X 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 new
profit-sharing ratio.
Answers
The correct financial entries are -
Journal -
Cash A/c Dr. 32,000
To Z’s Capital A/c 20,000
To Premium for goodwill 12,000
(Being capital and goodwill brought in by Z)
Premium for goodwill A/c Dr. 12,000
To X’s Capital A/c 12,000
(Being the premium given to X as he sacrificed his share in favour of Z)
Revaluation A/c
Particulars Amount Particulars Amount
Stock 3,000 Provision on debtors 600
Creditors 1,000 Loss transferred to:
Fixed Assets 10,000 X capital A/c 11,500
Provident Fund 5,000 Y capital A/c 6,900
Total 19000 19000
Balance Sheet
Liabilities Amount Assets Amount
Creditors 16,000 Cash 32,000
Capitals: Fixed Assets 70,000
X 74,125 Sundry Debtors 20,000
Y 26,275 Land and Building 5,000
Z 20,000 Stock 22,000
Total 1,49,000 1,49,000