Question

​X and Y are partners in a firm sharing profits in the ratio of 3 : 2 . Their Balance Sheet as at 31st March , 2018 was as follows:

Liabilities		₹	Assets		₹
Outstanding Rent		13,000	Cash		10,000
Creditors		20,000	Sundry Debtors	80,000
			Less : Provision for D.D.	4,000	76,000
​Workmen Compensation Reserve		5,600
Capital A/cs:
X	50,000		Stock		20,000
Y	60,000	1,10,000	Profit and Loss A/c		4,000
			Machinery		38,600
		1,48,600			1,48​,600

On 1st April, 2018 , they admitted Z as a partner for 1/6th share on the following terms:

(i) Z brings in ₹ 40,000 as his share of Capital but he is unable to bring any amount for Goodwill .
(ii) Claim on account of Workmen Compensation is ₹ 3,000.
(iii) To write off Bad Debts amounted to ₹ 6,000.
(iv) Creditors are to be paid ₹ 2,000 more.
(v) There being a claim against the firm for damages , liabilities to the extent of ₹ 2,000 should be created.
(vi) Outstanding rent be brought down to ₹ 11,200.
(vii) Goodwill is valued at $1^{\raisebox{1ex}{$1$}\!\left/ \!\raisebox{-1ex}{$2$}\right.}$ years' purchase of the average profits of last 3 years, less ₹ 12,000 . Profits for the last 3 years amounted to ₹ 10,000 ; ₹ 20,000 and ₹ 30,000.
Pass journal entries , prepare Capital Accounts and opening Balance Sheet.

Answer 1

Journal
Date 2018	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)
April 1	Revaluation A/c	Dr.		2,000
	To Provision for Doubtful Debts A/c				2,000
	(Provision on debtors increased)
April 1	Revaluation A/c	Dr.		2,000
	To Creditors A/c				2,000
	(Creditors increased)
April 1	Revaluation A/c	Dr.		2,000
	To Claim for Damages A/c				2,000
	(Liability increased)
April 1	Outstanding Rent A/c	Dr.		1,800
	To Revaluation A/c				1,800
	(Liability decreased)
April 1	X’s Capital A/c	Dr		2,520
	Y’s Capital A/c	Dr		1,680
	To Revaluation A/c				4,200
	(Loss on revaluation transferred to Partners’ Capital A/c)
April 1	Workmen Compensation Reserve A/c	Dr.		5,600
	To Workmen Compensation Claim A/c				3,000
	To X’s Capital A/c				1,560
	To Y’s Capital A/c				1,040
	(Surplus Workmen Compensation Reserve distributed)
April 1	Bank A/c	Dr		40,000
	To Z’s Capital A/c				40,000
	(Capital brought in cash)
April 1	Z’s Current A/c	Dr.		3,000
	To X’s Capital A/c				1,800
	To Y’s Capital A/c				1,200
	(Goodwill adjusted in the ratio 3:2 )

Partners’ Capital Accounts
Dr.									Cr.
Particulars		X	Y	Z	Particulars	X	Y	Z
Profit & Loss A/c		2,400	1,600		Balance b/d	50,000	60,000
Revaluation A/c		2,520	1,680		Bank A/c			40,000
Balance c/d		48,440	58,960	40,000	Workmen Compensation Reserve	1,560	1,040
					Z's Current A/c	1,800	1,200
		53,360	62,240	40,000		53,360	62,240	40,000

Balance sheet as on 1st April, 2018 after Z’s admission
Liabilities		Amount Rs	Assets		Amount Rs
Outstanding Rent		11,200	Cash		50,000
Workmen Compensation Claim		3,000	Stock		20,000
Creditors		22,000	Machinery		38,600
Claim for Damages		2,000	Z ‘s Current A/c		3,000
Capital			Debtors	80,000
X	48,440		Less : Provision for D.D.	6,000	74,000
Y	58,960
Z	40,000	1,47,400
		1,85,600			1,85,600

Working Notes:

WN1: Calculation of Goodwill

$\begin{array}{l}\text{Average Profit =}\frac{10,000+20,000+30,000}{3}=\frac{60,000}{3}=\text{Rs 20,000}\\ \text{Goodwill = Average Profits}\times \text{Number of years' purchase}\\ \text{= (20,000}\times \text{1.5) - 12,000 = 30,000 - 12,000 = Rs 18,000}\end{array}$

WN 2: Calculation of Z’s share of goodwill
$\text{Z's share of goodwill = 18,000}\times \frac{1}{6}=\text{Rs 3,000}$