Page 109 - DEBKVOL-1

Chapter 5 Admission of a Partner 5.25
.
Illustration 17 (Admission-cum-Retirement: Investment Fluctuation Reserve).
A, B and C are partners sharing profits in the ratio of 5 : 3 : 2. A, by agreement, retires
and D joins the firm on the basis of one third share of profit on 1st April, 2018 bringing
` 50,000 towards capital. An extract of their Balance Sheet as at 31st March, 2018 is as follows:

Liabilities ` Assets `
Investment Fluctuation Reserve 3,750 Investment (at Cost) 50,000

Pass Journal entries if market value of Investment is ` 55,000.
Solution: JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
2018
April 1 Investment Fluctuation Reserve A/c ...Dr. 3,750
To A’s Capital A/c 1,875
To B’s Capital A/c 1,125
To C’s Capital A/c 750
(Transfer of Investment Fluctuation Reserve to Partners’ Capital Accounts
in their old profit-sharing ratio)
Investment A/c ...Dr. 5,000
To Revaluation A/c 5,000
(Value of Investment brought up to market value)
Revaluation A/c ...Dr. 5,000
To A’s Capital A/c 2,500
To B’s Capital A/c 1,500
To C’s Capital A/c 1,000
(Transfer of gain (profit) on revaluation)
Bank A/c ...Dr. 50,000
To D’s Capital A/c 50,000
(Capital brought in by D)
Illustration 18 (Adjustment of Capital to be made by Cash).
A, B and C are partners sharing profits and losses in the ratio of 2 : 3 : 5. On 31st March,
2018, their Balance Sheet was:
Liabilities ` Assets `
Creditors 64,000 Cash 18,000
Bills Payable 32,000 Bills Receivable 24,000
Profit and Loss A/c 14,000 Furniture 28,000
Capital A/cs: Stock 44,000
A 36,000 Debtors 42,000
B 44,000 Investments 32,000
C 52,000 1,32,000 Machinery 34,000
Goodwill 20,000
2,42,000 2,42,000
They admit D into partnership from 1st April, 2018 on the following terms:
(i) Furniture, Investments and Machinery to be reduced by 15%.
(ii) Stock is revalued at ` 48,000.
(iii) Outstanding Rent amounted to ` 1,800.
(iv) Prepaid Salaries ` 800.