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(b) Z brings in ₹ 15,000 for goodwill, half of which is withdrawn by old partners .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.

Answer 1

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	(Half of the Premium for Goodwill withdrawn by X and Y)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