Question

PRACTICAL PROBLEM

The Balance Sheet of Rajkumar and Rajendra Kumar as on 31^st March 2012 is set out below, they share profits and losses in the ratio of 2:1.

Balance Sheet as on 31st March, 2012
Liabilities	Amount Rs	Assets	Amount Rs
Capital A/c’s - Rajkumar	2,00,000	Buildings	1,00,000
Rajendra Kumar	1,50,000	Furniture	30,000
General Reserve	1,20,000	Stock	60,000
Creditors	80,000	Debtors	3,00,000
		Cash	30,000
		Profit and Loss A/c	30,000
	5,50,000		5,50,000

They agreed to admit Dhiraj Kumar on 1^st April, 2012 as a partner into the firm on the following terms on.

(1) Dhiraj Kumar to bring Rs 60,000 as capital and Rs 45,000 as a goodwill, which is to be retained in the business. He will be entitled to 1/4^th share of profit of the firm.

(2) 50% of General Reserve is to remain as Reserve for doubtful debts.

(3) Furniture is to be depreciated by 5%.

(4) Stock is to be revalued at Rs 65,000/-

(5) Creditors of Rs 5,000 are not likely to claim and hence should be written off.

(6) Rent of Rs 2,000 due but not received has not been recorded in the books.

Pass the necessary journal entries in the books of new firm and prepare Balance Sheet of the new firm.

Answer 1

Journal Entry
Date		Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
		Revaluation A/c	Dr.		1,500
		To Furniture A/c				1,500
		(Furniture depreciated by 5%)
		Stock A/c	Dr.		5,000
		To Revaluation A/c				5,000
		(Stock appreciated)
		Creditors A/c	Dr.		5,000
		To Revaluation A/c				5,000
		(Creditors written off)
		Accrued Rent A/c	Dr.		2,000
		To Revaluation A/c				2,000
		(Rent due but not received)
		Revaluation A/c			10,500
		To Rajkumar’s Capital A/c	Dr.			7,000
		To Rajendra Kumar’s Capital A/c	Dr.			3,500
		(Profit of revaluation distributed among existing partners in the ratio 2:1)
		Cash A/c	Dr.		1,05,000
		To Dhirajkumar’s Capital A/c				60,000
		To Goodwill A/c				45,000
		(DhirajKumar brought his share of Capital and Goodwill)
		Goodwill A/c	Dr.		45,000
		To Rajkumar’s Capital A/c				30,000
		To Rajendra Kumar’s Capital A/c				15,000
		(Goodwill distributed among sacrificing partner in their sacrificing ratio old profit sharing i.e. 2:1to compensate for their sacrifice)
		Rajkumar’s Capital A/c	Dr.		20,000
		Rajendra Kumar’s Capital A/c	Dr.		10,000
		To Profit and Loss A/c				30,000
		(Profit and Loss (Dr.) distributed among existing partners in their old profit sharing ratio 2:1)
		General Reserve A/c	Dr.		60,000
		To Rajkumar’s Capital A/c				40,000
		To Rajendra Kumar’s Capital A/c				20,000
		(General Reserve distributed among existing partners in their old profit sharing ratio 2:1)

Balance Sheet as on April 01, 2012 after DhirajKumar’s admission
Liabilities		Amount Rs	Assets		Amount Rs
Capital A/cs:			Stock		65,000
Rajkumar	2,57,000		Cash		1,35,000
Rajendra Kumar	1,78,500		Furniture	30,000
Dhirajkumar	6,000	4,95,500	Less: 5% Depreciation	(1,500)	28,500
Creditors	80,000		Debtors	3,00,000
Less: Creditors written-off	(5,000)	75,000	Less: 50% Reserve for Doubtful Debts	(60,000)	2,40,000
			Accrued Rent		2,000
			Building		1,00,000
		5,70,500			5,70,500

Working Notes:

Calculation of Profit Sharing Ratio

Working Notes:

WN1: Distribution of General Reserve

WN2: Distribution of Profit and Loss A/c

WN3: Distribution of Dhiraj Kumar’s share of Goodwill

WN4: Profit and Loss Adjustment Account

Profit and Loss Adjustment Account
Dr.						Cr.
Particulars			Amount Rs	Particulars	Amount Rs
Furniture			1,500	Stock	5,000
Profit transferred to:				Creditors	5,000
Rajkumar’s Capital		7,000		Accrued Rent	2,000
Rajendra Kumar’s Capital		3,500	10,500
			12,000		12,000

WN5: Cash Account

Cash Account
Dr.					Cr.
Particulars		Amount (Rs)	Particulars	Amount (Rs)
Balance b/d		30,000	Balance c/d	1,35,000
Dhirajkumar’s Capital A/c		60,000
Goodwill A/c		45,000
		1,35,000		1,35,000