Chapter 7 Partnership Accounts Admission of a Partner

In this post, we are going to solve the practical problems of Chapter 7 Partnership Accounts Admission of a Partner, for ICOM II, DCOM, DBA and it will also be helpful for the students of BCOM, ADP Commerce and other disciplines related to business, finance and commerce. In other posts, all other chapters related to partnership will be discussed and also solved papers of Principles of Accounting for ICOM II for FBISE, BISE Lahore, BISE Rawalpindi will be presented to you. Solved Papers of Business Statistics are already posted on the website. Solved Paper for Principles of Accounting ICOM II 2018, 2018 Supplementary and Partnership Chapter 6 Profit Distribution have already posted on the website.

Solved by Iftikhar Ali, M.Sc Economics, MCOM Finance Lecturer Statistics, Finance and Accounting

Chapter 7 Partnership Accounts Admission of a Partner

Problem 1: X and Y are partners sharing profits and losses in the ratio of 3: 1. Z is admitted into the partnership with ¼ th share in the future profits which he takes entirely from X. Z brings in Rs. 40,000 on account of capital and Rs. 24,000 on account of goodwill. Pass Journal entries.

Solution:

Date	Details	L.F	DR.	Cr.
	Bank A/c		64,000
	Goodwill A/c			24,000
	Z’s Capital A/c			40,000
	(Z brings capital and goodwill)

	Goodwill A/c		24,000
	X’s Capital A/c			24,000
	(Goodwill transferred to X’s Capital)

Note: Because all the loss of Z’s admission in the partnership is suffered or taken by X so whole goodwill will be credited to X’s capital account.

Problem 2: P & Q share profits and losses in the ratio of 5 : 3. They admit R into partnership. R brings in Rs. 100,000 as capital and Rs. 30,000 as goodwill. The new profit sharing ratio is 7:4:3. Make journal entries.

Solution:

Date	Details	L.F	DR.	Cr.
	Bank A/c		130,000
	Goodwill A/c			30,000
	R’s Capital A/c			100,000
	(R brings capital and goodwill)

	Goodwill A/c		30,000
	P’s Capital A/c			17,500
	Q’s Capital A/c			12,500
	(Goodwill transferred to P’s and Q’s Capital W:1)

W:1 Calculation of P’s and Q’s Sacrifice to calculate their share of Goodwill

Sacrifice Ratio = Old Ratio – New Ratio

$\mathbf{Old\ Ratio\ of\ P\ =}\frac{\mathbf{5}}{\mathbf{8}}\$

$\mathbf{Old\ Ratio\ of\ Q\ =}\frac{\mathbf{3}}{\mathbf{8}}\$

$\mathbf{New\ Ratio\ of\ P\ =}\frac{\mathbf{7}}{\mathbf{14}}\$

$\mathbf{New\ Ratio\ of\ Q\ =}\frac{\mathbf{4}}{\mathbf{14}}\$

$\mathbf{Sacrifice\ Ratio\ of\ P\ =}\frac{\mathbf{5}}{\mathbf{8}}\mathbf{-}\frac{\mathbf{7}}{\mathbf{14}}\mathbf{=}\frac{\mathbf{14}}{\mathbf{112}}\$

$\mathbf{Sacrifice\ Ratio\ of\ Q\ =}\frac{\mathbf{3}}{\mathbf{8}}\mathbf{-}\frac{\mathbf{4}}{\mathbf{14}}\mathbf{=}\frac{\mathbf{10}}{\mathbf{112}}\$

$\mathbf{Sacrifice\ Ratio\ of\ P\ \&\ Q = 14:10}\$

$\mathbf{Sacrifice\ Ratio\ of\ P\ \&\ Q = 7:5}\$

$\mathbf{P}^{\mathbf{'}}\mathbf{s\ Share\ of\ Goodwill = 30,000 \times}\frac{\mathbf{7}}{\mathbf{12}}\mathbf{= 17500}\$

$\mathbf{Q}^{\mathbf{'}}\mathbf{s\ Share\ of\ Goodwill = 30,000 \times}\frac{\mathbf{5}}{\mathbf{12}}\mathbf{=}\mathbf{12}\mathbf{500}\$

Problem 3: A and B are partners sharing profits in the ratio of 3:2. C is admitted as a partner and is to be given 1/6 of the profit. His share of goodwill is Rs. 40,000. Give journal entries if old partners do not withdraw the amount of goodwill and when they withdraw the amount of goodwill.

Solution:

Date	Details	L.F	DR.	Cr.
	Bank A/c		40,000
	Goodwill A/c			40,000
	(C brings capital and goodwill)

(a)	When partners do not withdraw the goodwill
	Goodwill A/c		40,000
	A’s Capital A/c			24,000
	B’s Capital A/c			16,000
	(Goodwill transferred to P’s and Q’s Capital with ratio 3:2)

(b)	When they withdraw the goodwill
	A’s Capital A/c		24,000
	B’s Capital A/c		16,000
	Bank A/c			40,000
	(Goodwill withdrawn by the partners out of their capitals)

Problem 4: A and B are partners sharing profits in the ratio of 3:2. They admit C into, the partnership. C pays Rs. 5000 as capital and Rs. 1000 as goodwill for 1/4^th share. Pass journal entries and calculate the value of goodwill of whole business. New profit sharing ratio is 3:2:2.

Solution:

Date	Details	L.F	DR.	Cr.
	Bank A/c		6,000
	Goodwill A/c			1,000
	C’s Capital A/c			5,000
	(C brings capital and goodwill)

	Goodwill A/c		1,000
	A’s Capital A/c			600
	B’s Capital A/c			400
	(Goodwill transferred to A’s and B’s Capital with ratio 3:2)

W:1 Calculation of Goodwill for whole Business

C’s Goodwill = 1000C’s Share = ¼

$\mathbf{Whole\ Goodwill =}\frac{\mathbf{1000}}{\mathbf{1}}\mathbf{\times 4 = 4000}\$

Problem 5: A and B are partners sharing profits and losses in the ratio of 3:2. They admit C as a partner for 1/4^th share in profits. C paid Rs. 25000 as capital. Goodwill is valued at two years purchase of three years profits of Rs. 5000, Rs. 8000 and Rs. 8000. Pass journal entries:

(1) If C pays goodwill in cash and retained.

