Annie and Bonnie are partners in a firm, sharing profit and losses equally. Their balance sheet as at 31stmarch 2020 was as follows: Balance sheet of ANNIE and BONNIE As at 31st march 2020 Liabilities Assets Sundry creditors General Reserve Capital A/c Annie 45,000 Bonnie 40,000 21,000 15,000 85,000 Cash at Bank Sundry Debtors 22,000 Less: provision for doubtful debts (1,000) Stock Plant & Machinery Building 20,000 21,000 10,000 60,000 10,000 1,21,000 1,21,000 Carl was to be taken as partner for 1/4th share in the profits of the firm, with effect from 1st April, 2020 on the following terms: (a) Bad debts amounting to Rs. 1,500 to be written off. (b) Stock to be taken over by Annie at 12000. (c) Plant and machinery to be valued at 50,000. (d) Goodwill of the firm to be valued at 20,000. (e) Carl to bring in 50,000 as his capital. He was unable to bring in cash his share of goodwill. (f) General reserve not to be distributed. For this it was decided that Carl would compensate the old partners through his current account. You are required to pass necessary journal entries on the date of Carl’s admission for the reconstitution of the firm.
Answers
Answer:
X and Y are partners sharing profits and losses equally. Their Balance Sheet as on 31st March, 2018 is given below:
Liabilities
₹
Assets
₹
Capital A/cs:
Land and Building
1,50,000
X
1,50,000
Plant and Machinery 1,00,000
Y
1,00,000
2,50,000
Furniture and Fittings 25,000
Current A/cs: Stock
75,000
X
40,000
Debtors
75,000
Y 30,000 70,000 Less: 5% Reserve for D. Debts 5,000 70,000
Creditors
1,30,000 Bill Receivalbe
30,000
Bill Payable
50,000
Bank
50,000
5,00,000
5,00,000
Z is admitted as a new partner for 1/4th share under the following terms :
(a) Z is to introduce ₹ 1,25,000 as capital .
(b) Goodwill of the firm was valued at nil.
(c) It is found that the creditors included a sum of ₹ 7,500 which was not to be paid . But it was also found that there was a liability for compensation to Workmen amounting to ₹ 10,000.
(d) Provision for Doubtful Debts is to be created @ 10% on debtors.
(e) In regard to the Partners' Capital Accounts present fixed capital method is to be converted into fluctuating capital method .
(f) Bills of ₹ 20,000 accepted from creditors were not recorded in the books.
(g) X provides ₹ 50,000 loan to the business carrying interest @ 10% p.a.
You are required to prepare Revaluation Account , Partners' Capital Accounts, Bank Account and the Balance Sheet of the new firm.
Solution
Revaluation Account
Dr.
Cr.
Particulars
Amount
Rs
Particulars
Amount
Rs
Reserve for D. Debts
2,500
Creditors
7,500
Liability for WCF 10,000
Loss transferred to
X’s Current A/c
2,500
Y’s Current A/c
2,500
12,500
12,500
Partners’ Current Accounts
Dr.
Cr.
Particulars
X Y
Particulars
X Y
Revaluation A/c
2,500
2,500
Balance b/d
40,000
30,000
Balance c/d
37,500
27,500
40,000
30,000
40,000
30,000
Partners’ Capital Accounts
Dr.
Cr.
Particulars
X Y Z
Particulars
X Y Z
Balance b/d
1,50,000
1,00,000
Current A/c 37,500 27,500
Balance c/d
1,87,500 1,27,500
1,25,000
Bank
1,25,000
1,87,500 1,27,500
1,25,000
1,87,500 1,27,500
1,25,000
Balance Sheet
as on 1st April, 2018
Liabilities
Amount
Rs
Assets
Amount
Rs
Creditors (1,30,000 – 7,500 – 20,000)
1,02,500
Land and Building
1,50,000
Bills Payable (50,000 + 20,000)
70,000
Plant and Machinery
1,00,000
Capital A/cs:
Fixture and Fittings
25,000
X
1,87,500
Stock 75,000
Y
1,27,500
Bills Receivables
30,000
Z
1,25,000
4,40,000
Bank (50,000 + 1,25,000 + 50,000)
2,25,000
X's Loan
50,000
Debtors
75,000
Liability for WCF
10,000
Less: 10% Reserve for D. Debts
7,500
67,500
6,72,500