CONTENT - Target Publications...1. Admission of a New Partner A new partner may be admitted with the consent of all existing partners. He brings in his share of capital and goodwill

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v

index

Chapter no. Particulars Page Nos.

1 Introduction to Partnership 1 - 1 to 1 - 12

2 Partnership Final Accounts 2 - 13 to 2 - 65

3 Reconstitution of Partnership (Admission of a Partner) 3 - 66 to 3 - 101

4 Reconstitution of Partnership (Retirement of a Partner) 4 - 102 to 4 - 123

5 Reconstitution of Partnership (Death of a Partner) 5 - 124 to 5 - 139

6 Dissolution of Partnership Firm 6 - 140 to 6 - 175

7 Accounts of ‘Not For Profit’ Concerns 7 - 176 to 7 - 230

8 Single Entry System 8 - 231 to 8 - 257

9 Bills of Exchange (Trade Bill) 9 - 258 to 9 - 289

10 Company Accounts Part - I (Accounting for Shares) 10 - 290 to 10 - 316

11 Company Accounts Part - II (Accounting for Debentures) 11 - 317 to 11 - 328

12 Analysis of Financial Statements 12 - 329 to 12 - 340

Board Paper - March 2017 341 - 344

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ONTENTS.Y.J.C. Book-keeping and Accountancy

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CHAPTER 3: RECONSTITUTION OF PARTNERSHIP(ADMISSIONOFPARTNER)

Sr. No. Particulars Page No.

1. Theory 3 - 65

2. SectionI:

Textbook Problems 3 - 73

3. SectionII:

Board Problems 3 - 83

4. SectionIII:

Homework Problems 3 - 85

5. SectionIV:

ObjectiveTypeQuestions 3 - 94

Problem Type Textbook Section Homework Section

Whengoodwillbroughtincashandretainedinbusiness 1,2,3,4 1,2

Whengoodwillbroughtincashandwithdrawn 5,6,7 3,4,5

Whengoodwillisraised 8,9 6,7

Whengoodwillisraisedandwrittenoff 10,11 8,9,10

Whengoodwillisgiveninbalancesheet 12 11

Adjustmentofcapitalthroughcurrentaccounts 13,14,15 12,13

Adjustmentofcapitalthroughloanaccount 16,17 14,15

Adjustmentofcapitalthroughcash 18,19 16,17

Fixedcapitalmethod 20,21 18,19

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ONTENTReconstitution of Partnership

(Admission of Partner)

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Meaning of Reconstitution

Reconstitutionmeanschange.Reconstitutionofpartnershipreferstothechangeinrelationshipbetweenthepartners.Suchchangemaybeduetoanewagreement,admissionofanewpartner,retirementordeathofapartner.

Different ways of Reconstitution

1. Admission of a New Partner

Anewpartnermaybeadmittedwiththeconsentofallexistingpartners.Hebringsinhisshareofcapitalandgoodwillandbecomesanownerinhisownright.Heisentitledtoashareinthefutureprofitofthefirmbasedonthemutuallyagreednewprofitsharingratio.

2. Retirement of Existing PartnerAnexistingpartnermaychoosetoretirefromthefirm,i.e.leavethefirm.Hiscapitalandshareinaccumulatedprofits,ifany,hastobereturned.Sincethenumberofpartnersdecreases,theshareinprofitsoftheremainingpartnersincreases.

3. Death of a PartnerWhenapartnerexpires,heceasestobeapartner.Hisshareinthecapitalhastobereturnedtohislegalheirs.

Admission of a Partner

AspertheIndianPartnershipAct,1932,anewpartnercanbeadmittedintoapartnershiponlywiththeconsentofalltheexistingpartners.Thisprocessistermedas‘admissionofapartner’.Whenanewpartnerjoinsthefirm,anewpartnershipdeedissignedbyallthepartners.Anewpartnermaybeadmittedintothefirmfora. Securingadditionalcapitalforexpansionofthebusiness.b. Securingadditionalmanagementandtechnicalskillstorunthebusinessmoreefficiently.

Treatment of Capital brought in by new partner

Usually,anewpartner isadmittedsothatthefirmcansecureadditionalcapital forexpanding itsbusinessactivities.Thisnewcapitalmaybebroughtinascashorinkind.Theamountofnewcapitalthatneedstobebroughtindependsonthepartnershipdeedandtheprovisionscontainedinthedeed.Thefollowingarethejournalentries:-1. Whencapitalisbroughtinascash.

CashA/c Dr. xxxToIncomingpartner’scapitalA/c xxx

(Beingcapitalbroughtinbynewpartnerincash)2. Whencapitalisbroughtinkind.

AssetsA/c Dr. xxxToIncomingpartner’scapitalA/c xxx

(Beingcapitalbroughtinbynewpartnerinkind)

Calculation of New Profit Sharing Ratio

Whenanewpartnerisadmitted,theprofitsharingratioundergoesachange.Whatisthechangeandhowisitgiveneffectto,dependsontheagreementamongthepartners.Thenewpartnergetsamutuallyagreedshareandtheremainingshare(Totalprofits–Newpartner’sshare)isthendividedamongtheoldpartners.TheOldpartnerseithersharetheremainingprofitsintheiroldratioorinanewratioasdecidedmutually.Ifnothingismentioned,itisassumedthattheoldpartnerssharetheremainingprofitintheiroldratio.1. Firstcalculatetheremainingshare,i.e.theshareintotalprofitsafterreducingthenewpartner’sshare.

Letthetotalsharebe1.Hence,remainingshare=1–Incomingpartner’sshare.2. Calculationofnewprofitsharingratio.

Eitherthenewratiowillbegivenoritneedstobecalculatedasfollows,NewRatio=OldRatioxTheremainingsharecalculatedasabove.

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Illustrations

1) JayandViruwereequalpartnersinafirm.TheydecidedtoadmitBasantiinthefirmfora1/5thshareinthefutureprofits.ThenewprofitsharingratiowillbeasfollowsNewPartner’sshare =1/5Remainingshare =1–1/5

=4/5NewRatio=OldRatioxtheremainingshareinprofitsJay’snewratio =1/2x4/5=4/10Viru’snewratio =1/2x4/5=4/10Basanti’sshare =1/5 =2/10Hence,newprofitsharingratiois4:4:2or2:2:1Calculation of Sacrifice RatioThesharethatanewpartnergetsintheprofitisfromthesharesoftheoldpartners.Theoldpartnersgiveapartoftheirsharestothenewpartner.Theproportioninwhichtheoldpartnerssacrificetheirshareswhileadmittingthenewpartneriscalledthesacrificeratio.SacrificeRatio=OldRatio–NewRatioSometimes,thesacrificeratiocanbenegative,whichmeansthatthepartnerhasnotreallysacrificedbuthasactuallygainedintheshare.

Illustrations2) RamandShyamarepartnersinafirmsharingprofitsintheratioof1:2.TheyadmitRahiminthefirmandagreetoshare

thefutureprofitsintheratioof1:2:1.ThesacrificeratiowillbeRam =1/3–1/4=1/12Shyam =2/3–2/4=2/12Therefore,SacrificeRatio=1/12:2/12=1:2

GoodwillGoodwillreferstothemonetaryvalueofthereputationthatthefirmhasearnedoveraperiodoftime.Goodwillstandsfor all the satisfied customers, good relations, efficient services, consistent performance, etc. that the firm buildsoveryearsofoperations.Itisgoodwillthathelpsthefirmtocommandahigherpriceoveritscompetitors.Goodwillmakesthefirmstandoutanddifferentiatesitfromthecompetition.Itattractscustomerstothefirmascomparedtoitscompetitors.Goodwillisanintangibleassetandcannotbefeltortouched.Nevertheless,ithelpsthefirmgeneratehigherprofitsandhenceneedstobevalued.Goodwillisgenerallyvaluedonthebasisoffutureprofits,whichareinturnestimatedbasedonpastprofits.Goodwillisvaluedbyanumberofmethods,twoofwhichareincludedbelow.

I. Average Profit method.Inthismethod,goodwillisvaluedatacertainnumberofyear’spurchaseofaverageprofitsofthefirm.Averageprofitsareconsideredsothatanyabnormalprofitsofthelastyeardonotundulyaffectthecalculation.Averagingtheprofitsensuresabetterpictureofthefirm’sprofitability.Also,acertainnumberofyear’spurchaseoftheaverageprofitsarecalculatedasthefirmisexpectedtocontinueearningtheaverageprofitsforthosemanyyears.

Thefollowingstepsareinvolvedwhilecalculatinggoodwillbyaverageprofitmethod:-1. Calculation of Total Profit

Totalprofitsofacertainnumberofyearsarecalculated.Profitsareaddedwhereaslossesifanyaretobesubtractedwhilecomputingthetotalprofits.

Illustrations

1) Year: Amount Rs.1 Rs. 2,00,000 (Profit)2 Rs.3,50,000 (Profit)3 Rs. 50,000 (Loss)4 Rs.1,00,000 (Profit)5 Rs. 20,000 (Loss)

TotalProfit=(200000+350000-50000+100000-20000)=Rs.580000

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2. Calculation of Average Profit Averageprofitreferstotheprofitthatthefirmhasearnedonanaverageoveracertainyears. AverageProfit=TotalProfit Numberofyears Intheaboveillustration,averageprofitcanbecalculatedasunder AverageProfit =Rs.5,80,000/5 =Rs.1,16,0003. Calculation of Goodwill Afterwearriveattheaverageprofit,wecalculategoodwillaspurchaseofacertainnumberofyears. Goodwill=AverageProfitxNumberofyears’purchase Supposeintheaboveexample,thepartnersagreetovaluegoodwillat4years’purchaseofaverageprofits,then Goodwill =Rs.1,16,000x4 =Rs.4,64,0002) SeetaandGeetaarepartnersinafirmandshareprofitsintheratioof1:3.Profitsandlossesofthelast5yearsareasfollows

Year Amount Rs.2008 Rs.1,15,000 (Profit)2009 Rs.1,20,000 (Profit)2010 Rs. 30,000 (Loss)2011 Rs.1,80,000 (Profit)2012 Rs.2,00,000 (Profit)

Calculategoodwillofthefirmat6years’purchaseofaverageprofitsoflast5years.IfNeetaisadmittedasanewpartnerfor1/5thshareinthefirm,whatamountshouldNeetabringasgoodwill?

Solution: 1. TotalProfits =(1,15,000+1,20,000-30,000+1,80,000+2,00,000) =Rs.5,85,000 2. AverageProfit =TotalProfits/Numberofyears =Rs.5,85,000/5 =Rs.1,17,000 3. Goodwill =AverageProfitsxNumberofyears’purchase =Rs.1,17,000x6 =Rs.7,02,000 4. Neeta’sshareofGoodwill =GoodwillxNeeta’sshare =Rs.70,20,00x1/5 =Rs.1,40,400 SoNeetaneedstobringinRs.1,40,400ashercontributiontowardsthegoodwill.

II. Super Profit Method UnderAverageProfitmethod,sometimestheresultsaremisleading.Sinceitcomparesaverageprofitswithouttaking

intoconsiderationthecapitalemployed;itcannotbereadilyusedforcomparisonpurposes.WhatSuperProfitmethoddoesis,itcalculatesreturnoncapitalemployedandbasedontheexcessearningcapacityofthefirm,itvaluesgoodwill.Say,FirmXearnsRs.50,000profitonacapitalemployedofRs.1,00,000therebygivingareturnoncapitalemployedof50%.However,firmYearnsaRs.1,00,000profit,butonacapitalofRs.5,00,000hencegivingareturnof20%only.Although,Rs.100000looksmoreinabsolutetermsascomparedtoRs.50,000,thereturnasapercentageofcapitalbeingless,islessattractive.

UndertheSuperProfitMethod,goodwillisvaluedasacertainnumberofyears’purchaseofthesuperprofitofthefirm.Thefollowingarethesteps:

1. Calculation of Average Profit Similartotheaverageprofitmethod,weneedtocalculateaverageprofit. AverageProfit=TotalProfit/Numberofyears.

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2. Calculation of Normal Profit Normalprofitreferstotheusualorreasonableprofitearnedbyafirmaftermeetingallregularexpenses. NormalProfit=CapitalEmployedxNRR/100 WhereNRR=Normalrateofreturn Capitalemployed:-Itisthecapitalthatthefirmusestorunitsbusiness.Inotherwords,itisthetotalofallthefixed

assets,exceptgoodwill,andcurrentassetslessallcurrentliabilities. NormalRateofReturn:-Normalrateofreturnistherateofreturnthatisnormallyexpectedbyasimilarfirminthesame

industry.Itinvolvesanelementofriskandalsodependsonthenatureofthebusiness.3. Calculation of Super Profit Superprofitdenotestheextraearningofthefirmoverandabovethenormalprofit.Inotherwords,itisnothingbutthe

excessoftheaverageprofitsofthefirmoverthenormalprofitscalculated. E.g.Faiz&Co.earnsanormalrateof20%onitscapitalemployedofRs.1,00,000.Therefore,itsnormalprofitsare20%x

Rs.1,00,000=Rs.20,000.ItsactualaverageprofitsareRs.30,000.Therefore,itssuperprofitsareRs.10,000(Rs.30,000–Rs.20,000).