(2) If C pays goodwill in cash but withdrawn.

(3) If goodwill is raised.

(4) If goodwill is raised and written off.

Solution:

Date	Details	L.F	DR.	Cr.
	Bank A/c		6,000
	C’s Capital A/c			25,000
	(C brings capital in business)

(1)	If C pays goodwill in cash and retained
	Bank A/c		3500
	Goodwill A/c			3500
	(C brings goodwill in cash and retained in the business W:1)

	Goodwill A/c		3500
	A’s Capital A/c			2100
	B’s Capital A/c			1400
	(Goodwill transferred to A’s and B’s Capital with ratio 3:2 W:2)

(2)	If C pays goodwill in cash but withdrawn
	Bank A/c		3500
	Goodwill A/c			3500
	(C brings goodwill in cash and retained in the business W:1)

	Goodwill A/c		3500
	A’s Capital A/c			2100
	B’s Capital A/c			1400
	(Goodwill transferred to A’s and B’s Capital with ratio 3:2 W:2)

	A’s Capital A/c		2100
	B’s Capital A/c		1400
	Cash A/c			3500
	(goodwill withdrawn by the partners out of capital)

(3)	If goodwill is raised
	Goodwill A/c		14000
	A’s Capital A/c			8400
	B’s Capital A/c			5600
	(Goodwill raised with ratio 3:2 W:2)

(4)	If goodwill is raised and written off
	Goodwill A/c		14000
	A’s Capital A/c			8400
	B’s Capital A/c			5600
	(Goodwill raised with ratio 3:2 W:2)

	A’s Capital A/c		6300
	B’s Capital A/c		4200
	C’s Capital A/c		3500
	Goodwill A/c			14,000
	(goodwill raised and written off with new ratio 9:6:5 W:2)

W:1 Calculation of Whole Goodwill

$\mathbf{Average\ Profit =}\frac{\mathbf{5000 + 8000 + 8000}}{\mathbf{3}}\mathbf{= 7000}\$

$\textbf{Whole Goodwill = 7000 x 2 = 14,000}$

$\mathbf{C's\ Share\ of\ Goodwill}\mathbf{=}\frac{\mathbf{14000}}{\mathbf{4}}\mathbf{\times 1 = 3500}\mathbf{\ }\$

W:2 Calculation of New & Sacrifice Ratio

$\mathbf{A's\ Old\ Ratio =}\frac{\mathbf{3}}{\mathbf{5}}\mathbf{,\ }\mathbf{B}^{\mathbf{'}}\mathbf{s\ Old\ Ratio =}\frac{\mathbf{2}}{\mathbf{5}}\$

$\mathbf{C}\mathbf{'s\ Ratio =}\frac{\mathbf{1}}{\mathbf{4}}\$

$\mathbf{Remaining\ Ratio = 1 -}\frac{\mathbf{1}}{\mathbf{4}}\mathbf{=}\frac{\mathbf{3}}{\mathbf{4}}\$

$\mathbf{A}^{\mathbf{'}}\mathbf{s\ New\ Ratio =}\frac{\mathbf{3}}{\mathbf{5}}\mathbf{\times}\frac{\mathbf{3}}{\mathbf{4}}\mathbf{=}\frac{\mathbf{9}}{\mathbf{20}}\$

$\mathbf{B}^{\mathbf{'}}\mathbf{s\ New\ Ratio =}\frac{\mathbf{2}}{\mathbf{5}}\mathbf{\times}\frac{\mathbf{3}}{\mathbf{4}}\mathbf{=}\frac{\mathbf{6}}{\mathbf{20}}\$

$\mathbf{New\ Ratio\ of\ A:B:C =}\frac{\mathbf{9}}{\mathbf{20}}\mathbf{:}\frac{\mathbf{6}}{\mathbf{20}}\mathbf{:}\frac{\mathbf{1}}{\mathbf{4}}\$

$\mathbf{New\ Ratio\ of\ A:B:C =}\frac{\mathbf{9}}{\mathbf{20}}\mathbf{:}\frac{\mathbf{6}}{\mathbf{20}}\mathbf{:}\frac{\mathbf{5}}{\mathbf{20}}\$

$\mathbf{New\ Ratio\ of\ A:B:C =}\mathbf{9:6:5}\$

$\mathbf{A}^{\mathbf{'}}\mathbf{s\ Sacrifice\ Ratio =}\frac{\mathbf{3}}{\mathbf{5}}\mathbf{-}\frac{\mathbf{9}}{\mathbf{20}}\mathbf{=}\frac{\mathbf{3}}{\mathbf{20}}\$

$\mathbf{B}^{\mathbf{'}}\mathbf{s\ Sacrifice\ Ratio =}\frac{\mathbf{2}}{\mathbf{5}}\mathbf{-}\frac{\mathbf{6}}{\mathbf{20}}\mathbf{=}\frac{\mathbf{2}}{\mathbf{20}}\$

$\textbf{A \& B's Sacrifice = 3:2}$

Problem 6: Salman and Rehman carrying on business in partnership and sharing profits and losses in the ratio of 3:2 and their balance sheet stood as follows:

Assets	Rs.	Liabilities	Rs.
Cash	1500	Creditors	11800
Stock	28000	Salman’s Capital	51450
Debtors	19500	Rehman’s Capital	36750
Furniture	2500
Machinery	48500
	100,000		100,000

They admit Imran into partnership and give him 1/8^th share in future profits on the following terms:

(a) Goodwill of the entire firm be valued at twice the average of the last three year’s profits which amounted to Rs. 21,000, Rs. 24,000 and Its. 25,560.

