Question

PRACTICAL PROBLEM

The Balance Sheet of Ramakant and Shyamkant who shared the profits in the ratio of 2:1 is as under

Balance Sheet as on 31st March, 2012
Liabilities		Amount Rs	Assets			Amount Rs
Capitals:	Ramakant	1,34,000	Leasehold Property			20,000
	Shyamkant	1,20,000	Live stock			6,600
Creditors		51,000	Loose Tools			90,200
Rent Outstanding		10,000	Stock			84,800
Reserve Fund		7,200	Debtors		48,000
Current A/c-	Ramakant	2,800	(-) R.D.D.		2,000	46,000
			Bank			75,400
			Current A/c-	Shyamkant		2,000
		3,25,000				3,25,000

On 1^st April, 2012 Umakant was admitted as 1/4^th partner on the following terms:

1) He brings equipments of Rs 80,000 as his capital.

2) Firm’s goodwill is valued at Rs 1,44,000 and Umakant agreed to bring his share in firm’s goodwill by cheque.

3) R.D.D. should be maintained at 7.5% on debtors.

4) Increase live stock by Rs 2,600 and write off loose tools by 20%.

5) Outstanding rent paid Rs 9,040 in full settlement.

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
	Profit and Loss Adjustment A/c	Dr.		1,600
	To Reserve for Doubtful Debts A/c				1,600
	(Reserve for Doubtful Debt is maintained @ 7.5% on Debtors)
	Loose Tools A/c	Dr.		18,040
	To Profit and Loss Adjustment A/c				18,040
	(Loose Tools written off by 20%)
	Stock A/c	Dr.		2,600
	To Profit and Loss Adjustment A/c				2,600
	(Stock increased by Rs 2,600)
	Outstanding Rent A/c	Dr.		9,040
	To Profit and Loss Adjustment A/c				9,040
	(Outstanding Rent Paid)
	Profit and Loss Adjustment A/c	Dr.		16,080
	To Ramakant’s Current A/c				10,720
	To Shyamkant’s Current A/c				5,360
	(Loss on Profit and Loss Adjustment A/c transferred to existing Partner’s Current Accounts)
	Reserve Fund	Dr.		7,200
	To Rajkumar’s Current A/c				4,800
	To Shyamkant’s Current A/c				2,400
	(Reserve fund transferred to existing Partner’s Current Account)
	Bank A/c	Dr.		36,000
	To Goodwill A/c				36,000
	(Goodwill brought in by Umakant by cheque)
	Goodwill A/c	Dr.		36,000
	To Ramakant’s Current A/c				24,000
	To Shyamkant’s Current A/c				12,000
	(Goodwill distributed among existing Partner’s in their sacrificing ratio i.e. 2:1)
	Equipment A/c	Dr.		80,000
	To Umakant’s Capital A/c				80,000
	(Umakant brought his share of Capital in kind i.e. Equipment)

Working Notes:

Calculation of Profit Sharing Ratio

WN2: Distribution of Reserve Fund


WN3: Distribution of Umakant’s Share of Goodwill

WN4: Profit and Loss Adjustment Account

Profit and Loss Adjustment Account
Dr.		Cr.
Particulars	Amount Rs	Particulars		Amount Rs
Reserve for Doubtful Debts	1,600	Stock		2,600
Loose Tools	18,040	Outstanding Rent		960
		Loss transferred to:
		Ramamkant’s Current A/c	10,720
		Shyamkant’s Current A/c	5,360	16,080
	19,640			19,640