SuperProfit=AverageProfit–NormalProfit4. Calculation of Goodwill Goodwillisvaluedatacertainnumberofyears’purchaseofsuperprofits. Goodwill=SuperProfitxNumberofYears’Purchase Thissignifiesthatthefirmisexpectedtoearnthisprofitforthosemanyyears.Also,iftherearenosuperprofits,there

willnotbeanygoodwillunderthismethod.Illustrations1) FollowingdetailsofFirmXYZareavailable.CalculateGoodwillat4years’purchaseofsuperprofits. a. AverageCapitalEmployed=Rs.10,00,000 b. NormalRateofReturn/ExpectedRateofReturn=15% c. Actualnewprofitsofthelast3years–Rs.2,00,000,Rs.3,00,000andRs.3,40,000. Step 1 – Calculation of Average Profit AverageProfit =TotalProfit/NumberofYears =(2,00,000+3,00,000+3,40,000)/3 =8,40,000/3 =Rs.2,80,000 Step 2 – Calculation of Normal Profit NormalProfit =CapitalEmployedxNRR/100 =Rs.10,00,000x15/100 =Rs.1,50,000 Step 3 – Calculation of Super Profit

SuperProfit =AverageProfit–NormalProfit

=Rs.2,80,000–Rs.1,50,000

=Rs.1,30,000

Step 4 – Calculation of Goodwill

Goodwill =SuperProfitxNo.ofYears’Purchase

=Rs.1,30,000x4

=Rs.5,20,000

2) CalculateGoodwillat3years’purchaseofsuperprofitsforM/s.Ajay&Co.fromthefollowinginformation:

a. AverageCapitalEmployed=Rs.2,00,000

a. NormalRateofReturn/ExpectedRateofReturn=25%

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b. Actualnewprofitsofthelast4years– Year1-Rs.20,000(Loss) Year2-Rs.60,000(Profit) Year3-Rs.75,000(Profit) Year4-Rs.1,00,000(Profit) Step 1 – Calculation of Average Profit AverageProfit =TotalProfit/NumberofYears =(-20,000+60,000+75,000+1,00,000)/4 =2,15,000/4 =Rs.53,750 Step 2 – Calculation of Normal Profit NormalProfit =CapitalEmployedxNRR/100 =Rs.2,00,000x25/100 =Rs.50,000 Step 3 – Calculation of Super Profit SuperProfit =AverageProfit–NormalProfit =Rs.53,750–Rs.50,000 =Rs.3,750 Step 4 – Calculation of Goodwill Goodwill =SuperProfitxNo.ofYears’Purchase =Rs.3,750x3 =Rs.11,250

Treatment of Goodwill

Therearetwowaysoftreatinggoodwillwhileadmittinganewpartnerintothepartnership.

I. Extra Premium Method

Asperthismethod,thenewpartnerbringsingoodwillincash.Thegoodwillbroughtinmayberetainedinthebusinessorwithdrawnbytheoldpartnersfromthebusiness.

A. Whenanewpartnerbringsingoodwillincashandthesameisretainedinthebusiness.

Thefollowingjournalentriesarepassed a. Cash/BankA/cDr. xxx ToGoodwillA/c xxx (Beinggoodwillbroughtincashbynewpartner) b. GoodwillA/cDr. xxx ToOldPartner’sCapital/CurrentA/c xxx(SacrificeRatio) (Beinggoodwillbroughtinbynewpartnerretainedinthebusiness)B. Whenanewpartnerbringsingoodwillincashandthesamewithdrawnbytheoldpartners. Thefollowingjournalentriesarepassed: a. Cash/BankA/cDr. xxx ToGoodwillA/c xxx (Beinggoodwillbroughtincashbynewpartner) b. GoodwillA/cDr. xxx ToOldPartner’sCapital/CurrentA/c xxx(SacrificeRatio) (Beinggoodwillbroughtinbynewpartnercreditedtooldpartners’accounts)

c. OldPartner’sCapital/CurrentA/cDr. xxx(actualamountwithdrawn)

ToCash/BankA/c xxx (Beinggoodwillwithdrawnbyoldpartners)

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Here,theoldpartnersaregivencreditfortheirshareofgoodwillinthesacrificeratio.Thisisbecausetheoldpartnershavesacrificedtheirsharesintheprofitsinthesacrificeratioandhenceneedtobecompensatedforthat.Also,goodwillisafictitiousassetandwhenthenewpartnerbringshisshareincash,insteadofshowingthegoodwillasanasset,thesameiscreditedtotheoldpartners’accounts.

C. Whenthenewpartnerbringsinhisshareofgoodwillincashbutitispaidtotheoldpartnersinprivate.

Noentryispassedinthebooksofthefirmasthisisaprivatetransactionnotaffectingthebooksofthefirm.

II. Valuation Method

Underthismethod,thenewpartnerdoesnotbringingoodwillincash.Here,thegoodwillisraisedinthebooksofthefirm,meaningthegoodwilliscreatedasanasset.Itmayormaynotbewrittenoff.

Thefollowingjournalentriesarepassed

A. Whenthenewpartnerdoesnotbringingoodwillincashanditisraisedinthebooksofthefirm.

GoodwillA/cDr. xxx

ToOldPartner’sCapital/CurrentA/c xxx (SacrificeRatio)

(Beinggoodwillraisedinthebooksofthefirm)

Note–Inthiscase,thegoodwillwillappearinthebooksofthefirmontheassetsideofbalancesheet.

B. Whengoodwillisraisedinthebooksofthefirmandthenwrittenoff.

a. GoodwillA/cDr. xxx

ToOldPartner’sCapital/CurrentA/c xxx (SacrificeRatio)

(Beinggoodwillraisedinthebooksofthefirm)

b. AllPartners’Capital/CurrentA/cDr. xxx (NewProfitsharingratio)

ToGoodwillA/c xxx

(Beinggoodwillwrittenofffromthebooksofthefirm)

Here,sincegoodwillisanasset,itisdebitedandthepartners’accountsarecredited.Hence,goodwillisfirstraisedandcreditedtooldpartners’accountsinthesacrificeratioandthenitiswrittenoffbydebitingallpartners’accountsinthenewratio.Theneteffectiscreditingtheoldpartners’fortheirlossintheshareofprofitsanddebitingthenewpartnerforhisshareofgoodwill.

c. Whengoodwillalreadyappearsinthebooksofthefirm.

Insuchcase,ifgoodwillisrevalued,thentheeffectforthisisgiveninthepartners’accountsonanetbasis.

GoodwillA/cDr. xxx

ToOldPartner’sCapital/CurrentA/corRevaluationA/c(sacrificeratio) xxx

(Beinggoodwillrevaluedandcreditbeinggiventooldpartners)

Treatment of Accumulated Profit/Loss

Whenanewpartnerisadmittedheisentitledtoashareinthefutureprofitsofthefirm.Buttheexistingpastprofitsofthefirmareexclusivelyfortheoldpartners.CreditbalancesintheProfit&Lossaccount,generalreserve,otherreservefunds,workmen’scompensationfund,investmentfluctuationfund,othersuchfunds,etc.needtobetransferredtotheoldpartnersintheiroldprofitsharingratiobeforeanewpartnerisadmitted.Thefollowingentryispassed

Reserve/FundA/cDr. xxx (everyreserveorfundindividuallydebited)

ToOldPartners’Current/CapitalA/c xxx

(Beingcreditbalancesofexistingreserves/fundsbeingtransferredtooldpartners)

Also,debitbalancessuchasaccumulatedlosses,deferredexpenditures,fictitiousassets,allofwhichappearontheassetsideofbalancesheet,needtobetransferredtotheoldpartnerstoo.Theyaredebitedtotheoldpartners’accountsintheiroldprofitsharingratios.

OldPartners’Current/CapitalA/cDr. xxx

ToProfit&LossA/corfictitiousassets/deferredexpensesA/c xxx

(Beingaccumulatedlossestransferredtooldpartners’accounts)

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Revaluation of Assets & Liabilities

Revaluationofassetsandliabilitiestakesplaceonadmissiononapartner.Sometimes,thebookvaluesofassetsorliabilitiesdonotreflectthecurrentmarketvaluesandhenceneedtobeadjusted.Thenewpartnerisentitledtoashareinfutureprofitsandisliableforfuturelosses.Ifanasset,sayland,hasabookvalueofRs.10,000,butitscurrentmarketvalueisRs.1,00,000,thisincreaseofRs.90,000belongssolelytotheoldpartners.Thenewpartnercannotclaimashare.Similarly,aliability,saysundrycreditors,appearinthebooksatRs.20,000whereasthefirmactuallyowesthemRs.40,000.Thisincreasedliabilityistobebornebytheoldpartners.Thenewpartnerisnotexpectedtothesharetheburdenofpastlosses.

Hence,anewaccountcalledtheRevaluationA/c(insomecasesProfit&LossAdjustmentA/c)isopenedandallsuchincreases/decreasesinassetsorliabilitiesaregiveneffecttointhisaccount.Also,ifanyassetsorliabilitiesareunrecorded,thenthesearealsorecordedthroughtheRevaluationA/c.Finally,thebalanceintherevaluationaccountisthensharedamongtheoldpartnersintheiroldprofitsharingratio.

Thefollowingjournalentriesaretobepassed:-

a. Forincreasingthevalueofanassetanddecreasingthevalueofaliability. AssetA/cDr. xxx LiabilityA/cDr. xxx ToRevaluation/Profit&LossAdjustmentA/c xxx (Beingincreaseinvalueofassets/decreaseinthevalueofliability)b. Fordecreasingthevalueofanassetandincreasingthevalueofaliability. Revaluation/Profit&LossAdjustmentA/cDr. xxx To Asset A/c xxx ToLiabilityA/c xxx (Beingdecreaseinvalueofassets/increaseinthevalueofliability)c. Forrecordingunrecordedassets. AssetA/cDr. xxx ToRevaluation/Profit&LossAdjustmentA/c xxx (Beingunrecordedassetsrecordedinthebooks)d. Forrecordingunrecordedliabilities. Revaluation/Profit&LossAdjustmentA/cDr. xxx ToLiabilityA/c xxx (Beingunrecordedliabilitiesrecordedinthebooks)e. Fortransferofprofitonrevaluationtopartners’capital/currentaccounts. Revaluation/Profit&LossAdjustmentA/cDr. xxx ToPartners’Capital/CurrentA/c xxx (Beingprofitonrevaluationtransferred)f. Fortransferoflossonrevaluationtopartners’capital/currentaccounts. Partners’Capital/CurrentA/cDr. xxx ToRevaluation/Profit&LossAdjustmentA/c xxx (Beinglossonrevaluationtransferred)

Here,whennewassetsarerecordedorthevalueofassetsisincreased,itisinthenatureofaprofit.Hence,itiscreditedtotherevaluationaccount.Ontheotherhand,recognizinganewliabilityorincreasingthevalueofaliabilityislikealossandhencedebitedtotherevaluationaccount.

Specimen of Revaluation / Profit & Loss Adjustment A/c

Adjustment of Capitals

Whenanewpartnerisadmitted,thecapitalsofoldpartnersmaynotbeinthenewprofitsharingratio.Eitherthecapitalsofoldpartnersmaybeadjustedwiththecapitalofthenewpartner’sbaseorthenewpartnermayberequiredtobringincapitalequaltohissharewiththeoldcapitalsasthebase.Capitalsmaybeadjustedasfollows:

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I. Capitals of old partners adjusted on the basis of the capital of the new partner.

Underthismethod,thecapitalofthenewpartneristakenasthebase.Basedonthecapitalofthenewpartner,thetotalcapitalofthefirmiscalculated.Then,thecapitalsoftheoldpartnersareadjustedasaproportionofthisnewtotalcapital.

TotalCapital=Newpartner’scapitalxReciprocalofhisProfitSharingRatio

Note–Ifnewpartner’sprofitsharingratiois1/3,then,itsreciprocalis3/1.

Illustration

Zisadmittedinthefirmwith1/5thshareinprofits.ZbringsinRs.20,000ashiscapital.XandYaretheotherpartnerssharingprofitsintheratio2:3.

