Admission of a Partner
Short Answer Questions • Practice Set Solutions
Q1
Identify various matters that need adjustments at the time of admission of a new partner.
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When a new partner is admitted into the firm, the old partnership ends and a new partnership comes into existence. The following matters require accounting adjustments:
- New Profit Sharing Ratio: Calculation of new profit sharing ratio and sacrificing ratio.
- Valuation of Goodwill: Accounting treatment for goodwill brought in by the new partner.
- Revaluation: Revaluation of Assets and Reassessment of Liabilities to determine correct values.
- Reserves & Profits: Distribution of accumulated profits, reserves, and accumulated losses among old partners.
- Adjustment of Capitals: Adjusting partners’ capitals according to the new profit sharing ratio (if agreed).
Q2
Why it is necessary to ascertain new profit sharing ratio even for old partners when a new partner is admitted?
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When a new partner is admitted, they acquire their share of profit from the old partners. This reduces the share of the old partners. Therefore, it is necessary to determine the New Profit Sharing Ratio to:
- Clearly define the future relationship among all partners (old and new).
- Ensure future profits and losses are distributed correctly according to the new agreement.
- Calculate the Sacrificing Ratio, which is needed to distribute the Goodwill brought by the new partner.
Q3
What is sacrificing ratio? Why is it calculated?
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Definition: Sacrificing Ratio is the ratio in which the old partners surrender or sacrifice a share of their profits in favor of the incoming (new) partner.
Sacrificing Ratio = Old Ratio – New Ratio
Purpose of Calculation:
- The new partner brings in Goodwill (Premium) as compensation for the profit share they acquire.
- This Goodwill amount belongs to the old partners who have sacrificed their share.
- Therefore, the Sacrificing Ratio is calculated to distribute this goodwill among the sacrificing partners equitably.
Q4
On what occasions sacrificing ratio is used?
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The Sacrificing Ratio is primarily used in the following situations related to partnership accounts:
- Admission of a Partner: To distribute the goodwill brought in by the new partner among the old partners who have sacrificed their share.
- Change in Profit Sharing Ratio: If existing partners decide to change their profit-sharing ratio without admitting a new partner, the gaining partner must compensate the sacrificing partner based on the sacrificing ratio.
Q5
If some goodwill already exists in the books and the new partner brings in his share of goodwill in cash, how will you deal with existing amount of goodwill?
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According to AS-26 (Intangible Assets), self-generated goodwill cannot be recorded in books. Only purchased goodwill should appear.
If Goodwill already appears in the balance sheet at the time of admission, it is treated as “Old Goodwill” or “Purchased Goodwill” that must be written off.
Treatment: The existing goodwill is written off (debited) to the Old Partners’ Capital Accounts in their Old Profit Sharing Ratio.
Journal Entry:
Old Partners’ Capital A/c … Dr.
To Goodwill A/c
(Being existing goodwill written off in old ratio)
To Goodwill A/c
(Being existing goodwill written off in old ratio)
Q6
Why there is need for the revaluation of assets and liabilities on the admission of a partner?
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Revaluation is necessary because, over time, the book value of assets and liabilities may differ from their current market value.
Reasons for Revaluation:
- Avoid Unfair Gain/Loss: The incoming partner should not benefit from any appreciation in asset values that occurred before their admission, nor should they suffer from any past losses or understated liabilities.
- True Financial Position: To reflect the true and fair view of the firm’s financial position on the date of reconstitution.
- Old Partners’ Right: Any profit or loss arising from such revaluation belongs to the old partners and is transferred to their capital accounts in the old profit-sharing ratio.
Admission of a Partner
Long Answer Questions • Detailed Explanations & Examples
Q1
Do you advise that assets and liabilities must be revalued at the time of admission of a partner? If so, why? Also describe how is this treated in the book of account?
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Yes, it is highly advisable to revalue assets and liabilities at the time of admission of a new partner.
Why Revaluation is Necessary?
- True Financial Position: The book value of assets and liabilities may not reflect their current market value. Some assets might have appreciated (e.g., Land) while others depreciated.
- Avoid Unfairness: The incoming partner should not benefit from past appreciation of assets, nor should they suffer from past losses or unrecorded liabilities. These belong to the old partners.
- Record Unrecorded Items: It allows the firm to bring unrecorded assets or liabilities into the books.
Accounting Treatment
A Revaluation Account (or Profit and Loss Adjustment Account) is prepared.
- Credit Side: Increase in value of Assets, Decrease in Liabilities, Recording Unrecorded Assets. (Gains)
- Debit Side: Decrease in value of Assets, Increase in Liabilities, Recording Unrecorded Liabilities. (Losses)
- Result: The balance represents Profit or Loss on Revaluation, which is transferred to Old Partners’ Capital Accounts in their Old Profit Sharing Ratio.
Q2
What is goodwill? What factors affect goodwill?
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Definition
Goodwill is an intangible asset that represents the good name, reputation, and business connections of a firm. It enables a firm to earn higher profits than the normal profits earned by other firms in the same trade.
Factors Affecting Goodwill
- Location of Business: If a business is centrally located or in a high-traffic area, it attracts more customers, increasing goodwill.
- Efficiency of Management: Competent and efficient management leads to cost reduction, higher profits, and better reputation.
- Quality of Products: Firms that maintain consistent high quality establish a loyal customer base.
- Market Situation: If a firm has a monopoly or limited competition, it enjoys higher goodwill.
- Past Performance: A consistent track record of profits builds trust among investors and customers.
- After-Sales Service: Good customer support enhances the brand image.
Q3
Explain various methods of valuation of goodwill.
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[Image of methods of valuation of goodwill chart]
1. Average Profit Method
Goodwill is calculated on the basis of the average profits of the past few years.
Goodwill = Average Profit × Number of Years’ Purchase
2. Weighted Average Profit Method
Used when profits show a rising or falling trend. Weights (1, 2, 3…) are assigned to years.
Goodwill = $\frac{\sum (\text{Profit} \times \text{Weight})}{\sum \text{Weights}} \times \text{Years’ Purchase}$
3. Super Profit Method
Goodwill is valued based on the extra profit earned over the normal profit.
- Normal Profit = Capital Employed × Normal Rate of Return.
- Super Profit = Average Actual Profit – Normal Profit.
- Goodwill = Super Profit × Years’ Purchase.
4. Capitalisation Method
- By Average Profit: $\text{Goodwill} = \left( \frac{\text{Avg Profit} \times 100}{\text{NRR}} \right) – \text{Net Assets}$
- By Super Profit: $\text{Goodwill} = \frac{\text{Super Profit} \times 100}{\text{NRR}}$
Q4
If it is agreed that the capital of all the partners should be proportionate to the new profit sharing ratio, how will you work out the new capital of each partner? Give examples and state how necessary adjustments will be made.
