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DateParticularsL.F.Dr.(R.s)Cr.(Rs.) 2013 Apr-01Bank A/c Dr. 4,20,000 To C's Capital A/c 2,80,000 To premium for goodwill A/c 1,40,000 (the amount of capital and goodwill/premium brought in cash) Apr-01Premium for Goodwill A/c Dr. 1,40,000 To A's Capital A/c 60,000 To B's Capital A/c 80,000 (Goodwill credited to old partners in sacrificing ratio i.e., 3 : 4)
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Multi Disciplinary Questions
ACCOUNTANCYCLASS 12
QUESTION NO-1• A and B are partners sharing profits in the ratio of 3:2 with
capitals of Rs. 3,20,000 and Rs. 2,60,000.On 1st April,2013,they admit C into the partnership. A surrenders 1/5th of his share and B surrenders 2/5th of his share in favor of C.C brings in Rs. 1,40,000 for goodwill and the proportionate amount of Capital in cash. Partner’s are entitled to interest on capital @5% p.a.
Profits for the year ending 31st March,2014 before allowing interest on capitals amounted to Rs. 3,00,000. Pass journal entries for the above mentioned transactions.
Date Particulars L.F. Dr.(R.s) Cr.(Rs.)
2013
Apr-01Bank A/c Dr. 4,20,000
To C's Capital A/c 2,80,000
To premium for goodwill A/c 1,40,000
(the amount of capital and goodwill/premium
brought in cash)
Apr-01Premium for Goodwill A/c Dr. 1,40,000
To A's Capital A/c 60,000
To B's Capital A/c 80,000
(Goodwill credited to old partners in sacrificing ratio
i.e., 3 : 4)
2014 Mar-31Profit & loss A/c Dr. 3,00,000
To Profit and Loss appropriation A/c 3,00,000 (Transfer of profit & loss to appropriation A/c)
Mar-31Interest on Capital A/c Dr. 50,000 To A's Capital A/c 19,000 To B's Capital A/c 17,000 To C's Capital A/c 14,000 (Interest on partner's Capitals)
Mar-31Profit and Loss Appropriation A/c Dr. 50,000 To interest on Capital A/c 50,000 (Transfer of interest on capital to appropriation A/c)
Mar-31Profit and Loss Appropriation A/c Dr. 2,50,000 To A's Capital A/c 1,20,000 To B's Capital A/c 60,000 To C's Capital A/c 70,000 Transfer of balance of appropriation A/c to capital accounts in the profit sharing ratio i.e., 12 : 6: 7)
Working notes
1. share surrendered by A: 1/5th of 3/5 =3/25 Share surrendered by B : 2/5th of 2/5 = 4/25 Sacrificing ratio 3/25 : 4/25 = 3 : 4 A’s new share = 3/5 – 3/25 = 15-3/25 =12/25 B’s new share = 2/5 – 4/25 = 10-4/ 25 = 6/25 C’s share = 3/25 +4/25 = 7/25 hence., new ratios of A, B and C = 12 : 6 : 7
2. adjusted capital of A = Rs. 3,20,000 + share of goodwill Rs. 60,000 = Rs. 3,80,000 adjusted capital of B = Rs. 2,60,000 + share of goodwill Rs. 80,000 = Rs.
3,40,000 Total adjusted capital of A and B for 18/25th share = Rs. 3,80,000 + Rs.
3,40,000 = Rs. 7,20,000 total capital of new firm : Rs. 7,20,000 × 25/18 = Rs. 10,00,000 Proportionate capital of C = Rs. 10,00,000 × 7/25 = Rs. 2,80,000 3. interest on capitals : A 5% on Rs. 3,80,000 = Rs. 19,000 B 5% on Rs. 3,40,000 = Rs. 17,000 C 5% on Rs. 2,80,000 = Rs. 14,000 Rs. 50,000 4. net profit after interest on capital = Rs. 3,00,000 –Rs. 50,000 = Rs. 2,50,000
QUESTION NO-2• The partners of a firm distributed the profits for the year ended 31st
March,2013,Rs. 7,50,000 equally without providing for the following adjustments:
(1) A and B were entitled to a salary of Rs. 10,000 each per month. (2) B was entitled to a commission of Rs. 60,000. (3) Profits were to be shared in the ratio of 3:2:1. Partners decided to pass an adjusting entry on 1ST April,2013 rectifying
the same. On the same date, they admitted D as a new partner for 1/7th share in
the profits. The new profit sharing ratio will be 2:2:2:1respectively. D brought Rs. 3,00,000 for his capital and Rs. 45,000 for his 1/7th share of goodwill. Showing your workings clearly, pass the necessary journal entries in the books of the firm for the above mentioned transactions.
