Question

X and Y are partners in a firm sharing profits in the ratio of 3 : 2. Their Balance Sheet as at 31st March, 2018 was as follows:
On 1st April, 2018 , they admitted Z as a partner for 1/6th share on the following terms:
(i) Z brings in ₹ 40,000 as his share of Capital but he is unable to bring any amount for Goodwill.
(ii) Claim on account of Workmen Compensation is ₹ 3,000.
(iii) To write off Bad Debts amounted to ₹ 6,000.
(iv) Creditors are to be paid ₹ 2,000 more.
(v) There being a claim against the firm for damages, liabilities to the extent of ₹ 2,000 should be created.
(vi) Outstanding rent be brought down to ₹ 11,200.
(vii) Goodwill is valued at 1 years purchase of the average profits of last 3 years, less ₹ 12,000. Profits for the last 3 years amounted to ₹ 10,000 ; ₹ 20,000 and ₹ 30,000.
Pass journal entries, prepare Capital Accounts and opening Balance Sheet.

Answer 1

Explanation:

Calculation of firm's good will =

Avg. Profit 10,000 + 20,000 + 30,000 ÷ 3 =20,000

Goodwill is 1.5 years purchase = 20,000 x 1.5 = 30,000.

30,000 - 12,000( less amount) = 18,000

Z's share = 18,000 × 1/6 = 3,000(z have to pay this amount for goodwill)

Sacrificing ratio = old ratio - new ratio.

X's Sac. Ratio = 3/5 - 3/6 = 3/30.

Y's sac. Raio = 2/5 - 2/6 = 2/30.

(Sacrificing ration of X and Y) = 3:2.

X's sare of goodwill = 3,000 x 3/5 = 1,800(receive from z)

Y's share of goodwill = 3,000 x 2/5 = 1,200(receive from z).

This amount will be transferred to their capital account on credit side.

Answer 2

Explanation:

please refer the attached photographs