Reconstitution of a Partnership Firm - Admission of a Partner

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Questions:

Generic 3

5 x 3 = 15

A and B were partners in a firm sharing profits in the ratio of 3:2. They admitted C and D as new partners. The new profit sharing ratio will be 2:2:1:1. C and D brought Rs.2,75,000 each for their respective capitals and also necessary amount of premium for goodwill in cash. Goodwill was valued at Rs.2,40,000 for the firm. Calculate sacrificing ratio of A and B and pass necessary journal entries for the above transactions in the books of the firm.

L and M were partners in a firm sharing profits in 4:3 ratio. They admitted O as a new partner. The new profit sharing ratio of L,M and O will be 3:3:4. O brought Rs.2,00,000 for his capital. The goodwill of the firm on O's admission was valued at Rs.70,000. O brought his share of goodwill in cash. Calculate sacrificing ratio of L and M and pass necessary journal entries for the above transactions on O's admission.

E and F were partners in a firm sharing profits in the ratio of 3:1. They admitted G as a new partner on 1.3.2005 for 1/3 share. It was decided that E, and G will share future profits equally. G brought Rs.50,000 in cash and machinery worth Rs.70,000 for his share of profit as premium for goodwill. Showing your calculations clearly, pass necessary journal entries in the books of the firm.

A and B are partners in a firm sharing profits in the ratio of 5:3. They admit C into the partnership for 3/10th share in profits which he takes 2/10th from A and 1/10th from A and 1/10th from B. C brings in Rs.3,000 as premium in cash out of his share of Rs.7,800. Goodwill account does not appear in the books of A and B. Give the necessary journal entries in the books of the new firm.

A and B are partners in a firm sharing profits and losses in the ratio of 3:2. They admit C into partnership for 1/5th share. C brings Rs.30,000 as capital and Rs.10,000 as goodwill. At the time of admission of C goodwill appears in the balance sheet of A and B at Rs.3,000. New profit sharing of the partners shall be 5:3:2. Pass necessary entries in the books of new firm.

Generic 8

2 x 8 = 16

A and B are partners sharing profits and losses in the ratio of 3:2 On 31st March, 2014 their Balance Sheet was as follows:

Liabilities	Rs	Assets	Rs
Capital Accounts		Goodwill	5,000
A	60,000	Plant and Machinery	65,000
B	50,000	Furniture	15,000
General Reserves	10,000	Investments	20,000
Sundry Creditors	50,000	Stock	20,000
		Sundry Debtors	30,000
		Cash in Hand	15,000
	1,70,000		1,70,000

C was admitted on the following terms:

(i)C is bring capital Rs.40,000 and Goodwill Rs.15,000

(ii)Partners agreed to share the future profits in the ratio of 5:3:2.

(iii)Investments will be appreciated by 20% and furniture depreciated by 10%

(iv)One customer who owed the firm Rs.2,000 becomes insolvent and nothing could be realised from him.

(v)Creditors will be written back by Rs.2,000

(vi)Outstanding bills for repair Rs.1,000 will be provided for

(vii)Interest accured on investments Rs.2,000

(viii)Capital of the partners shall be in proportion to their profit sharing ratio. For this adjustments to be made through cash.

Prepare Revaluation account Partners' capital Account and the Balance sheet of the firm after C's admission.

Given below is the Balance Sheet of Krishna and Suresh who are partners in a firm sharing profits in the ratio of 3:2.

Liabilities		Rs	Assets	Rs
Creditors		15,000	Plant & Machinery	30,000
Reserves		5,000	Patents	5,000
Capital Accounts			Furniture	3,000
Krishna	30,000		Stock	16,000
Suresh	20,000	50,000	Debtors	15,000
			Cash	1,000
		70,000		70,000

On that date Mohan is admitted as a partner for 1/5th share on the following terms:

(a)He is to contribute Rs.14,000 as his share of capital which includes his share of premium for goodwill.

(b)Goodwill is valued at 2 years' purchase the average profits of the last 4years, which were Rs.10,000; Rs.9,000, Rs.8,000 and Rs.13,000 respectively.

(c)Plant to be written down to Rs.25,000 and patents written up by Rs.8,000.

(d)Unrecorded investment Rs.7,000

Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of the new firm.

Generic 6

2 x 6 = 12

A, B and C are partners sharing 3:2:2 ratio. They admitted D as a new partner for 1/5th share which he acquired from A, B and C in 2:2:1 ratio respectively. Calculate new profit sharing ratio.

Richa and Deeksha are partners sharing profits and losses in the ratio of 3:2 Suchi, a new partner is admitted who acquired 1/9th share from Richa and 1/18th from Deeksha. Calculate the new profit sharing ratio and sacrificing ratio.

Multiple Choice Question

7 x 1 = 7

10.

In the revaluation account an increase in the value of land and building:

(a)

Appears on the debit side

(b)

Appears on the credit side

(c)

Appears on the credit side of good will account

(d)

Does not appear at all

11.

In the revaluation account a decrease in the value of plant and machinery:

(a)

Appears on the debit side

(b)

Appears on the credit side.

