Chapter 3 Reconstitution Admission of a Partner Solutions

Question - 41 : - Amit and Viney are partners in a firm sharing profits and losses in 3:1 ratio. On 1.1.2017 they admitted Ranjan as a partner. On Ranjan’s admission the profit and loss account of Amit and Viney showed a debit balance of ₹ 40,000. Record necessary journal entry for the treatment of the same.

Answer - 41 : -

Books of Amit, Viney and Ranjan Journal
Date	Particulars			L.F.	Amount ₹	Amount ₹
2017
Jan 1	Amit’s Capital A/c		Dr.		30,000
	Viney’s Capital A/c		Dr.		10,000
		To Profit and Loss A/c				40,000
	(Debit Balance in Profit and Loss Account written off)

Question - 42 : - A and B share profits in the proportions of 3/4 and 1/4. Their Balance Sheet on Dec. 31, 2016 was as follows:

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

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Sundry creditors

41,500

Cash at Bank

26,500

Reserve fund

4,000

Bills Receivable

3,000

Capital Accounts

Debtors

16,000

A

30,000

Stock

20,000

B

16,000

Fixtures

1,000

Land & Building

25,000

91,500

91,500

On Jan. 1, 2017, C was admitted into partnership on the following terms:
(a) That C pays ₹ 10,000 as his capital.
(b) That C pays ₹ 5,000 for goodwill. Half of this sum is to be withdrawn by A and B.
(c) That stock and fixtures be reduced by 10% and a 5%, provision for doubtful debts be created on Sundry Debtors and Bills Receivable.
(d) That the value of land and buildings be appreciated by 20%.
(e) There being a claim against the firm for damages, a liability to the extent of ₹ 1,000 should be created.
(f) An item of ₹ 650 included in sundry creditors is not likely to be claimed and hence should be written back.

Record the above transactions (journal entries) in the books of the firm assuming that the profit sharing ratio between A and B has not changed. Prepare the new Balance Sheet on the admission of C.

Answer - 42 : -

Books of A, B and C Journal
Date	Particulars				L.F.	Amount ₹	Amount ₹
2017
Jan. 01	Bank A/c		Dr.			15,000
		To C’s Capital A/c					10,000
		To Premium for Goodwill A/c					5,000
	(Capital and Premium for goodwill brought by C for 1/5 th share)

Jan. 01	Premium for Goodwill A/c					5,000
		To A’s Capital A/c					3,750
		To B’s Capital A/c					1,250
	(Amount of goodwill brought by C is transferred to old partners’ capital account in their sacrificing ratio, 3:1)

Jan. 01	A’s Capital A/c			Dr.		1,875
	B’s Capital A/c			Dr.		625
		To Bank A/c					2,500
	(Half of amount withdrawn by old partners)

Jan. 01	Revaluation A/c			Dr.		4,050
		To Stock A/c					2,000
		To Fixture A/c					100
		To Provision for doubtful Debts on Debtors A/c					800
		To provision for doubtful Debts on Bills Receivable A/c					150
		To Claim for Damages A/c					1,000
	(Liabilities and Assets are revalued)

Jan. 01	Land and Building A/c			Dr.		5,000
	Sundry Creditors A/c					650
		To Revaluation A/c					5,650
	(Asset and liability are revalued)

Jan. 01	Revaluation A/c			Dr.		1,600
		To A’s Capital A/c					1,200
		To B’s Capital A/c					400
	(Profit on Revaluation transferred to old partners’ capital)

Jan. 01	Reserve Fund A/c			Dr.		4,000
		To A’s Capital A/c					3,000
		To B’s Capital A/c					1,000
	(Reserve Fund distributed among old partners)

Balance Sheet as on January 01, 2007
Liabilities			Amount (₹)	Assets		Amount (₹)
Sundry Creditors			40,850	Cash at Bank		39,000
Claim for Damages			1,000	Bills Receivable	3,000
	A	36,075		Less: Provision	150	2,850
	B	18,025		Debtors	16,000
	C	10,000	64,100	Less: Provision	800	15,200
				Stock		18,000
				Fixtures		900
				Land and Building		30,000
			1,05,950			1,05,950

