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

7. Hari and Ram were in partnership, sharing profits and losses equally. On 1st April, 2019, Suraj was admitted
into partnership on the following terms:
Suraj is to have 1/6th share in the profits/losses, which he had got from Hari paying him ` 40,000 for that share
as goodwill. Out of this amount, Hari is to withdraw ` 30,000 and the balance amount is to remain in the firm.
It was further agreed that the value of Investments should be reduced to ` 18,000 and Plant to be valued at
` 29,000. Creditors were to be reduced by ` 3,000 as one of the creditors has closed his business and gone.
Suraj is to bring in proportionate capital on his admission. The Balance Sheet as at 31st March, 2019 was:
Liabilities ` Assets `
Creditors 1,05,000 Cash at Bank 40,000
Capital A/cs: Book Debts 60,000
Hari 60,000 Stock 50,000
Ram 60,000 1,20,000 Investments 30,000
Furniture 10,000
Plant 35,000
2,25,000 2,25,000

The profit for the year ended 31st March, 2020 was ` 60,000 and the drawings were:
Hari ` 15,000; Ram ` 22,500 and Suraj ` 7,500. Journalise the entries on Suraj’s admission and give the
Capital Accounts and the Balance Sheet as at 31st March, 2020.

GUIDE TO ANSWERS

1. On Ist Occassion (1st April, 2016):
Amount to be paid by C—` 20,984 to A and ` 16,787 to B. New Profit-sharing Ratio—4 : 4 : 3.
On 2nd Occassion (1st April, 2018):

Amount to be paid by C—` 5,877 to A and B each; New Profit-sharing Ratio—1 : 1 : 1.
Valuation of Goodwill:
,
,
,
` 61 560 + ` 64 520 + ` 81 660
Average Profit = = ` 69 247,
3
Goodwill at 2 Years’ Purchase of Average Profit = ` 69,247 × 2 = ` 1,38,494.
3
C’s Share in Goodwill = ` 1,38,494 × = ` 37,771.
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2. (i) Dr. Bank A/c and Cr. Premium for Goodwill A/c by ` 10,000.
(ii) Dr. Premium for Goodwill A/c—` 10,000; Cr. A’s Capital A/c—` 6,667 and B’s Capital A/c—` 3,333.
(iii) Dr. C’s Current A/c—` 6,000; Cr. A’s Capital A/c—` 4,000 and B’s Capital A/c—` 2,000.
3. (i) Dr. Rao’s Current A/c—` 7,500; Cr. Murty’s Capital A/c—` 4,500 and Shah’s Capital A/c—` 3,000.
(ii) (a) Dr. Murty’s Capital A/c—` 6,000 and Shah’s Capital A/c—` 4,000; Cr. Goodwill A/c—` 10,000.
(b) Dr. Rao’s Current A/c—` 7,500; Cr. Murty’s Capital A/c—` 4,500 and Shah’s Capital A/c—` 3,000.