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3 Partnership Accounts

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Partnership Accounts
Solution 1
REALISATION ACCOUNT
₹ ₹
To Fixed Assets 5,00,000 By Creditors 3,20,000
To Stock 3,00,000 By Cash
To Debtors 5,00,000 Fixed Assets 5,20,000
To Cash Debtors 4,40,000 9,60,000
Creditors 3,04,000 By Y’s Capital (Stock taken over) 2,50,000
Expenses 6,000 3,10,000 By Loss transferred
X 35,555
Y 26,667
Z 17,778 80,000
16,10,000 16,10,000

PARTNER’S CAPITAL ACCOUNTS


X Y Z X Y Z
To Realisation A/c 35,555 26,667 17,778 By Balance b/d 4,00,000 3,00,000 2,00,000
To Realisation 2,50,000 By General 40,000 30,000 20,000
A/c reserve
To Cash 4,04,445 53,333 2,02,222
4,40,000 3,30,000 2,20,000 4,40,000 3,30,000 2,20,000

CASH ACCOUNT
₹ ₹
To Balance b/d 10,000 By Realisation A/c 3,10,000
To Realisation A/c 9,60,000 By X’s Capital 4,04,445
By Y’s Capital 53,333
By Z’s Capital 2,02,222
9,70,000 9,70,000

Solution 2
Realization Account
Particulars Particulars
To Debtors 25,000 By Creditors 20,000
To Stock 35,000 By Bank overdraft 5,000
To Furniture 40,000 By Bank:
To Machinery 60,000 Investment 25,000
To Bank: Furniture 30,000
Creditors 20,000 Machinery 50,000
Bank overdraft 5,000 Debtors (90%) 22,500
Outstanding bill 2,000 27,000 Stock 20,125
To Profit transferred: 2,620 Bad debts Recovered 1,245 1,48,870
P’s capital 1,310 By P’s Current A/c 15,750
Q’s capital 1,310 (stock taken over)
1,89,620 1,89,620
Partners’ Capital Accounts
Particulars P Q Particulars P Q
To P’s current Account 16,940 By Balance b/d 1,00,000 50,000
To Bank 83,060 68,810 By Q’s current Account 18,810
1,00,000 68,810 1,00,000 68,810
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
2
Bank Account
Particulars Particulars
To Balance b/d 30,000 By Realization 27,000
To Realization 1,48,870 By P’s capital 83,060
By Q’s capital 68,810
1,78,870 1,78,870
Working Note:
Partners’ Current Accounts
P Q P Q
To Balance b/d 10,000 By Balance b/d 10,000
To Realization 15,750 By Reserves 7,500 7,500
To Q’s capital 18,810 By Realization (profit) 1,310 1,310
By P’s Capital 16,940
25,750 18,810 25,750 18,810

Solution 3
REALISATION ACCOUNT
₹ ₹
To Premises 50,000 By Sundry Creditors 84,650
To Plant 1,25,000 By Bank:
To Fixtures 32,500 Premises 60,000
To Stock 43,200 Plant 1,07,500
To Debtors 54,780 Fixtures 20,000
To Bank (Creditors) 84,650 Stock 41,040
To Bank (Expenses) 4,500 Debtors 45,900 2,74,440
By Loss transferred to
Current A/cs
Thin 14,216
Short 14,216
Fat 7,108 35,540
3,94,630 3,94,630

PARTNERS CURRENT ACCOUNTS


Thin Short Fat Thin Short Fat
To Balance b/d - - 14,500 By Balance b/d 29,700 11,300 -
To Realisation 14,216 14,216 7,108 By Capital A/cs - 2,916 21,608
To Capital A/cs 15,484 - - - - -
29,700 14,216 21,608 29,700 14,216 21,608

PARTNERS’ CAPITAL ACCOUNTS


Thin Short Fat Thin Short Fat
To Current A/cs - 2,916 21,608 By Balance b/d 80,000 50,000 20,000
To Fat’s Cap.A/c 990 618 By Current A/cs 15,484 - -
(Deficiency in the
ratio of 8:5)
To Bank 1,08,710 60,682 - By Bank 14,216 14,216
(Realisation loss)
By Thin & Short 1,608
Capital A/cs
1,09,700 64,216 21,608 1,09,700 64,216 21,608
Working Notes:
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
3
BANK ACCOUNT
₹ ₹
To Realisation A/c 2,74,440 By Balance b/d 44,330
To Thin’s Capital A/c 14,216 By Realisation A/c (creditors) 84,650
To Short’s Capital A/c 14,216 By Realisaton A/c (Expenses) 4,500
By Thin’s Capital A/c 1,08,710
By Short’s Capital A/c 60,682
3,02,872 3,02,872
Fat’s deficiency has been by borne Thin & Short in the ratio of their fixed capitals i.e., 8:5 following the
rule in Garner vs. Murray

Solution 4
Cash & Bank Account
Particulars Amount Particulars Amount
To Balance b/d 240 By Realisation A/c- 14,040
Creditors
To Realisation A/c- 19,920 By Realisation A/c- 1,800
(Assets Realised) Expenses
To Capital Accounts: By G’s Loan A/c 9,600
G 27,200 By G’s Capital A/c 16,280
S 20,400 By S’s Capital A/c 28,680
J 2,640 50,240
70,400 70,400
Realisation Account
Particulars Amount Particulars Amount
To Goodwill 48,000 By Trade Creditors 14,880
To Land 9,600 By Provision for Bad Debts 120
To Plant and Machinery 15,360 By Bank:
To Motor Car 840 Land 8,400
To Stock 4,680 Plant & Machinery 6,000
To Sundry Debtors 2,400 Stock 3,600
To Bank (Creditors) 14,040 Debtors 1,920 19,920
To Bank (Expenses) 1,800 By G (Car) 600
By Capital Accounts: (Loss)
G 27,200
S 20,400
J 13,600 61,200
96,720 96,720
Partners’ Fixed Capital Accounts
Particulars G S J Particulars G S J
To Current 5,800 - 3,680 By Balance b/d 24,000 24,000 12,000
A/c (Transfer)
To Realisation 27,200 20,400 13,600 By Cureent A/c - 6,000 -
A/c (Loss) (Transfer)
To Realisation 600 - - By Bank - - 2,640
A/c (Car)
To J's Capital 1,320 1,320 - By Bank 27,200 20,400 -
A/c (realization loss)
(Deficiency)
To Bank* 16,280 28,680 - By G&S - - 2,640
(Deficiency)
51,200 50,400 17,280 51,200 50,400 17,280
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
4
Note:
1. G, S and J will bring cash to make good their share of the loss on realization.
2. As per Garner Vs. Murray rule, solvent partners- G and S have to bear the loss due to insolvency of a
partner J in their fixed capital ratio.
*Alternatively, posting may be done for the net amount being received from /paid to G and S
respectively.
Working Note:
Current account balances of partners have been arrived after adjusting profit and loss account debit
balance as follows:
Current Profit & Loss
account balance
G 600 (6,400) 5,800 Dr.
S 10,800 (4,800) 6,000 Cr.
J (480) (3,200) 3,680 Dr.