Working Note:

Partners’ Capital Account
Dr.					Cr.
Particulars	A	B	C	Particulars		A	B	C
Bank	1,875	625		Balance b/d		30,000	16,000
Balance c/d	36,075	18,025	10,000	Bank				10,000
				Premium for Goodwill		3,750	1,250
				Revaluation		1,200	400
				Reserve Fund		3,000	1,000
	37,950	18,650	10,000			37,950	18,650	10,000

Bank Account
Dr.		Cr.
Particulars	Amount ₹	Particulars	Amount ₹
Balance b/d	26,500	A’s Capital A/c	1,875
C’s Capital A/c	10,000	B’s Capital A/c	625
Premium for Goodwill	5,000	Balance c/d	39,000
	41,500		41,500

Sacrificing ratio = Old Ratio − New Ratio

Question - 43 : - A and B are partners sharing profits and losses in the ratio of 3:1. On 1st Jan. 2017 they admitted C as a new partner for 1/4 share in the profits of the firm. C brings ₹ 20,000 as for his 1/4 share in the profits of the firm. The capitals of A and B after all adjustments in respect of goodwill, revaluation of Liabilities and Assets, etc. has been worked out at ₹ 50,000 for A and ₹ 12,000 for B. It is agreed that partner’s capitals will be according to new profit sharing ratio. Calculate the new capitals of A and B and pass the necessary journal entries assuming that A and B brought in or withdrew the necessary cash as the case may be for making their capitals in proportion to their profit sharing ratio?

Answer - 43 : -

Books of A, B and C Journal
Date	Particulars			L.F.	Amount ₹	Amount ₹
2017
Jan. 01	A’s Capital A/c		Dr.		5,000
		To Cash A/c				5,000
	(Excess capital withdrawn by A)

	Cash A/c		Dr.		3,000
		To B’s Capital A/c				3,000
	(Capital brought in by B to make in proportion to the profit sharing)

1) Calculation of New Profit sharing Ratio

New Profit sharing ratio of A, B and C will be 9:3:4

2) New Capital of A and B.

C bring ₹ 20,000 for 1/4th share of profit in the new firm.

Thus, total capital of firm on the basis of C’s share=

Thus, B’s will bring 15,000 − 12,000 = 3,000

Question - 44 : - Pinky, Qumar and Roopa partners in a firm sharing profits and losses in the ratio of 3:2:1. S is admitted as a new partner for 1/4 share in the profits of the firm, whichs he gets 1/8 from Pinky, and 1/16 each from Qmar and Roopa. The total capital of the new firm after Seema’s admission will be ₹ 2, 40,000. Seema is required to bring in cash equal to 1/4 of the total capital of the new firm. The capitals of the old partners also have to be adjusted in proportion of their profit sharing ratio. The capitals of Pinky, Qumar and Roopa after all adjustments in respect of goodwill and revaluation of Liabilities and Assets have been made are Pinky ₹ 80,000, Qumar ₹ 30,000 and Roopa ₹ 20,000. Calculate the capitals of all the partners and record the necessary journal entries for doing adjustments in respect of capitals according to the agreement between the partners?

Answer - 44 : -

1) Calculation of new profit sharing Ratio = Old Ratio − Sacrificing Ratio

New profit sharing ratio between Pinky, Qumar, Roopa and Seema

2) Required capital of all partners in the new firm

3) Amount to be brought by each partner

Pinky = 90,000 − 80,000 = 10,000

Qumar = 65,000 − 30,000 = 35,000

Roopa = 25,000 − 20,000 = 5,000

Seema = 2,40,000

=60,000

Books of Pinky, Qumar, Roopa and Seema Journal
Date	Particularss			L.F.	Amount ₹	Amount ₹
	Bank A/c		Dr.		60,000
		To Seema Capital A/c				60,000
	(Seema bring her share of Capital for 1/4 th share of profit)

	Bank A/c		Dr.		50,000
		To Pinky’s Capital A/c				10,000
		To Qumar’s Capital A/c				35,000
		To Roopa’s Capital A/c				5,000
	(Amount brought by Pinky, Qumar and Roopa to make capital equal to their proportion)

Question - 45 : - The following was the Balance Sheet of Arun, Bablu and Chetan sharing profits and losses in the ratio of respectively.