ThentheadjustedcapitalofXandYwillbeasfollows:-

X’sshareofprofits =2/5x(1–1/5)

=8/25

Y’sshareofprofits =3/5x(1–1/5)

=12/25

Z’sshare=1/5=5/25

Hence,newprofitsharingratio=8:12:5

IfZ’sshareincapitalisRs.20,000,then

TotalCapital =Z’scapitalxReciprocalofhisProfitSharingRatio

=Rs.20000x5/1

=Rs.1,00,000

X’sshare =Rs.100000x8/25

=Rs.32,000

Y’sshare =Rs.100000x12/25

=Rs.48,000

II. New partner’s capital may be determined based on the total capital of the old partners.

Insuchacase,thenewpartnerneedstobringinhisshareofcapitalasaproportionofthetotaladjustedcapitaloftheoldpartners.

Illustration

Afteralladjustmentsofgoodwill,reserves,profits/losses,revaluation,etc.thecapitalsofAandBwereRs.30,000andRs.25,000.Theiroldprofitsharingratiowas2:3.Cisadmittedintothepartnershipfor1/5share.

Now,sinceCgets1/5share,theremaining4/5shareissharedbyAandB.ThetotalcapitalofAandBwasRs.55,000(30000+25000).

Therefore,thetotalcapitalshouldbe

OldPartner’sTotalcapitalxreciprocalofoldpartners’totalprofitsharingratio

Rs.55000x5/4=Rs.68750

Therefore,C’sshareinnewtotalcapital =Rs.68750–Rs.55000orRs.68750x1/5

=Rs.13750

Afterthis,entriesarepassedtomaintaincapitalsofallpartnersascalculatedabove.Iftheactualcapitalofapartnerismorethantherequiredcapitalascalculatedabove,thentheexcessmaybecreditedtohiscurrentaccountorpaidtohimincashorconvertedintoaloanfromthepartner.Iftheactualcapitalislessthantherequiredcapital,thenhiscurrentaccountmaybedebitedorthepartnermayberequiredtogetthedifferenceincash.Thefollowingentriesarepassed

a. Entryforsurpluscapital

ConcernedPartner’sCapitalA/cDr. xxx

ToCash/Bank/Current/LoanA/c xxx

(Beingsurpluscapitalpaidback/transferredtocurrent/loanaccount)

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b. Cash/Bank/CurrentA/cDr. xxx

ToConcernedPartner’sCapitalA/c xxx

(Beingdeficitinrequiredcapitalbroughtinascash/transferredfromcurrentaccount)

Section I : Textbook Problems

When goodwill brought in cash and retained in business

Q1. ThebalanceSheetofShekharandShridharason31stMarch,2012issetoutbelow,theyshareprofitsandlossesintheratioof3:2 (S)

Balance Sheet as on 31st March, 2012

Liabilities Amt. (Rs.) Assets Amt (Rs.)Capital Accounts Buildings 40,000Shekhar 80,000 Furniture 20,000Shridhar 60,000 Stock 24,000GeneralReserve 48,000 Debtors 80,000Creditors 32,000 Cash 36,000

ProfitandLossA/c 20,0002,20,000 2,20,000

TheyagreedtoadmitMulidharasaPartnerintothefirmonthefollowingterms:

1. HeshouldbringRs.24,000ascapitalandRs.18,000asgoodwill,whichistoberetainedinthebusiness.Hewillbeentitledto1/4thshareinfutureprofitsofthefirm.

2. 50%ofgeneralreserveistoremainasReserveforDoubtfulDebts.

3. Furnitureistobedepreciatedby5%.

4. StockistoberevaluedatRs.30,000.

5. CreditorsofRs.2,000arenotlikelytoclaimandhenceshouldbewrittenoff.

6. RentofRs.1,000duebutnotreceivedandithasnotbeenrecordedinthebooks.

Prepare,RevaluationA/c,PartnersCapitalAccountsandBalanceSheetofthenewfirm.

Answer: Revaluation Profit: Rs. 8,000 Balance Sheet total: Rs. 2,48,000

Q2. PareshandNareshwerepartners sharingprofitsand losses in the ratioof3/5and2/5.On31stMarch,2012 their balancesheetwasasfollows: (S)

Balance sheet as on 31st March, 2012

Liabilities Amt. (Rs.) Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.)

SundryCreditors 30,000 Cash 500

Reservefund 10,000 SundryDebtors 45,000

CapitalA/c’s Less:R.D.D 500 44,500

Paresh 72,000 Stock 17,000

Naresh 48,000 1,20,000 Investment 24,000

Plant 30,000

Building 44,000

1,60,000 1,60,000

On1stApril,2012DineshwasadmittedtopartnershipontheFollowingterms:

1. DineshshouldbringRs.36,000ascapitalfor1/5thshareinfutureprofits.

2. ValuationofGoodwillofthefirmwastobemadeas21/2yearspurchaseoftheaverageprofitofthelastthreeyearswhichwereasFollows:

1year-Rs.32,000,2year-Rs.54,000,3year-Rs.49,000Dineshistobringthegoodwillincashequaltohisshareinfutureprofit.

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3. R.D.D.istoberaiseduptoRs.1,000

4. ClosingStockistobevaluedatRs.15,000/-

5. Buildingtobeappreciatedby5%.

PassnecessaryjournalentriesinthebooksofthefirmandprepareBalanceSheetaftertheAdmissionofDinesh.

Answer: Revaluation Loss: Rs. 300 Goodwill: Rs. 1,12,500 Balance Sheet total: Rs. 2,18,200

Q3. TheBalanceSheetofRajkumarandRajendraKumarason31stMarch,2012issetoutbelow,theyshareprofitsand lossesintheRatio2:1. (P)


Liabilities Amt. (Rs.) Assets Amt. (Rs.)Capital A/c’s– Rajkumar 2,00,000 Buildings 1,00,000 RajendraKumar 1,50,000 Furniture 30,000GeneralReserve 1,20,000 Stock 60,000Creditors 80,000 Debtors 3,00,000

Cash 30,000Profit&LossA/c 30,000

5,50,000 5,50,000

TheyagreedtoadmitDhirajKumaron1stApril,2012asapartnerintothefirmonthefollowingtermson.

1. DhirajkumartobringRs.60,000ascapitalandRs.45,000asagoodwill,whichistoberetainedinthebusiness.Hewillbeentitledto1/4thshareofprofitofthefirm.

2. 50%ofGeneralreserveistoremainasReserveforDoubtfulDebts.

3. Furnitureistobedepreciatedby5%

4. StockistoberevaluedatRs.65,000/-

5. CreditorsofRs.5,000arenotlikelytoclaim&henceshouldbewrittenoff.

6. RentofRs.2,000duebutnotreceivedhasnotbeenrecordedinthebooks.

PassthenecessaryjournalentriesinthebooksofnewfirmandprepareBalanceSheetofthenewfirm.

Answer: Revaluation Profit: Rs. 10,500 Goodwill: Rs. 45,000 Balance Sheet total: Rs. 5,70,500

Q4. KeshavandMadhavwerepartnerssharingtheProfitsandlossesintheratioof2:3.TheirBalanceSheetisasFollows:(P)


Liabilities Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.)Capital A/c’s LiveStock 20,000Keshav 2,50,000 Building 1,38,000Madhav 2,60,000 Investment 45,000Creditors 8,500 Loose Tools 38,000

Debtors 90,000Less:R.D.D. 18,000 72,000Profit&lossA/c 15,000ClosingStock 1,04,500Cashinhand 86,000

5,18,500 5,18,500

On1stApril,2011theyAdmittedUddhavonthefollowingterms: 1. Thenewprofitsharingratioisequal 2. UddhavbringsRs. 20,000ashiscapitalandRs.80,000assharegoodwillincash. 3. PrepaidinsuranceofRs. 7,500wasnotrecordedinthebooks.

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4. Loosetoolswerefoundundervaluedby5%andbuildingwasfoundovervaluedby15%inthebooks. 5. AlldebtorsareconsideredasgoodandoutofcreditorsRs.500isnolongerpayable. 6. ThemarketvalueofInvestmentis50%morethanitsbookvalue. Prepare,Profit&lossAdjustmentinA/c,CapitalA/c’sofPartnersandBalanceSheetofthenewFirm. Answer: Revaluation Profit: Rs. 32,500 Goodwill: Rs. 80,000 Balance Sheet total: Rs. 8,15,500

When Goodwill brought in cash and withdrawn

Q5. ArunandVarunshareprofitsandlossesintheratioof3:2inpartnershipfirm.Theirbalancesheetason31stMarch,2011wasfollows: (S)


Liabilities Amt. (Rs.) Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.)Creditors 25,000 CashinHand 5,000Billspayable 20,000 Billsreceivable 7,600BankLoan 32,000 Debtors 41,600GeneralReserve 5,000 Less:R.D.D. 1,600 40,000CapitalA/c’s Stock 24,000Arun 30,000 Machinery 20,000Varun 24,000 54,000 Furniture 9,400

Buildings 30,0001,36,000 1,36,000

On1stApril,2011,theyadmittedTarunonthefollowingterms:

1. For 1/5thshareinfutureprofits,TarunshouldbringRs.20,000forhiscapitalandRs.10,000forgoodwillincash.

2. Halfoftheamountofgoodwillbewithdrawnbyoldpartners.

3. Thestockistobedepreciatedby10%andmachineryby5%.

4. R.D.D.bemaintainedatRs.2,000.

5. FurnitureshouldbeappreciateduptoRs.10,700andBuildingbeappreciatedby20%

PassthenecessaryJournalentriesandopenrevaluationA/candCashA/cinthebooksoftheFirm.

Answer: Revaluation Profit: Rs. 3,500 Cash Balance: Rs. 30,000

Q6. AnandandSadanandarePartnersinafirmsharingprofitsandlossesintheproportionoftheircapitals.Theirbalancesheetason31stMarch,2010wasasfollows: (S)


Liabilities Amt. (Rs.) Assets Amt. (Rs.)Capital A/c’s LandandBuilding 75,000Anand 90,000 PlantandMachinery 30,000Sadanand 60,000 Furniture&Fixture 12,000SundryCreditors 15,000 Stock 24,000GeneralReserve 30,000 SundryDebtors 36,000

Cash 18,0001,95,000 1,95,000

On1stApril,2010theyadmittedSwanandintopartnershiponthefollowingterms:

1. He Should bring Rs. 24,000 as his share of goodwill of which 50% amount to bewithdrawn by old partnersimmediately.

2. HeshouldbringinRs.30,000ashiscapitalfor1/4thshareinfutureprofits.

3. ForthepurposeofSwanandadmission,itwasagreedthattheassetsshouldberevaluedasunder:

a. Land&BuildingatRs.90,000,plantandmachineryatRs.24,000,StockatRs.30,000&FurnitureandFixtureat Rs. 6,000.

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b. Aprovisionof5%ondebtorsistobemadeagainstdoubtfuldebts.

Prepare Profit and Loss Adjustment A/c, Partner’s Capital A/c andNewBalance Sheet after the admission ofSwanand.

Answer: Profit on adjustment: Rs. 7,200 Balance Sheet total: Rs. 2,44,200

Q7. SureshandRamesharepartnersinabusinesssharingBalancesheetason31stMarch,2013isasfollows: (P)


Liabilities Amt. (Rs.) Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.)Capital A/c’s Building 30,000

Suresh 50,000 Machinery 10,000

Ramesh 24,000 74,000 Furniture 9,500

Creditors 57,000 Debtors 40,000

Billspayble 20,000 Less:R.D.D. 1,000 39,000

Reservefund 9,000 Stock 30,000

BillsReceivable 7,600

CashatBank 33,900

1,60,000 1,60,000

TheyAdmittedKailashon1stApril,2013asaPartneronthefollowingterms:

1. KailashwillbringRs.30,000ashiscapitalfor1/4thshareinfutureprofitandRs.12,000asgoodwillwhichwillbewithdrawnbyoldpartners

2. StockandMachinerytobedepreciatedby10%.

3. R.D.D.istobemaintainedat5%ondebtors.

4. Buildingtobeappreciatedby20%&furnitureisrevaluedatRs.10,000.

PrepareProfit&LossAdjustmentA/c,Partner’sCapitalA/cAndBalanceSheetoftheNewFirm


When goodwill is raised

Q8. AmitandSumitwerepartnerssharingprofitsandlossesintheproportionof2/3rdand1/3rd.TheirbalanceSheetisasfollows. (S)


Liabilities Amt. (Rs.) Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.)Capitals A/c Building 1,00,000Amit 96,000 Furniture 20,000Sumit 64,000 1,60,000 OfficeEquipments 10,000GeneralReserve 18,000 SundryDebtors 63,000Profit&lossA/c 6,000 Less:R.D.D. 3,000 60,000SundryCreditors 80,000 Stock 84,000Amit’sLoanA/c 26,000 Cash 16,000

2,90,000 2,90,000

On1stApril,2011Rohitisadmittedinthepartnershiponthefollowingterms:

1. RohitshouldbringincashRs.48,000ascapitalfor1/5thshareinfutureprofits.

2. GoodwillwasraisedinthebooksofthefirmforRs.18,000/-.

3. BuildingisrevaluatedatRs.1,12,000andthevalueofstocktobereducedbyRs.6,000.

4. ReservefordoubtfuldebtsbemaintainedatRs.1,800/-.

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5. Amit’sLoanistoberepaid.

