Question

PRACTICAL PROBLEM

Keshav and Madhav were partners sharing the profits and losses in the ratio of 2:3. Their Balance Sheet is as follows:

Balance Sheet as on 31st March, 2011
Liabilities		Amount Rs	Assets		Amount Rs
Capital Accounts :			Live stock		20,000
	Keshav	2,50,000	Building		1,38,000
	Madhav	2,60,000	Investments		45,000
Creditors		8,500	Loose Tools		38,000
			Debtors	90,000
			(-) R.D.D.	18,000	72,000
			Profit and Loss A/c		15,000
			Closing Stock		1,04,500
			Cash in Hand		86,000
		5,18,500			5,18,500

On 1^st April, 2011 they admitted Uddhav on the following terms:

1) The new profit sharing ratio is equal.

2) Uddhav brings Rs 2,00,000 as his capital and Rs 80,000 as share of goodwill in cash.

3) Prepaid insurance of Rs 7,500 was not recorded in the books.

4) Loose tools were found undervalued by 5% and Building was found overvalued by 15% in the books.

5) All debtors are considered as good and out of creditors Rs 500 is no longer payable.

6) The market Value of Investment is 50% more than its book value.

Prepare, Profit and Loss Adjustment in A/c, Capital Accounts of partners and Balance Sheet of the new firm.

Answer 1

Profit and Loss Adjustment Account
Dr.						Cr.
Particulars			Amount Rs	Particulars	Amount Rs
Building			18,000	Prepaid Insurance	7,500
Profit transferred to:				Loose Tools	2,000
Keshav’s Capital		13,000		Reserve for Debtors	18,000
Madhav’s Capital		19,500	32,500	Investments	22,500
				Creditors	500
			50,500		50,500

Partners’ Capital Accounts
Dr.									Cr.
Particulars		Keshav	Mashav	Uddhav	Particulars	Keshav	Madhav	Uddhav
Profit and Loss A/c (Dr.)		6,000	9,000		Balance b/d	2,50,000	2,60,000
Balance c/d		2,73,000	3,34,500	2,00,000	Profit and Loss Adjustment (Profit)	13,000	19,500
					Cash			2,00,000
					Premium for Goodwill	16,000	64,000
		2,79,000	3,43,500	2,00,000		2,79,000	3,43,500	2,00,000

Balance Sheet as on April 01, 2011 after Uddhav’s admission
Liabilities		Amount Rs	Assets	Amount Rs
Creditors		8,000	Live Stock	20,000
Capital:			Building	1,20,000
Keshav	2,73,000		Investments	67,500
Madhav	3,34,500		Loose Tools	40,000
Uddhav	2,00,000	8,07,500	Debtors	90,000
			Prepaid Insurance	7,500
			Closing Stock	1,04,500
			Cash	3,66,000
		8,15,500		8,15,500

Working Notes:



WN1: Distribution of Profit and Loss A/c (Dr.)


WN2: Distribution of Uddhav’s Share of Goodwill


WN3: Cash Account

Cash Account
Dr.				Cr.
Particulars		Amount (Rs)	Particulars	Amount (Rs)
Balance b/d		86,000	Balance c/d	3,66,000
Premium for Goodwill		80,000
Uddhav’s Capital A/c		2,00,000
		3,66,000		3,66,000