(b) Imran to bring in cash for the amount of his share of goodwill.

(c) He is to bring in cash Rs. 15,000 as his capital.

Give journal entries and draw out the balance sheet of the new firm and state the future profit sharing ratio.

Solution:

Date	Details	L.F	DR.	Cr.
	Cash A/c		20,880
	Goodwill A/c			5880
	Imran’s Capital A/c			15,000
	(Imran brings capital and goodwill W:1)

	Goodwill A/c		5880
	Salman’s Capital A/c			3528
	Rehman’s Capital A/c			2352
	(Goodwill transferred to partners’ Capital with ratio 3:2)

Salman’s Capital Account

Detail	Rs.	Detail	Rs.
Balance c/d	54978	Balance b/d	51450
		Goodwill A/c	3528
	54978		54978

Rehman’s Capital Account

Detail	Rs.	Detail	Rs.
Balance c/d	39102	Balance b/d	36750
		Goodwill A/c	2352
	39102		39102

Imran’s Capital Account

Detail	Rs.	Detail	Rs.
Balance c/d	15000	Cash A/c	15000

	15000		15000

Cash Account

Detail	Rs.	Detail	Rs.
Balance b/d	1500	Balance c/d	22380
Goodwill A/c	5880
Imran’s Capital A/c	15000
	22380		22380

Updated Balance Sheet

Assets	Rs.	Liabilities	Rs.
Cash	22380	Creditors	11800
Stock	28000	Salman’s Capital	54978
Debtors	19500	Rehman’s Capital	39102
Furniture	2500	Imran’s Capital	15000
Machinery	48500
	120,880		120,880

W:1 Calculation of Whole Goodwill

$\mathbf{Average\ Profit =}\frac{\mathbf{21000 + 24000 + 25560}}{\mathbf{3}}\mathbf{= 23520}\$

$\textbf{Whole Goodwill = 23520 x 2 = 47040}$

$\mathbf{Imran's\ Share\ of\ Goodwill}\mathbf{=}\frac{\mathbf{47040}}{\mathbf{8}}\mathbf{\times 1 = 5880}\mathbf{\ }\$

W:2 Calculation of New Ratio

$\mathbf{Salman's\ Old\ Ratio =}\frac{\mathbf{3}}{\mathbf{5}}\mathbf{,\ }\mathbf{Rehman}^{\mathbf{'}}\mathbf{s\ Old\ Ratio =}\frac{\mathbf{2}}{\mathbf{5}}\$

$\mathbf{Imran}\mathbf{'s\ Ratio =}\frac{\mathbf{1}}{\mathbf{8}}\$

$\mathbf{Remaining\ Ratio = 1 -}\frac{\mathbf{1}}{\mathbf{8}}\mathbf{=}\frac{\mathbf{7}}{\mathbf{8}}\$

$\mathbf{Salman}^{\mathbf{'}}\mathbf{s\ New\ Ratio =}\frac{\mathbf{3}}{\mathbf{5}}\mathbf{\times}\frac{\mathbf{7}}{\mathbf{8}}\mathbf{=}\frac{\mathbf{21}}{\mathbf{40}}\$

$\mathbf{Rehman}^{\mathbf{'}}\mathbf{s\ New\ Ratio =}\frac{\mathbf{2}}{\mathbf{5}}\mathbf{\times}\frac{\mathbf{7}}{\mathbf{8}}\mathbf{=}\frac{\mathbf{14}}{\mathbf{40}}\$

$\mathbf{New\ Ratio\ of\ Salman:Rehman:Imran =}\frac{\mathbf{21}}{\mathbf{40}}\mathbf{:}\frac{\mathbf{14}}{\mathbf{40}}\mathbf{:}\frac{\mathbf{1}}{\mathbf{8}}\$

$\mathbf{New\ Ratio\ of\ Salman:Rehman:Imran =}\frac{\mathbf{21}}{\mathbf{40}}\mathbf{:}\frac{\mathbf{14}}{\mathbf{40}}\mathbf{:}\frac{\mathbf{5}}{\mathbf{40}}\$

$\mathbf{New\ Ratio\ of\ Salman:Rehman:Imran =}\mathbf{21:14:5}\$

Problem 7: Saleem and Kaleem trading in partnership and sharing profits and losses in the proportion of 2 and 1 respectively agree to take Asif into the partnership on the following terms:

(a) Asif should be given 1/4 share and he should bring Rs. 10,000 as goodwill and Rs. 128,000 as capital.

(b) A reserve for bad and doubtful debts should be created at 5%.

(c) The value of Land and Building should be brought up to Rs. 620,000.

(d) Stock should be taken at Rs. 322,600.

The following is the Balance Sheet of the firm of Saleem & Kaleem on the date of Asif’s admission.

Balance Sheet As on 31^st December 2016
Assets	Rs.	Liabilities	Rs.
Cash in hand	8000	Sundry Creditors	50,000
Debtors	252,000	Partner’s Capital:
Stock	360,000	Saleem’s 650,000
Land & Building	480,000	Kaleem’s 400,000	10,50,000

	11,00,000		11,00,000

Pass Journal entries in the books of new firm, and revaluation account.