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Steps for Adjustment
- Calculate the Total Capital of the New Firm based on the new partner’s capital and share.
(Formula: New Partner’s Capital × Reciprocal of his Share) - Divide this Total Capital among all partners (including the new one) in the New Profit Sharing Ratio. This gives the “Required Capital”.
- Compare the “Required Capital” with the “Existing Adjusted Capital” (after revaluation, goodwill, reserves adjustments).
- Adjustment:
- If Existing < Required: Partner brings cash (Deficit).
- If Existing > Required: Partner withdraws cash (Surplus).
Example:
A & B are partners (3:2). C admits for 1/5 share bringing ₹50,000 capital.
1. Total Capital: $50,000 \times \frac{5}{1} = 2,50,000$.
2. New Ratio: Let’s assume 2:2:1. A’s New Cap should be $2,50,000 \times \frac{2}{5} = 1,00,000$.
3. Compare: If A’s existing adjusted capital is ₹80,000, he must bring in ₹20,000 cash.
A & B are partners (3:2). C admits for 1/5 share bringing ₹50,000 capital.
1. Total Capital: $50,000 \times \frac{5}{1} = 2,50,000$.
2. New Ratio: Let’s assume 2:2:1. A’s New Cap should be $2,50,000 \times \frac{2}{5} = 1,00,000$.
3. Compare: If A’s existing adjusted capital is ₹80,000, he must bring in ₹20,000 cash.
Q5
Explain how will you deal with goodwill when new partner is not in a position to bring his share of goodwill in cash.
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According to Accounting Standard 26 (AS-26), goodwill can only be recorded in the books if money or money’s worth has been paid for it. Since the new partner is unable to bring cash for goodwill, we cannot raise a Goodwill Account.
Accounting Treatment
We adjust the goodwill amount through the partners’ accounts. The new partner’s Current Account is debited (so their capital remains intact) and Old Partners’ Capital Accounts are credited.
Journal Entry:
New Partner’s Current A/c … Dr.
To Old Partners’ Capital A/cs (In Sacrificing Ratio)
(Being new partner’s share of goodwill adjusted)
New Partner’s Current A/c … Dr.
To Old Partners’ Capital A/cs (In Sacrificing Ratio)
(Being new partner’s share of goodwill adjusted)
Q6
Explain various methods for the treatment of goodwill on the admission of a new partner?
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There are primarily two main situations regarding the treatment of goodwill (Premium):
1. Premium Method (Goodwill brought in Cash)
- Paid Privately: No entry is passed in the books.
- Retained in Business:
Entry 1: Cash/Bank Dr. to Premium for Goodwill.
Entry 2: Premium for Goodwill Dr. to Old Partners’ Capital (Sacrificing Ratio). - Withdrawn by Partners: Additional entry passed to debit Old Partners and credit Cash/Bank.
2. Revaluation Method (Goodwill NOT brought in Cash)
- Since AS-26 prohibits raising goodwill account for self-generated goodwill, the adjustment is made via current accounts.
- Entry: New Partner’s Current A/c Dr. to Old Partners’ Capital A/c.
Note: The old method of raising Goodwill Account (Goodwill Dr. to Old Partners) and then writing it off is no longer recommended under standard accounting practices.
Q7
How will you deal with the accumulated profits and losses and reserves on the admission of a new partner?
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Accumulated profits, losses, and reserves (like General Reserve, Workmen Compensation Reserve) represent earnings of the old partners generated before the admission. Therefore, they must be distributed among old partners in the Old Profit Sharing Ratio.
Journal Entries
| Item | Entry |
|---|---|
| For Reserves / Profits | General Reserve A/c … Dr. P&L A/c (Credit Bal) … Dr. To Old Partners’ Capital A/c |
| For Accumulated Losses | Old Partners’ Capital A/c … Dr. To P&L A/c (Debit Bal) To Deferred Revenue Exp. |
Q8
At what figures the value of assets and liabilities appear in the books of the firm after revaluation has been due. Show with the help of an imaginary balance sheet.
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After revaluation, assets and liabilities appear in the books of the reconstituted firm at their Revised (Revalued) Figures.
Imaginary Scenario:
Old Balance Sheet: Machinery 50,000, Creditors 20,000.
Revaluation: Machinery appreciated by 10%, Creditors reduced by 2,000.
Balance Sheet (Extract) after Admission
| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Creditors (20k – 2k) | 18,000 | Machinery (50k + 5k) | 55,000 |
| Capitals (A, B, C) | XXX | Bank (Incl. C’s Cap) | XXX |
Note: If the partners decide NOT to alter book values, a Memorandum Revaluation Account is opened, but this is a special case. The general rule is to show Revised Values.
Admission Numericals (Q1-Q5)
Calculation of New Profit Sharing Ratio (NPSR)
Q1
A & B (3:2), Admit C for 1/6th Share.
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Simple Method
When the new partner’s share is given without specifying the sacrifice from old partners, assume the remaining share is distributed in the old ratio.
Step 1: Calculate Remaining Share
$$ \text{Total Profit} = 1 $$
$$ \text{Remaining Share} = 1 – \frac{1}{6} = \frac{5}{6} $$
$$ \text{Total Profit} = 1 $$
$$ \text{Remaining Share} = 1 – \frac{1}{6} = \frac{5}{6} $$
Step 2: Old Partners’ New Share
$$ \text{A’s New} = \frac{3}{5} \times \frac{5}{6} = \frac{15}{30} = \frac{3}{6} $$
$$ \text{B’s New} = \frac{2}{5} \times \frac{5}{6} = \frac{10}{30} = \frac{2}{6} $$
$$ \text{A’s New} = \frac{3}{5} \times \frac{5}{6} = \frac{15}{30} = \frac{3}{6} $$
$$ \text{B’s New} = \frac{2}{5} \times \frac{5}{6} = \frac{10}{30} = \frac{2}{6} $$
Step 3: New Ratio (A : B : C)
$$ \frac{3}{6} : \frac{2}{6} : \frac{1}{6} $$
$$ \frac{3}{6} : \frac{2}{6} : \frac{1}{6} $$
Ans: 3 : 2 : 1
Q2
A, B, C (3:2:1), Admit D for 10% Profits.
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Given: D’s Share = 10% = $\frac{10}{100} = \frac{1}{10}$.
