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Question

X and Y are partners sharing profits in the ratio of 2 : 1 . Their Balance Sheet as at 31st March, 2018 was:

Liabilities

Assets

Sundry Creditors

25,000

Cash/Bank

5,000

General Reserve 18,000 Sundry Debtors 15,000
Capital A/cs: Stock 10,000

X

75,000

Investments

8,000

Y

62,000

1,37,000

Typewriter

5,000

Fixed Assets

1,37,000

1,80,000

1,80,000

They admit Z into partnership on the same date on the following terms;
(a) Z brings in ₹ 40,000 as his capital and he is given 1/4th share in profits.
(b) Z brings in ₹ 15,000 for goodwill, half of which is withdrawn by old partners .
(c) Investments are valued at ₹ 10,000 . X takes over Investments at this value.
(d) Typewriter is to be depreciated by 20% and Fixed Assets by 10%.
(e) An unrecorded stock of Stationery on 31st March,2018 is ₹ 1,000.
(f) By bringing in r withdrawing cash , the Capitals of X and Y are to be made proportionate to that of Z on their profit-sharing basis.
Pass journal entries , prepare Revaluation Account , Capital Accounts and new Balance Sheet of the firm.

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Solution

Journal

Date
2018

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

April 1

Revaluation A/c

Dr.

14,700

To Typewriter A/c

1,000

To Fixed Assets A/c

13,700

(Decrease in value of typewriter and fixed assets transferred to Revaluation Account)

April 1

Stationery A/c

Dr.

1,000

Investment A/c

Dr.

2,000

To Revaluation A/c

3,000

(Increase in stationery and investment transferred to Revaluation Account)

April 1

X’s Capital A/c

Dr.

7,800

Y’s Capital A/c

Dr.

3,900

To Revaluation A/c

11,700

(Revaluation loss transferred to X and Y’s
Capital Account in their old ratio)

April 1

Reserve Fund A/c

Dr.

18,000

To X’s Capital A/c

12,000

To Y’s Capital A/c

6,000

(Reserve Fund distributed)

April 1

Cash A/c

Dr.

55,000

To Z’s Capital A/c

40,000

To Premium for Goodwill A/c

15,000

(Z brought capital and share of goodwill)

April 1

Premium for Goodwill A/c

Dr.

15,000

To X’s Capital A/c

10,000

To Y’s Capital A/c

5,000

(Premium for Goodwill distributed between X and Y in their sacrificing ratio i.e 2:1)

April 1

X’s Capital A/c

Dr.

5,000

Y’s Capital A/c

Dr.

2,500

To Cash

7,500

(Half of the Premium for Goodwill withdrawn by X and Y)

April 1

X’s Capital A/c

Dr.

10,000

To Investments A/c

10,000

(X took over the Investment)

April 1

Cash A/c

Dr.

4,800

To X’s Capital A/c

4,800

(X’ brought cash to make up deficiency in capital)

April 1

Y’s Capital A/c

Dr.

26,600

To Cash A/c

26,600

(Y withdrew excess capital after all adjustments)

Cash/Bank Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Balance b/d

5,000

X’s Capital (Goodwill)

5,000

Z’s Capital

40,000

Y’s Capital (Goodwill)

2,500

Premium for Goodwill

15,000

Y’s Capital

26,600

X’s Capital

5,800

Balance c/d

31,700

65,800

65,800

Revaluation Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Typewriter (5,000 × 20%)

1,000

Investment

2,000

Fixed Assets (1,37,000 × 10%)

13,700

Stationery

1,000

Loss transferred to

X Capital

7,800

Y Capital

3,900

14,700

14,700

Partners’ Capital Accounts

Dr.

Cr.

Particulars

X

Y

Z

Particulars

X

Y

Z

Revaluation

7,800

3,900

Balance b/d

75,000

62,000

Investment

10,000

Reserve Fund

12,000

6,000

Cash (withdraw of goodwill)

5,000

2,500

Cash

40,000

Balance c/d

74,200

66,600

40,000

Premium for Goodwill

10,000

5,000

97,000

73,000

40,000

97,000

73,000

40,000

Cash

26,600

Balance b/d

74,200

66,600

40,000

Balance c/d adjusted

80,000

40,000

40,000

Cash

5,800

80,000

66,600

40,000

80,000

66,600

40,000

Balance Sheet

as on March 31, 2018 after Z’s admission

Liabilities

Amount

Rs

Assets

Amount

Rs

Sundry Creditors

25,000

Cash

31,700

Capital A/cs:

Sundry Debtors

15,000

X

80,000

Stock

10,000

Y

40,000

Typewriter (5,000 – 1,000)

4,000

Z

40,000

1,60,000

Fixed Assets (1,37,000 – 13,700)

1,23,300

Stationery

1,000

1,85,000

1,85,000


Working Notes:

WN1: Sacrificing Ratio


WN2: Distribution of Revaluation Loss


WN3: Distribution of Premium for Goodwill


WN4: Adjustment of Capital
Total Capital of the firm on the basis of Z’s share

Total Capital of the firm

=

1,60,000

Less: Z’s Capital

=

40,000

Combined Capital of X and Y

=

1,20,000


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