Solution:

Journal

Date	Particulars	L.F	Dr.	Cr.
	Revaluation A/C		50,000
	Stock A/C			37400
	Reserve for Bad Debts A/C			12600
	(Value of the stock is reduced and reserve for bad debt raised W:1 & W:2)

	Land & Building A/C		140,000
	Revaluation A/C			140,000
	(Land & Building appreciated W:3)

	Revaluation A/C		90,000
	Saleem’s Capital A/C			60,000
	Kaleem’s Capital A/C			30,000
	(Profit of Revaluation distributed between partners in ratio 2:1 W:4)

	Cash A/C		138,000
	Asif’s Capital A/C			128,000
	Goodwill A/C			10,000
	(Asif introduces capital and goodwill)

	Goodwill A/C		10,000
	Saleem’s Capital A/C			6667
	Kaleem’s Capital A/C			3333
	(Goodwill distributed between old partners in ratio 2:1 W:5)

W:1 Revaluation of Stock

360,000 – 322,600 = 37400

W: 2 Calculation of Reserve of Bad Debts Raised

252,000 x 0.05 = 12600

W:3 Revaluation of Land & Building

620,000 – 480,000 =140,000

W:4 Calculation of Revaluation Profit of Old Partners

Revaluation Profit = 140,000 – 50,000 = 90,000

$Saleem's\ Share = 90,000 \times \frac{2}{3} = 60,000\$

$Kaleem's\ Share = 90,000 \times \frac{1}{3} = 30,000\$

W:5 Calculation of Goodwill distributed to old partners

${Saleem}^{'}s\ Share = 10,000 \times \frac{2}{3} = 6667\$

${Kaleem}^{'}s\ Share = 10,000 \times \frac{1}{3} = 3333\$

Chapter 7 Partnership Accounts Admission of a Partner

Problem 8: Rameez and Raja are partners sharing profits in the ratio of 3:2. Their balance sheet stood as under on 31-12-2016:

Balance Sheet As on 31^st December 2016
Assets	Rs.	Liabilities	Rs.
Cash	2000	Creditors	38,500
Stock	15,000	Outstanding Liabilities	4000
Prepaid Insurance	1500	Capitals:
Debtors	9000	Rameez’s 29,000
Machinery	19000	Raja’s 15,000	44,000
Building	35000
Furniture	5000
	86,500		86,500

Rahim is admitted as a new partner introducing a capital of Rs. 16,000. The new profit sharing ratio is decided as 5:3:2. Rahim is unable to bring in any cash for goodwill. So it is decided-to raise goodwill account, amount being calculated on the basis of Rahim’s share in the profits and the capital contributed by him. Following revaluations are made

Stock to be depreciated 5%.
Provision for doubtful debts Rs. 100.
Furniture to be depreciated 10%.
Building is valued at Rs. 40,000.

Show the revaluation account and calculate the value of goodwill of whole business.

Solution:

Revaluation A/C

Detail	Rs.	Detail	Rs.
Stock (15000 x 0.05)	750	Building (40,000 – 35000)	5000
Reserve for Bad Debts	100
Furniture: 5000 x 0.10	500
Rameez’s Capital W:1	2190
Raja’s Capital W:1	1460
	5000		5000

W.1: Revaluation balance Calculation & transferred to Partner’s Capital Accounts:

$\mathbf{Rameez = 3650\ \times}\frac{\mathbf{3}}{\mathbf{5}}\mathbf{= 2190}\$

$\mathbf{Raja = 3650\ \times}\frac{\mathbf{2}}{\mathbf{5}}\mathbf{= 1460}\$

W.2: Calculation of Goodwill

$\mathbf{New\ Ratio = 5:3:2\ }\$

$\mathbf{Rahi}\mathbf{m}^{\mathbf{'}}\mathbf{s\ Capital = 16000 =}\frac{\mathbf{2}}{\mathbf{10}}\$

$\mathbf{1\ Share = 16000\ \times}\frac{\mathbf{10}}{\mathbf{2}}\mathbf{= 80,000}\$

Updated Capital of the New Firm=29000+15000+16000 = 60,000

Goodwill = 80,000-60,000 = 20,000

Problem 9: The Balance Sheet of Mr. Shabir and Mr. Majid as on 31^st December 2016 is set out below. They share profits and losses in the ratio of 2:1

Assets	Rs.	Liabilities	Rs.
Freehold Property	26,000	Shabir’s Capital	40,000
Stock	12,000	Majid’s Capital	30,000
Debtors	60,000	General Reserve	24,000
Cash	12,000	Creditors	16,000
	110,000		110,000

They agree to admit Pasha into the firm subject to the following terms and conditions:

Pasha will bring in Rs. 21,000 of which Rs. 9,000 will he treated as his share of Goodwill to be retained in the business.
He will be entitled 1/4^th share of the profits of the firm.
Fifty per cent of the General Reserve is to remain as a Reserve for Bad and Doubtful Debts.

Show the journal entries giving effect to the above said arrangements (Including cash transaction) and prepare the Opening Balance Sheet of the new partnership.

Solution:

Journal

Date	Particulars	L.F	Dr.	Cr.
	General Reserve A/C		12000
	Reserve for Bad Debts A/C			12000
	(50% of general reserve treated as reserve for bad debt)

	Shabir’s Capital A/C		8000
	Majid’s Capital A/C		4000
	General Reserve A/C			12000
	(Provision Reserve distributed between partners in ratio 2:1)

	Cash A/C		21,000
	Pasha’s Capital A/C			12,000
	Goodwill A/C			9000
	(Pasha introduces capital and goodwill)

	Goodwill A/C		9000
	Shabir’s Capital A/C			6000
	Majid’s Capital A/C			3000
	(Goodwill distributed between old partners in ratio 2:1)

New Firm’s Balance Sheet

Assets	Rs.	Liabilities	Rs.
Freehold Property	26,000	Shabir’s Capital: (40,000 + 8000+6000)	54,000
Stock	12,000	Majid’s Capital: (30,000 + 4000+3000)	37,000
Debtors	60,000	Pasha’s Capital: (12,000)	12,000
		General Reserve (24000 – 12000)	12,000
Cash (12,000 + 21,000)	33,000	Creditors	16,000

	131,000		131,000

Problem 10: A and B are partners in a firm sharing profits and losses as 5:3. The position of the firm as on 31st March 2016 is as follows:

Assets	Rs.	Liabilities	Rs.
Plant & Machinery	40,000	Capital Accounts:
Stock	30,000	A’s 30,000
Sundry Debtors	20,000	B’s 20,000	50,000
Bills receivable	10,000	Sundry Creditors	15,000
Cash at Bank	7500	Bank overdraft	42,500
	107,500		107,500

C now joins them on condition that he will share 3/4^th of the future profits, the balance of profits being shared by A and B as 5:3. He introduces Rs. 40,000 by way of capital in cash and pays off the overdraft. He also pays Rs. 4,000 by way of premium for goodwill of the business, and this amount is to remain in business. The partners agree to depreciate plant by 10% and raise a reserve against Sundry Debtors by 5%.