Step 1: Remaining Share
$$ 1 – \frac{1}{10} = \frac{9}{10} $$
$$ 1 – \frac{1}{10} = \frac{9}{10} $$
Step 2: New Shares (Old Ratio × Remaining)
$$ \text{A} = \frac{3}{6} \times \frac{9}{10} = \frac{27}{60} $$
$$ \text{B} = \frac{2}{6} \times \frac{9}{10} = \frac{18}{60} $$
$$ \text{C} = \frac{1}{6} \times \frac{9}{10} = \frac{9}{60} $$
$$ \text{A} = \frac{3}{6} \times \frac{9}{10} = \frac{27}{60} $$
$$ \text{B} = \frac{2}{6} \times \frac{9}{10} = \frac{18}{60} $$
$$ \text{C} = \frac{1}{6} \times \frac{9}{10} = \frac{9}{60} $$
Step 3: Equalize Denominator for D
$$ \text{D} = \frac{1}{10} = \frac{6}{60} $$
Ratio: 27 : 18 : 9 : 6 (Divide by 3)
$$ \text{D} = \frac{1}{10} = \frac{6}{60} $$
Ratio: 27 : 18 : 9 : 6 (Divide by 3)
Ans: 9 : 6 : 3 : 2
Q3
X & Y (5:3), Admit Z (1/10) Acquired Equally.
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Method: Sacrifice Calculation
Z acquires his share from X and Y in the ratio 1:1.
Step 1: Sacrifice Share
$$ \text{Sacrifice by X} = \frac{1}{10} \times \frac{1}{2} = \frac{1}{20} $$
$$ \text{Sacrifice by Y} = \frac{1}{10} \times \frac{1}{2} = \frac{1}{20} $$
$$ \text{Sacrifice by X} = \frac{1}{10} \times \frac{1}{2} = \frac{1}{20} $$
$$ \text{Sacrifice by Y} = \frac{1}{10} \times \frac{1}{2} = \frac{1}{20} $$
Step 2: New Share = Old – Sacrifice
$$ \text{X} = \frac{5}{8} – \frac{1}{20} = \frac{25 – 2}{40} = \frac{23}{40} $$
$$ \text{Y} = \frac{3}{8} – \frac{1}{20} = \frac{15 – 2}{40} = \frac{13}{40} $$
$$ \text{X} = \frac{5}{8} – \frac{1}{20} = \frac{25 – 2}{40} = \frac{23}{40} $$
$$ \text{Y} = \frac{3}{8} – \frac{1}{20} = \frac{15 – 2}{40} = \frac{13}{40} $$
Step 3: Z’s Share
$$ \text{Z} = \frac{1}{10} = \frac{4}{40} $$
$$ \text{Z} = \frac{1}{10} = \frac{4}{40} $$
Ans: 23 : 13 : 4
Q4
A, B, C (2:2:1), D (1/8) Acquired Entirely from A.
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Only A sacrifices his share. B and C retain their old shares.
A’s New Share
$$ \frac{2}{5} – \frac{1}{8} = \frac{16 – 5}{40} = \frac{11}{40} $$
$$ \frac{2}{5} – \frac{1}{8} = \frac{16 – 5}{40} = \frac{11}{40} $$
Others (Equalize Denominator to 40)
$$ \text{B} = \frac{2}{5} = \frac{16}{40} $$
$$ \text{C} = \frac{1}{5} = \frac{8}{40} $$
$$ \text{D} = \frac{1}{8} = \frac{5}{40} $$
$$ \text{B} = \frac{2}{5} = \frac{16}{40} $$
$$ \text{C} = \frac{1}{5} = \frac{8}{40} $$
$$ \text{D} = \frac{1}{8} = \frac{5}{40} $$
New Ratio
Ans: 11 : 16 : 8 : 5
Q5
P & Q (2:1), Admit R (1/5) Acquired in 1:2.
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R acquires 1/5 share from P and Q in the ratio of 1:2.
Step 1: Calculate Sacrifice
$$ \text{From P} = \frac{1}{5} \times \frac{1}{3} = \frac{1}{15} $$
$$ \text{From Q} = \frac{1}{5} \times \frac{2}{3} = \frac{2}{15} $$
$$ \text{From P} = \frac{1}{5} \times \frac{1}{3} = \frac{1}{15} $$
$$ \text{From Q} = \frac{1}{5} \times \frac{2}{3} = \frac{2}{15} $$
Step 2: New Shares
$$ \text{P} = \frac{2}{3} – \frac{1}{15} = \frac{10 – 1}{15} = \frac{9}{15} $$
$$ \text{Q} = \frac{1}{3} – \frac{2}{15} = \frac{5 – 2}{15} = \frac{3}{15} $$
$$ \text{R} = \frac{1}{5} = \frac{3}{15} $$
$$ \text{P} = \frac{2}{3} – \frac{1}{15} = \frac{10 – 1}{15} = \frac{9}{15} $$
$$ \text{Q} = \frac{1}{3} – \frac{2}{15} = \frac{5 – 2}{15} = \frac{3}{15} $$
$$ \text{R} = \frac{1}{5} = \frac{3}{15} $$
New Ratio
9 : 3 : 3 (Divide by 3)
9 : 3 : 3 (Divide by 3)
Ans: 3 : 1 : 1
Q6.
A, B and C are partners sharing profits in 3:2:2 ratio. They admitted D as a new partner for 1/5 share which he acquired from A, B and C in 2:2:1 ratio respectively. Calculate new profit sharing ratio?
Detailed Solution
Given: Old Ratio (A:B:C) = 3:2:2. D’s Share = 1/5.
Acquisition Ratio (Sacrifice Ratio) = 2:2:1.
A’s Sacrifice = 1/5 × 2/5 = 2/25
B’s Sacrifice = 1/5 × 2/5 = 2/25
C’s Sacrifice = 1/5 × 1/5 = 1/25
Step 2: Calculate New Shares (Old Share – Sacrifice Share)
A’s New Share = 3/7 – 2/25 = (75 – 14)/175 = 61/175
B’s New Share = 2/7 – 2/25 = (50 – 14)/175 = 36/175
C’s New Share = 2/7 – 1/25 = (50 – 7)/175 = 43/175
D’s Share = 1/5 (Multiply by 35/35) = 35/175
New Ratio = 61 : 36 : 43 : 35
Q7.
A and B were partners in a firm sharing profits in 3:2 ratio. They admitted C for 3/7 share which he took 2/7 from A and 1/7 from B. Calculate new profit sharing ratio?
Detailed Solution
Given: Old Ratio (A:B) = 3:2. C’s Share = 3/7.
Sacrifice given directly as fractions.
A’s New Share = 3/5 – 2/7 = (21 – 10)/35 = 11/35
B’s New Share = 2/5 – 1/7 = (14 – 5)/35 = 9/35
C’s Share = 3/7 (Multiply by 5/5) = 15/35
New Ratio = 11 : 9 : 15
Q8.
