Question

Quick and Slow are partners in a firm sharing Profit and Losses in the ratio
of 3 : 2. On 1st April, 2020 Smooth comes in for one-third share paying 35,000
premium and proportionate capital. Capitals of Quick and Slow are also to be adjusted
in profit-sharing ratio. The Balance Sheet of Quick and Slow before Smooth comes in
stands as below:
Liabilities
Assets
Capital Account:
Machinery -
32,000
Quick
29,000
Furniture
2,000
Slow
39,000 68,000 Stock-
15,000
Reserve
10,000 Debtors
40,000
Creditors
12,000 Cash
6,000
Outstanding Expenses
5,000
95,000
95,000
Machinery is valued at 330,000, stock at 23,000. Debtors are considered worth
338,000. One trade creditor for 1,000 is due for many years and he is not traceable.
On the other hand one contingent liability for expenses 3500 had matured and it is not
recorded in the books. Reserve Account is not to be shown in Accounts.
Prepare Profit and Loss Adjustment Account and Balance Sheet after admission of
Smooth.
[Ans. Profit on Revaluation 34,500; Capital Accounts : Quick 352,500;
Slow 335,000 and Smooth 343,750; B/S Total 31,47,750. New Profit Sharing Ratio
6:4:5.]

Answer 1

Answer:

JOURNAL

1. Stock a/c.... Dr. 60000

Debtors a/c... Dr. 80000

Land a/c.... Dr. 100000

Plant and machinery a/c... Dr. 40000

To Z's Capital a/c 130000

To Premium for goodwill a/c 150000

(Being capital and premium for goodwill brought in by C in the form of assets)

2. Premium for Goodwill a/c.... Dr. 150000

To X's Capital a/c 90000

To Y's Capital a/c 60000

(Being premium for goodwill distributed among partners in the ratio of 3:2)

Working Note:

1. Calculation of Z's share of goodwill:

Z's share of Goodwill= 600000 * 1/4= 150000

Z's share of capital = 280000 - 150000 = 130000

2. Distribution of premium for goodwill:

X's share= 3/5 * 150000= 90000

Y's share= 2/5 * 150000= 60000