You are asked to journalize the entries in the books of the firm and the resultant Balance Sheet and also show how will the partners share future profits?

Solution:

Journal

Date	Particulars	L.F	Dr.	Cr.
	Revaluation A/C		5000
	Plant & Machinery A/C			4000
	Reserve for Bad Debts A/C			1000
	(Value of the asset is reduced and reserve for bad debt raised W:1 & W:2)

	A’s Capital A/C		3125
	B’s Capital A/C		1875
	Revaluation A/C			5000
	(Loss of Revaluation distributed between partners in ratio 5:3 W:3)

	Cash A/C		44,000
	C’s Capital A/C			40,000
	Goodwill A/C			4000
	(C introduces capital and goodwill)

	Goodwill A/C		4000
	A’s Capital A/C			2500
	B’s Capital A/C			1500
	(Goodwill distributed between old partners in ratio 5:3 W:4)

	Bank Overdraft A/C		42500
	C’s Capital A/C			42500
	(Bank overdraft is taken-over by C)

New Balance Sheet of the New Firm
Assets	Rs.	Liabilities	Rs.
Plant & Machinery less Depreciation		Capital Accounts:
(40,000 – 4000)	36,000	A’s
Stock	30,000	(30,000 – 3125 + 2500)	29375
Sundry Debtors 20,000		B’s
Less Write Off (0)		(20,000 – 1875 + 1500)	19625
Less New Provision (1000)	19,000	C’s
Bills receivable	10,000	(40,000 + 42,500)	82,500
Cash at Bank (7500 + 44,000)	51,500	Sundry Creditors	15,000
	146,500		146,500

New Profit Sharing Ratio of A:B:C

Data:

$\mathbf{A's\ Old\ Ratio =}\frac{\mathbf{5}}{\mathbf{8}}\mathbf{,\ }\mathbf{B}^{\mathbf{'}}\mathbf{s\ Old\ Ratio =}\frac{\mathbf{3}}{\mathbf{8}}\mathbf{,\ }\mathbf{C}^{\mathbf{'}}\mathbf{s\ \ Ratio =}\frac{\mathbf{3}}{\mathbf{4}}\$

$\mathbf{Remaining\ Ratio = 1 -}\frac{\mathbf{3}}{\mathbf{4}}\mathbf{=}\frac{\mathbf{1}}{\mathbf{4}}\$

$\mathbf{A}^{\mathbf{'}}\mathbf{s\ New\ Ratio =}\frac{\mathbf{5}}{\mathbf{8}}\mathbf{\times}\frac{\mathbf{1}}{\mathbf{4}}\mathbf{=}\frac{\mathbf{5}}{\mathbf{32}}\$

$\mathbf{B}^{\mathbf{'}}\mathbf{s\ New\ Ratio =}\frac{\mathbf{3}}{\mathbf{8}}\mathbf{\times}\frac{\mathbf{1}}{\mathbf{4}}\mathbf{=}\frac{\mathbf{3}}{\mathbf{32}}\$

$\mathbf{New\ Ratio\ of\ A:B:C =}\frac{\mathbf{5}}{\mathbf{32}}\mathbf{:}\frac{\mathbf{3}}{\mathbf{32}}\mathbf{:}\frac{\mathbf{3}}{\mathbf{4}}\$

$\mathbf{New\ Ratio\ of\ A:B:C =}\frac{\mathbf{5}}{\mathbf{32}}\mathbf{:}\frac{\mathbf{3}}{\mathbf{32}}\mathbf{:}\frac{\mathbf{24}}{\mathbf{32}}\$

$\mathbf{New\ Ratio\ of\ A:B:C = 5:3:24}\$

W:1 Calculation of Depreciation

40,000 x 0.10 = 4000

W: 2 Calculation of Reserve of Bad Debts Raised

20,000 x 0.05 = 1000

W:3 Calculation of Revaluation Loss of Old Partners

$A^{'}s\ Share = 5000 \times \frac{5}{8} = 3125\$

$B^{'}s\ Share = 5000 \times \frac{3}{8} = 1875\$

W:4 Calculation of Goodwill distributed to old partners

$A^{'}s\ Share = 4000 \times \frac{5}{8} = 2500\$

$B^{'}s\ Share = 4000 \times \frac{3}{8} = 1500\$

Problem 11: Balance sheet as on 31.12.2016 of Akif and Asim who were sharing profits and losses in the ratio of 2:3.

Assets	Rs.	Liabilities	Rs.
Cash	42,000	Capitals:
Furniture	28,000	Akif	62,000
Stock	44,000	Asim	70,000
Debtors	42,000	Creditors	96,000
Machinery	66,000	Profit & Loss Account	14,000
Goodwill	20,000
	242,000		242,000

They admit Ahsan into partnership on the following terms:

Furniture and machinery to be reduced by 15%.
The value of stock to be taken at Rs. 48,000.
Goodwill to be valued at Rs. 26,000 and Ahsan introduced Rs. 32,000 towards capital.
Outstanding rent amounted to Rs. 1,800.

Prepare revaluation account, capital accounts of old partner, cash account and balance sheet of the new firm.

