Page 104 - MA-12

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

Working Notes:
1. Adjustment of Goodwill:
Vansh’s Share of Goodwill = ` 24,000 × 2/6 = ` 8,000, which is contributed by Ansh and Dev in their Gaining Ratio
of 3 : 7.
Ansh’s contribution = ` 8,000 × 3/10 = ` 2,400; Dev’s contribution = ` 8,000 × 7/10 = ` 5,600.
2. Computation of Gaining Ratio (Gain = New Share – Old Share):
Ansh’s Gain = 3/5 – 3/6 = 3/30; Dev’s Gain = 2/5 – 1/6 = 7/30
Gaining Ratio = 3/30 : 7/30 or 3 : 7.
3. Cash to be brought in by Ansh and Dev: `
Amount payable to Vansh 93,100
Add: Amount to be retained as Working Capital 30,000
1,23,100
Less: Cash already available 68,000
Cash to be brought in by Ansh and Dev 55,100
Adjusted Old Capital of Ansh = ` (80,000 + 150 + 12,000 + 3,000 + 22,500 – 2,400) = ` 1,15,250.
Adjusted Old Capital of Dev = ` (40,000 + 50 + 4,000 + 1,000 + 7,500 – 5,600) = ` 46,950.
Total Capital of the New Firm = ` 55,100 + ` 1,15,250 + ` 46,950 = ` 2,17,300.
Ansh’s Capital in New Firm = ` 2,17,300 × 3/5 = ` 1,30,380;
Dev’s Capital in New Firm = ` 2,17,300 × 2/5 = ` 86,920.
Illustration 19.
Khanna, Seth and Mehta were partners sharing profits and losses in the ratio of 5 : 3 : 2.
On 31st March, 2018 their Balance Sheet was as follows:
Liabilities ` Assets `
Trade Creditors 1,35,000 Goodwill 25,000
Employees’ Provident Fund 20,000 Patents 1,30,000
Investment Fluctuation Reserve 17,500 Machinery 1,56,000
Workmen Compensation Reserve 17,500 Investments 15,000
Capital A/cs: Stock 50,000
Khanna 3,37,500 Sundry Debtors 62,000
Seth 2,37,500 Less: Provision for Doubtful Debts 2,000 60,000
Mehta 1,85,000 7,60,000 Loan to Mehta 5,000
Cash at Bank 1,29,000
Advertisement Expenditure 5,000
Profit and Loss A/c (2017–18) 3,75,000
9,50,000 9,50,000

Mehta died on 1st August, 2018. Mehta had withdrawn ` 25,000 during 2018–19.
It was agreed between his executors and the remaining partners that:
(i) Goodwill be valued at 2½ years’ purchase of average of four completed years’
profits which were: 2014–15 ` 5,05,000; 2015–16 ` 60,000; 2016–17 ` 90,000.
(ii) Mehta‘s Share of profit from the closure of last accounting year till the date of
death be calculated on the basis of the average of three completed years’ profits
before death.
(iii) Patents undervalued by ` 70,000; Stock overvalued by ` 20,000.
(iv) Machinery were to be valued at ` 1,75,000.
(v) Provision of ` 5,000 be made in respect of Outstanding Legal charges.
(vi) Out of the amount of Insurance Premium which was debited entirely to Profit
and Loss Account, ` 5,000 be carried forward as an unexpired Insurance.