PreparerevaluationA/c,CapitalA/c’sofpartnersandbalanceSheetofthenewFirm.

Answer: Profit on Revaluation: Rs. 7,200 Balance sheet total: Rs. 3,37,200

Q9. SnehalandMeenalareequalPartnersinabusiness.TheirbalanceSheetisasfollows: (P) Balance sheet As on 31st March, 2012

Liabilities Amt. (Rs.) Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.)Capital A/c’s Premises 20,500Snehal 80,000 Investment 10,500Meenal 45,000 1,25,000 Equipments 5,000Creditors 26,000 Billsreceivable 18,000BankLoan 40,000 Debtors 1,10,000(takenon1.1.2012) (-)R.D.D. 11,000 99,000

Profit&LossA/c 6,600Bank 31,400

1,91,000 1,91,000 TheyagreedtoadmitKamalon1stApril,2012onthefollowingterms: 1. Heshouldbring50,000towardshiscapitalfor1/4thshareinFutureprofit. 2. GoodwillA/cberaisedinthebooksofthefirmRs.40,000. 3. R.D.D.tobemaintainedat5%ondebtors. 4. PremisestobevaluedatRs.30,000andEquipmentstobewrittenofffully. 5. Interestattherateof15%p.a.isdueonbankloan 6. CreditorsallowedadiscountofRs1,100/-andtheywerepaidoffimmediately. Passnecessaryjournalentriestorecordtheaboveschemeofadmission. Answer: Revaluation Profit: Rs. 9,600 Goodwill: Rs. 40,000

When Goodwill is raised & Written off

Q10.AkashandBadalwerepartnersandsharedprofitsandlossesintheratioof3/5&2/5on31stMarch2012theirbalancesheetisasfollows: (S)

Balance sheet as on 31st March , 2012

Liabilities Amt. (Rs.) Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.)SundryCreditors 60,000 CashatBank 1,000GeneralReserve 20,000 SundryDebtors 90,000Capital A/c’s Less:R.D.D. 1,000 89,000Akash 1,44,000 Stock 34,000Badal 96,000 Investments 48,000

Plant 60,000Building 88,000

3,20,000 3,20,000 On1stApril,2012Sagarwasadmittedtopartnershiponthefollowingterms:

1. HeshouldbringRs.42,000ashiscapital.

2. Valuation of the Goodwill of the firm to bemade twice the average profit of last 3 years. The profits were Rs.48,000Rs.52,000&Rs.80,000respectively.Sagarwasunabletobringthegoodwillincashandhencegoodwillwasraisedinthebooksofthefirm.

3. BeforeadmittingSagar,R.D.D.wastoberaiseduptoRs.2,000.

4. ClosingStockwastobevaluedatRs.32,000.

5. HalfofplantwastakenbyAkashatbookvalue.

6. ProvidedepreciationonBuildingsat5%p.a.

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7. GoodwilliswrittenoffaftertheAdmissioninthenewratioi.e.5:3:2

PrepareProfitandlossAdjustmentA/c,CapitalA/cofpartnersandbalancesheetofthenewFirm.

Answer: Loss on Revaluation: Rs. 7,400 Balance sheet total: Rs. 3,24,600

Q11. FollowingisthebalancesheetofHarishandGirish (P)

Balance Sheet As on 31st March, 2010

Liabilities Amt. (Rs.) Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.)Creditors 38,000 Cashinhand 37,000Billspayable 46,000 Stock 21,000Profit&LossA/c 16,000 Debtors 46,000Capital A/c (-)R.D.D. 6,000 40,000Harish 1,00,000 Equipments 12,000Girish 1,40,000 2,40,000 Furniture 25,000

Plant 85,000Building 1,20,000

3,40,000 3,40,000

TheyadmittedShirishon1stApril2010onthefollowingconditions:

1. Forhis1/3rdshareinthefutureprofitsShirishbringsRs.2,00,000ashisCapital.

2. ItisdecidedtoraisegoodwillbyRs.90,000andwriteitofffullyafterShrish’sadmission.

3. EquipmentsandPlanttobedepreciatedby20%and10%respectivelyandBuildingtobeappreciatedby15%

4. BillsPayablewereretiredforRs.35,000

5. Alldebtorsconsideredgood

6. FurnitureofthebookvalueRs.12,000wastakenbyHarishat40%ofthebookvalue.

Prepare,RevaluationA/c,Partner’sCapitalA/candBalanceSheetofthenewfirm.


When Goodwill is given in balance Sheet

Q12.AmarandAkbarsharingprofits&lossesintherationof5:3hadthefollowingbalancesheetason31stMarch,2012. (S)

Balance Sheet As on 31st March , 2012

Liabilities Amt. (Rs.) Assets Amt. (Rs.)Capital A/c’s Goodwill 60,000Amar 1,60,000 Buildings 68,000Akbar 80,000 Plant 54,000GeneralReserve 56,000 Furniture 8,000BillsPayable 16,000 Debtors 65,000Creditors 40,000 Billsreceivable 30,000

Stock 45,000Bank 22,000

3,52,000 3,52,000 On1stApril,2012theydecidedtoadmitAnthonyintothepartnershipbygivinghim1/5thshareinfutureprofits.He

bringsinRs.1,00,000ashiscapital.Thepartnersdecidedtorevaluetheassetsasfollows:

GoodwillRs.1,00,000,PlantRs.50,000,DebtorsRs.62,000,StockRs.65,000,BuildingRs.80,000,FurnitureRs.4,000andBillsReceivableRs.25,000.

ThePartnersalsodecidednottoshowgoodwillinthebooksofthenewfirm;PrepareRevaluationA/c,Partner’sCapitalA/candnewBalanceSheetofthefirm.

Answer: Revaluation Profit: Rs. 16,000 Balance sheet total: Rs. 4,08,000

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Adjustment of capital through current accounts

Q13.ManavandSatishareequalpartnersinabusiness.TheirBalanceSheetstoodasunder. (S) Balance Sheet as on 31st March, 2013

Liabilities Amt. (Rs.) Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.)SundryCreditors 90,000 Cashinhand 60,000GeneralReserve 18,000 SundryDebtors 31,000CapitalA/c Less:R.D.D. 1,000 30,000Manav 45,000 Billsreceivable 12,000Satish 30,000 75,000 Machinery 24,000

Building 57,0001,83,000 1,83,000

TheydecidedtoadmitAjiton1stApril,2013onthefollowingterms: 1. MachineryandBuildingbedepreciatedby10%andR.D.D.tobeincreasedbyRs.1500. 2. BillsReceivablearetakenoverbyManavatadiscountof10% 3. AjitShouldbringRs.40,000asacapitalforhis1/4thshareinfutureprofits. 4. GoodwillshouldberaisedinthebooksatRs.25,000 5. TheCapitalA/c’sofallthepartnersbeadjustedinproportionoftothenewprofitsharingratiobyopeningcurrent

A/c’sofpartners. PrepareProfitLossAdjustmentA/c,CapitalAccountsofpartnersandnewBalanceSheetofthefirm. Answer: Loss on Revaluation: Rs. 10,800 Balance sheet total: Rs. 2,50,000

Q14. FollowingintheBalanceSheetofDhirajandNirajwhosharedprofits&lossesequally. (P)

Balance Sheet as on 31st March 2013

Liabilities Amt. (Rs.) Assets Amt. (Rs.)Capital A/c’s Plant&machinery 45,000Dhiraj 1,25,000 Land&Building 84,000Niraj 35,000 Patents 3,400Creditors 86,200 Stock 47,800BillsPayable 28,000 Furniture 10,600GeneralReserve 6,800 Debtors 80,000

Cash 10,2002,81,000 2,81,000

On1stApril,2013theyagreedtoadmitSurajonthefollowingtermsAndCondition: 1. Surajtobringsfor1/3rdshareinfutureprofitincashRs.90,000towardshiscapital. 2. TheFirmsgoodwillshouldberaisedtoRs.90,000anditistobewrittenoffafterSurajadmissioninnewprofitratio. 3. Plantandmachinerywasfoundundervaluedby10%andLand&Buildingswasfoundovervaluedby20%. 4. StocktobeincreasedbyRs.2,200andfurnituretobereducedtoRs.10,000/- 5. OutofcreditorsRs.1,200isnomorepayable. 6. ThecapitalA/ctobeAdjustedinnewprofitsharingratiobyopeningthecurrentaccounts. PreparerevaluationA/c,CapitalA/candNewBalanceSheet.

Answer: Revaluation Loss: Rs. 6,200 Balance Sheet total: Rs. 4,33,300

Dhiraj Current Account: Rs. 50,300 Suraj Current Account: Rs. 30,000 (Dr.)

Niraj Current Account: Rs. 39,700 (Dr.)

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Q15. ManojandRahulareequalpartnersinabusiness.Theirbalancesheetason31stMarch,2013stoodasunder: (P)


Liabilities Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.)SundryCreditors 1,80,000 Debtors 62,000GeneralReserve 36,000 (-)R.D.D. 2,000 60,000CapitalA/c– Manoj 90,000 Billspayable 24,000 Rahul 60,000 Building 1,14,000

Machinery 48,000Cashatbank 1,20,000

3,66,000 3,66,000

TheydecidetoadmitAmiton1stApril,2013onthefollowingterms: 1. TheMachineryandBuildingbedepreciatedby10%.

2. ReservefordoubtfuldebtstobeincreasedtoRs.5,000.

3. BillsreceivablearetakenoverbyManojatadiscountof5%.

4. Theamountofcreditorspaidatadiscountof10%.

5. TheCapitalAccountsofallthePartnersbeadjustedincurrentaccountpartners.

6. AmitshouldbringRs.80,000ascapitalforhis1/4thinfutureprofitsandgoodwillaccountbeopenedinthebooksofthefirmatRs.40,000.

Prepareprofit&lossadjustmentA/c,Partner’sCapitalA/candbalancesheetofthefirmatRs.4,000.

Answer:

Revaluation Loss: Rs. 2,400 Balance Sheet total: Rs. 3,20,000

Manoj Current Account: Rs. 16,000 (Dr.) Rahul Current Account: Rs. 23,200 (Dr.)

Adjustment of Capital through loan account

Q16.FollowingistheBalancesheetofSohan&Mohanon31stMarch,2012.TheyShareprofits&lossesintheratioof3:2(S) Balance Sheet as on 31st March 2012

Liabilities Amt. (Rs.) Assets Amt. (Rs.)SundryCreditors 2,00,000 Cash 20,000GeneralReserve 48,000 Stock 80,000Capital A/c SundryDebtors 1,50,000Sohan 1,40,000 Furniture 38,000Mohan 1,40,000 Plant&Machinery 1,40,000

Land&Building 1,00,0005,28,000 5,28,000

TheydecidedtoadmitRohanon1stApril,2012intoPartnershiponthefollowingterms: 1. HeshouldbringRs.40,000ashisshareofgoodwill,whichistoberetainedinthebusiness.

2. HeshouldbringRs.50,000ascapitalfor1/4thshareinfutureprofits

3. Land&buildingstobevaluedatRs.1,20,000,Plantandmachineryandfurnituretobereducedby10%

4. Aprovisionof5%ondebtorstobemadefordoubtfuldebts.

5. TheStockistobetakenatavalueofRs.1,00,000.

6. TheexcesscapitalofSohanandMohanovertheirdueproportionofsharingprofitsinthefirmistobetransferredtotheirrespectiveloanaccounts.

PrepareProfit&lossAdjustmentA/c,PartnersCapitalA/candnewBalanceSheetoftheFirm. Answer: Profit on Revaluation: Rs. 14,700 Balance sheet total: Rs. 6,32,700

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Q17. Vaibhav andVilaswerepartners sharingprofit& losses in the ratioof 2:3 respectively . Their Balance Sheet ason 31stMarch,2012wasasfollows. (P)


Liabilities Amt Rs. Assets Amt Rs.CapitalA/c’s Land&Buildings 25,000Vaibhav 50,000 Plant 30,000Vilas 50,000 Furniture 2,000Creditors 70,000 Stock 50,000

Debtors 58,000Cash 5,000

1,70,000 1,70,000 TheyagreedtoadmitVivekasapartnerson1stApril,2012onthefollowingterms: 1. Vivekwillhave1/4thshareinfutureprofitsforwhichheshallbringRs.25,000ashiscapitalandRs..20,000ashis

shareofgoodwill.

