Chapter 3 Reconstitution Admission of a Partner Solutions

Question - 31 : - A and B are partners in a firm sharing profits and losses in the ratio of 3:2. They decide to admit C into partnership with 1/4 share in profits. C will bring in ₹. 30,000 for capital and the requisite amount of goodwill premium in cash. The goodwill of the firm is valued at ₹, 20,000. The new profit sharing ratio is 2:1:1. A and B withdraw their share of goodwill. Give necessary journal entries?

Answer - 31 : -

Journal Entries
Date	Particulars		L.F.	Debit Amount ₹	Credit Amount ₹

	Cash A/c	Dr.		35,000
	To C’s Capital A/c				30,000
	To Premium for Goodwill A/c				5,000
	(Amount of Capital and Share of Goodwill brought by C)

	Premium for Goodwill A/c	Dr.		5,000
	To A’s Capital A/c				2,000
	To B’s Capital A/c				3,000
	(C’s Share of Goodwill credited to A and B in 2:3, Sacrificing Ratio)

	A’s Capital A/c	Dr.		2,000
	B’s Capital A/c	Dr.		3,000
	To Cash A/c				5,000
	(Share of Goodwill withdrawn by Old Partners)

Sacrificing Ratio = Old Ratio − New Ratio

Goodwill of the firm = Rs 20,000

C’s share of Goodwill =

Question - 32 : - Arti and Bharti are partners in a firm sharing profits in 3:2 ratio, they admitted Sarthi for 1/4 share in the profits of the firm. Sarthi brings ₹. 50,000 for his capital and ₹. 10,000 for his 1/4 share of goodwill. Goodwill already appears in the books of Arti and Bharti at ₹. 5,000. the new profit sharing ratio between Arti, Bharti and Sarthi will be 2:1:1. Record the necessary journal entries in the books of the new firm?

Answer - 32 : -

Journal Entries
Date	Particulars		L.F.	Debit Amount ₹	Credit Amount ₹

	Arti’s Capital A/c	Dr.		3,000
	Bharti’s Capital A/c	Dr.		2,000
	To Goodwill A/c				5,000
	(Goodwill written off)

	Cash A/c	Dr.		60,000
	To Sarthi’s Capital A/c				50,000
	To Premium for Goodwill A/c				10,000
	(Amount of capital and share of goodwill brought by Sarthi)

	Premium for Goodwill A/c	Dr.		10,000
	To Arti’s Capital A/c				4,000
	To Bharti’s Capital A/c				6,000
	(Premium for Goodwill credited Arti’s Capital Account)

Question - 33 : - X and Y are partners in a firm sharing profits and losses in 4:3 ratio. They admitted Z for 1/8 share. Z brought ₹. 20,000 for his capital and ₹. 7,000 for his 1/8 share of goodwill. Subsequently X, Y and Z decided to show goodwill in their books at ₹. 40,000. Show necessary journal entries in the books of X, Y and Z?

Answer - 33 : -

Journal Entries
Date	Particulars		L.F.	Debit Amount ₹	Credit Amount ₹

	Cash A/c	Dr.		27,000
	To Z’s Capital A/c				20,000
	To Premium for Goodwill A/c				7,000
	(Amount of Capital and his share of Goodwill brought by Z)

	Premium for Goodwill A/c	Dr.		7,000
	To X’s Capital A/c				4,000
	To Y’s Capital A/c				3,000
	(Premium for Goodwill credit to Old Partners in Sacrificing Ratio)

	Goodwill ₹ 40,000 cannot be raised. According to AS-10 Goodwill can be shown in the book if money and money value is paid for it. Here no money or money value has been paid for Goodwill.

Question - 34 : - Aditya and Balan are partners sharing profits and losses in 3:2 ratio. They admitted Christopher for 1/4 share in the profits. The new profit sharing ratio agreed was 2:1:1. Christopher brought ₹. 50,000 for his capital. His share of goodwill was agreed to at ₹. 15,000. Christopher could bring only ₹. 10,000 out of his share of goodwill. Record necessary journal entries in the books of the firm?

