Question

5,000
1 and Y share profits in the ratio of 5:3. Their Balance Sheet as at 31st March, 2020 was:
Liabilities
Assets
Creditors
15,000 Cash at Bank
Employees' Provident Fund
10,000 Sundry Debtors
20,000
Workmen Compensation Reserve
5,800
Less: Provision for Doubtful Debts 600
Capital A/cs:
Stock
70,000
Fixed Assets
31,000 1,01,000 Profit and Loss A/C
1,31,800
19,400
25,000
80,000
2,400
1,31,800
They admit Z into partnership with 1/8th share in profits on 1st April, 2020. Z brings * 20,000 as his capital
and 12,000 for goodwill in cash. Z acquires his share from X. Following revaluations are also made:
(a) Employees' Provident Fund liability is to be increased by 5,000.
(b) All Debtors are good.
(c) Stock includes 3,000 for obsolete items. Hence, are to be written off.
(d) Creditors are to be paid 1,000 more.
(e) Fixed Assets are to be revalued at 70,000.
Prepare Journal entries, necessary accounts and new Balance Sheet. Also, calculate ne
profit-sharing ratio.
fit in b
atief 2
Thoirlano Sheets at 31st M​

Answer 1

ANSWER:

(i) REVALUATION ACCOUNT

Dr. Cr.

Particulars Amount Particulars Amount

To Employee provident fund a/c 5000 By Provision for Doubtful Debts /ac 600

To Fixed Assets a/c 10000 By Loss transferred to:

- X's Capital a/c

- Y's Capital a/c

11500

6900

To Stock a/c 3000

To Creditors a/c 1000

19000 19000

(ii) PARTNER'S CAPITAL A/C

Dr. Cr.

Particulars X Y Z Particulars X Y Z

To Revaluation a/c 11500 6900 By Balance b/d 70000 31000

To Profit and loss a/c 1500 900 By Cash a/c 20000

To Balance c/d 72625 25375 20000 By Workmen Compensation Fund a/c 3625 2175

By Premium for Goodwill a/c 12000

85625 33175 20000 85625 33175 20000

(iii) BALANCE SHEET

Liabilities Amount Assets Amount

Capital a/cs:

- X

- Y

- Z

72625

25375

20000 Cash at Bank(5000+20000+12000) 37000

Creditors 16000 Debtors

20000

Provident Fund

15000 Fixed Assets 70000

Stock (25000-3000) 22000

149000 149000

Working Note:

Calculation of New profit sharing ratio:

Old ratio= 5:3

Z is admitted for 1/8th share

Z acquired entire share from X.

X's new share= 5/8-1/8

= 4/8

New profit sharing ratio= 4:3:1