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Chapter: Reconstitution of Partnership (Admission of Partner)· Book-Keeping & Accountancy

Seeta and Geeta share profits and losses in the ratio of 3 : 2 in Partnership Firm. Their Balance Sheet as on 31st March, 2020 was as under:Balance Sheet as on 31st March, 2020LiabilitiesAmount (₹)AssetsAmount (₹)Capitals:Bank11,250Seeta 22,500Geeta…

Q.2 Seeta and Geeta share profits and losses in the ratio of 3 : 2 in Partnership Firm. Their Balance Sheet as on 31st March, 2020 was as under:

Balance Sheet as on 31st March, 2020

LiabilitiesAmount (₹)AssetsAmount (₹)
Capitals:Bank11,250
Seeta 22,500
Geeta 18,000		40,500Bills Receivable5,700
Creditors18,750Debtors 31,200
(–) R.D.D. 1,200		30,000
Bills payable15,000Stock18,000
Bank Loan24,000Furniture7,050
General Reserve3,750Machinery7,500
Building22,500
1,02,0001,02,000

On 1st April, 2020 they admitted Reeta on the following terms:

  1. For half (½) share in future profit Reeta should bring ₹ 15,000 as capital and ₹ 7,500 for goodwill in cash.
  2. Furniture should be appreciated up to ₹ 8,025 and building be appreciated by 20%.
  3. R.D.D. is to be maintained at ₹ 1,500.
  4. The stock is to be reduced by 10% and machinery depreciated by 5%.
  5. Half of amount of goodwill is withdrawn by old partners.

Pass the necessary Journal Entries in the books of the firm.

OR

The balance sheet of Shivshakti Traders, Mumbai is as follows. Partners share profit and losses as 5 : 2 : 3.

Balance Sheet as on 31st March, 2020

LiabilitiesAmount (₹)AssetsAmount (₹)
Creditors30,000Bank18,600
Bills payable1,800Debtors 25,200
(–) R.D.D. 1,200		24,000
General Reserve21,000Stock30,600
Capital Accounts:Building60,000
Raj 54,000
Rahul 48,000
Nitin 26,400		1,28,400Plant and Machinery48,000
1,81,2001,81,200

Rahul retired from the business on 1st April, 2020 on the following terms:

  1. The assets were revalued as under:
    (i) Plant and Machinery is to be depreciated by 10%.
    (ii) R.D.D. is to be increased upto ₹ 1,500.
    (iii) Building is appreciated by 10%.
    (iv) Stock at ₹ 42,000.
  2. The goodwill of retiring partner is valued at ₹ 12,000 and the remaining partners decided that goodwill be written back in their new profit sharing ratio which will be 5 : 3.
  3. Amount due to Rahul at the time of retirement is to be transferred to his loan account.

Prepare: (a) Profit and Loss Adjustment Account (b) Partners’ Capital Account (c) Balance Sheet of the New firm.

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Answer: Revaluation profit ₹ 3,000 (Seeta ₹ 1,800, Geeta ₹ 1,200); goodwill ₹ 7,500 credited Seeta ₹ 4,500 and Geeta ₹ 3,000; half (₹ 3,750) withdrawn. OR: revaluation profit ₹ 12,300; Rahul's loan ₹ 66,660; new Balance Sheet total ₹ 1,93,500.

Working notes

  • Furniture: ₹ 8,025 – ₹ 7,050 = ₹ 975 (increase). Building: 20% of ₹ 22,500 = ₹ 4,500 (increase).
  • R.D.D.: required ₹ 1,500 – existing ₹ 1,200 = ₹ 300 (additional provision).
  • Stock: 10% of ₹ 18,000 = ₹ 1,800 (decrease). Machinery: 5% of ₹ 7,500 = ₹ 375 (depreciation).
  • Revaluation profit = (₹ 975 + ₹ 4,500) – (₹ 300 + ₹ 1,800 + ₹ 375) = ₹ 5,475 – ₹ 2,475 = ₹ 3,000, shared 3 : 2: Seeta ₹ 1,800, Geeta ₹ 1,200.
  • Goodwill ₹ 7,500: the new ratio is not given, so the old partners are taken to sacrifice in their old ratio 3 : 2 (Seeta 3/10, Geeta 2/10 of the firm's profit). Seeta ₹ 4,500, Geeta ₹ 3,000. Half withdrawn: Seeta ₹ 2,250, Geeta ₹ 1,500.
  • General reserve ₹ 3,750 in 3 : 2: Seeta ₹ 2,250, Geeta ₹ 1,500.