2. Land&buildingarevaluedatRs.30,000&whilestockisvaluedatRs.55,000.

3. PlantistakenoverbyVilas10%discount.

4. Depreciatefurnitureby10%.

5. Provisionforbadanddoubtfuldebtsistomaintainedat5%ondebtors.

6. Thecapitala/cofallthepartnerstobeadjustedintheirnewprofitsharingratioandexcessamounttobetransferredtotheirloanA/c.

Answer: Revaluation Profit: Rs. 3,900 Balance Sheet total: Rs. 1,99,560

Loan from Vaibhav: Rs. 29,560 Loan to vilas: Rs. 7,660

Adjustment of capital through cash

Q18. DhirajandNirajarepartnersinafirmsharingprofitsandlossesintheratio3:2Theirbalancesheetason31stMarch,2012wasasunder: (S)


Liabilities Amt (Rs.) Assets Amt. (Rs.)Capital A/c’s- Dhiraj 50,000 Land&Building 35,000 Niraj 50,000 Plant&Machinery 49,000GeneralReserve 10,000 Furniture 2,100SundryCreditors 70,000 Cash 9,200BillsPayable 7,000 Stock 28,700

SundryDebtors 63,0001,87,000 1,87,000

TheyagreedtoadmitSurajintheirPartnershipon1stApril,2012onthefollowingterms: 1. ThenewProfitsharingratiowillbe3:1:1 2. Surajshouldbring15,000ashisshareofgoodwillinthefirmand20,000ashiscapital. 3. Land&Buildingbevaluedat90%ofitsbookvalue. 4. Plant&MachineryandStocktobereducedby5%&10%respectively. 5. Reservefordoubtfuldebtstobeprovidedas5%ondebtors. 6. Thecapitalsofallpartnersaretobeadjustedintheirnewprofitsharingratiobymakingadjustmentincashonthe

basisofnewpartnersCapital. PrepareRevaluationA/c,CapitalAccountandNewBalanceSheet. Answer: Loss on Revaluation: Rs. 11,970 Balance sheet total: Rs. 1,77,000

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Q19. RajandDevarepartnerssharingprofitsandLosses3:2respectively.Theirpositionon31stMarch2011 (P) Balance sheet as on 31st March, 2011

Liabilities Amt Rs. Assets Amt Rs. Amt Rs.Capital A/c’s - Raj 1,00,000 Buildings 1,00,000 Dev 75,000 Furniture 10,000Creditors 10,000 Stock 31,000Billspayable 5,000 Debtors 50,000Generalreserve 15,000 Less:R.D.D. 1,000 49,000

BankBalance 15,0002,05,000 2,05,000

On1stApril,2011theyadmittedManojonfollowingterms:

1. ManojshouldbringincashRs.1,00,000asacapitalfor1/5thshareinfutureprofitRs.25,000asgoodwill.

2. BuildingshouldberevaluedforRs.1,25,000

3. DepreciateFurnitureat12.5%p.aandStockat10%p.a.

4. R.D.D.shouldbemaintainedasitis.

5. TheCapitala/c’sofpartnersshouldbeadjustedintheirnewprofitsharingratiothroughbanka/c.Prepare,ProfitandLossAdjustmentA/c,CapitalA/c,BalanceSheetofnewfirmandshowhowyouhavecalculatednewratioandnewcapital.

Answer:

Revaluation Profit: Rs. 20,650 Balance Sheet total: Rs. 5,15,000

Received from Raj: Rs. 1,03,610 Received from Dev: Rs. 60,740

Fixed Capital Mathod

Q20. SharadandVaradarepartnersinafirmSharingProfitsandLossesintheRatioof3:1.TheFollowingistheirBalanceSheet.(S)

Balance sheet As on 31st March, 2011

Liabilities Amt. (Rs.) Assets Amt. (Rs.)Capital A/c: Sharad 1,20,000 Building 1,20,000 Varad 1,00,000 Stock 80,000Current A/c: Sharad 6,000 SundryDebtors 62,000 Varad 4,000 Cash 8,000SundryCreditors 42,000 ProfitandLossA/c 10,000GeneralReserve 8,000

2,80,000 2,80,000

Naradisadmittedasapartneron1stApril,2011inthefirmonthefollowingterms:

1. HeshouldbringRs.80,000ashisCapitalfor1/4thshareinfutureprofitsandRs.40,000ashisshareofGoodwill.

2. Buildingisfoundovervaluedby20%andstockisFoundundervaluedby20%inthebooks.Theseassetsaretobeadjustedattheirpropervalue.

3. Rs.2,000tobemaintainedasReserveforDoubtfulDebts.

Prepare Revaluation A/c, Current A/c’s of old partners and New Balance Sheet of the firm after the Narad’sadmission.

Answer:

Loss on Revaluation: Rs. 2,000 Balance sheet total: Rs. 3,88,000

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Q21. TheBalanceSheetofRamakantandShyamkantwhosharedtheprofitsintheratioof2:1isasunder (P)

Liabilities Amt. (Rs.) Assets Amt. (Rs.) Amt. (Rs.)Capitals - Ramakant 1,34,000 LeaseholdProperty 20,000 Shyamkant 1,20,000 Livestock 6,600Creditors 51,000 Loose Tools 90,200RentOutstanding 10,000 Stock 84,800ReserveFund 7,200 Debtors 48,000CurrentA/c-Ramakant 2,800 Less:R.D.D. 2,000 46,000

Bank 75,400CurrentA/c-Shyamkant 2,000

3,25,000 3,25,000 On1stApril,2012Umakantwasadmittedas1/4thpartneronthefollowingterms:

1. HebringsequipmentsofRs. 80,000ashiscapital.

2. Firm’sgoodwillisvaluedatRs.144000andUmakantagreedtobringhisshareinfirm’sgoodwillbycheque.

3. R.D.D.shouldbemaintainedat7.5%ondebtors.

4. IncreaselivestockbyRs.2,600andwriteoffloosetoolsby20%.

5. OutstandingrentpaidRs.9,040infullsettlement.

Passnecessaryjournalentriestorecordtheaboveschemeofadmission.

Answer:

Revaluation Loss: Rs. 16,080 Goodwill : Rs. 36,000

Section II – Board Problems

Q1. Mrs.SnehalandMrs.Meenalareequalpartnersinabusiness.Theirbalancesheetisasfollow: (March 2014)


Liabilities Amount Rs. Amount Rs. Assets Amount Rs. Amount Rs.CapitalA/c Premises 20,500Snehal 80,000 Investments 10,500Meenal 45,000 1,25,000 Equipments 5,000Creditors 46,000 BillsReceivable 18,000Generalreserve 20,000 Debtors 1,10,000

(–)R.D.D. 11,000 99,000BankBalance 38,000

191,000 191,000TheyagreedtoadmitMr.Komalon1stApril,2013onthefollowingterms:

(1) KomalshouldbringRs.50,000towardshercapitalforonefourth(1/4th)shareinfutureprofit.

(2) GoodwilltoberaisedinthebooksofthefirmforRs.40,000.

(3) R.D.D.tobemaintainedat5%ondebtors.

(4) PremisestobevaluedatRs.30,000andequipmentstobewrittenofffully.

(5) CreditorsallowedadiscountofRs.1,000andtheywerepaidoffimmediately.

Prepare: Profit and Loss Adjustment Account, Partner’s Capital Accounts and Balance Sheet of the new firm.

Answer:

Profit on Revaluation : Rs. 16,000 Partner’s Capital : Snehal : Rs.1,15,500

Meenal : Rs.80,500 Komal : Rs. 50,000 Balance Sheet : Rs. 2,46,000

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Q2. Anil and Sunilwere partners sharing profits and losses in the ratio of 2:1 respectively. Their Balance Sheetwas asfollows: (October 2014)


Liabilities Amount (Rs) Assets Amount (Rs)CapitalA/c CashatBank 4,000Anil 24,000 Debtors 15,000Sunil 16,000 Stock 23,500TradeCreditors 26,000 Furniture 5,000Anil’sLoanA/c 6,500 Building 25,000

72,500 72,500On1stApril,2010,Ramisadmittedinthepartnershiponthefollowingterms:

(1) RamshouldbringincashofRs.12,000ascapitalfor1/5thshareinfutureprofit.

(2) GoodwillA/cisraisedinthebooksofthefirmforRs.4,500.

(3) BuildingisrevaluedatRs.28,000andthevalueofstockbereducedbyRs.1,500.

(4) Reservefordoubtfuldebtsbeprovidedat5%ondebtors.

Prepare:

(a) ProfitandLossAdjustmentaccount. (b) CapitalAccountsofpartners. (c) BalanceSheetofthenewfirm.

Answer:

Profit on Revaluation : Rs. 750 Partner’s Capital : Anil : Rs. 27,500 Sunil : Rs.17,750

Ram : Rs.12,000 Balance Sheet : Rs. 89,750

Q3. AkashandSurajarepartnersinafirmsharingprofitsandlossesintheratio3:2.Theirbalancesheetason31stMarch,2013wasasfollows: (March 2015)


Liabilities Amount (Rs.) Assets Amount (Rs.)CapitalAccount Furniture 2,100Akash 50,000 Stock 28,700Suraj 50,000 LandandBuilding 35,000GeneralReserve 10,000 PlantandMachinery 49,000SundryCreditors 60,000 SundryDebtors 63,000BillsPayable 17,000 Cash 9,200

1,87,000 1,87,000TheyagreedtoadmitSanjayintheirpartnershipon1stApril,2013onthefollowingterms:

1. SanjayshouldbringRs.1,500ashisshareofgoodwillinthefirmandRs.2,000ashiscapital. 2. Reservefordoubtfuldebtsistobeprovided@5%ondebtors. 3. Landandbuildingtobedepreciatedat10%p.a. 4. Plantandmachinerytobedepreciated@5%andstocktobedepreciated@10%p.a. 5. Thenewprofitsharingratiowillbe2:1:1.

Prepare:

a. Revaluationaccount

b. Partners’CapitalAccounts

c. NewBalanceSheetofthefirm

Answer:

Loss on Revaluation : Rs.11,970 Partner’s Capital : Akash : Rs.49,418 Suraj : Rs.50,112

Sanjay : Rs.2,000 Balance Sheet : Rs. 1,78,530

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Q4. RamandKrishnawerePartnerssharingprofitsandlossesintheproportionof2/3and1/3respectively.TheirBalanceSheetisasfollows: (October 2015)


Liabilities Amount Rs. Amount Rs. Assets Amount Rs. Amount Rs.CapitalA/cs Building 1,00,000Ram 96,000 1,60,000 Furniture 30,000Krishna 64,000 18,000 Sundrydebtors 63,000GeneralReserve 6,000 Less:R.D.D 3,000 60,000ProfitandlossA/c 80,000 Stock 84,000Sundrycreditors 26,000 Cash 16,000Ram’sloan

2,90,000 2,90,000 On1stApril,2013,Hariisadmittedinthepartnershiponthefollowingterms:

(1) HarishouldbringincashofRs.48,000ascapitalfor1/5thshareinfutureprofit.

(2) GoodwillwasraisedinthebooksofthefirmforRs.18,000.

(3) BuildingisrevaluedatRs.1,12,000andthevalueofStocktobereducedbyRs.6,000

(4) ReservefordoubtfuldebtsbemaintainedatRs.1,800.

(5) Ram’sLoanistoberepaid.

Prepare:Revaluationaccount.CapitalaccountsofpartnersandBalanceSheetofthenewfirm.

Answer:

Profit on Revaluation : Rs. 7,200 Partner’s Capital : Ram: Rs.1,28,800 Krishna : Rs.80,400

Hari : Rs.48,000 Balance Sheet : Rs.3,37,200

Q5. RaniandGeetaarepartnerssharingprofitsandlosses3:2respectively.Theirpositionon31stMarch,2013wasasfollows (March 2016)

Balance Sheet as on 31th March, 2013

Liabilities Amount (Rs) Assets Amount (Rs)CapitalAccounts Building 1,00,000 Rani 1,00,000 Furniture 10,000 Geeta 75,000 Stock 1,000Creditors 10,000 Debtors: 50,000Billspayable 5,000 Less:R.D.D 1,000 49,000GeneralReserve 15,000 BankBalance 15,000

2,05,000 2,05,000On 1st April, 2013 they admitted Suvarna on the following terms :

(1) SuvarnashouldbringincashRs.1,00,000ascapitalfor1/5thshareinfutureprofitandRs.25,000asgoodwill.