Answer - 34 : -

Journal Entries
Date	Particulars		L.F.	Debit Amount ₹	Credit Amount ₹
	Cash A/c	Dr.		60,000
	To Christopher’s Capital A/c				50,000
	To Premium for Goodwill A/c				10,000
	(Amount of Capital and Premium for Goodwill brought by Christopher)

	Premium for Goodwill A/c	Dr.		10,000
	Christopher’s Capital A/c	Dr.		5,000
	To Adiya’s Capital A/c				6,000
	To Balam’s Capital A/c				9,000
	(Goodwill Christopher’s Share taken by Old Partner’s in Sacrificing Ratio)

Sacrificing Ratio = Old Ratio − New Ratio

Question - 35 : - Amar and Samar were partners in a firm sharing profits and losses in 3:1 ratio. They admitted Kanwar for 1/4 share of profits. Kanwar could not bring his share of goodwill premium in cash. The Goodwill of the firm was valued at ₹. 80,000 on Kanwar’s admission. Record necessary journal entry for goodwill on Kanwar’s admission.

Answer - 35 : -

	Amar	:	Samar
Old Ratio	3	:	1

Kanwar admitted for 1/4 share of profit.

Journal Entries
Date	Particulars		L.F.	Debit Amount ₹	Credit Amount ₹

	Kanwar’s Capital A/c	Dr.		20,000
	To Amar’s Capital A/c				15,000
	To Samar’s Capital A/c				5,000
	(Kanwar’s share of goodwill charged from his capital account by Amar and Kanwar in sacrificing ratio)

New Firm’s Goodwill = ₹ 80,000

Kanwar’s Share of Goodwill = 80,000 × (1/4) = 20,000

Kanwar’s Goodwill will be taken by Amar and Samar in their sacrificing ratio here. Sacrificing Ratio will be equal to old ratio because new and sacrificing ratio is not given, if sacrificing and new ratio is not given it is assumed that old partners sacrificed in their old ratio.

Question - 36 : -
Mohan Lal and Sohan Lal were partners in a firm sharing profits and losses in 3:2 ratio. They admitted Ram Lal for 1/4 share on 1.1.2013. It was agreed that goodwill of the firm will be valued at 3 years purchase of the average profits of last 4 years which were ₹. 50,000 for 2013, ₹. 60,000 for 2014, ₹. 90,000 for 2015 and ₹. 70,000 for 2016. Ram Lal did not bring his share of goodwill premium in cash. Record the necessary journal entries in the books of the firm on Ram Lal’s admission when:
a) Goodwill already appears in the books at ₹. 2, 02,500.
b) Goodwill appears in the books at ₹. 2,500.
c) Goodwill appears in the books at ₹. 2, 05,000.

Answer - 36 : -

Year	Profit
2013	50,000
2014	60,000
2015	90,000
2016	70,000
Sum of 4 years profit	2,70,000

Goodwill = Average Profit × No. of Years Purchases = 67,500 × 3 = 2, 02,500

Ram Lal entered into the firm for 1/4 share of Profit.

Ram Lal’s share of goodwill = 2, 02, 500 × (1/4) = ₹ 50,625

Here sacrificing ratio of Mohan Lal and Sohan Lal will be equal to old ratio because new and sacrificing ratio is not given.

Mohan Lal will get = Ram Lal’s Share of Goodwill × (3/5) = 50,625 × (3/5) = 10,125 × 3 = ₹ 30,375

Sohan Lal will = Ramlal Share of Goodwill × (1/5) = 50,625 × (1/5) = ₹ 10,125 × 2 = ₹ 20,250

Case (a)

Journal Entries
Date	Particulars			L.F.	Debit Amount ₹	Credit Amount ₹
	Mohan Lal’s Capital A/c		Dr.		1,21,500
	Sohan Lal’s Capital A/c		Dr.		81,000
		To Goodwill A/c				2,02,500
	(Goodwill appeared in the old firm written off)

	Ramlal’s Capital A/c		Dr.		50,625
		To Mohan Lal’s Capital A/c				30,375
		To Sohan Lal’s Capital A/c				20,250
	(Ram Lal’s Shares of Goodwill charged from his account and Distrbuted between in Mohan Lal and Sohan Lal in Sacrificing Ratio)

Case (b)

Journal Entries
Date	Particulars			L.F.	Debit Amount ₹	Credit Amount ₹
	Mohan Lal’s Capital A/c		Dr.		1,500
	Sohan Lal’s Capital A/c		Dr.		1,000
		To Goodwill A/c				2,500
	(Goodwill already appeared in the books of firm written off in old ratio)