Solution:

Revaluation A/C

Detail	Rs.	Detail	Rs.
Furniture (28000 x 0.15)	4200	Stock (48000 – 44,000)	4000
Machinery (66,000 x 0.15)	9900
Outstanding Rent	1800	Loss Transferred to Capital Accounts:
		Akif’s Capital A/C W:1	4760
		Asim’s Capital A/C W:1	7140
	15900		15900

W.1: Calculation of Revaluation balance transferred to Partner’s Capital Accounts:

$Akif = 11900\ \times \frac{2}{5} = 4760\$

$Asim = 11900 \times \frac{3}{5} = 7140\$

Akif’s Capital A/C

Detail	Rs.	Detail	Rs.
Revaluation A/C	4760	Balance b/d	62,000
Balance c/d	65,240	Goodwill A/C W:1	2400
		Profit & Loss A/C W:2	5600
	70,000		70,000

Asim’s Capital A/C

Detail	Rs.	Detail	Rs.
Revaluation A/C	7140	Balance b/d	70,000
Balance c/d	74860	Goodwill A/C W:1	3600
		Profit & Loss A/C W:2	8400
	82000		82000

W.2: Calculation of Partner’s Goodwill

$Akif^{'}s\ Share = 6000\ \times \frac{2}{5} = 2400\$

$Asim^{'}s\ Share = 6000\ \times \frac{3}{5} = 3600\$

W.3: Calculation of Partner’s Profit & Loss

$Akif^{'}s\ Share = 1400\ \times \frac{2}{5} = 5600\$

$Asim^{'}s\ Share = 1400\ \times \frac{3}{5} = 8400\$

Cash A/C

Detail	Rs.	Detail	Rs.
Balance b/d	42000	Balance c/d	74,000
Ahsan’s Capital A/C	32,000

	74,000		74,000

Balance Sheet

As on 1^st Jan 2017

Assets	Rs.	Liabilities	Rs.
Cash	74,000	Capitals:
Furniture (28,000 – 4200)	23,800	Akif’s 65240
Stock (44,000 + 4000)	48,000	Asim’s 74860
Debtors	42,000	Ahsan’s 32000	172,100
Machinery (66,000 – 9900)	56100	Creditors	96,000
Goodwill (20,000 + 6000)	26,000	Outstanding Rent	1800
	269,900		269,900

Problem 12: Zulfiqar and Fayyaz are partners in a firm sharing profits and losses as Zulfiqar 3/4 and Fayyaz 1/4 on 1st January, 2016, their position was as given below:

Assets	Rs.	Liabilities	Rs.
Plant	40,000	Capital Accounts:
Stock	10,000	Zulfiqar 50,000
Debtors	30,000	Fayyaz 30,000	80,000
Cash at Bank	20,000	Sundry Creditors	20,000
	100,000		100,000

Riaz is now to join the partnership. He agrees to pay the partners Rs. 20,000 by way of goodwill and introduce 3/5 of the combined capital of the two existing partners after depreciating plant and stock at 20% and 10% respectively and raising a reserve of 10% against Sundry Debtors. The new partner is to be allowed 1/4th share of the profits of the firm.

You are asked to record the above transactions in the books of the firm and give the resultant Balance Sheet of the new firm.

Solution:

Journal

Date	Particulars	L.F	Dr.	Cr.
	Revaluation A/C		12000
	Plant & Machinery A/C			8000
	Reserve for Bad Debts A/C			3000
	Stock A/C			1000
	(Value of the asset is reduced and reserve for bad debt raised W:1 & W:2 & W:3)

	Zulfiquar’s Capital A/C		9000
	Fayyaz’s Capital A/C		3000
	Revaluation A/C			12000
	(Loss of Revaluation distributed between partners in ratio 3:1 W:4)

	Cash A/C		72,800
	Riaz’s Capital A/C			52,800
	Goodwill A/C			20,000
	(Riaz introduces capital and goodwill W:5)

	Goodwill A/C		20,000
	Zulfiquar’s Capital A/C			15000
	Fayyaz’s Capital A/C			5000
	(Goodwill distributed between old partners in ratio 3:1 W:6)

New Balance Sheet of the New Firm
Assets	Rs.	Liabilities	Rs.
Plant & Machinery less Depreciation		Capital Accounts:
(40,000 – 8000)	32,000	Zulfiqar’s
Stock (10,000 – 1000)	9000	(50,000 – 9000 + 15000)	56000
Sundry Debtors 30,000		Fayyaz’s
Less Write Off (0)		(30,000 – 3000 + 5000)	32000
Less New Provision (3000)	27,000	Riaz’s	52800

Cash at Bank (20,000 + 72,800)	92800	Sundry Creditors	20,000
	160,800		160,800

New Profit Sharing Ratio of Zulfiqar and Fayyaz & Riaz

Data:

$Zulfiqar\mathbf{'s\ Old\ Ratio =}\frac{\mathbf{3}}{\mathbf{4}}\mathbf{,\ }{Fayyaz}^{\mathbf{'}}\mathbf{s\ Old\ Ratio =}\frac{\mathbf{1}}{\mathbf{4}}\mathbf{,\ }{Riaz}^{\mathbf{'}}\mathbf{s\ \ Ratio =}\frac{\mathbf{1}}{\mathbf{4}}\$

$\mathbf{Remaining\ Ratio = 1 -}\frac{\mathbf{1}}{\mathbf{4}}\mathbf{=}\frac{\mathbf{3}}{\mathbf{4}}\$

${Zulfiqar}^{\mathbf{'}}\mathbf{s\ New\ Ratio =}\frac{\mathbf{3}}{\mathbf{4}}\mathbf{\times}\frac{\mathbf{3}}{\mathbf{4}}\mathbf{=}\frac{\mathbf{9}}{\mathbf{16}}\$

$\mathbf{\ }{Fayyaz}^{\mathbf{'}}\mathbf{s\ New\ Ratio =}\frac{\mathbf{1}}{\mathbf{4}}\mathbf{\times}\frac{\mathbf{3}}{\mathbf{4}}\mathbf{=}\frac{\mathbf{3}}{\mathbf{16}}\$