A, B and C were partners in a firm sharing profits in 3:3:2 ratio. They admitted D as a new partner for 4/7 profit. D acquired his share 2/7 from A, 1/7 from B and 1/7 from C. Calculate new profit sharing ratio?
Detailed Solution
Given: Old Ratio (A:B:C) = 3:3:2. D’s Share = 4/7.
Sacrifice is given directly.
A’s New Share = 3/8 – 2/7 = (21 – 16)/56 = 5/56
B’s New Share = 3/8 – 1/7 = (21 – 8)/56 = 13/56
C’s New Share = 2/8 – 1/7 = (14 – 8)/56 = 6/56
D’s Share = 4/7 (Multiply by 8/8) = 32/56
New Ratio = 5 : 13 : 6 : 32
Q9.
Radha and Rukmani are partners in a firm sharing profits in 3:2 ratio. They admitted Gopi as a new partner. Radha surrendered 1/3 of her share in favour of Gopi and Rukmani surrendered 1/4 of her share in favour of Gopi. Calculate new profit sharing ratio?
Detailed Solution
Given: Old Ratio (Radha:Rukmani) = 3:2.
Surrender is a fraction of their own share.
Radha’s Sacrifice = 3/5 × 1/3 = 1/5
Rukmani’s Sacrifice = 2/5 × 1/4 = 1/10
Step 2: Calculate New Shares
Radha’s New = 3/5 – 1/5 = 2/5 (or 4/10)
Rukmani’s New = 2/5 – 1/10 = (4-1)/10 = 3/10
Gopi’s Share (Sum of Sacrifices) = 1/5 + 1/10 = 3/10
New Ratio = 4 : 3 : 3
Q10.
Singh, Gupta and Khan are partners in a firm sharing profits in 3:2:3 ratio. They admitted Jain as a new partner. Singh surrendered 1/3 of his share in favour of Jain; Gupta surrendered 1/4 of his share in favour of Jain and Khan surrendered 1/5 in favour of Jain. Calculate new profit sharing ratio?
Detailed Solution
Given: Old Ratio = 3:2:3. Surrender is a fraction of their own share.
Step 1: Calculate Sacrificing ShareSingh’s Sacrifice = 3/8 × 1/3 = 1/8
Gupta’s Sacrifice = 2/8 × 1/4 = 1/16
Khan’s Sacrifice = 3/8 × 1/5 = 3/40
Step 2: Calculate New Shares
Singh = 3/8 – 1/8 = 2/8 (Convert to base 80: 20/80)
Gupta = 2/8 – 1/16 = 3/16 (Convert to base 80: 15/80)
Khan = 3/8 – 3/40 = 12/40 (Convert to base 80: 24/80)
Step 3: Calculate Jain’s Share
Jain = 1/8 + 1/16 + 3/40
LCM is 80 → (10 + 5 + 6)/80 = 21/80
New Ratio = 20 : 15 : 24 : 21
Q11.
Sandeep and Navdeep are partners in a firm sharing profits in 5:3 ratio. They admit C into the firm and the new profit sharing ratio was agreed at 4:2:1. Calculate the sacrificing ratio?
Detailed Solution
Given: Old Ratio (Sandeep : Navdeep) = 5:3.
New Ratio (Sandeep : Navdeep : C) = 4:2:1.
Formula: Sacrificing Share = Old Share – New Share.
Old Share = 5/8
New Share = 4/7
Sacrifice = 5/8 – 4/7 = (35 – 32) / 56 = 3/56
Step 2: Calculate Navdeep’s Sacrifice
Old Share = 3/8
New Share = 2/7
Sacrifice = 3/8 – 2/7 = (21 – 16) / 56 = 5/56
Sacrificing Ratio = 3 : 5
Q12.
Rao and Swami are partners in a firm sharing profits and losses in 3:2 ratio. They admit Ravi as a new partner for 1/8 share in the profits. The new profit sharing ratio between Rao and Swami is 4:3. Calculate new profit sharing ratio and sacrificing ratio?
Detailed Solution
Given: Old Ratio = 3:2. Ravi’s Share = 1/8.
Agreed Future Ratio between Rao and Swami = 4:3.
Total Profit = 1
Remaining Share = 1 – 1/8 = 7/8
Rao’s New Share = 7/8 × 4/7 = 4/8
Swami’s New Share = 7/8 × 3/7 = 3/8
Ravi’s Share = 1/8
New Ratio = 4 : 3 : 1
Step 2: Calculate Sacrificing Ratio (Old – New)
Rao = 3/5 – 4/8 = (24 – 20)/40 = 4/40
Swami = 2/5 – 3/8 = (16 – 15)/40 = 1/40
New Ratio = 4:3:1 | Sacrificing Ratio = 4:1
Q13.
Compute the value of goodwill on the basis of four years’ purchase of the average profits based on the last five years? The profits were: 2015: 40k, 2016: 50k, 2017: 60k, 2018: 50k, 2019: 60k.
Detailed Solution
Step 1: Calculate Average Profit
Total Profits = 40,000 + 50,000 + 60,000 + 50,000 + 60,000
Total Profits = Rs. 2,60,000
Average Profit = 2,60,000 / 5 = Rs. 52,000
Step 2: Calculate Goodwill
Goodwill = Average Profit × No. of Years Purchase
Goodwill = 52,000 × 4
Goodwill = Rs. 2,08,000
Q14.
Firm’s Capital is Rs. 2,00,000. Normal rate of return is 15%. Earned profit Rs. 48,000. Calculate goodwill on the basis of 3 years purchase of super profit?
Detailed Solution
Step 1: Calculate Normal Profit
Normal Profit = Capital Employed × (Rate / 100)
Normal Profit = 2,00,000 × 15% = Rs. 30,000
Step 2: Calculate Super Profit
Super Profit = Actual Profit – Normal Profit
Super Profit = 48,000 – 30,000 = Rs. 18,000
Step 3: Calculate Goodwill
Goodwill = Super Profit × 3
Goodwill = 18,000 × 3
Goodwill = Rs. 54,000
Q15.
Firm’s capital is Rs. 5,00,000. Profits last 5 years: 40k, 50k, 55k, 70k, 85k. Calculate goodwill on basis of 3 years purchase of average super profits (NRR 10%).