	Ramlal’s Capital A/c		Dr.		50,625
	To Mohan Lal’s Capital A/c					30,375
	To Sohan Lal’s Capital A/c					20,250
	(Ram Lal’s Shares of Goodwill charged from his capital by Mohan Lal and Sohan Lal in sacrificing ratio)

Case (c)

Journal Entries
Date	Particulars		L.F.	Debit Amount ₹	Credit Amount ₹
	Mohan Lal’s Capital A/c	Dr.		1,23,000
	Sohan Lal’s Capital A/c	Dr.		82,000
	To Ram Lal’s Capital A/c				2,05,000
	(Goodwill already appeared in the books of firm written off in Old Ratio)

	Ramlal’s Capital A/c	Dr.		50,625
	To Mohan Lal’s Capital A/c				30,375
	To Sohan Lal’s Capital A/c				20,250
	(Ram Lal’s Shares of Goodwill charged from his capital by Mohan Lal and Sohan Lal in sacrificing ratio)

Question - 37 : - Rajesh and Mukesh are equal partners in a firm. They admit Hari into partnership and the new profit sharing ratio between Rajesh, Mukesh and Hari is 4:3:2. On Hari’s admission goodwill of the firm is valued at ₹ 36,000. Hari is unable to bring his share of goodwill premium in cash. Rajesh, Mukesh and Hari decided not to show goodwill in their balance sheet. Record necessary journal entries for the treatment of goodwill on Hari’s admission.

Answer - 37 : -

Books of Rajesh, Mukesh and Hari Journal
Date	Particulars		L.F.	Amount ₹	Amount ₹
	Hari’s Capital A/c	Dr.		8,000
	To Rajesh’s Capital A/c				2,000
	To Mukesh’s Capital A/c				6,000
	(Adjustment of Hari’s share of goodwill)

Working Notes:

1) Goodwill of a firm = 36,000

Hari’s share in goodwill

= Goodwill of firm × admitting Partner Share

2) Sacrificing Ratio = Old Ratio − New Ratio

Sacrificing Ratio between Rajesh and Mukesh 1:3.

Question - 38 : - Amar and Akbar are equal partners in a firm. They admitted Anthony as a new partner and the new profit sharing ratio is 4:3:2. Anthony could not bring this share of goodwill ₹ 45,000 in cash. It is decided to do adjustment for goodwill without opening goodwill account. Pass the necessary journal entry for the treatment of goodwill?

Answer - 38 : -

Books of Amar, Akbar and Anthony Journal
Date	Particulars		L.F.	Amount ₹	Amount ₹
	Anthony’s Capital A/c	Dr.		45,000
	To Amar’s Capital A/c				11,250
	To Akbar’s Capital A/c				33,750
	(Adjustment of Anthony’s share of goodwill between Amar and Akbar in sacrificing ratio)

Working Notes:

1) Sacrificing Ratio = Old Ratio − New Ratio

Sacrificing Ratio between Amar and Akbar = 1:3.

Question - 39 : - Given below is the Balance Sheet of A and B, who are carrying on partnership business on 31.12.2016. A and B share profits and losses in the ratio of 2:1.

Balance Sheet of A and B as on December 31, 2016

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Bills Payable

10,000

Cash in Hand

10,000

Creditors

58,000

Cash at Bank

40,000

Outstanding

2,000

Sundry Debtors

60,000

Expenses

Stock

40,000

Capitals:

Plant

1,00,000

A

1,80,000

Buildings

1,50,000

B

1,50,000

3,30,000

4,00,000

4,00,000

C is admitted as a partner on the date of the balance sheet on the following terms:
(i) C will bring in ₹ 1, 00,000 as his capital and ₹ 60,000 as his share of goodwill for 1/4 share in the profits.
(ii) Plant is to be appreciated to ₹ 1, 20,000 and the value of buildings is to be appreciated by 10%.
(iii) Stock is found over valued by ₹ 4,000.
(iv) A provision for bad and doubtful debts is to be created at 5% of debtors.
(v) Creditors were unrecorded to the extent of ₹ 1,000.
Pass the necessary journal entries, prepare the revaluation account and partners’ capital accounts, and show the Balance Sheet after the admission of C.