$\mathbf{New\ Ratio\ of\ }Zulfiqar\mathbf{:}Fayyaz\mathbf{:Riaz =}\frac{\mathbf{9}}{\mathbf{16}}\mathbf{:}\frac{\mathbf{3}}{\mathbf{16}}\mathbf{:}\frac{\mathbf{1}}{\mathbf{4}}\$

$\mathbf{New\ Ratio\ of\ }Zulfiqar\mathbf{:}Fayyaz\mathbf{:Riaz =}\frac{\mathbf{9}}{\mathbf{16}}\mathbf{:}\frac{\mathbf{3}}{\mathbf{16}}\mathbf{:}\frac{\mathbf{4}}{\mathbf{16}}\$

$\mathbf{New\ Ratio\ of\ }Zulfiqar\mathbf{:}Fayyaz\mathbf{:Riaz = 9:3:4}\$

W:1 Calculation of Depreciation of Plant

40,000 x 0.20 = 8000

W: 2 Calculation of Reserve of Bad Debts Raised

30,000 x 0.10 = 3000

W:3 Calculation of Depreciation of Stock

10,000 x 0.10 = 1000

W:4 Calculation of Revaluation Loss of Old Partners

${Zulfiquar}^{'}s\ Share = 12000 \times \frac{3}{4} = 9000\$

${Fayyaz}^{'}s\ Share = 12000 \times \frac{1}{4} = 3000\$

W:5 Calculation of Riaz’s Capital

${Riaz}^{'}s\ Capital = 88,000 \times \frac{3}{5} = 52800\$

W:6 Calculation of Goodwill distributed to old partners

${Zulfiquar}^{'}s\ Share = 20000 \times \frac{3}{4} = 15000\$

${Fayyaz}^{'}s\ Share = 20000 \times \frac{1}{4} = 5000\$

Problem 13: Roshan and Shahzad are partners in a firm sharing profit in the ratio of 3:2 on 1^st January 2016, the position of the business was as follows:

Balance Sheet
Assets	Rs.	Liabilities	Rs.
Goodwill	5,000	Sundry Creditors	15,000
Stock	20,000	Capital Accounts:
Plant	25,000	Roshan: 30,000
Debtors	18,000	Shahzad: 25,000	55,000
Cash	2,000
	70,000		70,000

Sabir agrees to join the business on the following conditions:

He will introduce Rs. 20,000 as his capital and pay Rs. 10,000 to the partners as premium for goodwill for 1/4^th share of the future profits of the firm.
Revaluation of the assets of the firm will be made by reducing plant account to Rs. 20,000 and stock by 10% and by raising a provision for bad debts at 5% of debtors.

You are asked to give the necessary entries in the books of account, recording the above transactions and give the balance sheet of the new firm. Goodwill is to appear at its old figure in the new balance sheet.

Solution:

Journal

Date	Particulars	L.F	Dr.	Cr.
	Revaluation A/C		7900
	Plant & Machinery A/C			5000
	Reserve for Bad Debts A/C			900
	Stock A/C			2000
	(Value of the asset is reduced and reserve for bad debt raised W:1 & W:2 & W:3)

	Roshan’s Capital A/C		4740
	Shahzad’s Capital A/C		3160
	Revaluation A/C			7900
	(Loss of Revaluation distributed between partners in ratio 3:1 W:4)

	Cash A/C		30,000
	Sabir’s Capital A/C			20,000
	Goodwill A/C			10,000
	(Sabir introduces capital and goodwill)

	Goodwill A/C		10,000
	Roshan’s Capital A/C			6000
	Shahzad’s Capital A/C			4000
	(Goodwill distributed between old partners in ratio 3:2)

New Balance Sheet of the New Firm
Assets	Rs.	Liabilities	Rs.
Goodwill	5,000	Capital Accounts:
Plant less Depreciation		Roshan’s Capital
(25,000 – 5,000)	20,000	(30,000 – 4740 + 6000)	31260
Stock (20,000 – 2000)	18,000	Shahzad’s Capital
Sundry Debtors (18,000 – 900)	17,100	(25,000 – 3160 + 4000)	25840
Cash (2,000 + 30,000)	32,000	Sabir’s Capital	20,000

		Sundry Creditors	15,000
	92,100		92,100

W:1 Calculation of Depreciation of Plant

25,000 – 20,000 = 5000

W: 2 Calculation of Reserve of Bad Debts Raised

18,000 x 0.05 = 900

W:3 Calculation of Depreciation of Stock

20,000 x 0.10 = 2000

W:4 Calculation of Revaluation Loss of Old Partners

${Roshan}^{'}s\ Share = 7900 \times \frac{3}{5} = 4740\$

${Shahzad}^{'}s\ Share = 7900 \times \frac{2}{5} = 3160\$

Problem 14: Mukhtar and Munir were partners in a firm sharing profits equally. Their positions was on 30^th June 2016 was as follows:

Balance Sheet
Assets	Rs.	Liabilities	Rs.
Cash in hand	150	Sundry Creditors	6,000
Stock	3600	Bank overdraft	1500
Sundry Debtors	6200	Mukhtar’s Capital	2100
Furniture	600	Munir’s Capital	1600
Investments	650
	11,200		11,200

It is agreed to take Mobeen into partnership and to make the following adjustments:

Bad debts to be written off for Rs. 1600.
Value of the furniture to be reduced to Rs. 400.
Depreciate stock at 10%
Write off 20% on investments.
Raise goodwill for Rs. 1000.

Mobeen introduced Rs. 1000 as capital for his 1/3 share. Other partner’s capitals should be adjusted according to the new partner’s capital.

Pass necessary journal entries and prepare the Balance sheet of the new firm.