Solution 5
REALISATION ACCOUNT
Particulars Amount Particulars Amount
To Land 50,000 By Loan from NBFC 5,00,000
To Building 2,50,000 By Current Liabilities 70,000
To Office Equipment 1,25,000 By Bank A/c
To Computers 70,000 Land 1,00,000
To Debtors 4,00,000 Building 3,00,000
To Stock 3,00,000 Computers 49,000
To Other Current Assets 22,600 Debtors 3,80,000
To Bank A/c Stock 2,70,000
Loan from NBFC 5,05,000 Office Equip. 1,25,000
Current Liabilities 70,000 5,75,000 Curr. Assets 22,600 12,46,600
To Partners’ Current A/cs (Profit) 24,000
A = 9,600
B = 9,600
C = 2,400
D = 2,400
18,16,600 18,16,600

PARTNER’S CURRENT ACCOUNTS


Particulars A B C D Particulars A B C D
To Bal. b/d - - - 87,400 By Bal. b/d 50,000 1,50,000 1,10,000 -
To Capital 59,600 1,59,600 1,12,400 - By 9,600 9,600 2,400 2,400
A/c Realisation
By Capital - - - 85,000
A/c
59,600 1,59,600 1,12,400 87,400 59,600 1,59,600 1,12,400 87,400

PARTNER’S CAPITAL ACCOUNTS


Particulars A B C D Particulars A B C D
To Current - - - 85,000 By Bal. b/d 2,00,000 2,00,000 1,00,000 -
A/c
To D’s - - 42,500 -- By Current 59,600 1,59,600 1,12,400 -
Capital A/c A/c
To D’s 17,000 17,000 8,500 -- By C’s - - - 42,500
Capital A/c Capital A/c
To Cash 2,42,600 3,42,600 1,61,400 - By A’s - - - 17,000
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
5
A/c Capital A/c
By B’s - - - 17,000
Capital A/c
By C’s - - - 8,500
Capital A/c
2,59,600 3,59,600 2,12,400 85,000 2,59,600 3,59,600 2,12,400 85,000
BANK ACCOUNT
To Balance b/d 75,000 By Realisation A/c: 5,75,000
To Realisation A/c: 12,46,600 By A’s Capital A/c 2,42,600
By B’s Capital A/c 3,42,600
By C’s Capital A/c 1,61,400
13,21,600 13,21,600

Solution 6
Garner vs Murray rule is non-applicable in the following cases:
1. When the solvent partner has a debit balance in capital account. Only solvent partners will bear the
loss of capital deficiency of insolvent partner in their capital ratio. If incidentally a solvent partner has
a debit balance in his capital account, he will escape the liability to bear the loss due to insolvency of
another partner.
2. When the firm has only two partners.
3. When there is an agreement between the partners to share the deficiency in capital account of
insolvent partner.
4. When all the partners of the firm are insolvent.

Solution 7
In the Books of M/s Omega
Statement of Piecemeal Distribution (Under Higher Relative Capital method)
Particulars Amount Creditors Bank L’s loan Capital A/cs
Available Loan
Balance due 2,00,000 5,00,000 10,00,000 15,00,000 10,00,000 5,00,000
1st Installment 5,00,000
(including) cash
and bank balances
Less: Liquidators (1,00,000)
Expenses and fee
4,00,000
Less: Payment to
Creditors & Bank
Loan in the ratio of
2:5 (4,00,000) (1,14,286) (2,85,714) - - - -
Balance Due - 85,714 2,14,286 10,00,000 15,00,000 10,00,000 5,00,000
2 Installment
nd
15,00,000
Less: Payment to - - - -
Creditors & bank
loan 3,00,000 (85,714) (2,14,286)
Balance Due 12,00,000 Nil Nil 10,00,000 15,00,000 10,00,000 5,00,000
Less: Repayment of (10,00,000) (10,00,000) - - -
L’s Loan
Balance Due 2,00,000 - 15,00,000 10,00,000 5,00,000
Less: Payment to (2,00,000) (2,00,000) - -
Mr. L towards
relative higher
capital (W.N. 1)
Balance Due Nil Nil 13,00,000 10,00,000 5,00,000

The copyright of these notes is with C.A. Nitin Goel


No part of these notes may be reproduced in any manner without his prior permission in writing.
6
3 Installment
rd
15,00,000
Less: Payment to (3,00,000) (3,00,000) - -
Mr. L towards
higher relative
capital (W.N.2)
Balance Due 12,00,000 10,00,000 10,00,000 5,00,000
Less: Payment to (10,00,000) (5,00,000) (5,00,000) -
Mr. L & Mr. M.
towards excess
capital (W.N 1 & 2)
Balance Due 2,00,000 5,00,000 5,00,000 5,00,000
Less: Payment to (2,00,000) (66,667) (66,667) (66,666)
all the partners
equally
Balance Due Nil 4,33,333 4,33,333 4,33,334
4 Installment
th
30,00,000
Less: Payment to (30,00,000) (10,00,000) (10,00,000) (10,00,000)
all the partners
equally
Realisation profit 5,66,667 5,66,667 5,66,666
credited to Partners
5th Installment 30,00,000
Less: Payment to (30,00,000) 10,00,000 10,00,000 10,00,000
all partners equally
Realisation profit 15,66,667 15,66,667 15,66,666
credited to partners

Working Notes:
Scheme of payment of surplus amount of ₹2,00,000 out of second Installment:
L M S
Balance (i) 15,00,000 10,00,000 5,00,000
Profit sharing ratio (ii) 1 1 1
Capital taking S’s capital (iii) 5,00,000 5,00,000 5,00,000
Excess capital (iv) = (i) –(iii) 10,00,000 5,00,000
Profit sharing ratio 1 1
Excess capital taking M’s Excess capital as base (v) 5,00,000 5,00,000
Higher Relative Excess (iv)-(iv) 5,00,000
So, Mr. L should get ₹5,00,000 first which will bring down his capital account balance from ₹15,00,000
to ₹10,00,000. Accordingly, surplus amounting to ₹2,00,000 will be paid to Mr. L towards higher relative
capital.
Scheme of payment of ₹15,00,000 realized in 3rd installment:
Payment of ₹3,00,000 will be made to Mr. L to discharge higher relative capital. This makes the higher
capital of both Mr. L and Mr. M ₹ 5,00,000 as compared to capital of Mr. S.
Payment of ₹5,00,000 each of Mr. L & Mr. M to discharge the higher capital.
Balance ₹2,00,000 equally to L, M and S, i.e., ₹66,667 ₹66,667 and ₹66,666 respectively.

Solution 8

Particulars Cash Creditors Capitals


Balance due after loan 11,00,000 70,00,000 45,00,000 30,00,000
November
Balance available 7,00,000
Realization less expenses and cash 6,00,000
retained
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
7
Amount available and paid 13,00,000 (11,00,000) - (1,20,000) (80,000)
Balance due - - 70,00,000 43,80,000 29,20,000
December
Opening Balance 6,00,000
Expenses paid and cash carried 4,20,000
forward
Available for distribution 1,80,000
Cash paid to B and Machinery to C - (1,80,000) (9,00,000)
Balance due - 70,00,000 42,00,000 20,20,000
January
Opening Balance 2,00,000
Amount realisation less expenses 98,50,000
Amount paid to partners (1,00,50,000)
First 31,20,000 to A&B in 5:3 (19,50,000) (11,70,000)
Balance 69,30,000 Paid to A,B (34,65,000) (20,79,000) (13,86,000)
& C (5:3:2)
Loss 15,85,000 9,51,000 6,34,000
Working Note:
(i) Highest Relative Capital Basis
A B C
Scheme of payment for November
Balance of Capital Accounts 95,00,000 75,00,000 30,00,000
Less: Loans (25,00,000) (30,00,000) -
(A) 70,00,000 45,00,000 30,00,000
Profit Sharing Ratio 5 3 2
Capital/Profit sharing ratio 14,00,000 15,00,000 15,00,000
Capital in profit sharing ratio, taking A’s capital as base 70,00,000 42,00,000 28,00,000
(B)
Excess of B’s capital and C’s capital (A-B) (i) 3,00,000 2,00,000
Profit sharing ratio 3 2
Capital/profit sharing ratio 1,00,000 1,00,000
Capital in PSR, taking B’s/C’s capital as base (ii) 3,00,000 2,00,000
It means realization up to ₹ 5,00,000 is distributed among B and C in the ratio of 3:2. So excess amount
of ₹ 2,00,000 after paying creditors is distributed among B and C in the ratio of 3:2 i.e. ₹1,20,000 and
80,000 respectively