(c)

Appears on the debit side of good will account

(d)

Does not appear at all

12.

At the time of a new partner Good will:

(a)

Belongs to all partners, new and old

(b)

Belongs only to the new partners who is going to be admitted.

(c)

Belongs only to the old partner who have credited it

(d)

None of the above.

13.

At the time of admission of a new partner, general reserve is:

(a)

Debited to capital of old partners

(b)

Credited to capital of old partners

(c)

Allowed to remain is balance sheet

(d)

Debited to current account

14.

Good will is valued as two years purchase of the average profits of three previous years are Rs. 15000, the value of good-will be:

(a)

Rs. 15000

(b)

Rs. 30000

(c)

Rs. 20000

(d)

Rs. 50000

15.

At the time of admission an incoming partner contributes as goodwill:

(a)

In cash

(b)

Does not pay cash

(c)

May or may not pay cash for good will

(d)

None of these

16.

At the time of admission of a new partner the firm is:

(a)

Dissolved

(b)

Continued

(c)

Not effected

(d)

RE-organized

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Answers Key:

Generic 3

5 x 3 = 15

(i) Dr.Bank A/c Rs.6,30,000; Cr C's Capital A/c Rs.2,75,000, D's Capital A/c by Rs.2,75,000 and Premium for Goodwill Rs.80,000.
(ii) Dr.premium for Goodwill A/c Rs.80,000; Cr.A/c Rs.64,000 and B's Capital A/c Rs.16,000.
[Hint: Sacrificing Ratio 4:1,C's and D's share of goodwill =Rs.40,000(i.e.,Rs.2,40,000x1/6)each]

Sacrificing ratio of L and M 19:9, O's share of goodwill =Rs.70,000 X 4/10=Rs.28,000.
(i) Dr.Bank A/c Rs.2,28,000; Cr.O's Capital A/c Rs.2,00,000 and premium for Goodwill A/c Rs.28,000.
(ii) Dr.Premium for Goodwill A/c Rs.28,000; Cr.L's Capital A/c Rs.19,000 and M's Capital A/c Rs.9,000.

(i) Dr.Cash A/c Rs.50,000 and Machinery A/c Rs.70,000; Cr.Premium for Goodwill A/c Rs.1,20,000.
(ii) Dr.Premium for Goodwill A/c Rs.1,20,000 and F's capital A/c Rs.30,000; Cr.E's Capital A/c Rs.1,50,000.
[Hint: (i)E's sacrifies 5/12 and F's gain 1/12. (ii)F's share of goodwill Rs.1,20,000X3/1X1/12=Rs.30,000]

(i) Dr.Cash A/c, Cr.Premium for Goodwill A/c by Rs.3,000
(ii )Dr.Premium for Goodwill A/c Rs.3,000 and C's Current A/c Rs.4,800; Cr.A's Capital A/c Rs.5,200 and B's Capital A/c Rs.2,600(in sacrificing ratio 2:1)

(i) Dr.Bank A/c by Rs.40,000; Cr. C's Capital A/c by Rs.30,000 and premium for Goodwill A/c Rs.10,000
(ii) Dr.Premium for Goodwill A/c Rs.10,000; Cr.A's capital A/c and B's capital A/c Rs.5,000 each in their sacrificing ratio 1:1
(iii) Dr.A's Capital A/c Rs.1,800 and B's Capital A/c Rs.1,200; Cr.Goodwill Rs.3,000.

Generic 8

2 x 8 = 16

Profit on Revaluation Rs.3,500. For existing Goodwill written off : Dr. A's Capital Rs.3,000 and B's Capital Rs.2000; Cr.Goodwill Rs.5,000; For Cash Goodwill: Dr.Premium for Goodwill A/c Rs.15,000; Cr. A's Capital and B's Capital Rs.7,500 each in their sacrificing ratio 1:1; Balance of capital A/cs after adjustments : A Rs.72,600, B Rs.60,900 and C Rs.40,000; Capital rearranged: A Rs.1,00,000, B Rs.60,000 and C Rs.40,000; Cash brought in by A Rs.27,400; Cash withdrawn by B Rs.900; Cash Balance Rs.96,500; Balance Sheet Total Rs.2,49,000.

[Hints: As total capital of new firm based on C's share =Rs.40,000X\(10\over2\)=Rs.20,000, so A's Capital=Rs.2,00,000x\(5\over10\)=Rs.1,00,000 and B's Capital Rs.2,00,000x\(3\over10\)=Rs.60,000]

Profit on Revaluation Rs.10,000; Balance of capital A/cs: Krishna Rs.41,000, Suresh Rs.27,600 and Mohan Rs.10,000; Cash Balance Rs.15,000 and Balance Sheet Total Rs.94,000.

[Hint: 0.7 Mohan's share of goodwill=40,000/4X2x1/5=Rs.4,000]

Generic 6

2 x 6 = 12

New profit sharing ratio=61:36:43:35

New profit sharing ratio=Richa: Deeksha: Suchi
=44:3:15
Sacrificing ratio of Richa and Deeksha=10:5=2:1

Multiple Choice Question

7 x 1 = 7

10.