Solution:

Journal

Date	Particulars	L.F	Dr.	Cr.
	Revaluation A/C		2290
	Bad Debts A/C			16,00
	Furniture A/C			200
	Stock A/C			360
	Investments A/C			130
	(Value of the assets is reduced W:1)

	Mukhtar’s Capital A/C		1145
	Munir’s Capital A/C		1145
	Revaluation A/C			2290
	(Loss of Revaluation distributed between partners in ratio 1:1 W:2)

	Cash A/C		1,000
	Mobeen’s Capital A/C			1,000
	(Mobeen introduces capital)

	Goodwill A/C		1,000
	Mukhtar’s Capital A/C			500
	Munir’s Capital A/C			500
	(Goodwill is raised)

	Mukhtar’s Capital A/C		455
	Cash A/C			455
	(Cash paid out of Mukhtar’s Capital)

	Cash A/C		45
	Munir’s Capital A/C			45
	(Cash brought in to the Munir’s Capital)

Mukhtar’s Capital Account

Particulars	Rs.	Particulars	Rs.
Revaluation A/C	1145	Balance b/d	2100
Balance c/d	1000	Goodwill	500
Cash A/C	455
	26,00		26,00

Munir’s Capital Account

Particulars	Rs.	Particulars	Rs.
Revaluation A/C	1145	Balance b/d	1600
Balance c/d	1000	Goodwill	500
		Cash A/C	45
	2145		2145

Mobeen’s Capital Account

Particulars	Rs.	Particulars	Rs.
Balance c/d	1000	Cash A/C	1000

	1000		1000

Cash Account

Particulars	Rs.	Particulars	Rs.
Balance b/d	150	Mukhtar’s Capital A/C	455
Mobeen’s Capital A/C	1000	Balance c/d	740
Munir’s Capital A/C	45
	1195		1195

Goodwill Account

Particulars	Rs.	Particulars	Rs.
Mukhtar’s Capital A/C	500	Balance c/d	1000
Munir’s Capital A/C	500

	1000		1000

New Balance Sheet
Assets	Rs.	Liabilities	Rs.
Cash in hand	740	Sundry Creditors	6,000
Stock (3600 – 360)	3240	Bank overdraft	1500
Sundry Debtors (6200 – 1600)	4600	Mukhtar’s Capital	1000
Furniture (600 – 200)	400	Munir’s Capital	1000
Investments (650 – 130)	520	Mobeen’s Capital	1000
Goodwill	1000
	10,500		10,500

W.1: Calculation of revaluation

Bad debts = 1600

Furniture (600 – 400) =200

Stock 3600 x 0.10 = 360

Investments 650 x 0.20 = 130

W:2 Calculation of Revaluation Loss of Old Partners

$\mathbf{Mukhtar}^{\mathbf{'}}\mathbf{s\ Share = 2290 \times}\frac{\mathbf{1}}{\mathbf{2}}\mathbf{= 1145}\$

$\mathbf{Munir's\ Share = 2290 \times}\frac{\mathbf{1}}{\mathbf{2}}\mathbf{= 1145}\$

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Chapter 7 Partnership Accounts Admission of a Partner

Chapter 7 Partnership Accounts Admission of a Partner

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Chapter 7 Partnership Accounts Admission of a Partner

Table of Contents

Problem 1: X and Y are partners sharing profits and losses in the ratio of 3: 1. Z is admitted into the partnership with ¼ th share in the future profits which he takes…..

Problem 2: P & Q share profits and losses in the ratio of 5 : 3. They admit R into partnership. R brings in Rs. 100,000 as capital and Rs. 30,000 as goodwill…..

Problem 3: A and B are partners sharing profits in the ratio of 3:2. C is admitted as a partner and is to be given 1/6 of the profit. His share of goodwill is Rs. 40,000…..

Problem 4: A and B are partners sharing profits in the ratio of 3:2. They admit C into, the partnership. C pays Rs. 5000 as capital and Rs. 1000 as goodwill for 1/4th share….

Problem 5: A and B are partners sharing profits and losses in the ratio of 3:2. They admit C as a partner for 1/4th share in profits. C paid Rs. 25000 as capital…..

Problem 6: Salman and Rehman carrying on business in partnership and sharing profits and losses in the ratio of 3:2 and their balance sheet stood as follows…..

Problem 7: Saleem and Kaleem trading in partnership and sharing profits and losses in the proportion of 2 and 1 respectively agree to take Asif into the partnership on the following terms…..

Problem 8: Rameez and Raja are partners sharing profits in the ratio of 3:2. Their balance sheet stood as under on 31-12-2016….

Problem 9: The Balance Sheet of Mr. Shabir and Mr. Majid as on 31st December 2016 is set out below. They share profits and losses in the ratio of 2:1…..

Problem 10: A and B are partners in a firm sharing profits and losses as 5:3. The position of the firm as on 31st March 2016 is as follows….

Problem 11: Balance sheet as on 31.12.2016 of Akif and Asim who were sharing profits and losses in the ratio of 2:3…..

Problem 12: Zulfiqar and Fayyaz are partners in a firm sharing profits and losses as Zulfiqar 3/4 and Fayyaz 1/4 on 1st January, 2016, their position was as given below…..

Problem 13: Roshan and Shahzad are partners in a firm sharing profit in the ratio of 3:2 on 1st January 2016, the position of the business was as follows…..

Problem 14: Mukhtar and Munir were partners in a firm sharing profits equally. Their positions was on 30th June 2016 was as follows….

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Problem 4: A and B are partners sharing profits in the ratio of 3:2. They admit C into, the partnership. C pays Rs. 5000 as capital and Rs. 1000 as goodwill for 1/4^th share….

Problem 5: A and B are partners sharing profits and losses in the ratio of 3:2. They admit C as a partner for 1/4^th share in profits. C paid Rs. 25000 as capital…..

Problem 9: The Balance Sheet of Mr. Shabir and Mr. Majid as on 31^st December 2016 is set out below. They share profits and losses in the ratio of 2:1…..

Problem 13: Roshan and Shahzad are partners in a firm sharing profit in the ratio of 3:2 on 1^st January 2016, the position of the business was as follows…..

Problem 14: Mukhtar and Munir were partners in a firm sharing profits equally. Their positions was on 30^th June 2016 was as follows….