(ii) Scheme of payment for December


In the month of December C has received machinery amounting ₹ 9,00,000 against his excess capital of ₹
1,20,000 (2,00,000 – 80,000). Excess capital of B is ₹3,00,000 out of which ₹1,20,000 already paid to
him, so balance ₹ 1,80,000 available in the month of December will be paid to B.

(iii) Scheme of distribution of available cash for January:


A B C
Balance of capital Account end of December (A) 70,00,000 42,00,000 20,20,000
Profit sharing ratio 5 3 2
Capital/profit sharing ratio 14,00,000 14,00,000 10,10,000
Capital in profit sharing ratio, taking C’s capital as base 50,50,000 30,30,000 20,20,000
(B) (i)
Excess of A’s Capital and B’s capital (A-B) (i) 19,50,000 11,70,000
Profit Sharing Ratio 5 3
Capital/Profit sharing Ratio 3,90,000 3,90,000
Capital in profit sharing ratio taking A’s/B’s Capital 19,50,000 11,70,000
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
8
Since ₹ 19,50,000 and 11,70,000 is already in the ratio of 5:3, so amount realized up to ₹ 31,20,000 is
distributed among A and B in the ratio of 5:3. After that any amount realized is distributed among all the
three partners in the ratio of 5:3:2.

Solution 9
Statement showing distribution of cash amongst the partners
(Under Higher Relative Capital method)
Particulars Amount Trade Y’s loan Capital A/cs
Available Payables X Y Z
Balance due 66,000 18,000 60,000 40,000 50,000
1st Installment (including) cash
& bank (1,100+74,600) 75,700
Less: Dissolution Expenses (12,000)
provided for
63,700
Less: Z’s remuneration of (746)
1% on assets realized
(74,600 x 1%)
62,954
Less: Payment to Trade
Payables (62,954) (62,954) - - - -
Balance Due - 3,046 18,000 60,000 40,000 50,000
2 Installment
nd
69,301
Less: Z’s remuneration of (693)
1% on assets realized
(69,301 x 1%)
68,608
Less: Payment to Trade
Payables (646) (646)
Transferred to Realisation A/c 2,400
Less: Repayment of Y’s Loan (18,000) (18,000)
Amount available for
distribution to partners 49,962
Less: Z’s remuneration of
10% of the amount
distributed to partners (4,542)
(49,962 x 10/110)
Balance to be distributed
to partners 45,420
Less: Payment to Z towards
relative higher capital (W.N. 1) (2,000) (2,000)
43,420 48,000
Less: Payment to X & Z. in 5:4
towards excess capital (W.N.1) (18,000) (10,000) (8,000)
Balance Due 25,420 50,000 40,000 40,000
Less: Paid to X, Y & Z in 5:4:4 (25,420) (9,778) (7,821) (7,821)
Balance Due 40,222 32,179 32,179
3rd Installment 40,000
Less: Z’s remuneration of
1% on assets realized
(40,000 x 1%) (400)
Amount available for 39,600
distribution to partners
Less: Z’s remuneration of
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
9
10% of the amount
distributed to partners (3,600)
(39,600 x 10/110)
Balance to be distributed 36,000
to partners
Less: Paid to X, Y & Z in 5:4:4 (36,000) (13,846) (11,077) (11,077)
Balance Due 26,376 21,102 21,102
4th Installment 28,000
Less: Z’s remuneration of
1% on assets realized
(28,000 x 1%) (280)
Amount available for 27,720
distribution to partners
Less: Z’s remuneration of
10% of the amount
distributed to partners (2,520)
(27,720 x 10/110)
Balance to be distributed 25,200
to partners
Less: Paid to X, Y & Z in 5:4:4 (25,200) (9,692) (7,754) (7,754)
Loss Suffered by partners 16,684 13,348 13,348

Working Notes 1:
Highest Relative Capital Method
X Y Z
Balance (i) 60,000 40,000 50,000
Profit sharing ratio (ii) 5 4 4
Capital profit sharing ratio 12,000 10,000 12,500
Capital taking Y’s capital (iii) 50,000 40,000 40,000
Excess capital (iv) = (i) –(iii) 10,000 Nil 10,000
Profit sharing ratio 5 4
Capital profit sharing ratio 2,000 2,500
Capital taking X’s capital (v) 10,000 8,000
Excess capital (vi) = (iv) –(v) Nil 2,000
Therefore, firstly ₹2,000 is to be paid to Z, then X and Z to be paid in proportion of 5:4 upto ₹ 18,000 to
bring the capital of all partners X, Y and Z in proportion to their profit sharing ratio. Thereafter, balance
available will be paid in the profit sharing ratio 5:4:4 to all partners viz X, Y and Z

Solution 10
First of all the following table will be constructed to show the amounts available for distribution:
Statement showing and distribution of Cash payments
Realisation Creditors Partners Partners
Loan Capitals
After taking into account cash balance and 1,000 1,000 - -
amount set aside for expenses
3,000 1,000 2,000 -
3,900 - 3,000 900
6,000 - - 6,000
Including saving in expenses 20,100 - - 20,100
34,000 2,000 5,000 27,000
To ascertain the amount distributable out of each installment realized among the partners, the following
table will be constructed:
Statement of Distribution on Capital Account
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
10
Calculation to determine the mode of distribution of ₹900
Total A B C
Balance 42,000 15,000 18,000 9,000
Less: Possible loss, should remaining assets (41,100) (16,440) (16,440) (8,220)
prove to be worthless
+900 -1,440 +1,560 +780
Deficiency of A’s capital written off against (960) (480)
those of B and C in the ratio of their capital,
18,000 : 9,000 (Garner vs. Murray)
Manner in which the first ₹900 should be + 600 + 300
distributed
Distribution of ₹6,000
Balance after making payment of amount 41,100 15,000 17,400 8,700
shown in step (1)
Less: Possible loss assuming remaining asset to (35,100) (14,040) (14,040) (7,020)
be valueless
Balance available and to be distributed 6,000 960 3,360 1,680

Distribution of ₹ 20,100
Balance after making payment of amount 35,100 14,040 14,040 7,020
shown in step (2)
Less: Possible loss, assuming remaining assets (15,000) (6,000) (6,000) (3,000)
to be valuables
Manner of distribution of ₹20,100 20,100 8,040 8,040 4,020

Summary:
Balance 42,000 15,000 18,000 9,000
Total amounts paid (27,000) (9,000) (12,000) (6,000)
Loss 15,000 6,000 6,000 3,000