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Creditors

9,000

Land and Buildings

24,000

Bills Payable

3,000

Furniture

3,500

Capital Accounts

Stock

14,000

Arun

19,000

Debtors

12,600

Bablu

16,000

Cash

900

Chetan

8,000

43,000

55,000

55,000

They agreed to take Deepak into partnership and give him a share of 1/8 on the following terms:
(a) That Deepak should bring in ₹ 4,200 as goodwill and ₹ 7,000 as his Capital;
(b) That furniture be depreciated by 12%;
(c) That stock be depreciated by 10%;
(d) That a Reserve of 5% be created for doubtful debts;
(e) That the value of land and buildings having appreciated be brought up to ₹ 31,000;
(f) That after making the adjustments the capital accounts of the old partners (who continue to share in the same proportion as before) be adjusted on the basis of the proportion of Deepak’s Capital to his share in the business, i.e., actual cash to be paid off to, or brought in by the old partners as the case may be.

Prepare Cash Account, Profit and Loss Adjustment Account (Revaluation Account) and the Opening Balance Sheet of the new firm.

Answer - 45 : -

Books of Arun, Bablu, Chetan and Deepak Profit and Loss Adjustment Account (Revaluation Account)
Dr.				Cr.
Particulars			Amount ₹		Particulars	Amount ₹
Furniture			420		Land and Buildings	7,000
Stock			1,400
Reserve for Doubtful Debts			630
Profit on revaluation
Profit transferred to
	Arun’s Capital	1,950
	Bablu’s Capital	1,625
	Chetan’s Capital	975	4,550
			7,000			7,000

Cash Account
Dr.		Cr.
Particulars	Amount ₹		Particulars	Amount ₹
Balance b/d	900		Arun’s Capital	1,750
Chetan’s Capital	625		Bablu’s Capital	1,625
Deepak’s Capital	7,000		Balance c/d	9,350
Premium for Goodwill	4,200

	12,725			12,725

Balance Sheet
Liabilities			Amount (₹)	Assets		Amount (₹)
Creditors			9,000	Land and Buildings		31,000
Bills Payable			3,000	Furniture		3,080
Capital Account				Stock		12,600
	Arun	21,000		Debtor	12,600
	Bablu	17,500		Less: Reserve for Doubtful Debt	630	11,970
	Chetan	10,500		Cash		9,350
	Deepak	7,000	56,000
			68,000			68,000

Working Note:

Partner’s Capital Account
Dr.					Cr.
Particulars	Arun	Bablu	Chetan	Deepak	Particulars	Arun	Bablu	Chetan	Deepak
Bank	1,750	1,625			Balance b/d	19,000	16,000	8,000
Balance c/d	21,000	17,500	10,500	7,000	Cash A/c				7,000
					Premium for goodwill	1,800	1,500	900
					Revaluation	1,950	1,625	975
					Bank			625

	22,750	19,125	10,500	7,000		22,750	19,125	10,500	7,000

2) Calculation of New Profit Sharing Ratio

New Profit sharing ratio of Arun, Bablu, Chetan and Deepak

= 42:35:21:14 or 6:5:3:2

3) Calculation of capital of Arun, Bablu, and Chetan in the new firm

Deepak bring ₹ 7,000 for

th share of profit.

Hence total capital of the new firm =

Question - 46 : - Ashish and Dutta were partners in a firm sharing profits in 3:2 ratio. On Jan. 01, 2015 they admitted Vimal for 1/5 share in the profits. The Balance Sheet of Ashish and Dutta as on Jan. 01, 2016 was as follows:

Balance Sheet of A and B as on 1.1.2016

Liabilities

Amount

₹

Assets

Amount

₹

Creditors

15,000

Land & Building

35,000

Bills Payable

10,000

Plant

45,000

Ashish Capital

80,000

Debtors

22,000

Dutta’s Capital

35,000

Less : Provision

2,000

20,000

Stock

35,000

Cash

5,000

1,40,000

1,40,000

It was agreed that:
i) The value of Land and Building be increased by ₹ 15,000.
ii) The value of plant be increased by 10,000.
iii) Goodwill of the firm be valued at ₹ 20,000.
iv) Vimal to bring in capital to the extent of 1/5th of the total capital of the new firm.