Detailed Solution
Step 1: Calculate Average Actual Profit
Total = 40,000 + 50,000 + 55,000 + 70,000 + 85,000
Total = Rs. 3,00,000
Average Actual Profit = 3,00,000 / 5 = Rs. 60,000
Step 2: Calculate Normal Profit
Normal Profit = 5,00,000 × 10% = Rs. 50,000
Step 3: Calculate Super Profit
Super Profit = Average Actual – Normal
Super Profit = 60,000 – 50,000 = Rs. 10,000
Step 4: Calculate Goodwill
Goodwill = 10,000 × 3
Goodwill = Rs. 30,000
Q16.
Rajan and Rajani are partners. Capitals: Rajan 3L, Rajani 2L. Profit earned 1.5L. Normal Rate of Return (NRR) 20%. Calculate goodwill by capitalisation method.
Detailed Solution
Step 1: Calculate Total Capitalised Value of Firm
Formula: Average Profit × (100 / NRR)
Capitalised Value = 1,50,000 × (100 / 20)
Capitalised Value = Rs. 7,50,000
Step 2: Calculate Actual Capital Employed
Actual Capital = Rajan’s Cap + Rajani’s Cap
Actual Capital = 3,00,000 + 2,00,000 = Rs. 5,00,000
Step 3: Calculate Goodwill
Goodwill = Capitalised Value – Actual Capital
Goodwill = 7,50,000 – 5,00,000
Goodwill = Rs. 2,50,000
Q17.
Average profits Rs. 1,00,000. Assets Rs. 10,00,000. External Liabilities Rs. 1,80,000. NRR 10%. Find Goodwill by capitalisation method.
Detailed Solution
Step 1: Calculate Capitalised Value of Business
Capitalised Value = Avg Profit × (100 / NRR)
Capitalised Value = 1,00,000 × (100 / 10) = Rs. 10,00,000
Step 2: Calculate Net Assets (Capital Employed)
Net Assets = Total Assets – External Liabilities
Net Assets = 10,00,000 – 1,80,000 = Rs. 8,20,000
Step 3: Calculate Goodwill
Goodwill = Capitalised Value – Net Assets
Goodwill = 10,00,000 – 8,20,000
Goodwill = Rs. 1,80,000
Q18.
Verma and Sharma (5:3). Admit Ghosh for 1/5 share. Capital 20k, Goodwill 4k. Give Journal Entries for: a) Retained b) Withdrawn c) 50% Withdrawn d) Paid Privately.
Detailed Solution
Note: Since no new ratio is specified, the Sacrificing Ratio is equal to the Old Ratio (5:3).
Case (a): Goodwill Retained in Business| Particulars | Dr. (Rs) | Cr. (Rs) |
|---|---|---|
| Bank A/c … Dr To Ghosh’s Capital A/c To Premium for Goodwill A/c (Being capital and goodwill brought in cash) |
24,000 | 20,000 4,000 |
| Premium for Goodwill A/c … Dr To Verma’s Capital A/c (4000 × 5/8) To Sharma’s Capital A/c (4000 × 3/8) (Being goodwill distributed in sacrificing ratio 5:3) |
4,000 | 2,500 1,500 |
Entries from Case (a) are passed, followed by:
| Particulars | Dr. (Rs) | Cr. (Rs) |
|---|---|---|
| Verma’s Capital A/c … Dr Sharma’s Capital A/c … Dr To Bank A/c (Being full goodwill amount withdrawn by partners) |
2,500 1,500 |
4,000 |
Entries from Case (a) are passed, followed by:
| Particulars | Dr. (Rs) | Cr. (Rs) |
|---|---|---|
| Verma’s Capital A/c … Dr (50% of 2500) Sharma’s Capital A/c … Dr (50% of 1500) To Bank A/c (Being half of the goodwill withdrawn) |
1,250 750 |
2,000 |
No Journal Entry is passed in the books of the firm when goodwill is paid privately.
Q19.
A and B (3:2). Admit C for 1/4 share. C brings 30k Capital and necessary Goodwill. Firm Goodwill valued at 20k. New Ratio 2:1:1. Goodwill withdrawn by old partners.
Detailed Solution
Step 1: Calculate C’s Share of Goodwill
C’s Share = Total Goodwill × C’s Share
C’s Share = 20,000 × 1/4 = Rs. 5,000
Step 2: Calculate Sacrificing Ratio (Old – New)
A’s Sacrifice = 3/5 – 2/4 = (12 – 10)/20 = 2/20
B’s Sacrifice = 2/5 – 1/4 = (8 – 5)/20 = 3/20
Sacrificing Ratio = 2 : 3
Step 3: Journal Entries
| Particulars | Dr. (Rs) | Cr. (Rs) |
|---|---|---|
| Bank A/c … Dr To C’s Capital A/c To Premium for Goodwill A/c (Capital and goodwill brought by C) |
35,000 | 30,000 5,000 |
| Premium for Goodwill A/c … Dr To A’s Capital A/c (5000 × 2/5) To B’s Capital A/c (5000 × 3/5) (Goodwill credited in sacrificing ratio 2:3) |
5,000 | 2,000 3,000 |
| A’s Capital A/c … Dr B’s Capital A/c … Dr To Bank A/c (Goodwill withdrawn by partners) |
2,000 3,000 |
5,000 |
Q20.
Arti and Bharti (3:2). Admit Sarthi (1/4). Sarthi brings 50k Capital, 10k Goodwill. Existing Goodwill in books 5k. New Ratio 2:1:1.
Detailed Solution
Step 1: Calculate Sacrificing Ratio
Arti = 3/5 – 2/4 = 2/20
Bharti = 2/5 – 1/4 = 3/20
Sacrificing Ratio = 2 : 3
Step 2: Journal Entries
| Particulars | Dr. (Rs) | Cr. (Rs) |
|---|---|---|
| Arti’s Capital A/c … Dr (5000 × 3/5) Bharti’s Capital A/c … Dr (5000 × 2/5) To Goodwill A/c (Existing goodwill written off in Old Ratio 3:2) |
3,000 2,000 |
5,000 |
| Bank A/c … Dr To Sarthi’s Capital A/c To Premium for Goodwill A/c (Amount brought in by Sarthi) |
60,000 | 50,000 10,000 |
| Premium for Goodwill A/c … Dr To Arti’s Capital A/c (10000 × 2/5) To Bharti’s Capital A/c (10000 × 3/5) (Premium credited in Sacrificing Ratio 2:3) |
10,000 | 4,000 6,000 |
Q21.
X and Y (4:3). Admit Z for 1/8. Z brings 20k Capital, 7k Goodwill. Existing Goodwill 40k. Show Journal Entries.
Detailed Solution
Note: Since no new ratio is given, Sacrificing Ratio = Old Ratio (4:3).