(2) BuildingshouldberevaluedatRs.1,25,000.

(3) [email protected]%p.aandstock@10%p.a.

(4) R.D.D.shouldbemaintainedasitis.

(5) TheCapitalAccountsofpartnersshouldbeadjustedintheirnewprofitsharingratiothroughbankaccount.

Prepare: Profitandlossadjustmentaccount,capitalaccountsandbalancesheetofthenewfirm.

Answer:

Profit on Revaluation : Rs. 20,650 Partner’s Capital : Rani : Rs.2,40,000 Geeta : Rs.1,60,000

Suvarna : Rs. 1,00,000 Balance Sheet : Rs. 5,15,000

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Q.6. FollowingistheBalanceSheetofHarishandGirish: (July 2016)

Liabilities Amount Rs. Assets Amount Rs.Creditors 38,000 Cashinhand 37,000Billspayable 46,000 Stock 21,000ProfitandLossAccount 16,000 Debtors 46,000Capitalaccount Less: 6,000 40,000Harish 1,00,000 Equipment 12,000 Girish 1,40,000 Furniture 25,000

Plant 85,000 Building 1,20,000

3,40,000 3,40,000 TheyadmittedShirishon1stApril,2013onthefollowingconditions: (1) Forhis1/3shareinfutureprofitShirishbringsRs.2,00,000ashiscapital. (2) ItisdecidedtoraisegoodwillbyRs.90,000andwriteifofffullyafterShirish’sadmission. (3) Equipmentandplanttobedepreciatedby20%and10%respectivelyandbuildingtobeappreciatedby15% (4) BillspayablewereretiredforRs.35,000. (5) Alldebtorsareconsideredgood. (6) FurnitureofthebookvalueRs.12,000wastakenoverbyHarishat40%ofthebookvalue. Prepare: 1) Revaluationaccount. 2) Partner’scapitalaccount. 3) BalanceSheetofnewfirm. Answer: Profit on Revaluation : Rs. 35,000 Partner’s Capital : Harish: Rs.1,61,450 Girish : Rs.2,01,450 Shirish : Rs. 2,00,000 Balance Sheet : Rs.5,06,100

Q.7. RamandMadanwerepartnersinafirmsharingprofitandlossesequally.Followingwastheirbalancesheetason 31-03-2102: (March 2017)

Balance Sheet as on 31-03-2012

Liabilities Amount Rs. Assets Amount Rs.Capital: Plantandmachinery 90,000Ram 1,00,000 Furniture 15,000Madan 1,00,000 Sundrydebtors 92,600Generalreserve 40,000 Less:R.D.D. 1,600 91,000Sundrycreditors 55,300 Stock 68,000

Cashinhand 4,200Cashatbank 27,100

2,95,300 2,95,300 On1stApril,2012Sohamwasadmittedasapartnerinthefirmonthefollowingterms: (1) SohamistobringinRs.1,00,000ashiscapital.Heistobegiven1/3rdshareinfutureprofits. (2) GoodwillofthefirmtoberaisedatRs.30,000.Itwasdecidedthat‘goodwill’shouldnotappearinthebooksof

thenewfirm. (3) Furnituretobedepreciatedby10%.StockwasvaluedatRs.70,500. Prepare: 1. ProfitandlossAdjustmentAccount. 2. PartnersCapitalAccounts. 3. BalanceSheetofthenewfirm.

Answer:

Profit on Revaluation : Rs. 2,500 Partner’s Capital : Ram : Rs.1,35,500 Madan : Rs.1,35,500

Soham: Rs. 1,00,000 Balance Sheet : Rs. 3,96,300

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Q.8. Ganga,Yamunaarepartnerssharingprofitandlosses3:2respectively.Theirpositionon31.03.2013: (July 2017)


Liabilities Amount Rs. Assets Amount Rs.CapitalA/c: Building 1,00,000 Ganga 1,00,000 Furniture 10,000Yamuna 75,000 Stock 31,000Creditors 10,000 Debtors 50,000BillsPayable 5,000 Less:R.D.D. -1,000 49,000GeneralReserve 15,000 Bank 15,000

2,05,000 2,05,000 On1stApril,2013,theyadmittedSaraswationthefollowingterms:

1) SaraswtishouldbringincashRs.1,00,000ascapitalfor1/5shareinfutureprofitand₹25,000asgoodwill.

2) BuildingshouldberevaluedforRs.1,25,000.

3) Depreciatefurnitureat121/2%p.a.andstockat10%p.a.

4) R.D.D.Shouldbemaintainedasitis.

5) Thecapitalaccountsofpartnersshouldbeadjustedintheirnewprofitsharingratiothroughbankaccount.

Prepare: 1) Profitandlossadjustmentaccount

2) Capitalaccount

3) BalanceSheetofnewfirm.

Answer:

Profit on Revaluation : Rs. 25,000 Partner’s Capital : Ganga : Rs.2,40,000 Madan : Rs.1,60,000

Sarawati: Rs. 1,00,000 Balance Sheet : Rs. 5,15,000

Section III – Homework Problems

When goodwill brought in cash and retained in business

Q1. Balance sheet as on 31st March, 2012

Particulars Amt. (Rs.) Amt. (Rs.) Particulars Amt. (Rs.) Amt. (Rs.)Capital Accounts Land&Building 2,00,000 Ram 2,00,000 Furniture 54,000 Shyam 1,50,000 3,50,000 Stock 80,000 Creditors 20,000 Debtors 50,000 BillsPayable 35,000 Cash 21,000 4,05,000 4,05,000

RamandShyamareequalpartners.TheydecidedtoadmitRaghuonApril1,2012for1/4shareinthepartnershiponthefollowingterms.

1) HeshouldbringinRs.1,20,000ashiscapitalandRs.50,000asgoodwillincash.

2) Goodwilltoberetainedinthefirm.

3) RDDtobemaintainedat5%ofdebtors.

4) Land&Buildingtobeappreciatedby10%andstockby15%.

5) FurnituretoberevaluedtoRs.50,000.

6) CreditorsofRs.2,000arenotpayableanymore. PassnecessaryJournalentriesandprepareRevaluationA/c,CapitalA/candBalanceSheetofthenewfirm.

Answer: Profit on revaluation: 27,500 Balance Sheet total: 6,00,500

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Particulars Amt. (Rs.) Amt. (Rs.) Particulars Amt. (Rs.) Amt. (Rs.)Capital Accounts Plant 35,000 Neel 75,000 Patents 65,000 Nitin 75,000 1,50,000 Investments 19,000 ReserveFund 45,000 Stock 35,000 Creditors 20,000 Debtors 20,000

Bank 26,000 Profit&LossA/c 15,000 2,15,000 2,15,000

NeelandNitinarepartnersinafirmsharingprofitsintheratio2:5.TheydecidedtoadmitMukeshon1stApril,2012for1/5shareinthepartnershiponthefollowingterms.

1. HebringsinRs.75,000ashiscapitalincash. 2. GoodwillofRs.30,000isbroughtinbyMukeshandretainedinthefirm. 3. PatentsarebroughtdowntorealisablevalueofRs.20,000;investmentsarerevisedupwardstoRs.90,000. 4. StockofRs.5,000istobewrittenoff.

PassnecessaryJournalentriesandprepareRevaluationA/c,CapitalA/csandBalanceSheetofthenewfirm.

Answer:

Profit on Revaluation: Rs. 21,000 Balance sheet total: Rs. 3,26,000

When goodwill brought in cash and withdrawn


Particulars Amt. (Rs.) Amt. (Rs.) Particulars Amt. (Rs.) Amt. (Rs.)Capital A/c Building 1,18,000 X 1,60,000 Vehicle 45,000 Y 1,20,000 2,80,000 Profit&LossA/c 35,000

Stock 55,000 Debtors 60,000 Creditors 85,000 Less:RDD 3,000 57,000 Cash 55,000 3,65,000 3,65,000

XandYarepartnersinafirm.TheydecidedtoadmitZonApril1,2012for1/5shareinthepartnershiponthefollowingterms.

1) HeshouldbringinRs.75,000ashiscapital.

2) GoodwilltobebroughtinbyZofRs.45,000andthesameiswithdrawnbyoldpartners.

3) R.D.D.tobemaintainedat7.5%ofdebtors.

4) Buildingandvehicletobeappreciatedby5%

5) CreditorsofRs.3,000tobewrittenoff.

6) UnpaidrentofRs.5,000toberecorded.

PassnecessaryJournalentriesandprepareRevaluationA/c,CapitalA/candBalanceSheetofthenewfirm.


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Particulars Amt. (Rs.) Amt. (Rs.) Particulars Amt. (Rs.) Amt. (Rs.)Capital Accounts Land 10,000 A 1,10,000 Plant 1,25,000 B 2,20,000 3,30,000 Building 60,000 Stock 50,000 Profit&LossA/c 60,000 Debtors 80,000 Creditors 25,000 Bank 60,000 DeferredExpenditure 30,000 4,15,000 4,15,000

AandBarepartnersinafirmsharingprofitsintheratio3:4.TheydecidedtoadmitCon1stApril,2012for1/8shareinthepartnershiponthefollowingterms.

1. HebringsinRs.1,10,000ashiscapitalofwhichRs.30,000istobebroughtasstock. 2. HeistobringRs.56,000asgoodwillwhichiswithdrawnbyoldpartners. 3. LandistoberevaluedupwardsbyRs.1,00,000,BuildingbyRs.25,000andStockbyRs.5,000. 4. CreateR.D.D.at10%ondebtorsandrecordcreditorsofRs.24,000earlierunrecorded.

PassnecessaryJournalentriesandprepareRevaluationA/c,CapitalA/candBalanceSheetofthenewfirm.



Particulars Amt. (Rs.) Amt. (Rs.) Particulars Amt. (Rs.) Amt. (Rs.)Capital Accounts Building 40,000 Mony 75,000 Furniture 60,000 Pony 1,50,000 2,25,000 Stock 60,000 Debtors 50,000 Creditors 40,000 Less:RDD 1,000 49,000 BillsPayable 25,000 Cash 45,000 Profit&LossA/c 36,000 2,90,000 2,90,000

MonyandPonyarepartnerssharingprofitsintheratioof2:3.TheydecidedtoadmitTonyonApril1,2012for1/5shareinthepartnershiponthefollowingterms.

1. HeshouldbringinRs.1,00,000ashiscapital. 2. HewastobringingoodwillofRs.40,000,halfofwhichiswithdrawnbyoldpartners. 3. BuildingwastoberevaluedatmarketpriceofRs.1,00,000. 4. Furniturewastobedepreciatedat10% 5. BillsPayablesettledatRs.20,000infull. 6. Alldebtorswereconsideredgood.

PrepareRevaluationA/c,CapitalA/candBalanceSheetofthenewfirm.


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When goodwill is raised

Q6. RheaandSangitaarepartnerssharingprofitintheratio:3:2.Theirbalancesheetisasfollows:


Liabilities Amt Amt Assets Amt AmtCapitalA/c Building 1,50,000 Rhea 2,10,000 Machinery 1,00,000Sangita 1,40,000 3,50,000 Stock 90,000Generalreserve 36,000 Debtors 90,000SundryCreditors 54,000 Cash 70,000BillsPayable 20,000Profit&lossA/c 40,000

5,00,000 5,00,000 On1stApril,2016,theyadmittedNainaasapartneronthefollowingterms:

1. For1/3rdshareinfutureprofits,NainashouldbringRs.1,20,000ascapital

2. GoodwillwasraisedinthebooksofthefirmforRs.60,000

3. Machineryandstockaretobedepreciatedby10%

4. 5%provisionistobecreatedondebtorsfordoubtfuldebts

5. BuildingisappreciatedbyRs.50,000

PrepareRevaluationA/c,CapitalA/c’sofpartnersandBalancesheetofthenewfirm:

Answer:

Revaluation on Profit: Rs. 26,500 Balance sheet total : Rs. 7,06,500

Q7. FollowingisthebalancesheetofRahulandVishalason31stMarch,2016.Theyshareprofitsintheratioof3:5


Particulars Amt Amt Particulars Amt AmtCapitalA/c’s Land&building 2,00,000Rahul 1,31,250 Plant&Machinery 1,70,000Vishal 2,18,750 3,50,000 SundryDebtors 68,000

Closingstock 40,000Generalreserve 60,000 CashinHand 45,000Profit&LossA/c 40,000

Creditors 28,000Billspayable 45,000

5,23,000 5,23,000 TheydecidetoadmitSaileshon1stApril,2016onthefollowingterms

1. SaileshwillbringRs.1,20,000ashiscapitalfor1/5thshare

2. ThegoodwillaccountbeopenedinthebooksofthefirmforRs.75,000

3. LandandBuildingtobeappreciatedby5%

4. Plant&Machinerytobedepreciatedby10%

5. ReserveforDoubtfuldebtsistobemaintainedat5%onsundrydebtors

6. AprovisionforoutstandinglegalexpensesistobemadeforRs.2,500

PrepareRevaluationA/c,CapitalA/c’sofpartnersandBalancesheetofthenewfirm:

Answer: Loss on Revaluation : Rs. 12,900 Balance sheet total : Rs. 7,07,600

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When goodwill is raised and written off


Particulars Amt. (Rs.) Amt. (Rs.) Particulars Amt. (Rs.) Amt. (Rs.)Capital Accounts Equipments 90,000 Ravi 80,000 Loose Tools 14,000 Kavi 50,000 1,30,000 Stock 20,000 Debtors 30,000 Creditors 20,000 Less:RDD 1,500 28,500 Profit&LossA/c 30,000 Cash 27,500 1,80,000 1,80,000

RaviandKaviarepartnerssharingprofitsintheratioof2:3.TheydecidedtoadmitPavion1stApril,2012for1/3shareinthepartnershiponthefollowingterms.