DATE PARTICULAR L.F. Dr.(RS) Cr.(RS)
2013APRIL 1
C’s Capital A/c Dr. To A’s Capital A/c To B’s Capital A/c(Adjustment for wrong appropriation of profit)
1,75,00095,00080,000
APRIL 1 Bank A/c Dr. To D’s Capital A/c To Premium for Goodwill A/c(The amount of capital and goodwill/premium brought in cash)
3,45,0003,00,00045,000
April 1 Premium for Goodwill A/c Dr.C’s Capital A/c To A’s Capital A/c To B’s Capital A/c(Premium for goodwill brought in D credited to A and B along with 5/45 of the goodwill to be contributed by C due to gain in his profit sharing ratio)
45,00037,500
67,50015,000
JOURNAL
PARTICULAR A (RS)
B (RS)
C (RS)
TOTAL (RS)
Salary (Cr.)Commission (Cr.)Remaining profit i.e., 7,50,000-2,40,000-60,000=4,50,000 will be divided in 3 : 2 : 1 (Cr.)
Less : Profit already distributed equally
1,20,000
2,25,0003,45,0002,50,000 (Cr.) 95,000
1,20,00060,000
1,50,0003,30,0002,50,000 (Cr.) 80,000
75,00075,0002,50,000 (Dr.)1,75,000
2,40,00060,000
4,50,0007,50,0007,50,000 -- --
TABLE SHOWING ADJUSTMENTS
Working Notes :
•
On D’s admission C has also gained to the extent of . Hence, he must also compensate A and B to the extent of of the firm’s goodwill.For share, goodwill brought in by D = Rs.45,000.Total goodwill of the firm based on D’s share = 45,000 x = 3,15,000C to compensate = 3,15,000 x = 37,500.Total Goodwill contributed by D and C (45,000 + 37,500) = 82,500 will be distributed between A and B in their sacrificing ratio.A’s share = 82,500 x = 67,500.B’s share = 82,500 x = 15,000.
QUESTION NO-3
• A,B and C were partners in a firm sharing profits in the ratio of 1:2:2. On 1st July,2014 A retired and the new profit sharing ratio of B and C was 3:2. Goodwill of the firm was valued at Rs. 4,00,000.
D is admitted as a partner . B and C surrenders ½ of their respective share in favor of D.
D is to bring his share of premium for the goodwill in cash. Pass necessary entries for the record of goodwill in the above case. Also calculate the sacrificing ratios and new ratios.
JOURNALDATE PARTICULAR L.F. Dr.
(Rs) Cr. (Rs)
2014July 1
B’s Capital A/c Dr. To A’s Capital A/c ( th of 4,00,000)(B’s Capital account debited as he alone has gained on A’s retirement )(see Note 1)
80,000 80,000
July 1 Bank A/c Dr. To Premium for Goodwill A/c(Premium for Goodwill brought in cash by D)
2,00,000 2,00,000
July 1 Premium for Goodwill A/c Dr. To B’s Capital A/c To C’s Capital A/c(Premium brought in by D credited to B and C in the sacrificing ratio of 3 : 2)
2,00,000 1,20,000 80,000
Working Notes :
(1)Calculation of Gaining Ratio : Gaining Ratio of B = Gaining Ratio of C = 0(2) B’s existing share = Share surrendered by B = of = C’s existing share = Share surrender by C = =
Therefore, Sacrificing Ratio = A = 3 : 2New Ratio : B’s new share = = = C’s new share = = =
D’s new share = =
Hence, new ratio of B,C and D = = 3 : 2: 5
(3) D’s share of Goodwill = 4,00,000 x 2,00,000.
