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

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Solution

(i) Calculation of amount of Cash before admission of partner:
Total assets excluding cash= 1200+400+2650+3780= 8030
Total liabilities= 1500+1750+2000+3000= 8250
Therefore, Cash= 8250- 8030
= 220

(ii) JOURNAL
1. Cash a/c... Dr. 3300
To W's Capital a/c 1800
To Premium for goodwill a/c 1500
(Being capital and premium for goodwill brought in by W)
2. Premium for goodwill a/c... Dr. 1500
To X's Capital a/c 500
To Y's Capital a/c 500
To Z's Capital a/c 500
(Being premium for goodwill distributed among the partners in the ratio of 1:1:1)
3. Revaluation a/c... Dr. 270
To Motor Car a/c 250
To Furniture a/c 20
(Being decrease in value of assets transferred to revaluation account)
4. 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
(Being loss on revaluation transferred to partner's capital accounts in the ratio of 1:1:1)

(iii) BALANCE SHEET
(After admission of W)
Liabilities Amount
(in Rs.) Assets Amount
(in Rs.)
Motor Car 950
Capital
- X (1500+500-90)
- Y (1750+500-90)
- Z (2000+500-90)
- W
1910
2160
2410
1800 Furniture 380
Other Liabilities 3000 Stock 2650
Debtors 3780
Cash (220+3300) 3520
TOTAL 11280 TOTAL 11280

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Similar questions

Q. 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.

Q. X, Y and Z entered into a partnership and contributed Rs. 9,000; Rs. 6,000 and Rs. 3,000 respectively. They agreed to share profits and losses equally. The business lost heavily during the very first year and they decided to dissolve the firm. After realising all assets and paying off liabilities, there remained a cash balance of Rs. 6,000.
Prepare Realisation Account and Partners' Capital Accounts.

PRACTICAL PROBLEM

Pai, Amba and Manoj are partners in a firm sharing profit and losses in the proportion to their capitals. Their Balance Sheet as on 31.3.2012 is as follow:

Balance Sheet as on 31^st March, 2012
Liabilities	Amount Rs	Assets	Amount Rs
Capitals		Cash	3,000
Pai	30,000	Stock	12,000
Amba	30,000	Debtors	20,000
Manoj	15,000	Plant	13,000
Creditors	7,000	Building	20,000
Outstanding Expenses	15,000	Motor Van	31,000
Profit and Loss A/c	20,000	Goodwill	18,000
	1,17,000		1,17,000

On the above date Pai retired and the following adjustments have been agreed upon

1) Goodwill was revalued at Rs 15,000

2) Assets and Liabilities were revalued as under debtors Rs 17,000 stock at 90% of book value Building Rs 35,000 Plant Rs 11,500 Motor Van Rs 29, 500, Outstanding expenses Rs 18,000

3) Amba and Manoj contributed additional capital of Rs 20,000 and Rs 10,000 respectively

4) Balance due to Mr. Pai is transferred to his loan account after paying him Rs 1,000/-

Prepare:- Profit and Loss adjustment A/c,. Partner’s Capital A/c’s and Balance Sheet of new firm

PRACTICAL PROBLEMS

Ganesh and Chandan were partners sharing profits and losses in the proportion of 3:2. They dissolve the partnership firm on 31^st March, 2011 when their position was as follows:

Balance Sheet as on 31^st March, 2011
Liabilities	Amount Rs	Assets		Amount Rs
Sundry Creditors	25,000	Debtors	1,12,500
Bank overdraft	20,000	Less: R.D.D.	12,500	1,00,000
Reserve Fund	30,000	Stock		2,25,000
Capital Accounts:		Furniture		50,000
Ganesh	2,30,000	Motor Car		75,000
Chandan	1,50,000	Cash in hand		5,000
	4,55,000			4,55,000

The Assets realised as follows: Debtors Rs 90,000, Stock Rs 2,00,000, and Goodwill Rs 25,000, Motor Car was taken over by Ganesh for Rs 70,000 and Furniture by Chandan for Rs 60,000.
The Creditors were paid Rs 22,500 in full settlement. The expenses of realisation amounted to Rs 10,000.

Pass necessary journal entries in the books of the firm.

A

and

B

, carrying on business in partnership and sharing profits and losses in the ratio of

3 : 2

, require a partner, when their Balance Sheet stood as:

Liabilities	(Rs.)	Assets	(Rs.)
Creditors A's Capital 51,450 B's Capital 36,750	11,800 88,200	Cash Stock Debtors Furniture Machinery	1,500 28,000 19,500 2,500 48,500
	1,00,000		1,00,000

They admit

C

into partnership and give him

1 / 8^{t h}

share in the future profits on the following terms:
(a) Goodwill of the firm be valued at twice the average of the last three years profits which amounted to

R s . 21, 000; R s . 24, 000

and

R s . 25, 560

.
(b)

C

is to bring in cash for the amount of his share of goodwill.
(c)

C

is to bring in cash

R s . 15, 000

as his capital.
Pass Journal entries recording these transactions, draw out the Balance sheet of the new firm and state new profit sharing ratio.

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Liabilities	Amount (in Rs.)	Assets	Amount (in Rs.)
		Motor Car	950
Capital - X (1500+500-90) - Y (1750+500-90) - Z (2000+500-90) - W	1910 2160 2410 1800	Furniture	380
Other Liabilities	3000	Stock	2650
		Debtors	3780
		Cash (220+3300)	3520
TOTAL	11280	TOTAL	11280