Solution 11
Statement of Distribution of Cash
Realizati Trade Partner’s Partner’s capital
on Creditor Loan
Balances due (1) 2,800 1,400 13,440 8,400 11,760 33,600
(i) Sale of Patent 1,400 (1,400) -
1,400 1,400
(ii) Sale of 2,800 (1,400) (1,400)
furniture
(iii) Sale of 1,680
machinery
Maximum 31,920 (15,960) (9,576) (6,384) (31,920)
possible loss
(33,600-1,680)
allocated to
partners in the
PSR i.e. 5:3:2
Amounts at credit (2,520) (1,176) 5,376 1,680
Deficiency of AD 2,520 1,176 (3,696) -
and BD written
off against SD
Amount paid (2) - - 1,680 1,680
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
11
Balances in 13,440 8,400 10,080 31,920
capital a/cs
(1 – 2) = (3)
(iv) Sale of stock 5,600
Maximum 26,320 (13,160) (7,896) (5,264) (26,320)
possible loss
(31,920–5,600)
allocated to
partners in the
ratio 5 : 3 : 2
Amounts at credit 280 504 4,816 5,600
and cash paid (4)
Balances in 13,160 7,896 5,264 26,320
capital accounts
left unpaid: Loss
(3 – 4) = (5)

Solution 12
In the books of TJM& Sons
Realization Account
Particulars ₹ Particulars ₹
To Plant & Machinery 7,50,000 By Trade payable 4,50,000
To Furniture & Fixture 75,000 By JEK Ltd. (Refer W.N.) 10,50,000
To Inventories 3,00,000
To Trade receivables 3,00,000
To Partners’ Capital A/cs (Profit):
T’s Capital A/c 30,000
J’s Capital A/c 30,000
M’s Capital A/c 15,000 75,000
15,00,000 15,00,000
Partners’ Capital Accounts
Particulars T J M Particulars T J M
By Shares in 4,20,000 4,20,000 2,10,000 By Balance b/d 3,00,000 4,50,000 1,50,000
JEK Ltd.
By Cash - 1,20,000 By General
Reserve 60,000 60,000 30,000
ByRealization 30,000 30,000 15,000
A/c
By Cash 30,000 - 15,000
4,20,000 5,40,000 2,10,000 4,20,000 5,40,000 2,10,000

Cash and Bank Account


Particulars Cash ₹ Bank ₹ Particulars Cash ₹ Bank ₹
To Balance b/d 60,000 15,000 By Cash A/c (Contra) 15,000
To Bank A/c (Contra)* 15,000 By J 1,20,000
To T 30,000
To M 15,000
1,20,000 15,000 1,20,000 15,000

Journal Entries in the Books of JEK Ltd.


Dr. (₹) Cr. (₹)
Business Purchase Account Dr. 10,50,000
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No part of these notes may be reproduced in any manner without his prior permission in writing.
12
To TJM & Sons 10,50,000
(Being business of TJM& Sons purchased and
payment due)
Plant and Machinery A/c Dr. 8,50,000
Furniture and Fixture A/c Dr. 1,00,000
Inventories A/c Dr. 3,00,000
Trade Receivables A/c Dr. 3,00,000
To Trade Payables 4,50,000
To Unrecorded Liability 37,500
To Business Purchase Account 10,50,000
To Capital Reserve (B.F.) 12,500
(Being take over of all assets and liabilities)
TJM& Sons A/c Dr. 10,50,000
To Equity Share Capital Account 7,50,000
To Securities Premium Account 3,00,000
(Being purchase consideration discharged in
the form of shares of ₹ 10 each issued at a
premium of ₹ 4 each)
Trade Payables Account Dr. 1,50,000
To Trade Receivables Account 1,50,000
(Being mutual owing eliminated)
Working Note:
Computation of purchase consideration:
75,000 Equity shares of ₹14 each = ₹ 10,50,000 Equity shares To be given to partners :
T 30,000 Shares @ ₹ 14 = ₹ 4,20,000
J 30,000 shares @ ₹ 14 = ₹ 4,20,000
M 15,000 shares @ ₹ 14 = ₹ 2,10,000

Solution 13
BALANCE SHEET OF THE FIRM AS AT 30.09.2020
Liabilities ₹ Assets ₹
Capital Accounts Machinery:
Mohan’s capital 1,47,990 Opening balance 1,80,000
Sohan’s capital 1,40,790 Less: dep. @ 10% p.a.(6M) (9,000) 1,71,000
Trade Payables 60,000 Leasehold Premises
Bank overdraft 24,000 Opening balance 40,800
Less: Dep. @ 5% p.a (6M) (1,020) 39,780
Trade Receivables 72,000
Inventories 90,000
3,72,780 3,72,780

REALISATION ACCOUNT
Particulars Amount Particulars Amount
To Sundry assets: By Trade Payables 60,000
Machinery 1,71,000 By Bank overdraft 24,000
Leasehold Premises 39,780 By PKR Ltd. A/c 4,08,780
Inventores 90,000 (working note 2)
Trade Receivables 72,000
To Profit:
Mohan’s capital a/c 60,000
Sohan’s capital A/c 60,000
4,92,780 4,92,780
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
13

PARTNER’S CAPITAL ACCOUNT


Date Particulars Mohan Sohan Date Particulars Mohan Sohan
01.04 To P&L A/c 15,600 15,600 1.4 By balance b/d 1,68,000 1,56,000
01.04 To Current A/c 12,000 7,200 30.09 By Profit (WN1) 15,180 15,180
30.09 To drawing A/c 7,590 7,590
(W.N.-1)
30.09 To Bal c/d 1,47,990 1,40,790

1,83,180 1,71,180 1,83,180 1,71,180

30.09 To shares in 2,07,990 2,00,790 30.09 By balance b/d 1,47,990 1,40,790


Purchasing Company
30.09 By Realisation A/c 60,000 60,000
(profit)
2,07,990 2,00,790 2,07,990 2,00,790
Working notes
1. Ascertainment of profit for the 6 Months ended 30.09.2020
Closing assets Amount (₹)
Inventories 90,000
Trade Receivables 72,000
Machinery less depreciation 1,71,000
Leasehold Premises less written off 39,780
Total 3,72,780
Less; Closing liabilities
Creditors 60,000
Bank overdraft 24,000 (84,000)
Closing net assets 2,88,780
Less: Opening adjusted capital
Mohan (1,68,000-15,600-12,000) 1,40,400
Sohan (1,56,000-15,600-7,200) 1,33,200 2,73,600
Profit net of drawings 15,180
Actual profit for six before drawings (half of profit)= 15,180x2 30,360
Combined drawing during six months (half of profit) 15,180

2. Ascertainment of purchase consideration



Closing net assets (as above) 2,88,780
Add goodwill 1,20,000
Total purchase consideration 4,08,780