Journal entries in the books of the firm (1st April, 2020)

ParticularsDebit (₹)Credit (₹)
(1) Bank A/c ............ Dr.
To Reeta's Capital A/c
To Premium for Goodwill A/c
(Being capital and goodwill brought in cash by Reeta)		22,500
15,000
7,500
(2) Premium for Goodwill A/c ............ Dr.
To Seeta's Capital A/c
To Geeta's Capital A/c
(Being goodwill credited to old partners in sacrifice ratio 3 : 2)		7,500
4,500
3,000
(3) Seeta's Capital A/c ............ Dr.
Geeta's Capital A/c ............ Dr.
To Bank A/c
(Being half the goodwill withdrawn by old partners)		2,250
1,500

3,750
(4) Furniture A/c ............ Dr.
Building A/c ............ Dr.
To Profit and Loss Adjustment A/c
(Being increase in value of assets)		975
4,500

5,475
(5) Profit and Loss Adjustment A/c ............ Dr.
To R.D.D. A/c
To Stock A/c
To Machinery A/c
(Being additional R.D.D., decrease in stock and depreciation on machinery)		2,475
300
1,800
375
(6) Profit and Loss Adjustment A/c ............ Dr.
To Seeta's Capital A/c
To Geeta's Capital A/c
(Being revaluation profit shared in old ratio 3 : 2)		3,000
1,800
1,200
(7) General Reserve A/c ............ Dr.
To Seeta's Capital A/c
To Geeta's Capital A/c
(Being general reserve distributed to old partners in old ratio)		3,750
2,250
1,500

OR: Retirement of Rahul

Working notes

  • Plant and Machinery: 10% of ₹ 48,000 = ₹ 4,800 (decrease). R.D.D.: ₹ 1,500 – ₹ 1,200 = ₹ 300 (increase).
  • Building: 10% of ₹ 60,000 = ₹ 6,000 (increase). Stock: ₹ 42,000 – ₹ 30,600 = ₹ 11,400 (increase).
  • Revaluation profit = ₹ 17,400 – ₹ 5,100 = ₹ 12,300, shared 5 : 2 : 3: Raj ₹ 6,150, Rahul ₹ 2,460, Nitin ₹ 3,690.
  • General reserve ₹ 21,000 in 5 : 2 : 3: Raj ₹ 10,500, Rahul ₹ 4,200, Nitin ₹ 6,300.
  • Goodwill: Rahul's share is valued at ₹ 12,000. Goodwill A/c is debited and Rahul's Capital A/c credited with ₹ 12,000; then it is written back (written off) by the remaining partners in the new ratio 5 : 3: Raj ₹ 7,500, Nitin ₹ 4,500. (The gaining ratio, 5/8 – 5/10 = 5/40 and 3/8 – 3/10 = 3/40, is also 5 : 3, so the result is the same.)

(a) Profit and Loss Adjustment Account

Dr. ParticularsAmount (₹)Cr. ParticularsAmount (₹)
To Plant and Machinery A/c4,800By Building A/c6,000
To R.D.D. A/c300By Stock A/c11,400
To Profit transferred to:
Raj's Capital A/c 6,150
Rahul's Capital A/c 2,460
Nitin's Capital A/c 3,690		12,300
17,40017,400

(b) Partners’ Capital Account

Dr. ParticularsRajRahulNitinCr. ParticularsRajRahulNitin
To Goodwill A/c (written back 5 : 3)7,500–4,500By Balance b/d54,00048,00026,400
To Rahul's Loan A/c–66,660–By P&L Adjustment A/c6,1502,4603,690
To Balance c/d63,150–31,890By General Reserve A/c10,5004,2006,300
By Goodwill A/c–12,000–
70,65066,66036,39070,65066,66036,390

(c) Balance Sheet of the new firm as on 1st April, 2020

LiabilitiesAmount (₹)AssetsAmount (₹)
Creditors30,000Bank18,600
Bills payable1,800Debtors 25,200
(–) R.D.D. 1,500		23,700
Rahul's Loan A/c66,660Stock42,000
Capital Accounts:
Raj 63,150
Nitin 31,890		95,040Building66,000
Plant and Machinery43,200
1,93,5001,93,500

Note: the paper says the goodwill of the retiring partner is ₹ 12,000, so it is taken as Rahul's share. If ₹ 12,000 is instead read as the goodwill of the whole firm, Rahul's share is ₹ 2,400 (2/10), borne by Raj ₹ 1,500 and Nitin ₹ 900 (5 : 3). Then Rahul's loan is ₹ 57,060, Raj's capital ₹ 69,150 and Nitin's capital ₹ 35,490, and the Balance Sheet still totals ₹ 1,93,500.

Doubtly AI · 29 Oct 2026 AI-generated · not yet verified Report
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