Journal Entries| Particulars | Dr. (Rs) | Cr. (Rs) |
|---|---|---|
| X’s Capital A/c … Dr (40k × 4/7) Y’s Capital A/c … Dr (40k × 3/7) To Goodwill A/c (Existing goodwill written off in old ratio 4:3) |
22,857 17,143 |
40,000 |
| Bank A/c … Dr To Z’s Capital A/c To Premium for Goodwill A/c (Capital and goodwill brought in cash) |
27,000 | 20,000 7,000 |
| Premium for Goodwill A/c … Dr To X’s Capital A/c (7000 × 4/7) To Y’s Capital A/c (7000 × 3/7) (Premium distributed in sacrificing ratio 4:3) |
7,000 | 4,000 3,000 |
Q22.
Aditya and Balan (3:2). Admit Christopher (1/4). New Ratio 2:1:1. Capital 50k. Total Goodwill Share 15k. Christopher brings only 10k Goodwill in cash.
Detailed Solution
Step 1: Calculate Sacrificing Ratio
Aditya = 3/5 – 2/4 = (12-10)/20 = 2/20
Balan = 2/5 – 1/4 = (8-5)/20 = 3/20
Sacrificing Ratio = 2 : 3
Journal Entries
| Particulars | Dr. (Rs) | Cr. (Rs) |
|---|---|---|
| Bank A/c … Dr To Christopher’s Capital A/c To Premium for Goodwill A/c (Capital and part of goodwill received in cash) |
60,000 | 50,000 10,000 |
| Premium for Goodwill A/c … Dr (Cash portion) Christopher’s Current A/c … Dr (Unpaid portion) To Aditya’s Capital A/c (15k × 2/5) To Balan’s Capital A/c (15k × 3/5) (Total goodwill credited to sacrificing partners) |
10,000 5,000 |
6,000 9,000 |
Q23.
Amar and Samar (3:1). Admit Kanwar (1/4). Kanwar brings NO goodwill cash. Firm Goodwill valued at 80k.
Detailed Solution
Step 1: Calculate Kanwar’s Share
Kanwar’s Share = 80,000 × 1/4 = Rs. 20,000
Sacrificing Ratio = Old Ratio = 3 : 1
Journal Entry
| Particulars | Dr. (Rs) | Cr. (Rs) |
|---|---|---|
| Kanwar’s Current A/c … Dr To Amar’s Capital A/c (20k × 3/4) To Samar’s Capital A/c (20k × 1/4) (Kanwar’s share of goodwill adjusted through Current A/c) |
20,000 | 15,000 5,000 |
Q24.
Mohan Lal and Sohan Lal (3:2). Admit Ram Lal (1/4). Goodwill = 3 years purchase of avg profit of last 4 years (50k, 60k, 90k, 70k). Ram Lal brings NO cash. Pass entries if Existing Goodwill is: a) 2,02,500 b) 2,500 c) 2,05,000.
Detailed Solution
Step 1: Calculate Valued Goodwill
Avg Profit = (50k+60k+90k+70k)/4 = 2,70,000/4 = 67,500
Firm Goodwill = 67,500 × 3 = Rs. 2,02,500
Ram Lal’s Share = 2,02,500 × 1/4 = Rs. 50,625
Sacrificing Ratio = 3 : 2
Common Adjustment Entry (For all cases)
| Particulars | Dr. (Rs) | Cr. (Rs) |
|---|---|---|
| Ram Lal’s Current A/c … Dr To Mohan Lal’s Cap A/c (50625 × 3/5) To Sohan Lal’s Cap A/c (50625 × 2/5) (New partner’s goodwill share adjusted) |
50,625 | 30,375 20,250 |
| Case (a): Existing Goodwill 2,02,500 | ||
| Mohan Lal’s Cap A/c … Dr Sohan Lal’s Cap A/c … Dr To Goodwill A/c |
1,21,500 81,000 |
2,02,500 |
| Case (b): Existing Goodwill 2,500 | ||
| Mohan Lal’s Cap A/c … Dr Sohan Lal’s Cap A/c … Dr To Goodwill A/c |
1,500 1,000 |
2,500 |
| Case (c): Existing Goodwill 2,05,000 | ||
| Mohan Lal’s Cap A/c … Dr Sohan Lal’s Cap A/c … Dr To Goodwill A/c |
1,23,000 82,000 |
2,05,000 |
Q25.
Rajesh and Mukesh (Equal Partners). Admit Hari. New Ratio 4:3:2. Firm Goodwill 36k. Hari unable to bring cash. Goodwill not to be shown in books.
Detailed Solution
Step 1: Calculate Sacrificing Ratio
Rajesh = 1/2 – 4/9 = (9-8)/18 = 1/18
Mukesh = 1/2 – 3/9 = (9-6)/18 = 3/18
Sacrificing Ratio = 1 : 3
Step 2: Calculate Hari’s Share
Hari’s Share = 36,000 × 2/9 = Rs. 8,000
Journal Entry
| Particulars | Dr. (Rs) | Cr. (Rs) |
|---|---|---|
| Hari’s Current A/c … Dr To Rajesh’s Capital A/c (8000 × 1/4) To Mukesh’s Capital A/c (8000 × 3/4) (Goodwill adjusted through current account) |
8,000 | 2,000 6,000 |
Q26.
Amar and Akbar (Equal Partners). Admit Anthony (Ratio 4:3:2). Anthony’s Goodwill share Rs. 45,000 (Not brought in cash). Pass adjustment entry.
Detailed Solution
Step 1: Calculate Sacrificing Ratio
Old Ratio = 1:1 (9:9 out of 18)
New Ratio = 4:3:2 (8:6:4 out of 18)
Amar Sacrifice = 9/18 – 8/18 = 1/18
Akbar Sacrifice = 9/18 – 6/18 = 3/18
Sacrificing Ratio = 1 : 3
Step 2: Journal Entry
| Particulars | Dr. (Rs) | Cr. (Rs) |
|---|---|---|
| Anthony’s Current A/c … Dr To Amar’s Capital A/c (45k × 1/4) To Akbar’s Capital A/c (45k × 3/4) (New partner’s goodwill adjusted through current account) |
45,000 | 11,250 33,750 |
Q27.
A & B (2:1). Admit C. C brings 1L Cap + 60k Goodwill. Adjustments: Plant to 1.2L, Building +10%, Stock -4k, Bad Debts Prov 5%, Unrecorded Creditors 1k.
