Question

X, Y and Z are equal partners with capitals of ₹ 1,500; ₹ 1,750 and ₹ 2,000 respectively. They agree to admit W into equal partnership upon payment in cash ₹ 1,500 for 1/4th share of the goodwill and ₹ 1,800 as his capital, both sums to remain in the business. The liabilities of the old firm amounted to ₹ 3,000 and the assets, apart from cash, consist of Motors ₹ 1,200, Furniture ₹ 400, Stock ₹ 2,650 and Debtors ₹ 3,780. The Motors and Furniture were revalued at ₹ 950 and ₹ 380 respectively.
Pass Journal entries to give effect to the above arrangement and also show Balance Sheet of the new firm.

Answer 1

Balance Sheet before admission of W
Liabilities		Amount Rs	Assets	Amount Rs
Capital:			Motors	1,200
X	1,500		Furniture	400
Y	1,750		Stock	2,650
Z	2,000	5,250	Debtors	3,780
Other Liabilities		3,000	Cash (Balancing Figure)	220
		8,250		8,250

Journal
Date	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
	Cash A/c	Dr.		3,300
	To W’s Capital A/c				1,800
	To Premium for Goodwill A/c				1,500
	(W brought his share of goodwill and capital in cash)
	Premium for Goodwill A/c	Dr.		1,500
	To X’s Capital A/c				500
	To Y’s Capital A/c				500
	To Z’s Capital A/c				500
	(Premium for goodwill distributed between X, Y and Z in sacrificing ratio)
	Revaluation A/c	Dr.		270
	To Motors A/c				250
	To Furniture A/c				20
	(Decrease in value of Motors and Furniture transferred to Revaluation Account)
	X’s Capital A/c	Dr.		90
	Y’s Capital A/c	Dr.		90
	Z’s Capital A/c	Dr.		90
	To Revaluation A/c				270
	(Loss on revaluation transferred to Capital Account)

Balance Sheet after admission of W
Liabilities	Amount Rs	Assets	Amount Rs
Capital:		Motors (1,200 – 250)	950
X (1,500 – 90 + 500)	1,910	Furniture (400 – 20)	380
Y (1,750 – 90 + 500)	2,160	Stock	2,650
Z (2,000 – 90 + 500)	2,410	Debtors	3,780
W	1,800	Cash (220 + 3,300)	3,520
Other Liabilities	3,000
	11,280		11,280

Working Notes:

WN1


WN2
Distribution of Premium for Goodwill


WN3
Distribution of loss Revaluation