Question

PRACTICAL PROBLEM

Manoj and Rahul are equal partners in a business. Their Balance sheet as on 31^st March, 2013 stood as under:

Balance Sheet as on 31st March, 2013
Liabilities		Amount Rs	Assets		Amount Rs
Sundry Creditors		1,80,000	Cash at Bank		1,20,000
General Reserve		36,000	Debtors	62,000
Capitals-	Manoj	90,000	(-) R.D.D.	2,000	60,000
	Rahul	60,000	Bills receivable		24,000
			Building		1,14,000
			Machinery		48,000
		3,66,000			3,66,000

They decided to admit Amit on 1^st April, 2013 on the following terms:

1) The Machinery and Building be depreciated by 10%

2) Reserve for doubtful debts to be increased to Rs 5,000.

3) Bills receivable are taken over by Manoj at a discount of 5%.

4) The amount of creditors paid at a discount of 10%.

5) The Capital Accounts of all the partners be adjusted in current account of partners.

6) Amit should bring Rs 80,000 as capital for his 1/4^th in future profits and goodwill account be opened in the books of the firm at Rs 40,000.

Prepare Profit and Loss Adjustments A/c, Partner’s Capital A/c and Balance sheet of the firm at Rs 4,000/-

Answer 1

Profit and Loss Adjustment Account
Dr.	Cr.
Particulars		Amount Rs	Particulars		Amount Rs
Machinery		4,800	Creditors		18,000
Building		11,400	Loss transferred to:
Reserve for Doubtful Debt		3,000	Manoj’s Capital	1,200
Bills Receivable		1,200	Rahul’s Capital	1,200	2,400
		20,400			20,400

Partners’ Capital Accounts
Dr.				Cr.
Particulars	Manoj	Rahul	Amit	Particulars	Manoj	Rahul	Amit
Bills Receivable	22,800			Balance b/d	90,000	60,000
Profit and Loss Adjustment (Loss)	1,200	1,200		General Reserve	18,000	18,000
Balance c/d	1,04,000	96,800	80,000	Cash			80,000
				Premium for Goodwill	20,000	20,000
	1,28,000	98,000	80,000		1,28,000	98,000	80,000
Balance b/d	1,20,000	1,20,000	80,000	Balance b/d	1,04,000	96,800	80,000
				Current A/c	16,000	23,200
	1,20,000	1,20,000	80,000		1,20,000	1,20,000	80,000

Balance Sheet as on April 01, 2013 after Amit’s admission
Liabilities		Amount Rs	Assets		Amount Rs
Capital A/c			Cash at Bank		78,000
Manoj	1,20,000		Debtors	62,000
Rahul	1,20,000		Less: Reserve for Doubtful Debts	5,000	57,000
Amit	80,000	3,20,000	Building	1,14,000
			Less: Depreciation @10%	11,400	1,02,600
			Machinery	48,000
			Less: Depreciation @10%	4,800	43,200
			Current A/cs:
			Manoj	16,000
			Rahul	23,200	39,200
		3,20,000			3,20,000

Working Notes:

Calculation of Profit Sharing Ratio

WN2: Distribution of General Reserve


WN3: Distribution of Amit’s Share of Goodwill


WN4: Adjustment of Capital

WN5: Cash Account

Cash Account
Dr.					Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Balance b/d		1,20,000	Creditors	1,62,000
Amit’s Capital A/c		80,000	Balance c/d	78,000
Goodwill		40,000
		2,40,000		2,40,000