Q.4. A,B and C were in partnership sharing profits and losses in the proportions of 3 : 2 : 1. On 1st
April,2011,B retires from the firm. On that date , their Balance Sheet was as follows :
Liabilities (Rs) Assets (Rs)
Trade CreditorsExpenses owingReserve FundWorkmen’s Compensation ReserveCapitals : A : 1,95,000 B : 1,57,000 C : 81,000
69,000 45,000 1,05,000
48,000
4,33,000
7,00,000
Cash in handDebtors 1,60,000 Less : Provision 10,000Stock Factory Premises InvestmentsLoose Tools
85,000
1,50,0001,20,0002,25,000 80,000 40,000
7,00,000
The terms were : (1) Goodwill of the firm to be valued at 2 times of Average Super
Profits of last three years . Taking into consideration the risk of the business, normal profits of the firm are estimated at
5,00,000 every year. But actual profits three years ending 31st march were as 2009 : 6,00,000 , 2010 : 5,50,000 , 2011 :
5,75,000.(2) Expenses owing to be brought down to 37,500.
(3) Investments are valued at 72,000.A took over investments at this value.
(4) Factory premises is to be revalued at 2,43,000;and Loose tools at 36,000.
(5) Provision for doubtful Debt to be increased by 19,500.(6) Claim on account of workmen’s compensation is 18,000.
(7) B be paid 50,000 in cash and balance due to him treated as a loan carrying interest @ 6% per annum.
As per partnership deed, partners are allowed 6% p.a. interest on their capitals. Profits for the year ending 31st march 2012 before allowing interest on the loan
and capitals amounted to 22,000.Show Journal entry for goodwill adjustments, prepare
Revaluation Account and Capital Accounts as on 1st April 2011 and the distribution of profit for the year
ended 31st March,2012.
Calculation of Goodwill : Average profits of the past three years = = 5,75,000.
Super profits = Actual profit – Normal profits=5,75,000-5,00,000=75,000.
Goodwill at 2 years purchase of super profits = 75,000x2=1,50,000.
SOLUTION :
JOURNAL ENTRY FOR GOODWILL
DATE PARTICULAR L.F. Dr. (Rs)
Cr. (Rs.)
2011April 1 A’s Capital A/c Dr.
C’s Capital A/c Dr. To B’s Capital A/c(B’s share of goodwill adjusted to the accounts of continuing partners in their gaining ratio 3 : 1)
37,50012,500
50,000
REVALUATION ACCOUNT
PARTICULAR (Rs.) PARTICULAR (Rs.)
To InvestmentsTo Loose ToolsTo Provision for doubtful debts
8,000 4,000 19,500
31,500
By Expenses owing A/cBy Factory PremisesBy Loss transferred to : A 3,000 B 2,000 C 1,000
7,500 18,000
6,000
31,500
Dr. Cr.
CAPITAL ACCOUNTS
PARTICULAR A (Rs.)
B (Rs.)
C (Rs.)
PARTICULAR A (Rs.)
B (Rs.)
C (Rs.)
1st April 2011To Revaluation A/cTo B’s capital A/cTo Investments A/cTo cash A/cTo B’s loan A/c
To Balance c/d
3,000 37,500 72,000 0 0
1,50,0002,62,000
2,000 0 0 50,000 2,00,000
0 2,52,000
1,00012,500 0 0 0
90,0001,03,500
1st April 2011By Balance b/dBy Reserve Fund A/cBy Workmen’s Compensation Reserve A/cBy A’s Capital A/cBy C’s Capital A/c
1,95,000
52,500
15,000 0 0 2,62,000
1,57,000
35,000
10,000 37,500 12,5002,52,000
81,000
17,500
5,000 0 01,03,500
PROFIT & LOSS ACCOUNTfor the year ended 31st march, 2012
PARTICULAR (Rs.) PARTICULAR (Rs.)
To Interest on B’s Loan ( 6% on 2,00,000)To Profit transferred to P & L Appropriation A/c
12,000
10,000 22,000
By Profit (before interest) 22,000
22,000
Since partnership deed is silent in treating on capital as a charge or appropriation it will be treated as appropriation of profits.
PROFIT AND LOSS APPROPRIATION A/C
PARTICULAR (Rs.) PARTICULAR (Rs.)
To Interest on Capital A 10,000 x
B 10,000 x
6,250
3,75010,000
By Profit & Loss A/c 10,000
10,000
Interest on A’s Capital 6% on 1,50,000 9,000 Interest on A’s Capital 6% on 90,000 5,400 14,400
The available profit is 10,000 whereas the interest due on capitals is 14,400. Since the profit is less than
interest, the available profit will be distributed in the ratio of interest, i.e., 9,000 : 5,400 or 5 : 3.