Solution 14
(i) Balance Sheet of the Firm as at 31.3.2022
Liabilities ₹ Assets ₹ ₹
Capital Accounts: Plant 1,85,000
U’s capital 1,18,750 Less: Depreciation (5,000) 1,80,000
V’s capital 1,47,750 Building 1,00,000
Sundry Creditors (90,000 – 50,000) 40,000 Less: Written off (5,000) 95,000
Bank overdraft (83,000 – 50,000) 33,000 Stock 24,000
Sundry Debtors 40,500
3,39,500 3,39,500
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
14
(ii) Realization Account
Particulars ₹ Particulars ₹
To Plant A/c 1,80,000 By Sundry Creditors A/c 40,000
To Building A/c 95,000 By Bank Overdraft A/c 33,000
To Stock A/c 24,000 By UV Ltd. A/c 4,87,500
To Sundry Debtors A/c 40,500 (W.N.2)
To U’s Capital A/c 1,10,500
To V’s Capital A/c 1,10,500
5,60,500 5,60,500
Partners’ Capital Accounts
Date Particulars U V Date Particulars U V
1.1.22 To Profit & 30,000 30,000 1.1.22 By Balance b/d 1,50,000 1,80,000
Loss A/c
To Drawings 8,000 9,000 31.3.22 By Profit (W.N.1) 13,500 13,500
A/c
31.3.22 To Drawings 6,750 6,750
(W.N.1)
To Balance c/d 1,18,750 1,47,750
1,63,500 1,93,500 1,63,500 1,93,500
30.3.22 To Shares in 31.3.22 By Balance b/d 1,18,750 1,47,750
UV Ltd. A/c 2,29,250 2,58,250
31.3.22 By Realization
A/c 1,10,500 1,10,500
2,29,250 2,58,250 2,29,250 2,58,250
Working Notes:
(1) Ascertainment of profit for the 3 months ended 31st March,2022
₹ ₹
Assets:
Stock 24,000
Sundry Debtors 40,500
Plant less depreciation 1,80,000
Building 95,000
3,39,500
Less: Liabilities:
Sundry Creditors 40,000
Bank overdraft 33,000 (73,000)
Closing net assets 2,66,500
Less: Opening adjusted capitals
U (1,50,000 – 30,000 – 8,000) 1,12,000
V (1,80,000 – 30,000 – 9,000) 1,41,000 2,53,000
Profit net of drawings 13,500
Combined profit during the 3 months 13,500 X 2 27,000
Combined drawings for 3 months (27,000 *1/2) 13,500

(2) Ascertainment of purchase consideration


₹ ₹
Assets:
Stock 36,000
Sundry Debtors 40,500
Plant less depreciation 1,80,000

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15
Building 1,20,000
3,76,500
Less: Liabilities:
Sundry Creditors 40,000
Bank overdraft 33,000 (73,000)
Net Assets value taken by UV Ltd. 3,03,500
Add: Goodwill 1,84,000
Purchase Consideration paid by equity shares in UV Ltd. at ₹ 10 each 4,87,500

Solution 15
M/s Red, Black and White
Profit and Loss Account for the year ending on 31st March, 2020
₹ ₹
To Depreciation of Building 6,000 By Trading Profit 80,000
To Interest on Red’s loan 1,200 By Interest on Investment 2,400
To Net Profit to:
Red’s Capital A/c 45,120
Black’s Capital A/c 15,040
White’s Capital A/c 15,040 75,200
82,400 82,400

Balance Sheet of the RBW Pvt. Ltd. as on 1st April, 2020


Note No. Amount
Equity and Liabilities
Shareholders’ funds
Share capital 2,39,040
Non Current liabilities
Long term borrowings 1 21,200
Total 2,60,240
II. Assets
Non-current Assets
Property, Plant & Equipment & Intangible Assets
Property, Plant & Equipment 2 1,14,000
Non-current investments 40,000
Current Assets
Inventories 80,000
Cash and cash equivalents 26,240
2,60,240
Notes to Accounts
1. Short term borrowings
Loan from Red 21,200
2. Property, Plant & Equipment
Building 1,14,000

Working Notes:
1. Calculation of goodwill
2015 2016 2017 2018 2019
Profits/(Loss) 40,000 (20,000) 40,000 50,000 60,000
Adjustment for extraneous profit of 2015 (60,000) 40,000 - - -
and abnormal loss of 2016
(20,000) 20,000 40,000 50,000 60,000
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16
Add: Remuneration of Red 12,000 12,000 12,000 12,000 12,000
(8,000) 32,000 52,000 62,000 72,000
Less: Debenture Interest being (2,400) (2,400) (2,400) (2,400) (2,400)
nonoperating income
(10,400) 29,600 49,600 59,600 69,600
Total profit from 2016 to 2019 2,08,400
Less: Loss for 2015 (10,400)
1,98,000
Average Profit 39,600
Goodwill equal to 2 years purchase 79,200
Contribution from White for 1/5 share 15,840
*Investments are assumed to be non-trading investments
2. Adjustment for goodwill
To be raised in old Ratio To be written off in new ratio Difference
Red 47,520 47,520 Nil
Black 31,680 15,840 15,840 Cr.
White 15,840 15,840 Dr.

3. Partner’s Capital Accounts


Red Black White Red Black White
To Drawings 24,000 24,000 24,000 By Balance b/d 80,000 1,00,000 --
To Black 15,840 By General Reserve 12,000 8,000 --
To Balance c/d 1,13,120 1,14,880 11,040 By White - 15,840 --
By Bank -- -- 35,840
By Profit& LossA/c 45,120 15,040 15,040
1,37,120 1,38,880 50,880 1,37,120 1,38,880 50,880
4. Balance Sheet of the firm as on 31st March, 2020
Liabilities ₹ ₹ Assets ₹ ₹
Red’s Capital 1,13,120 Land & Building 1,20,000
Black’s Capital 1,14,880 Less; Depreciation (6,000) 1,14,000
White’s Capital 11,040 Investments 40,000
Red’s Loan 20,000 Stock in trade 80,000
Add: Interest due 1,200 21,200 Cash (W.N. 6) 26,240
2,60,240 2,60,240

5. Cash Balance as on 31.3.2020


₹ ₹
Cash trading profit 80,000
Add: Debentures Interest 2,400
Add: Decrease in Debtors Balance 40,000
1,22,400
Less: Increase in Stock 20,000
Less: Decrease in Creditors 40,000 (60,000)
62,400
Add: Opening cash balance 20,000
Add: Cash brought in by White 35,840
Less: Drawings 72,000
Less: Additions to Building 20,000 (92,000)
Closing cash balance 26,240

The copyright of these notes is with C.A. Nitin Goel


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17
6. Distribution of shares – Conversion into Company
Capital: Red
1,13,120
Black
1,14,880
White
11,040
Share Capital 2,39,040
Distribution of shares: Red (3/5) 1,43,424
Black (1/5) 47,808
White (1/5) 47,808
Red should subscribe shares of ₹ 30,304 (₹ 1,43,424 – ₹ 1,13,120) and White should subscribe shares of ₹
36,768 (₹ 47,808 less 11,040). Black withdraws ₹ 67,072 (₹ 47,808 – ₹ 1,14,880).