Record the necessary journal entries and prepare the Balance Sheet of the firm after Vimal’s admission.

Answer - 46 : -

Books of Ashish, Dutta and Vimal Journal
Date	Particulars			L.F.	Amount ₹	Amount ₹
2016
Jan 1	Land and Building A/c		Dr.		15,000
	Plant A/c		Dr.		10,000
		To Revaluation A/c				25,000
	(Increased in the value of assets)

	Revaluation A/c		Dr.		25,000
		To Ashish’s Capital A/c				15,000
		To Dutta’s Capital A/c				10,000
	(Profit on revaluation transferred to partners’ capital account)

	Cash A/c		Dr.		36,000
		To Vimal Capital A/c				36,000
	(Capital brought by Vimal)

	Vimal’s Current A/c		Dr.		4,000
		To Ashish’s Capital A/c				2,400
		To Dutta’s Capital A/c				1,600
	(Vimal’s share goodwill adjusted through his current account)

Balance Sheet as on January 01, 2016
Liabilities	Amount ₹	Assets		Amount ₹
Creditors	15,000	Land and Building		50,000
Bills Payable	10,000	Plant		55,000
		Debtors	22,000
Ashish’s Capital Account	97,400	Less: Provision	2,000	20,000
Dutta’s Capital Account	46,600	Stock		35,000
Vimal’s Capital Account	36,000	Cash		41,000
		Vimal’s Current Account		4,000
	2,05,000			2,05,000

1)Working Note:

Partners’ Capital Account
Dr.					Cr.
Particulars	Ashish	Dutta	Vimal	Particulars		Ashish	Dutta	Vimal
				Balance b/d		80,000	35,000
				Revaluation		15,000	10,000
Balance c/d	97,400	46,600	36,000	Cash				36,000
				Vimal Current		2,400	1,600

	97,400	46,600	36,000			97,400	46,600	36,000

Vimal Current Account
Dr.		Cr.
Particulars	Amount ₹	Particulars	Amount ₹
Ashish’s Capital A/c	2,400
Dutta’s Capital A/c	1,600	Balance c/d	4,000

	4,000		4,000

3) Calculation of New Profit Sharing Ratio

4) Sacrificing Ratio = Old Ratio – New Ratio

Sacrificing Ratio between Ashish and Dutta is 3:2

Note: Here, Goodwill has been adjusted through current account because Vimal has not brought his share of goodwill and he is to bring capital in proportion to total capital of the new firm after adjustment.

5) Capital of new firm on the basis of old partners adjusted capital:

Total adjusted capital of old partners

Ashish’s Capital	=	97,400
Dutta’s Capital	=	46,600
		1,44,000

Free - Previous Years Question Papers

Balance Sheet of A and B as on December 31, 2016
Liabilities		Amount (₹)	Assets	Amount (₹)
Sundry creditors		41,500	Cash at Bank	26,500
Reserve fund		4,000	Bills Receivable	3,000
Capital Accounts			Debtors	16,000
	A	30,000	Stock	20,000
	B	16,000	Fixtures	1,000
			Land & Building	25,000
		91,500		91,500

Balance Sheet of A and B as on 1.1.2016
Liabilities	Amount ₹	Assets		Amount ₹
Creditors	15,000	Land & Building		35,000
Bills Payable	10,000	Plant		45,000
Ashish Capital	80,000	Debtors	22,000
Dutta’s Capital	35,000	Less : Provision	2,000	20,000
		Stock		35,000
		Cash		5,000
	1,40,000			1,40,000

Chapter 3 Reconstitution Admission of a Partner Solutions

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