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3.10 Double Entry Book Keeping (Section A)—ISC XII

Working Notes:
1. Original value of stock = ` 1,80,000 × 100/90 = ` 2,00,000.
2. Profit-sharing ratio between A and B = 1/2 : 1/3 = 3 : 2.
Illustration 6.
X and Y were trading in partnership sharing profits and losses in the ratio of 7 : 5. On 1st
April, 2017, they admitted Z into partnership on the following terms:
Z was to have 1/6th share, 1/8th from X and 1/24th from Y paying ` 2,00,000 for that share
towards premium for goodwill. Z also brought ` 2,50,000 as his Capital into the firm. It
was further agreed that Machinery should be reduced by 10% and that Investments should
be reduced to their market value of ` 80,000.
The Balance Sheet of the old firm as at 31st March, 2017 was as follows:
Liabilities ` Assets `
Creditors 1,60,000 Machinery 2,00,000
Capital A/cs: Furniture 40,000
X 2,50,000 Investments (At Cost) 1,20,000
Y 2,50,000 5,00,000 Stock 1,00,000
Debtors 60,000
Cash at Bank 1,40,000
6,60,000 6,60,000

Interest on Drawings is to be ignored but Interest on Capital is to be allowed at
5% p.a. The profits of the new firm for the year ended 31st March, 2018 amounted to
` 5,24,500 before allowing interest on capitals. Drawings of the partners during the year
were: X—` 1,63,250; Y—` 1,38,750 and Z—` 32,500.
You are required to show Partners’ Capital Accounts and prepare Balance Sheet as at
31st March, 2016.
Solution:
Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.
Date Particulars X Y Z Date Particulars X Y Z
` ` ` ` ` `
2017 2017
Apr. 1 To Revaluation A/c 35,000 25,000 ... Apr. 1 By Balance b/d 2,50,000 2,50,000 ...
—Loss (WN 2) Apr. 1 By Premium for
Apr. 1 To Balance c/d 3,65,000 2,75,000 2,50,000 Goodwill A/c 1,50,000 50,000 ...
(WN 3) (WN 1)
Apr. 1 By Bank A/c ... ... 2,50,000
4,00,000 3,00,000 2,50,000 4,00,000 3,00,000 2,50,000
2018 2017
Mar. 31 To Drawings A/c 1,63,250 1,38,750 32,500 Apr. 1 By Balance b/d 3,65,000 2,75,000 2,50,000
Mar. 31 To Balance c/d 4,40,000 3,30,000 3,10,000 2018
Mar. 31 By Interest on
Capital A/cs 18,250 13,750 12,500
Mar. 31 By P and L App. A/c 2,20,000 1,80,000 80,000
(Profit)
6,03,250 4,68,750 3,42,500 6,03,250 4,68,750 3,42,500