditor's A/c}& & & & \text{1,000}\\ & \text{(Decrease in stock provision for doubtful debts created and creditors increased)}& & & & \\ & \underset{–}{}& & & & \\ \left(ii\right)& \text{Plant A/c}& Dr& & 20,000& \\ & \text{Building A/c}& Dr& & 15,000& \\ & \text{To Revaluation A/c}& & & & \text{35,000}\\ & \text{(Plant and building increased in value)}& & & & \\ & \underset{–}{}& & & & \\ \left(iii\right)& \text{Revaluation A/c}& Dr& & 27,000& \\ & \text{To A's Capital A/c A/c}& & & & \text{18,000}\\ & \text{To B's Capital A/c}& & & & \text{9,000}\\ & \text{(Gain on revaluation distributed among old partners in old ratio)}& & & & \\ & \underset{–}{}& & & & \\ \left(iv\right)& \text{Cash A/c}& Dr& & 1,60,000& \\ & \text{To C's Capital A/c}& & & & \text{1,60,000}\\ & \text{(New partner paid capital and his share of goodwill in cash)}& & & & \\ & \underset{–}{}& & & & \\ \left(v\right)& \text{C's Capital A/c}& Dr& & 60,000& \\ & \text{To A's Capital A/c}& & & & \text{40,000}\\ & \text{To B's Capital A/c}& & & & \text{20,000}\\ & \text{(Premium distributed among old partners is sacrificing ratio)}& & & & \end{array}$

$\text{Dr}\text{Revaluation Account}\text{Cr}$
$\begin{array}{cccc}\text{Particulars}& \text{Amt. (Rs)}& \text{Particulars}& \text{Amt. (Rs)}\\ \text{Stock A/c}& 4,000& \text{Plant A/c}& 20,000\\ \text{Provision for Doutful Debts A/c}& 3,000& \text{Building A/c}& 15,000\\ \text{Creditors A/c ( Unrecorded)}& 1,000& & \\ \text{A's Capital A/c}18,000& & & \\ \text{B's Capital A/c}\underset{–}{9,000}& \underset{–}{27,000}& & \\ & \overline{\underset{–}{\underset{–}{35,000}}}& & \overline{\underset{–}{\underset{–}{35,000}}}\end{array}$

$\text{Dr}\text{Partner's Capital Account}\text{Cr}$
$\begin{array}{cccccccc}\text{Particulars}& \text{A}& \text{B}& \text{C}& \text{Particulars}& \text{A}& \text{B}& \text{C}\\ \text{A's Capital A/c}& & & 40,000& \text{Balance b/d}& 1,80,000& 1,50,000& \\ \text{B's Capital A/c}& & & 20,000& \text{Gain in Revaluation}& 18,000& 9,000& \\ & & & & \text{Cash A/c}& & & 1,60,000\\ & & & & \text{C's Capital A/c}& 40,000& 20,000& \\ \text{Balance c/d}& 2,38,000& 1,79,000& 1,00,000& & & & \\ & \overline{\underset{–}{2,38,000}}& \overline{\underset{–}{1,79,000}}& \overline{\underset{–}{1,60,000}}& & \overline{\underset{–}{2,38,000}}& \overline{\underset{–}{1,79,000}}& \overline{\underset{–}{1,60,000}}\end{array}$

$\text{~}\text{Balance Sheet}\text{.}$
$\begin{array}{cccc}\text{Capital and Liabilities}& \text{Amt. (Rs)}& \text{Assets}& \text{Amt. (Rs)}\\ \text{Bills payable}& 10,000& \text{Cash in hand}& 1,70,000\\ \text{Creditors}58,000& & \text{Cash at bank}& 40,000\\ \text{+ Unrecorded}\underset{–}{1,000}& 59,000& \text{Sundry debtors}60,000& \\ \text{Outstanding Expenses}& 2,000& \text{(-) Provision for Doubtful Debts}\underset{–}{(3,000)}& 57,000\\ \text{Capital}& & \text{Stock}40,000& \\ \text{A}2,38,000& & \text{(-)Depreciation}\underset{–}{(4,000)}& 36,000\\ \text{B}1,79,000& & \text{Plant}1,00,000& \\ \text{C}\underset{–}{1,00,000}& 5,17,000& \text{(+)Appreciation}\underset{–}{20,000}& 1,20,000\\ & & \text{Building}1,50,000& \\ & & \text{(+)Appreciation}\underset{–}{15,000}& \underset{–}{1,65,000}\\ & \overline{\underset{–}{5,88,000}}& & \overline{\underset{–}{5,88,000}}\end{array}$