Question

PRACTICAL PROBLEM

Snehal and Meenal are equal partners in a business. Their Balance sheet is as follows:

Balance Sheet as on 31st March, 2012
Liabilities		Amount Rs	Amount Rs	Assets	Amount Rs	Amount Rs
Capital A/c’s				Premises		20,500
	Snehal	80,000		Investments		10,500
	Meenal	45,000	1,25,000	Equipments		5,000
Creditors			26,000	Bills Receivable		18,000
Bank Loan			40,000	Debtors	1,10,000
(Taken on 1.1.2012)				(-) R.D.D.	11,000	99,000
				Profit and Loss A/c		6,600
				Bank		31,400
			1,91,000			1,91,000

They agreed to admit Kamal on 1^st April, 2012 on the following terms.

1) He should bring 50,000 towards his capital for 1/4^th share in future profit.

2) Goodwill A/c be raised in the books of the firm Rs 40,000/-

3) R.D.D to be maintained at 5% on debtors.

4) Premises to be valued at Rs 30,000 and Equipments to be written off fully.

5) Interest at the rate of 15% p.a. is due on bank loan.

6) Creditors allowed a discount of Rs 1100/- and they were paid off immediately.

Pass necessary journal entries to record the above scheme of admission.

Answer 1

	Journal Entry
Date		Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
		Reserve for Doubtful Debts A/c	Dr.		5,500
		To Profit and Loss Adjustment A/c				5,500
		(Reserve for Doubtful Debts maintained @ 5%)
		Premises A/c	Dr.		9,500
		To Profit and Loss Adjustment A/c				9,500
		(Premises Appreciated by Rs 9,500)
		Creditors A/c	Dr.		1,100
		To Profit and Loss Adjustment A/c				1,100
		(Creditors paid off)
		Profit and Loss Adjustment A/c	Dr.		5,000
		To Equipment A/c				5,000
		(Equipments written off)
		Profit and Loss Adjustment A/c	Dr.		1,500
		To Outstanding Interest on Loan				1,500
		(Interest on Bank Loan outstanding for 3 months @ 15% per annum)
		Profit and Loss Adjustment A/c	Dr.		9,600
		To Snehal’s Capital A/c				4,800
		To Meenal’s Capital A/c				4,800
		(Profit on Profit and Loss Adjustment A/c, distributed among existing partners in the equal ratio)
		Snehal’s Capital A/c	Dr.		3,300
		Meenal’s Capital A/c	Dr.		3,300
		To Profit and Loss A/c				6,600
		(Profit and Loss (Dr.) A/c transferred to existing Partner’s Capital A/c in the equal ratio)
		Cash A/c	Dr.		50,000
		To Kamal’s Capital A/c				50,000
		(Kamal brought his share of Capital in Cash)
		Goodwill A/c	Dr.		40,000
		To Snehal’s Capital A/c				20,000
		To Meenal’s Capital A/c				20,000
		(Goodwill A/c is to be raised in the book of the firm)

Working Notes:

Calculation of New Profit Sharing Ratio

WN1: Distribution of Profit and Loss A/c

WN2: Distribution of Kamal’s Share of Goodwill

Profit and Loss Adjustment Account
Dr.						Cr.
Particulars			Amount Rs	Particulars	Amount Rs
Equipments			5,000	Reserve for Doubtful Debts	5,500
Outstanding Interest on Loan			1,500	Premises	9,500
Profit transferred to:				Creditors	1,100
Snehal’s Capital $\left(9,600\times \frac{1}{2}\right)$		4,800
Meenal’s Capital $\left(9,600\times \frac{1}{2}\right)$		4,800	9,600
			16,100		16,100