Solution 16
M/s P, Q and R
Profit and Loss Account for the year ending on 31st March, 2021
₹ ₹
To Depreciation of Machinery 6,000 By Trading Profit 50,000
To Depreciation on furniture 500 By Interest on Investment 5,000
To Interest on Q’s loan 900
To Net Profit to:
P’s Capital A/c 23,800
Q’s Capital A/c 11,900
R’s Capital A/c 11,900 47,600
55,000 55,000

Balance Sheet of the PQR Pvt. Ltd. as on 1st April, 2021


Note No. Amount
Equity and Liabilities
Shareholders’ funds
Share capital 1,41,600
Current liabilities
Short term borrowings 1 15,900
Trade payables 20,000
Total 1,77,500
II. Assets
Non-current Assets
Property, Plant & Equipment & Intangible Assets
Property, Plant & Equipment 2 63,500
Non-current investments 50,000
Current Assets
Inventories 15,000
Trade receivables 30,000
Cash and cash equivalents 19,000
1,77,500
Notes to Accounts
1. Short term borrowings
Loan from Q 15,900
2. Property, Plant & Equipment
Machinery 54,000
Furniture 9,500 63,500

Working Notes:
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
18
1. Calculation of goodwill
2015-16 2016-17 2017-18 2018-19 2019-20
Profits/(Loss) 25,000 12,500 (2,500) 35,000 30,000
Adjustment for extraneous profit of 2015- (40,000) - 20,000 - -
16 and abnormal loss of 2017-18
(15,000) 12,500 17,500 35,000 30,000
Add: Salary of P (750 X12) 9,000 9,000 9,000 9,000 9,000
(6,000) 21,500 26,500 44,000 39,000
Less: Interest on non-trading investment* (5,000) (5,000) (5,000) (5,000) (5,000)
(11,000) 16,500 21,500 39,000 34,000
Total profit from 2016-17 to 2019-20 1,11,000
Less: Loss for 2015-16 (11,000)
1,00,000
Average Profit 20,000
Goodwill equal to 3 years purchase 60,000
Contribution from R for ¼ share 15,000
*Investments are assumed to be non-trading investments

2. Calculation of sacrificing ratio of Partners P and Q on admission of R


Old Share New share Sacrificing share Gaining share
P 3/5 1/2 3 1 6−5 1
− = =
5 2 10 10
Q 2/5 1/4 2 1 8−5 3
− = =
5 4 20 20
R 1/4 1/4

3. Goodwill adjustment entry* through Partners’ capital accounts (in their sacrificing ratio of 2 : 3)
₹ ₹
R’s capital A/c Dr. 15,000
To P’s capital A/c 6,000
To Q’s capital A/c 9,000
(R’s share in goodwill adjusted through P and Q)

4. Partner’s Capital Accounts


P Q R P Q R
To Drawings 12,000 12,000 12,000 By Balance b/d 50,000 30,000 --
(1,000 x 12)
To P 6,000 By General Reserve 12,000 8,000 --
To Q 9,000 By R 6,000 9,000 --
To Balance c/d 79,800 46,900 14,900 By Bank -- -- 30,000
(15,000 + 15,000)
By Profit & Loss A/c
23,800 11,900 11,900
91,800 58,900 41,900 91,800 58,900 41,900
*As per AS 26 “Intangible Assets”, only purchased goodwill should appear in the books. Therefore,
goodwill though required to be shown in the books as per the requirement of the question, has been
adjusted through capital accounts of the partners in line with the provisions of AS 26.

5. Balance Sheet of the firm as on 31st March, 2021


Liabilities ₹ ₹ Assets ₹ ₹
P’s Capital 79,800 Machinery 60,000
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19
Q’s Capital 46,900 Less; Depreciation (6,000) 54,000
R’s Capital 14,900 1,41,600 Furniture 10,000
Q’s Loan 15,000 Less: Depreciation (500) 9,500
Add: Interest due 900 15,900 Investments 50,000
Creditors 20,000 Stock in trade 15,000
Debtors 30,000
Cash (W.N. 6) 19,000
1,77,500 1,77,500

6. Cash Balance as on 31.3.2021


₹ ₹
Cash trading profit 50,000
Add: Investment Interest 5,000
Add: Decrease in Stock Balance 5,000
60,000
Less: Increase in Debtors 9,000
Less: Decrease in Creditors 20,000 (29,000)
31,000
Add: Opening cash balance 5,000
Add: Cash brought in by R 30,000 35,000
Less: Drawings (12,000 + 12,000+12,000) 36,000
Less: Additions to Machine (60,000 - 54,000) 6,000
Furniture (10,000 – 5,000) 5,000 (47,000)
Closing cash balance 19,000

7. Distribution of shares – Conversion into Company


Capital: P
79,800
Q
46,900
R
14,900
Share Capital 1,41,600
Distribution of shares: P (1/2) 70,800
Q (1/4) 35,400
R (1/4) 35,400
P and Q should withdraw capital of 9,000 (79,800 - 70,800) and 11,500 (46,900 – ₹35,400) respectively
and R should subscribe shares of 20,500 (35,400 – 14,900).

Solution 17
Partner’s Current Accounts
Particulars X Y Z Particulars X Y Z
31.3.2019 31.3.2019
To Balanced b/d - - 10,000 By Balance b/d 40,000 30,000 -
To X’s Current A/c - 30,000 15,000 By Y’s Current A/c 30,000 - -
– goodwill – Goodwill
To X’s current A/c - 20,000 10,000 By Z’s current A/c 15,000 - -
– Revaluation Profit – goodwill
To X’s capital A/c 1,21,000 -- - By Y’s current A/c 20,000 - -
–Transfer – Revaluation profit
By Z’s Current A/c 10,000
– Revaluation profit
By Joint assurance 6,000 4,000 2,000
policy

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20
-- -- -- By Balance c/d -- 16,000 33,000

1,21,000 50,000 35,000 1,21,000 50,000 35,000

1.4.19 31.3.20
To Balance b/d 16,000 33,000 By Profit & loss App. A/c 29,136 14,568
31.3.20 By Balance c/d 1,864 26,432
To Drawings A/c 15,000 8,000
31,000 41,000 31,000 41,000
1.4.20 1.4.20
To Balance b/d 1,864 26,432 By Realisation A/c profit 31,674 15,837
To Y’s Capital A/c – Transfer 29,810 -- By Z’s Capital A/c – transfer - 10,595
31,674 26,432 31,674 26,432

Partners’ Capital Accounts


Particulars X Y Z Particulars X Y Z
31.3.2019 ₹ ₹ ₹ 31.3.2019 ₹ ₹ ₹
To X’s Executors 1,81,000 --- --- By Balance b/d 60,000 40,000 20,000
A/c
To Balance c/d -- 40,000 20,000 By X’s Current A/c 1,21,000 -- --
1,81,000 40,000 20,000 1,81,000 40,000 20,000
31.3.20 1.4.20
To Z’s current A/c - 10,595 By Balance b/d 40,000 20,000
transfer
30.6.20 1.4.20
To Bank A/c 69,810 9,405 By Y’s current A/c 29,810 --
– transfer
69,810 20,000 69,810 20,000

X’s Executor’s Account


Date Particulars ₹ Date Particulars ₹
01.4.2019 To Bank A/c 30,000 31.3.2019 By X’s Capital A/c 1,81,000
31.3.2019 To Balance c/d 1,51,000
1,81,000 1,81,000
30.9.2019 To Bank A/c 30,000 01.4.2019 By Balance b/d 1,51,000
30.9.2019 To Balance c/d 1,25,530 30.9.2019 By Interest A/c 4,530
1,55,530 1,55,530
31.3.2020 To Bank A/c 30,000 1.10.2019 By Balance b/d 1,25,530
31.3.2020 To Balance c/d 99,296 31.3.2020 By Interest A/c 3,766
1,29,296 1,29,296
30.6.2020 To Bank A/c 1,00,785 01.4.2020 By Balance b/d 99,296
30.6.2020 By Interest A/c 1,489
1,00,785 1,00,785

Working Notes:
Adjustment in regard to Goodwill
Particulars X Y Z
Share of goodwill before death 45,000 30,000 15,000
Share of goodwill after death -- 60,000 30,000
Gain ( + ) Sacrifice ( - ) (45,000) 30,000 15,000
Cr. Dr. Dr.