Answer - 39 : -

Books of A, B and C Journal
Date	Particulars			L.F.	Amount ₹	Amount ₹
2016
Dec 31	Bank A/c		Dr.		1,60,000
		To C’s Capital A/c				1,00,000
		To Premium for Goodwill A/c				60,000
	(Capital and premium for goodwill brought by C for 1/4 th share)

	Premium for Goodwill A/c		Dr.		60,000
		To A’s Capital A/c				40,000
		To B’s Capital A/c				20,000
	(Premium for Goodwill brought by C transferred to old partners’ capital account in their sacrificing ratio, 3:1)

	Plant A/c		Dr.		20,000
	Building A/c		Dr.		15,000
		To Revaluation A/c				35,000
	(Value of assets increased)

	Revaluation A/c		Dr.		8,000
		To Stock				4,000
		To Provision for Doubtful Debts A/c				3,000
		To Creditors A/c (Unrecorded)				1,000
	(Liabilities and Assets revalued)

	Revaluation A/c		Dr.		27,000
		To A’s Capital A/c				18,000
		To B’s Capital A/c				9,000
	(Profit on revaluation transferred to old partners’ capital account)

Revaluation Account
Dr.				Cr.
Particulars			Amount ₹		Particulars	Amount ₹
Stock			4,000		Plant	20,000
Provision for Doubtful Debts			3,000		Building	15,000
Creditors (Unrecorded)			1,000
Profit transferred to
	A’s Capital	18,000
	B’s Capital	9,000	27,000
			35,000			35,000

Partners’ Capital Account
Dr.					Cr.
Particulars	A	B	C	Particulars		A	B	C
Balance c/d	2,38,000	1,79,000	1,00,000	Balance b/d		1,80,000	1,50,000
				Bank				1,00,000
				Premium for Goodwill		40,000	20,000
				Revaluation		18,000	9,000

	2,38,000	1,79,000	1,00,000			2,38,000	1,79,000	1,00,000

Balance Sheet as on December 31, 2016
Liabilities			Amount (₹)	Assets		Amount (₹)
Bills Payable			10,000	Cash in Hand		10,000
Creditors			59,000	Cash at Bank		2,00,000
Outstanding Expenses			2,000	Sundry Debtors	60,000
Capital:				Less: Provision for Doubtful Debt	3,000	57,000
	A	2,38,000		Stock		36,000
	B	1,79,000		Plant		1,20,000
	C	1,00,000	5,17,000	Building		1,65,000
			5,88,000			5,88,000

Working Note:

1) Sacrificing ratio = Old Ratio − New Ratio

Sacrificing ratio between A and B = 2:1.

Question - 40 : - Leela and Meeta were partners in a firm sharing profits and losses in the ratio of 5:3. On Is Jan. 2017 they admitted Om as a new partner. On the date of Om’s admission the balance sheet of Leela and Meeta showed a balance of ₹ 16,000 in general reserve and ₹ 24,000 (Cr) in Profit and Loss Account. Record necessary journal entries for the treatment of these items on Om’s admission. The new profit sharing ratio between Leela, Meeta and Om was 5:3:2.

Answer - 40 : -

Books of Leela, Meeta and Om Journal
Date	Particulars			L.F.	Amount ₹	Amount ₹
2017
Jan 1	General Reserve A/c		Dr.		16,000
	Profit and Loss A/c		Dr.		24,000
		To Leela’s Capital A/c				25,000
		To Meeta’s Capital A/c				15,000
	(General reserve and balance in Profit and Loss credited to old partners’ capital account in their old ratio, 5:3)

Free - Previous Years Question Papers

Balance Sheet of A and B as on December 31, 2016
Liabilities			Amount (₹)	Assets	Amount (₹)
Bills Payable			10,000	Cash in Hand	10,000
Creditors			58,000	Cash at Bank	40,000
Outstanding			2,000	Sundry Debtors	60,000
Expenses				Stock	40,000
Capitals:				Plant	1,00,000
	A	1,80,000		Buildings	1,50,000
	B	1,50,000	3,30,000
			4,00,000		4,00,000

Chapter 3 Reconstitution Admission of a Partner Solutions

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