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

Q.30.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  (Rs)	Assets	Amount  (Rs)
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 Rs 10,000 as his capital.
(b) That C pays Rs 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 Half of this sum is to be withdrawn by A and B.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 Rs 1,000 should be created.(f) An item of Rs 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.

SOLUTION

Books of A,B and C

Journal

Date	Particulars	Amount (Dr.)	Amount (Cr.)
2017
Jan.1	Bank A/c	15,000
	To C’s capital A/c		10,000
	To premium for Goodwill A/c		5,000
	(New partner C bought his share of capital and Goodwill )
Jan.1	Premium for Goodwill A/c	5,000
	To A’s capital A/c		3,750
	To B’s capital A/c		1,250
	( New partner c’s goodwill is transferred to old partner A and B in their sacrificing ratio 3:1)
Jan.1	A’s capital A/c	1,875
	B’s capital A/c	625
	To premium for Goodwill A/c		2,500
	(Half of Goodwill Amount withdrawn by old partners)
Jan.1	Revaluation A/c	4,050
	To Stock A/c		2,000
	To Fixture A/c		100
	To Provision for doubtful debts		800
	To Claim of Damages		1,000
	To provision for doubtful Debts on Bills Receivable A/c		150
	(revaluation of assets and liabilities)
Jan.1	Land and building A/c	5,000
	Sundry creditors A/c	650
	To Revaluation A/c		5,600
	(revaluation of assets and liabilities)
Jan.1	Revaluation A/c	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.1	Reserve Fund A/c	4,000
	To A’s Capital A/c		3,000
	To B’s Capital A/c		1,000
	(Amount of Reserve fund Distributed among the old partners in their old ratio 3:1)

Balance sheet

as on January 01,2017

Liabilities		Amount (Rs.)	Asset		Amount (Rs.)
Sundry Creditors		40,850	Cash at Bank		39,000
Claim for Damages		1,000	Bills receivable	3,000
Partners capital Account			Less:Provision for doubtful debts	150	2,850
A	36,075		Debtors	16,000
B	18,025		Less:Provision for doubtful debts	800	15,200
C	10,000	64,100	Stock		18,000
			Fixture		900
			Land and Building		30,000
		1,05,950			1,05,950

29 30 31 Chapter-4