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21
Adjustment in regard to revaluation of assets
Particulars X Y Z
Share of profit on revaluation credited to 30,000 20,000 10,000
all the partners
Debited to the continuing partners -- 40,000 20,000
(30,000) 20,000 10,000
Cr. Dr. Dr.
Ascertainment of profit for the year ended 31.3.20
₹ ₹
Profit before charging interest on balance due to X’s executors 52,000
Less: Interest payable to X’s executors:
From 1.04.19 to 30.09.19 4,530
From 1.10.19 to 31.03.20 3,766 (8,296)
Balance of profit to be shared by Y and Z in 2:1 43,704
Ascertainment of Sundry Assets as on 31.3.2020
Liabilities ₹ Assets ₹
Capital Account – Y 40,000 Sundry Assets (Balancing figure) 1,31,000
Capital Account – Z 20,000 Partners Current A/c – Y 1,864
X’s Executors A/c 99,296 Partner’s Current A/c - Z 26,432
1,59,296 1,59,296

Realisation Account
₹ ₹
To Sundry Assets A/c 1,31,000 By Bank A/c 1,80,000
(Purchase consideration)
To Interest A/c – X’s Executors 1,489
To Partner’s Capital A/c – Y 31,674
To Partner’s Capital A/c – Z 15,837
1,80,000 1,80,000
Bank Account
₹ ₹
To Purchase consideration 1,80,000 By X’s Executors A/c 1,00,785
By Y 69,810
By Z 9,405
1,80,000 1,80,000

Solution 18
Balance Sheet of M/s Abeejay & Co. as at 31st March, 2020
Liabilities ₹ Assets ₹
Capital: Building
Avi 7,71,000 (₹4,00,000+₹3,00,000) 7,00,000
Bishnu 5,14,000 Plant & Machinery
Joe 2,57,000 15,42,000 (₹2,50,000 + ₹2,00,000) 4,50,000
Sundry creditor Office equipment (₹39,000 89,000
(1,20,000 + 89,000) 2,09,000 + ₹50,000)
Bank overdraft 90,000 Vehicle 98,000
Furniture 11,000
Stock in trade
(₹70,000 + ₹80,000) 1,50,000
Sundry debtors
(₹1,00,000+₹90,000) 1,90,000
The copyright of these notes is with C.A. Nitin Goel
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22
Less: Provision for doubtful
debts (₹4,000+₹3,000) (7,000) 1,83,000
Bank balance
(₹80,000+₹60,000) 1,40,000
Cash in hand 20,000*
18,41,000 18,41,000

Partners’ Capital Accounts in the books of Abhay & Co.


Particulars Avi Bishnu Particulars Avi Bishnu
To Capital A/cs – 6,16,500 2,28,500 By Balance b/d 5,31,000 2,00,000
M/s Abeejay & Co.
By Reserve (3:1) 9,000 3,000
By Profit on Revaluation 76,500 25,500
A/c (W.N.)
6,16,500 2,28,500 6,16,500 2,28,500

Partners Capital Accounts in the books of Bijoy & Co.


Particulars Bishnu Joe Particulars Bishnu Joe
To Capital A/cs 4,63,667 2,33,333 By Balance b/d 3,97,000 2,00,000
M/s Abjeey & Co.
By Reserve (2:1) 6,000 3,000
By Profit on Revaluation 60,667 30,333
(W.N.)
4,63,667 2,33,333 4,63,667 2,33,333

Working Notes:
Revaluation Profits/Loss
Particulars Abhay & Co. Bijoy & Co.
Building 50,000 20,000
Plant & Machinery 50,000 50,000
Vehicle - 8,000
Furniture - 1,000
Office equipment 1,000 5,000
Stock in trade 5,000 10,000
Provision for Doubtful Debts (4,000) (3,000)
1,02,000 91,000
Avi 76,500 -
Bishnu 25,500 60,667
Joe - 30,333

Adjustment for raising and writing off of goodwill


Raised in old profit sharing Total Written off in Difference
ratio new ratio
Abhay & Co. Bijoy & Co.
3:1 2:1 3:2:1
₹ ₹ ₹ ₹ ₹
Avi 31,500 -- 31,500 Cr. 36,000 Dr. 4,500 Dr.
Bishnu 10,500 20,000 30,500 Cr. 24,000 Dr. 6,500 Cr.
Joe - 10,000 10,000 Cr. 12,000 Dr. 2,000 Dr.
42,000 30,000 72,000 72,000 Nil

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23
Computation of Capital Adjustments
Avi Bishnu Joe Total
Balance transferred from Abhay & Co. 6,16,500 2,28,500 8,45,000
Balance transferred from Bijoy & Co. 4,63,667 2,33,333 6,97,000
6,16,500 6,92,167 2,33,333 15,42,000
Goodwill adjustment (4,500) 6,500 (2,000) Nil
Existing capital 6,12,000 6,98,667 2,31,333 15,42,000
Proportionate capital 7,71,000 5,14,000 2,57,000 15,42,000
Amount to be brought in (paid off) 1,59,000 (1,84,667) 25,667

Solution 19
(i) Adjustment for raising & writing off of goodwill
Goodwill raised in old profit Goodwill written Difference
sharing ratio off in new ratio
AB & Co. CD & Co. Total AD & Co.
A 50,000 50,000 Cr. 31,250 Dr. 18,750 Cr.
B 25,000 25,000 Cr. 15,625 Dr. 9,375 Cr.
C 30,000 30,000 Cr. 46,875 Dr. 16,875 Dr.
D 20,000 20,000 Cr. 31,250 Dr. 11,250 Dr.
75,000 50,000 1,25,000 1,25,000

Journal Entries in the books of AD & Co.


Particulars Debit Credit
₹ ₹
Building A/c Dr. 1,00,000
Machinery A/c Dr. 1,25,000
Furniture Dr. 15,000
Stock A/c Dr. 24,000
Debtors A/c Dr. 65,000
CD & Co. A/c Dr. 47,000
Cash at bank A/c Dr. 18,000
Cash in hand A/c Dr. 4,000
To Provision for doubtful A/c 5,000
To Creditors A/c Dr. 52,000
To A’s capital A/c (W.N.) 2,10,667
To B’s capital A/c (W.N.) 1,30,33
(Being the sundry assets and liabilities of AB & Co.
taken over at the values stated as per the agreement)
Building A/c Dr. 1,25,000
Machinery A/c Dr. 1,10,000
Furniture A/c Dr. 12,000
Stock A/c Dr. 36,000
Debtors A/c Dr. 78,000
Cash at bank A/c Dr. 15,000
Cash in hand A/c Dr. 5,000
To Provision for doubtful debts A/c 8,000
To Creditors A/c 35,000
To AB & Co. A/c 47,000
To C’s capital A/c (W.N.) 1,74,600
To D’s capital A/c (W.N.) 1,16,400
(Being the sundry assets and liabilities of CD & Co.
taken over at the values stated as per the agreement)
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
24
C’s capital A/c Dr. 16,875
D’s capital A/c Dr. 11,250
To A’s capital A/c 18,750
To B’s capital A/c 9,375
(Being adjustment in capital accounts of the partners on
account of goodwill)
AB & Co. A/c Dr. 47,000
To CD & Co. A/c 47,000
(Being mutual indebtedness of AB & Co. and CD & Co.
cancelled)
A’s capital A/c Dr. 1,24,267
To A’s Current A/c 1,24,267
(Being excess amount in A’s capital A/c transferred to
A’s current A/c – refer W.N.)
B’s Capital A/c Dr. 87,133
To B’s Current A/c 87,133
(Being excess amount in B’s capital A/c transferred to
B’s current A/c – refer W.N.)
Working Notes:
1. Profit on Revaluation
AB & Co. CD & Co.
Building (1,00,000-75,000) 25,000
(1,25,000-90,000) 35,000
Machinery (1,25,000 – 1,20,000) 5,000
(1,10,000-,1,00,000) 10,000
30,000 45,000
Less: Provision for doubtful debts (5,000) (8,000
25,000 37,000

