Page 66 - ISCDEBK-12

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

BALANCE SHEET OF THE NEW FIRM
as at 1st April, 2018
Liabilities ` Assets `
Employees’ Provident Fund 85,000 Land and Building 4,00,000
Workmen Compensation Claim 25,000 Investment 1,12,500
Workmen Compensation Reserve 25,000 Debtors 2,50,000
(` 50,000 – ` 25,000) Less: Provision for Doubtful Debts 12,500 2,37,500
Investment Fluctuation Reserve 12,500 Stock 6,72,500
Z’s Loan 7,50,000 Bank Balance 17,35,000
Current Accounts: Z’s Current Account 2,51,250
X 7,500
Y 3,750 11,250
Capital Accounts:
X 8,85,000
Y 8,65,000
Z 7,50,000 25,00,000
34,08,750 34,08,750

Working Notes:
1. Calculation of Sacrificing Ratio:
X Y
(a) Their Old Share 3/5 2/5
(b) Their New Share 4/10 3/10
(c) Share surrendered by old partner (a – b) 3/5 – 4/10 = 2/10 2/5 – 3/10 = 1/10
(d) Sacrificing Ratio of X and Y = 2/10 : 1/10 = 2 : 1.
2. Calculation of Z’s Share of Goodwill:
` 4,80,000 + ` 9,30,000 + ` 13,80,000
(a) Average Profit = = ` 23,25,000
3
(b) Normal Profit = ` 13,25,000
(c) Super Profit = ` 23,25,000 – ` 13,25,000 = ` 10,00,000
(d) Firm’s Goodwill = Super Profit × No. of years’ purchase = ` 10,00,000 × 2 = ` 20,00,000
(e) Z’s Share of Goodwill = ` 20,00,000 × 3/10 = ` 6,00,000.
3. Journal Entries with respect to Goodwill: ` `

(i) Bank A/c ...Dr. 3,60,000
To Premium for Goodwill A/c 3,60,000
(ii) Premium for Goodwill A/c ...Dr. 3,60,000
To X’s Capital A/c 2,40,000
To Y’s Capital A/c 1,20,000
(iii) Z’s Current A/c (` 6,00,000 – ` 3,60,000) ...Dr. 2,40,000
To X’s Capital A/c 1,60,000
To Y’s Capital A/c 80,000
4. For Adjustment of Workmen Compensation Reserve and Investment Fluctuation Reserve: `
Workmen Compensation Reserve = ` 50,000 – ` 25,000 (Claim) 25,000
Investment Fluctuation Reserve = ` 25,000 – (` 1,25,000 – ` 1,12,500) 12,500
37,500