1) HeshouldbringinRs.60,000ashiscapital. 2) GoodwilltoberaisedtoRs.40000andwrittenoffafteradmissionofnewpartner. 3) Alldebtorsareconsideredgood. 4) EquipmentsofRs.5,000tobewrittenoff. 5) LoosetoolstobeappreciatedtoRs.20,000. 6) CreditorswerepaidoffatRs.18,000infull.

PassnecessaryJournalentriesandprepareRevaluationA/c,CapitalA/csandBalanceSheetofthenewfirm.



Particulars Amt. (Rs.) Amt. (Rs.) Particulars Amt. (Rs.) Amt. (Rs.)Capital Accounts Building 80,000 Nitin 1,40,000 Plant 50,000 Vipin 70,000 2,10,000 Stock 55,000 Profit&LossA/c 60,000 Debtors 50,000 Creditors 20,000 Bank 55,000 2,90,000 2,90,000

NitinandVipinwerepartnersinafirm.TheydecidedtoadmitBipinonApril1,2012for1/3shareinthepartnershiponthefollowingterms.

1) BipinbringsinMachineryofRs.70,000ashiscapitalcontribution. 2) GoodwillofRs.90,000israisedandthenwrittenoffafteradmittingBipin. 3) StockwastobenowvaluedatRs.60,000whereasaprovisionforbaddebtswastobemadeforRs.4,000. 4) Plantwastobedepreciatedat10% 5) CreditorsweretoberevaluedatRs.35,000.


Answer: Loss on revaluation: 19,000 Balance Sheet total: 3,56,000

Q10. Balance sheet as on 31st March, 2012Particulars Amt. (Rs.) Amt. (Rs.) Particulars Amt. (Rs.) Amt. (Rs.)

Capital Accounts Equipments 90,000 Row 1,00,000 Loose Tools 50,000 Pow 1,00,000 2,00,000 Stock 72,000 Profit&LossA/c 60,000 Debtors 80,000 Creditors 75,000 Less:RDD 2,000 78,000 Cash 45,000 3,35,000 3,35,000

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RowandPowarepartnerssharingprofitsintheratioof2:3.TheydecidedtoadmitTowon1stApril,2012for1/4shareinthepartnershiponthefollowingterms.

1. HeshouldbringinRs.80,000ashiscapital.

2. GoodwilltoberaisedtoRs.75,000andwrittenoffafteradmissionofnewpartner.

3. R.D.D.toberaisedto5%ofdebtors.

4. Loosetoolstobedepreciatedby5%

5. CreditorsofRs.40,000paidoffinfullforRs.38,000.

6. RentpayableofRs.5,000wasnotrecorded.



When goowill is given in balance sheet


Particulars Amt. (Rs.) Amt. (Rs.) Particulars Amt. (Rs.) Amt. (Rs.)Capital Accounts Goodwill 1,20,000 Amar 2,50,000 Plant 2,10,000 Akbar 2,00,000 4,50,000 Investments 1,40,000 Stock 75,000 GeneralReserve 2,00,000 Debtors 1,10,000 Creditors 80,000 Bank 75,000 7,30,000 7,30,000

AmarandAkbararepartnersinafirmsharingprofitsintheratioof1:2.TheydecidedtoadmitTansenonApril1,2012for1/5shareinthepartnershiponthefollowingterms.

1. HebringsinRs.1,50,000ashiscapital.

2. Partnersdecidedtorevaluethefirm’sassetsasfollows

GoodwillRs.1,50,000,PlantRs.2,40,000,InvestmentsRs.1,20,000,StockRs.70,000andDebtorsRs.1,15,000

3. Itwasdecidedthatgoodwillwillnotappearinthebooksofthefirm.

4. CreditorsweretoberevaluedatRs.95,000.


Answer:

Loss on revaluation: 5,000 Balance Sheet total: 7,70,000

Adjustment of capital through current accounts


Particulars Amt. (Rs.) Amt. (Rs.) Particulars Amt. (Rs.) Amt. (Rs.)Capital Accounts Building 15,000 Raman 35,000 Stock 15,000 Vaman 25,000 60,000 Debtors 10,000 Creditors 5,000 Bank 10,000 Profit&LossA/c 15,000 65,000 65,000

RamanandVamanwerepartnersinafirmsharingprofitsequally.TheydecidedtoadmitLamanon1stApril,2012for1/4shareinthepartnershiponthefollowingterms.

1. HebringsincapitalofRs.20,000.

2. HebringsingoodwillincashofRs.25,000,halfofwhichiswithdrawnbyoldpartners.

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3. BuildingisappreciatedbyRs.85,000,stockisnowvaluedatRs.25,000.

4. CreditorsofRs.20,000werelefttoberecorded.

5. InsuranceofRs.1,500wasprepaidbutwasnotrecorded.

6. CapitalsweretobeadjustedbytakingLaman’scapitalasbaseandtheexcess/deficittobesettledthroughcurrentaccount.


Answer:

Profit on revaluation: 76,500 Balance Sheet total: 1,79,000


Particulars Amt. (Rs.) Amt. (Rs.) Particulars Amt. (Rs.) Amt. (Rs.)Capital Accounts Machinery 45,000 Aman 80,000 Vehicle 25,000 Pawan 1,20,000 2,00,000 Investments 1,24,000 GeneralReserve 75,000 Stock 70,000 Creditors 60,000 Debtors 66,000 BillsPayable 20,000 Cash 25,000 3,55,000 3,55,000

AmanandPawanarepartnerssharingprofitsintheratioof1:4.TheydecidedtoadmitRamon1stApril,2012for1/4shareinthepartnershiponthefollowingterms.

1. RamwastobringRs.75,000ashiscapital.

2. GoodwillwastoberaisedtoRs.1,00,000andthenwrittenoffafteradmissionofRam.

3. MachineryofRs.5,000wasobsoleteandwastobewrittenoff.

4. VehiclewasdamagedandhencerevaluedtoRs.18,000.

5. CreditorsofRs.2,000werelefttoberecorded.

6. DebtorsofRs.6,000turnedbad.

7. Capitalsweretobeadjustedinnewprofitsharingratiowithcapitalofnewpartnerasbase.AdjustmentstobemadethroughCurrentaccounts.



Adjustment of capital through loan account


Particulars Amt. (Rs.) Amt. (Rs.) Particulars Amt. (Rs.) Amt. (Rs.)Capital Accounts Goodwill 50,000 Sagar 1,60,000 Plant 80,000 Sahil 80,000 2,40,000 Building 1,00,000 Stock 25,000 GeneralReserve 50,000 Debtors 40,000 Creditors 60,000 Bank 55,000 3,50,000 3,50,000

SagarandSahilareequalpartnersinafirm.TheydecidedtoadmitSamironApril1,2012for1/6shareinthepartnershiponthefollowingterms.

1. HebringsinRs.60,000ashiscapital.

2. Partnersdecidedtorevaluethefirm’sassetsasfollows

GoodwillRs.1,00,000,PlantRs.1,20,000,BuildingRs.90,000,StockRs.30,000andDebtorsRs.50,000

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3. Itwasdecidedthatgoodwillwillnotappearinthebooksofthefirm.

4. CreditorsweretoberevaluedatRs.80,000.

5. Capitalsweretobeadjustedinnewprofitsharingratiowithcapitalofnewpartnerasbase.AdjustmentstobemadethroughLoanaccounts.

Pass necessary Journal entries and prepare Revaluation A/c, Capital A/c and Balance Sheet of the new firm.

Answer: Sagar’s loan A/c: Rs. 30,833 Loan to Sahil: Rs. 49,167 Loan to Sameer: Rs. 16,667

Profit on Revaluation: Rs. 25,000 Balance sheet total: Rs. 4,70,833

Q15. Following is thebalancesheetofPearlandAnitaon31stMarch,2016.Theysharedprofitan losses intheratio3:2respectively.


Particulars Amt Amt Particulars Amt AmtCapitalA/c’s Land&building 80,000Pearl 90,000 Plant&Machinery 70,000Anita 85,000 1,75,000 SundryDebtors 65,000

Closingstock 40,000Generalreserve 80,000 CashinHand 45,000Creditors 45,000

3,00,000 3,00,000They agreed to admit Neena as a partner on 1st April, 2016 on the following conditions

1. Neenashallhave1/4thshareinfutureprofits

2. Sheshallbring75,000ashercapitalandRs.25,000ashershareofgoodwill

3. Land&buildingswerevaluedatRs.1,00,000andPlant&Machinerydepreciatedby5%

4. Provisionforbadanddoubtfuldebtsistobemaintainedat5%onsundrydebtors

5. StockwasvaluedatRs.35,000

6. Thecapitalaccountsofallpartnerstobeadjustedintheirnewprofitandlossratioandexcessamountbetransferredtotheirloanaccounts.

PrepareProfit&loss&adjustmentA/c,PartnercapitalA/candNewbalancesheetofthefirm

Answer: Revaluation on Profit: Rs.8,250 Balance sheet total : Rs. 4,08,250

Adjustment of capital through cash

Q16. ViralandNayanarepartnersinafirmsharingprofitsandlossesintheratio3:2.Thierbalancesheetason31stMarch,2016wasasunder:


Particulars Amt Amt Particulars Amt AmtCapitalA/c’s Land&building 1,20,000Viral 1,50,000 Plant&Machinery 90,000Nayan 1,00,000 2,50,000 SundryDebtors 65,000

Closingstock 45,000Generalreserve 70,000 CashinHand 90,000Creditors 50,000BillsPayable 40,000

4,10,000 4,10,000

They agreed to admit Neel in their partnership on 1st April, 2016 on the following conditions 1. Thenewprofitsharingratiowillbe2:2:1

2. NeelshouldbringRs20,000ashisshareofgoodwillinthebusinessandRs.50,000ashiscapital

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3. LandandBuildingbevaluedatRs.1,40,000

4. PlantandMachineryandstocktobereducedby5%and10%respectively

5. Reservefordoubtfuldebtsbeprovidedat5%ondebtors

6. Thecapitalsofalltheoldpartnersaretobeadjustedintheirnewprofitsharingratiobymakingadjustmentsincash,onthebasisofnewpartner’scapital

PrepareProfit&LossAdjustmentA/c,CapitalA/c’sandBalancesheetafteradmissionofNeel

Answer: Profit on revaluation A/c : Rs. 7,750 Balance sheet total : Rs. 3,40,000

Q17. Roy and Mathew are partners sharing profits and losses 3 : 2 respectively. Their position on 31st March, 2016 are as follows


Particulars Amt Amt Particulars Amt AmtCapitalA/c Buildings 1,80,000Roy 2,70,000 Furniture 1,50,000Mathew 1,80,000 450,000 Investments 1,00,000

Debtors 75,000Profit&loss 45,000 Stock 45,000Generalreserve 35,000 Cash 50,000Creditors 55,000Billspayable 15,000

6,00,000 6,00,000

TheyagreedtoadmitMarkasapartneron1stApril,2016onthefollowingconditions

1. MarkshouldbringRs.1,50,000asacapitalfor1/5thshareinfutureprofitandRs.50,000asgoodwill.

2. Buildingwasfoundovervaluedby20%inthebooks.

3. Themarketvalueofinvestmentsis35%morethanitsbookvalue.

4. Depreciatefurnitureandstockby5%

5. R.D.D.tobemaintainedat5%ondebtors

6. Thecapitalaccountsofpartnersshouldbeadjustedintheirprofitsharingratiothroughbankaccount.

PrepareProfitandLossAdjustmentA/c,PartnercapitalA/candNewbalancesheetofthefirm

Answer: Loss on revaluation : Rs. 8,500 Balance sheet total : Rs. 8,20,000

Fixed Capital Method

18. RakeshandRajesharepartnersinafirmsharingprofitsandlossesintheratioof2:1.Thefollowingistheirbalancesheet


Particulars Amt Amt Particulars Amt AmtCapitalAccounts Building 1,20,000Rakesh 2,00,000 Machinery 1,00,000Rajesh 1,00,000 3,00,000 Stock 50,000CurrentAccounts Debtors 70,000Rakesh 12000 Cash 35,000Rajesh 6,000 18,000 Profit&LossA/c 25,000Generalreserve 42,000Creditors 40,000