Detailed Solution
Revaluation Account
| Particulars | Rs. | Particulars | Rs. |
|---|---|---|---|
| To Stock A/c | 4,000 | By Plant A/c (1.2L – 1L) | 20,000 |
| To Prov. for D.D. (5% of 60k) | 3,000 | By Building A/c (10%) | 15,000 |
| To Creditors A/c | 1,000 | ||
| To Profit transferred to: – A’s Capital (2/3) – B’s Capital (1/3) |
18,000 9,000 |
||
| Total | 35,000 | Total | 35,000 |
Balance Sheet of New Firm
| Liabilities | Amount (Rs) | Assets | Amount (Rs) |
|---|---|---|---|
| Bills Payable | 10,000 | Cash in Hand | 10,000 |
| Creditors (58k + 1k) | 59,000 | Cash at Bank (40k+1.6L) | 2,00,000 |
| Outstanding Expenses | 2,000 | Debtors (60k – 3k) | 57,000 |
| Capital Accounts: A: (1.8L+40k+18k) B: (1.5L+20k+9k) C: (New Capital) |
2,38,000 1,79,000 1,00,000 |
Stock (40k – 4k) Plant (1L + 20k) Buildings (1.5L + 15k) |
36,000 1,20,000 1,65,000 |
| Total | 5,88,000 | Total | 5,88,000 |
Gain on Revaluation: Rs. 27,000 | B/S Total: Rs. 5,88,000
Q28.
Leela and Meeta (5:3). Admit Om. Gen Reserve 16k, P&L (Cr) 24k. Record entries.
Detailed Solution
| Particulars | Dr. (Rs) | Cr. (Rs) |
|---|---|---|
| General Reserve A/c … Dr Profit & Loss A/c … Dr To Leela’s Capital A/c (40k × 5/8) To Meeta’s Capital A/c (40k × 3/8) (Accumulated reserves and profits distributed) |
16,000 24,000 |
25,000 15,000 |
Q29.
Amit and Viney (3:1). Admit Ranjan. P&L Debit Balance (Loss) Rs. 40,000.
Detailed Solution
| Particulars | Dr. (Rs) | Cr. (Rs) |
|---|---|---|
| Amit’s Capital A/c … Dr (40k × 3/4) Viney’s Capital A/c … Dr (40k × 1/4) To Profit & Loss A/c (Accumulated loss written off on admission) |
30,000 10,000 |
40,000 |
Q30.
A (3/4) and B (1/4). Admit C. C brings 10k Cap, 5k Goodwill (Half withdrawn). Stock & Fixtures -10%, Prov DD 5%, Land & Building +20%, Liability for damages 1k, Creditors reduced by 650. Pass Entries and Prepare Balance Sheet.
Detailed Solution
Working Note: Revaluation Calculation
Loss: Stock (20k×10%) = 2,000
Loss: Fixtures (1k×10%) = 100
Loss: Prov DD Debtors (16k×5%) = 800
Loss: Prov DD B/R (3k×5%) = 150
Loss: Damages Claim = 1,000
Total Debit (Loss) = 4,050
Gain: Land & Building (25k×20%) = 5,000
Gain: Creditors Written Back = 650
Total Credit (Gain) = 5,650
Net Profit on Revaluation = 5,650 – 4,050 = 1,600
Journal Entries
| Particulars | Dr. (Rs) | Cr. (Rs) |
|---|---|---|
| Reserve Fund A/c … Dr To A’s Capital A/c (4k × 3/4) To B’s Capital A/c (4k × 1/4) (Reserve fund distributed in old ratio) |
4,000 | 3,000 1,000 |
| Revaluation A/c … Dr To A’s Capital A/c (1600 × 3/4) To B’s Capital A/c (1600 × 1/4) (Profit on revaluation transferred) |
1,600 | 1,200 400 |
| Bank A/c … Dr To C’s Capital A/c To Premium for Goodwill A/c (Capital and goodwill brought in cash) |
15,000 | 10,000 5,000 |
| Premium for Goodwill A/c … Dr To A’s Capital A/c (5k × 3/4) To B’s Capital A/c (5k × 1/4) (Goodwill credited in sacrificing ratio 3:1) |
5,000 | 3,750 1,250 |
| A’s Capital A/c … Dr (50% of 3750) B’s Capital A/c … Dr (50% of 1250) To Bank A/c (Half of goodwill withdrawn by partners) |
1,875 625 |
2,500 |
Balance Sheet of New Firm (as at April 1, 2017)
| Liabilities | Amount (Rs) | Assets | Amount (Rs) |
|---|---|---|---|
| Sundry Creditors (41500 – 650) | 40,850 | Cash at Bank (26500+15000-2500) | 39,000 |
| Liability for Damages | 1,000 | Bills Receivable (3000-150) | 2,850 |
| Capital Accounts: | Debtors (16000-800) | 15,200 | |
| A: (30k+3k+1.2k+3.75k-1.875k) | 36,075 | Stock (20000-2000) | 18,000 |
| B: (16k+1k+400+1.25k-625) | 18,025 | Fixtures (1000-100) | 900 |
| C: (New Capital) | 10,000 | Land & Building (25k+5k) | 30,000 |
| Total | 1,05,950 | Total | 1,05,950 |
Gain on Revaluation: Rs. 1,600 | B/S Total: Rs. 1,05,950
Q31.
A & B (3:1). Admit C (1/4) for 20k Capital. Adjusted capitals: A 50k, B 12k. Capital to be adjusted in New Ratio. Calculate new capitals and pass entries.
Detailed Solution
Step 1: Calculate Total Capital & New Capitals
C’s Share = 1/4 for Rs. 20,000
Total Capital of Firm = 20,000 × 4 = Rs. 80,000
New Ratio: Remaining 3/4 split in 3:1
A’s New Share = 3/4 × 3/4 = 9/16
B’s New Share = 3/4 × 1/4 = 3/16
C’s Share = 1/4 = 4/16 (Ratio 9:3:4)
A’s New Capital = 80,000 × 9/16 = 45,000
B’s New Capital = 80,000 × 3/16 = 15,000
Step 2: Journal Entries
| Particulars | Dr. (Rs) | Cr. (Rs) |
|---|---|---|
| A’s Capital A/c … Dr To Cash A/c (A withdraws excess: 50,000 – 45,000) |
5,000 | 5,000 |
| Cash A/c … Dr To B’s Capital A/c (B brings deficit: 15,000 – 12,000) |
3,000 | 3,000 |
Q32.
Pinky, Qumar, Roopa (3:2:1). Admit Seema (1/4). Total Capital fixed at 2,40,000. Seema brings 1/4. Old capitals adjusted to New Ratio. Existing Adjusted Caps: P 80k, Q 30k, R 20k.