2. Balance of capital accounts of partners on transfer of business to AD & Co.


AB & Co.
A’s Capital B’s Capital
Balance as per the Balance sheet 1,50,000 1,00,000
Reserves in the profits and losses sharing ratio 44,000 22,000
Profit on revaluation in the profits and losses sharing ratio 16,667 8,333
(W.N.1)
2,10,667 1,30,333
CD & Co.
C’s Capital D’s Capital
Balance as per the Balance sheet 1,20,000 80,000
Reserves in the profits and losses sharing ratio 32,400 21,600
Profit on revaluation in the profits and losses sharing ratio 22,200 14,800
(W.N.1)
1,74,600 1,16,400
3. Calculation of capital of each partner in the new firm
Particulars A B C D
Balance as per W.N.2 2,10,667 1,30,333 1,74,600 1,16,400
Adjustment for goodwill 18,750 9,375 (16,875) (11,250)
2,29,417 1,39,708 1,57,725 1,05,150
Total capital ₹4,20,600* in the new ratio of (1,05,150) (52,575) (1,57,725) (1,05,150)
2:1:3:2
Transfer to current account 1,24,267 Cr. 87,133 Cr.
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
25
*Taking D’s capital as the base which is 2/8 of total capital; total capital will be 1,05,150 x 8/2 i.e.
th

₹4,20,600.

Solution 20
Balance Sheet of M/s ABC & Co. as at 1st April, 2020
Liabilities ₹ Assets ₹
Capital: Building
A 67,300 (₹30,000+₹16,000) 46,000
B 44,867 Plant & Machinery
C 22,433 1,34,600 (₹19,000 + ₹32,000) 51,000
Current Acc: Vehicle (10,000+2,000) 12,000
B 92,333 Furniture (4,000+7,500) 11,500
C 28,067 1,20,400 Stock in trade
(₹50,500 + ₹19,500) 70,000
Sundry creditor Sundry debtors
(41,000 + 38,000) 79,000 (₹80,500+₹16,000) 96,500
Bank balance
(₹15,000+₹18,000) 33,000
Cash in hand 14,000
3,34,000 3,34,000

Partners’ Capital Accounts in the books of AB & Co.


Particulars A B Particulars A B
To Capital A/cs – 73,800 72,200 By Balance b/d 66,000 67,000
M/s ABC & Co.
By Reserve (3:2) 6,000 4,000
By Profit on Revaluation 1,800 1,200
A/c (W.N.)
73,800 72,200 73,800 72,200
Partner’s Capital Accounts in the books of BC & Co.
Particulars B C Particulars B C
To Capital A/cs 57,333 51,667 By Balance b/d 50,000 48,000
M/s ABC & Co.
By Reserve (2:1) 3,333 1,667
By Profit on Revaluation 4,000 2,000
(W.N.)
57,333 51,667 57,333 51,667
Working Notes:
Revaluation Profits/Loss
Particulars AB & Co. BC & Co.
Building 10,000 6,000
Plant & Machinery (2,000) 3,000
Vehicle (5,000) (3,000)
3,000 6,000
A 1,800 -
B 1,200 4,000
C - 2,000
Adjustment for raising and writing off of goodwill
Raised in old profit sharing Total Written off in Difference
ratio new ratio
AB & Co. BC & Co.
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
26
3:2 2:1 3:2:1
₹ ₹ ₹ ₹ ₹
A 15,000 -- 15,000 Cr. 21,500 Dr. 6,500 Dr.
B 10,000 12,000 22,000 Cr. 14,333 Dr. 7,667 Cr.
C - 6,000 6,000 Cr. 7,167 Dr. 1,167 Dr.
25,000 18,000 43,000 43,000 Nil
Computation of Capital Adjustments
A B C Total
Balance transferred from AB & Co. 73,800 72,200 1,46,000
Balance transferred from BC & Co. 57,333 51,667 1,09,000
Goodwill adjustment (6,500) 7,667 (1,167) Nil
Existing capital 67,300 1,37,200 50,500 2,55,000
Total Capital in the ratio of 3:2:1 taking A’s 67,300 44,867 22,433
Capital as base
Amount to be transfer to current accounts - 92,333 28,067

Solution 21
(a) Adjustment for raising and writing off of goodwill
Raised in old profit-sharing ratio Total Written off in Difference
new ratio
C & Co. H & Co.
4:1 3:2 6:3:1
P 2,24,000 --- 2,24,000 Cr. 2,64,000 Dr. 40,000 Dr.
Q 56,000 96,000 1,52,000 Cr. 1,32,000 Dr. 20,000 Cr.
R --- 64,000 64,000 Cr. 44,000 Dr. 20,000 Cr.
2,80,000 1,60,000 4,40,000 4,40,000 Nil

(b) Balance Sheet of CH & Co. (New firm) as on 31.3.2021


Liabilities ₹ Assets ₹
Capital Accounts: Vehicle 3,00,000
P 16,68,000 Machinery 4,00,000
Q 8,34,000 Building 8,00,000
R 2,78,000 Stock 2,80,000
Creditors 7,00,000 Debtors 5,30,000
Cash & Bank 2,80,000
Current Accounts:
P 8,68,000
R 22,000
34,80,000 34,80,000

Working Notes:
1. Balance of Capital Accounts at the time of amalgamation of firms
C & Co.
Particulars P’s Capital Q’s Capital
C & Co. Profit and loss sharing ratio 4:1
Balance as per Balance Sheet 6,00,000 4,00,000
Add: Reserves 1,60,000 40,000
Revaluation profit (Building) 1,60,000 40,000
Less: Revaluation loss (Machinery) (64,000) (16,000)
Provision for doubtful debt (16,000) (4,000)
8,40,000 4,60,000
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
27

H & Co.
Particulars Q’s Capital R’s Capital
H & Co. Profit and loss sharing ratio 3:2
Balance as per Balance sheet 3,00,000 2,00,000
Add: Reserves 90,000 60,000
Less: Revaluation (vehicle) (30,000) (20,000)
Provision for doubtful debts (6,000) (4,000)
3,54,000 2,36,000
2. Balance of Capital Accounts in the balance sheet of the new firm as on 31.3.2021.

Particulars P Q R
Balance b/d:
C & Co. 8,40,000 4,60,000 --
H & Co. ------------ 3,54,000 2,36,000
8,40,000 8,14,000 2,36,000
Adjustment for goodwill (40,000) 20,000 20,000
8,00,000 8,34,000 2,56,000
Total capital
₹ 27,80,000 (Q’s capital i.e. 8,34,000 x 10/3) 16,68,000 8,34,000 2,78,000
to be contributed in 6:3:1 ratio.
Deficiency Transferred to Current Account 8,68,000 --- 22,000

The copyright of these notes is with C.A. Nitin Goel


No part of these notes may be reproduced in any manner without his prior permission in writing.

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