4,00,000 4,00,000

SAMPLE C


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TheyagreedtoadmitRaviasapartneron1stApril,2016onthefollowingconditions 1. RavishouldbringRs.40,000ashisshareofgoodwillinthefirm 2. HeshouldbringRs50,000ascapitalfor1/4thshareinfutureprofits 3. Buildingisfoundundervaluedby20% 4. StockisvaluedatRs.60,000 5. Machineryshouldbereduced5% 6. OutofcreditorsRs.1,500isnomorepayable 7. RDDistobemaintainedat5%

PrepareRevaluationA/c,PartnercurrentA/candNewbalancesheetofthefirm


Q19. ManishandSuresharepartnersinafirmsharingprofitsandlossesintheratioof2:3.Thefollowingistheirbalancesheet


Particulars Amt Amt Particulars Amt AmtCapitalAccounts Building 90,000Manish 1,00,000 Machinery 55,000Suresh 75,000 1,75,000 Stock 25,000

Debtors 26,000CurrentAccount Less:RDD 2,000 24,000Manish 12,000 Cash 25,000Profit&LossA/c 15,000GeneralReserve 10,000Creditors 13,000 CurrentAccountBillsPayable 8,000 Suresh 14,000

2,33,000 2,33,000

TheyagreedtoadmitAmitasapartneron1stApril,2016onthefollowingconditions 1. HeshouldbringRs.5,0000ascapitalandRs.20,000asgoodwill.Hewillbeentitledto1/4thshareinfutureprofits

ofthefirm. 2. ThemachineryandBuildingtobedepreciatedby5% 3. RDDtobeincreasedbyRs.4,000 4. CreditorsareofRs.1,300arenotlikelytoclaimandhenceshouldbewrittenoff. 5. RentofRs.15,000duebutnotreceivedandithasnotbeenrecordedinthebooks. PrepareRevaluationA/c,PartnercurrentA/candNewbalancesheetofthefirm


Section IV : Objective Type Questions

Q.1. Objective Type Questions:

(A) Answer one sentence only.

1. WhatismeantbyReconstitutionofpartnership?

Ans. Reconstitutionofpartnershipmeanschangeintheformofpartnership.

2. Whatismeantbyadmissionofpartner?

Ans. Procedure for admitting a new partner into the existing partnership firm as per certain terms and conditions ofpartnershipdeediscalledasadmissionofpartner.

3. Whatissacrificeratio?(October 2014)

Ans.Whileadmittinganewpartnerinthefirm,eacholdpartnergivesaportionofhisprofittothenewpartner.Theproportioninwhichthissacrificeismadeissacrificeratio.

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4. Whatdoesexcessofdebitsovercreditsinprofitandlossadjustmentaccountindicate?

Ans.Excessofdebitsovercreditsinprofitandlossadjustmentaccountindicatesnetlossofthebusinessforaparticularyear

5. Whatisrevaluationaccount?

Ans. A separateaccountmaintainedforrecordinggains&lossesonrevaluationofassetsandliabilitiesiscalledasrevaluationaccount.

6. Inwhatproportionisgeneralreservedistributedamongsttheoldpartner’s?

Ans.GeneralReserveisdistributedamongoldpartner’sintheiroldprofitsharingratio.

7. Whenisgoodwillaccountraisedinthebooksofthefirm?

Ans. Ifthenewpartnerdoesnotbringtheamountofgoodwillincashthengoodwilla/c israisedinthebooksofthefirmatthetimeofadmissionofapartner.

8. Howissacrificeratiocalculated?

Ans. Sacrificeratioiscalculatedinthefollowingmanner:Sacrificeratio=Oldratio-Newratio

9. Whyisanewpartneradmitted?

Ans.Anewpartnermaybeadmittedintoanexistingfirmforsecuringadditionalcapital,managerialskillsfordeveloping&expandingthebusiness.

10. Whenistheratioofsacrificetobecalculated?

Ans. Sacrificeratioiscalculated onadmissionofanewpartner

11. Whoisknownasincomingpartner?

Ans. Anewpartneradmittedintheexistingpartnershipfirmonlywiththeconsentofalltheexistingpartnersisknownasincomingpartner.

12. Whatiscapitalemployed?

Ans. Amountofcapitalusedbythefirmtorun&manageitsbusinessactivitiesiscalledcapitalemployed

13. Whatisgoodwill?

Ans. Goodwillisagoodnameorreputationcreatedbybusinessfirmsinthemindsofcreditors,customers,bankersandotherrelatedparties.

14. Whatisnormalprofit?

Ans. Normalprofitreferstoareasonableexpectedprofittobeearnedbyabusinessconcernaftermeetingallitsbusinessexpenses.

15. Whatissuperprofit?

Ans. Profitearnedbythebusinessfirmoverandabovethenormalprofitoncapitalemployediscalledsuperprofit

(B) Write a word or a term or a phrase which can substitute each of the following statements.

1. Theaccountwhichshowschangeinthevaluesofassets. RevaluationorProfit&LossAdjustmentA/c

2. Creditbalanceonrevaluationaccount. ProfitonRevaluationA/c3. Theproportioninwhicholdpartnersmakeasacrifice. Sacrificeratio4. Excessactualcapitaloverproportionatecapital. Surpluscapital5. Nameofintangibleassethavingavalue. Goodwill6. Accountwhichisdebitedwhennewpartnerbringscashforhisshareofgoodwill. Cash/BankA/c7. Accountwhichiscreditedwhengoodwilliswithdrawnbyoldpartners. Cash/BankA/C8. ProfitandLossAccountappearingontheassetsideofabalancesheet. Undistributedloss9. Accountwhichisopenedtorecordthegainsandlossesonrevaluation. ProfitandLossAdjustmentA/c10. Changeintherelationshipbetweenthepartners. Reconstitutionofapartnership11. Excessofaverageprofitoverthenormalprofit Superprofit12. Nameanytwomethodstocalculategoodwill Averageprofitmethod,super

profitmethod13. Extrapremiumbroughtbynewpartner Goodwill14. Reasonableexpectedprofitearnedaftermeetingallbusinessexpenses NormalProfit15. Methodinwhichgoodwilla/cisraised ValuationMethod

SAMPLE C


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(C) Fill in the blanks with appropriate alternative given in the brackets

1. ____________accountisdebitedwhenunrecordedliabilityisbroughtintobusiness.

(a) liability (b) revaluation

(c) capital (d) current

Revaluation

2. Whengoodwilliswithdrawnbyoldpartners__________a/ciscredited.

(a) cash/bank (b) capital

(c) revaluation (d) Profit&LossAdjustmentA/c

cash/bankA/c

3. Excessofproportionatecapitaloveractualcapitalrepresents___________.

(a) surpluscapital (b) deficit-capital

(c) sacrifice (d) equalcapital

deficit-capital

4. Theproportioninwhicholdpartnersmakeasacrificeiscalled_________ratio.

(a) capital (b) gaining

(c) sacrifice (d) new

Sacrifice

5. Jay,VijayandAjayarethreepartnerssharingprofitsin3:2:1.TheydecidedtoadmitSanjayandgivehim1/7thshare,newprofitsharingratioofpartnerswillbe__________.

(a) equal (b)3:2:1:2

(c) 3:2:1:1 (d) 2:3:1:2

3:2:1:1

6. Akash,PrakashandDeepakarepartnerswhoshareprofitsas3:2:1.TheyadmitSurajasapartneranddecidedtosharefutureprofitsas5:3:2:2,thesacrificeratiowillbe_________.

(a) 1:1:0 (b) 2:1:1

(c) 0:1:3 (d) 0:0:2

1:1:0

7. The_________ratioisusefulformakingadjustmentforgoodwillamongtheoldpartners.

(a) new (b) sacrifice

(c) old (d) ProfitandLossAdjustment

Sacrifice

8. KrishnaandBalram,whoareequalpartners,admitArjun intopartnership for1/4th share, theirnewprofitsharingratiowillbe_________.

(a) 3:3:1 (b) equal

(c) 3:3:2 (d) 2:2:1

3:3:2

9. Ifanyassetistakenoverbypartnerfromthefirm___________accountwillbedebited:

(a) capital (b) revaluation

(c) asset (d) ProfitandLossAdjustment

Capital

10. Incaseofadmissionofapartner,theprofitorlossonrevaluationofassetsandliabilitiesissharedby___________partners.

(a) all (b) old

(c) new (d) noneofthese

Old

11. Changeinformofpartnershipmeans___________

(a) admissionofapartner (b) dissolutionoffirm

(c) reconstitutionofpartneship (d) simpledissolution

Reconstitutionoffirm

12. Apartneradmittedintheexistingpartnershipfirmonlywiththeconsentofalltheexistingpartnerssuchpartnerisknownas___________

(a) Admissionofpartner (b) Incomingpartner

(c) retiringpartner (d) Reconstitutionofpartnership

Incomingpartner

13. Unditributed profits/ reserves at the time of admission of a partner is transferred to___________

(a) Partnerscapitala/c (b) profit&lossadjustmenta/c

(c) revaluationa/c (d) noneoftheabove

Partnerscapitala/c

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14. Atthetimeofadmissionofanewpartner,iftheadjustmentinthevalueofassetsleadstoprofitthenitshouldbecreditedto___________

(a) oldpartnerscapitala/cinnewprofitsharingratio

(b) newpartnerscapitala/cinnewprofitsharingratio

(c) oldpartnerscapitala/cinoldprofitsharingratio

(d) noneoftheabove

Oldpartnerscapitala/cinoldprofitsharingratio

15. Decreaseinvalueofassetsonadmissionofanewpartnerresultsin___________

(a) profitforoldpartners (b) lossforoldpartners

(c) noprofitornolossforpartners (d) noneoftheabove

Lossforoldpartners

16. Increaseinliabilitiesonadmissionofanewpartnerresultsin___________.

(a) profitforoldpartners (b) lossforoldpartners

(c) noprofitornolossforpartners (d) noneoftheabove

Lossforoldpartners

17. Partnerscapitala/cis___________ontransferofgeneralreserve

(a) debited (b) credited (c) noneoftheabove

Credited

18. Revaluationa/cis___________onincreaseinvalueofplant&machinery

(a) debited (b) credited (c) noneoftheabove

Credited

(D) State whether the following statements are TRUE / FALSE

1. Whengoodwillispaidprivately,noentryinthebooksofaccountisrequired. True2. Thegoodwillbroughtinbyanewpartnerissharedbytheoldpartners. True3. Thegoodwillbroughtinbythenewpartnerissharedbyallpartners. False4. Profitonrevaluationaccountisdistributedbetweentheoldpartnersonadmissionofapartner. True5. Thenewpartnermustpayhisshareofgoodwillincashonly. False6. Anewpartnerisadmittedinthefirmforgettingadditionalcapitalandskill.(March2017) True7. Thecreditbalanceofrevaluationaccountmeanslossonrevaluationaccount. True8. Ifthegoodwillaccountraisedup,goodwillaccountisdebited. True9. Whengoodwilliswrittenoff,goodwillamountisdebited. False10. Onadmissionofapartner,theamountofgoodwillbroughtincashiscreditedtogoodwillaccount. True11. Changeintherelationshipsbetweenthepartnersiscalledasreconstitutionofpartnership True12. Changeintheprofitsharingratiodoesnotchangetherelationshipbetweenpartners False13. Decreaseinliabilitiesonreconstitutionoffirmresultsingaintotheexistingpartners True14. Increaseinvalueofassetsonreconstitutionoffirmresultsingaintotheexistingpartners True15. Recordingunrecordedliabilitiesonreconstitutionoffirmresultsinlosstotheexistingpartners. True16. Partnerscapitala/ciscreditedontransferofP&LA/cappearingonassetsideofbalancesheet False17. Revaluationa/cisdebitedonIncreaseinvalueofassets False18. Revaluationa/ciscreditedonincreaseinbillspayable False

SAMPLE C

ONTENT

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Documents

CONTENT - Target Publications...1. Admission of a New Partner A new partner may be admitted with the consent of all existing partners. He brings in his share of capital and goodwill