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Admission of a Partner 3.23

Terms of Z’s admission are as follows:
(i) Z contributes proportionate capital and 60% of his share of goodwill by cheque.
(ii) Goodwill is to be valued at 2 years’ purchase of super profit of last three completed years.
Profits for the years ended 31st March, were:
2016—` 12,00,000; 2017—` 23,25,000; 2018—` 34,50,000.
The normal profit is ` 13,25,000 with same amount of capital invested in similar industry.
(iii) Land and Building was found undervalued by ` 2,50,000.
(iv) Stock was found overvalued by ` 77,500.
(v) Provision for Doubtful Debts is to be made equal to 5% of the debtors.
(vi) Claim on account of Workmen Compensation is ` 25,000.
(vii) Workmen Compensation Reserve and Investment Fluctuation Reserve are to appear in
the books of the new firm after adjusting Workmen Compensation Claim and difference
between the book value and market value of investment. This adjustment is to be made
through Partners’ Current Accounts.
Prepare Revaluation Account, Partners’ Capital Accounts and Balance Sheet of the new firm.
Solution:
Dr. REVALUATION ACCOUNT Cr.
Particulars ` Particulars `

To Stock A/c 77,500 By Land and Building A/c 2,50,000
To Gain (Profit) on Revaluation By Provision for Doubtful Debts A/c:
transferred to: Existing 25,000
X’s Capital A/c 1,11,000 Less: Required (` 2,50,000 × 5/100) 12,500 12,500
Y’s Capital A/c 74,000 1,85,000
2,62,500 2,62,500

Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.
Particulars X Y Z Particulars X Y Z
` ` ` ` ` `
To Goodwill A/c 51,000 34,000 ... By Balance b/d 4,40,000 6,35,000 ...
To Advertisement By Bank A/c (WN 5) ... ... 7,50,000
Suspense A/c 15,000 10,000 ... By Premium for Goodwill A/c 2,40,000 1,20,000 ...
To Balance c/d 8,85,000 8,65,000 7,50,000 By Z’s Current A/c (WN 3) 1,60,000 80,000 ...
By Revaluation A/c (Profit) 1,11,000 74,000 ...
9,51,000 9,09,000 7,50,000 9,51,000 9,09,000 7,50,000

Dr. PARTNERS’ CURRENT ACCOUNTS Cr.
Particulars X Y Z Particulars X Y Z
` ` ` ` ` `
To X’s Capital A/c (WN 3) ... ... 1,60,000 By Z’s Current A/c (WN 4) 7,500 3,750 ...
To Y’s Capital A/c (WN 3) ... ... 80,000 By Balance c/d ... ... 2,51,250
To X’s Current A/c (WN 4) ... ... 7,500
To Y’s Current A/c (WN 4) ... ... 3,750
To Balance c/d 7,500 3,750 ...
7,500 3,750 2,51,250 7,500 3,750 2,51,250