Question

X and Y share profits in the ratio of 5 : 3 . Their Balance Sheet as at 31st March, 2018 was:

Liabilities		Amount (₹)	Assets		Amount (₹)
Creditors		15,000	Cash at Bank		5,000
Employees' Provident Fund		10,000	Sundry Debtors	20,000
Workmen Compensation Reserve		5,800	Less: Provision for D. Debts	600	19,400
Capital A/cs:			Stock		25,000
X	70,000		Fixed Assets		80,000
Y	31,000	1,01,000	Profit and Loss A/c		2,400
		1,31,800			1,31,800

Z is admitted as a new partner on 1st April, 2018 on the following terms:
(a) Provision for doubtful debts is to be maintained at 5% on Debtors.
(b) Outstanding rent amounted to ₹ 15,000.
(c) An accrued income of ₹ 4,500 does not appear in the books of the firm . It is now to be recorded.
(d) X takes over the Investments at an agreed value of ₹ 18,000.
(e) New Profit-sharing Ratio of partners will be 4 : 3 : 2 .
(f) Z will bring in ₹ 60,000 as his capital by cheque.
(g) Z is to pay an amount equal to his share in firm's goodwill valued at twice the average profits of the last three years which were ₹ 90,000 ; ₹ 78,000 and ₹ 75,000 respectively.
(h) Half of the amount of the goodwill is to be withdrawn by X and Y .
You are required to pass journal entries , prepare Revaluation Account , Partners' Capital and Current Accounts and the Balance Sheet of the new firm.

They admit Z into partnership with 1/8th share in profits on this date . Z brings ₹ 20,000 as his capital and ₹ 12,000 for goodwill in cash . Z acquires his share entirely from X. Following revaluations are also made :
(a) Employees' Provident Fund liability is to be increased by ₹ 5,000.
(b) All Debtors are good. Therefore, no provision is required on Debtors.
(c) Stock includes ₹ 3,000 for obsolete items.
(d) Creditors are to be paid ₹ 1,000 more.
(e) Fixed Assets are to be revalued at ₹ 70,000.
Prepare journal entries , necessary accounts and new Balance Sheet . Also, calculate new profit-sharing ratio.

Answer 1

Revaluation Account
Dr.			Cr.
Particulars	Amount Rs	Particulars	Amount Rs
Stock	3,000	Provision for D. Debts	600
Creditors	1,000
Fixed Assets	10,000	Loss transferred to
Provident Fund	5,000	X Capital	11,500
		Y Capital	6,900
	19,000		19,000

Partners’ Capital Accounts
Dr.							Cr.
Particulars	X	Y	Z	Particulars	X	Y	Z
Revaluation (Loss)	11,500	6,900		Balance b/d	70,000	31,000
Profit and Loss	1,500	900		Workmen’s Comp. Fund	3,625	2,175
Balance c/d	72,625	25,375	20,000	Cash			20,000
				Premium for Goodwill	12,000
	85,625	33,175	20,000		85,625	33,175	20,000

Balance Sheet as on March 31, 2018 after Z’s admission
Particulars		Amount Rs	Assets	Amount Rs
Creditors (15,000 + 1,000)		16,000	Land and Building	5,000
Provident Fund (10,000 + 5,000)		15,000	Sundry Debtors	20,000
Capital A/cs:			Stock (25,000 – 3,000)	22,000
X	72,625		Fixed Assets (80,000 – 10,000)	70,000
Y	25,375		Cash	32,000
Z	20,000	1,18,000
		1,49,000		1,49,000

Working Notes

WN1: Distribution of Revaluation Loss


WN2: Distribution Accumulated Loss


WN3: Distribution of Workmen’s Compensation Fund


WN4: Z’s premium for goodwill will be transferred to X’s Capital Account because Z receives his entire share from X.

WN5: Calculation of New Profit Sharing Ratio