Detailed Solution
Step 1: Calculate New Ratio
Pinky New = 3/6 – 1/8 = (12-3)/24 = 9/24
Qumar New = 2/6 – 1/16 = (16-3)/48 = 13/48
Roopa New = 1/6 – 1/16 = (8-3)/48 = 5/48
Seema New = 1/4 = 12/48
New Ratio (LCM 48): Pinky 18 : Qumar 13 : Roopa 5 : Seema 12
Step 2: Calculate Required Capitals (Total 2,40,000)
Pinky = 2,40,000 × 18/48 = 90,000
Qumar = 2,40,000 × 13/48 = 65,000
Roopa = 2,40,000 × 5/48 = 25,000
Seema = 2,40,000 × 12/48 = 60,000
Step 3: Journal Entries (Adjustments)
| Particulars | Dr. (Rs) | Cr. (Rs) |
|---|---|---|
| Cash A/c … Dr To Pinky’s Cap A/c (90k – 80k) To Qumar’s Cap A/c (65k – 30k) To Roopa’s Cap A/c (25k – 20k) (Cash brought in by partners for deficit) |
50,000 | 10,000 35,000 5,000 |
| Cash A/c … Dr To Seema’s Capital A/c (Capital brought in by new partner) |
60,000 | 60,000 |
Q33.
Arun, Bablu, Chetan (6:5:3). Admit Deepak (1/8). Cap 7k, Goodwill 4200. Adjustments: Depreciate Furniture/Stock, Create Prov DD 5%, Land up to 31k. Capitals adjusted based on Deepak’s Capital.
Detailed Solution
Revaluation Account
| Particulars | Rs. | Particulars | Rs. |
|---|---|---|---|
| To Furniture (12%) | 420 | By Land & Building (31,000 – 24,000) | 7,000 |
| To Stock (10%) | 1,400 | ||
| To Prov. Doubtful Debts (5%) | 630 | ||
| To Profit transferred to: Arun (6/14) Bablu (5/14) Chetan (3/14) |
1,950 1,625 975 |
||
| Total | 7,000 | Total | 7,000 |
Capital Calculation
Total Capital = 7,000 × 8/1 = 56,000
Adjusted New Capitals (Remaining 7/8 in 6:5:3):
Arun = 56,000 × 7/8 × 6/14 = 21,000
Bablu = 56,000 × 7/8 × 5/14 = 17,500
Chetan = 56,000 × 7/8 × 3/14 = 10,500
Opening Balance Sheet
| Liabilities | Amount (Rs) | Assets | Amount (Rs) |
|---|---|---|---|
| Creditors | 9,000 | Cash (900+7k+4.2k-1750-1625+625) | 9,350 |
| Bills Payable | 3,000 | Debtors (12600-630) | 11,970 |
| Capital Accounts: Arun Bablu Chetan Deepak |
21,000 17,500 10,500 7,000 |
Stock (14000-1400) Furniture (3500-420) Land & Building |
12,600 3,080 31,000 |
| Total | 68,000 | Total | 68,000 |
Gain on Revaluation: 4,550 | B/S Total: 68,000
Q34.
Azad and Babli (2:1). Admit Chintan (1/4). Caps 30k, Goodwill 12k. Revaluation: Build 45k, Mach 23k, Prov 6%. Capitals adjusted via Current Accounts.
Detailed Solution
Revaluation Account
| Particulars | Rs. | Particulars | Rs. |
|---|---|---|---|
| To Machinery A/c (25k-23k) | 2,000 | By Buildings (45k-40k) | 5,000 |
| To Prov. for D.D. (6% of 8k) | 480 | ||
| To Profit transferred to: Azad (2/3) Babli (1/3) |
1,680 840 |
||
| Total | 5,000 | Total | 5,000 |
Partners’ Capital Accounts
| Particulars | Azad | Babli | Chintan | Particulars | Azad | Babli | Chintan |
|---|---|---|---|---|---|---|---|
| To Current A/c (Surplus) |
3,680 | 8,840 | – | By Balance b/d | 50,000 | 32,000 | – |
| To Balance c/d (New Capital) |
60,000 | 30,000 | 30,000 | By Gen Reserve | 4,000 | 2,000 | – |
| By Prem. Goodwill | 8,000 | 4,000 | – | ||||
| By Revaluation | 1,680 | 840 | – | ||||
| By Cash/Bank | – | – | 30,000 | ||||
| Total | 63,680 | 38,840 | 30,000 | Total | 63,680 | 38,840 | 30,000 |
Balance Sheet (After Admission)
| Liabilities | Amount (Rs) | Assets | Amount (Rs) |
|---|---|---|---|
| Creditors | 8,000 | Cash in hand | 2,000 |
| Bills Payable | 4,000 | Cash at Bank (10k+42k) | 52,000 |
| Partners’ Current A/cs: Azad Babli |
3,680 8,840 |
Debtors (8000-480) Stock Furniture |
7,520 10,000 5,000 |
| Capital Accounts: Azad Babli Chintan |
60,000 30,000 30,000 |
Machinery Buildings |
23,000 45,000 |
| Total | 1,44,520 | Total | 1,44,520 |
Gain on Revaluation: 2,520 | B/S Total: 1,44,520
Q35.
Ashish and Dutta (3:2). Admit Vimal (1/5). Land +15k, Plant +10k. Firm Goodwill 20k. Vimal brings capital equal to 1/5th of Total Capital of New Firm.
Detailed Solution
Working Note: Vimal’s Capital Calculation
1. Revaluation Profit = 15,000 (Land) + 10,000 (Plant) = 25,000
2. Vimal’s Goodwill Share = 20,000 × 1/5 = 4,000 (Adjusted via Current A/c or Debit Vimal’s Cap)
3. Adjusted Capitals of Old Partners:
Ashish: 80,000 + 15,000 (Reval) + 2,400 (GW) = 97,400
Dutta: 35,000 + 10,000 (Reval) + 1,600 (GW) = 46,600
Total Combined Capital (For 4/5 share) = 1,44,000
4. Total Capital of New Firm = 1,44,000 × 5/4 = 1,80,000
5. Vimal’s Capital = 1,80,000 / 5 = 36,000
Balance Sheet (After Admission)
| Liabilities | Amount (Rs) | Assets | Amount (Rs) |
|---|---|---|---|
| Creditors | 15,000 | Cash (5,000 + 36,000) | 41,000 |
| Bills Payable | 10,000 | Debtors (22k – 2k Prov) | 20,000 |
| Capital Accounts: | Stock | 35,000 | |
| Ashish | 97,400 | Plant (45k + 10k) | 55,000 |
| Dutta | 46,600 | Land & Building (35k + 15k) | 50,000 |
| Vimal | 36,000 | Vimal’s Current A/c (Goodwill) | 4,000 |
| Total | 2,05,000 | Total | 2,05,000 |
Revaluation Profit: 25,000 | B/S Total: 2,05,000