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5.36 Double Entry Book Keeping—CBSE XII

Working Notes:
1. In the absence of any agreement profits are shared equally.
2. Calculation of Hidden Goodwill:
C’s Capital for 1/4th share = ` 1,60,000
(a) Total capital of the new firm = ` 1,60,000 × 4 = ` 6,40,000
(b) A, B and C’s Capitals = ` 1,60,000 + ` 1,20,000 + ` 1,60,000 = ` 4,40,000
∴ Goodwill of the firm = ` 2,00,000 [(a) – (b)]
Thus, C’s share of Goodwill = 1/4 × ` 2,00,000 = ` 50,000.

Illustration 29.
The Balance Sheet of Madan and Mohan who share profits and losses in the ratio of 3 : 2,
as at 31st March, 2010 was as follows:
Liabilities ` Assets `
Creditors 28,000 Cash at Bank 10,000
Workmen’s Compensation Reserve 12,000 Debtors 65,000
General Reserve 20,000 Less: Reserve for Doubtful Debts 5,000 60,000
Capital A/cs: Stock 30,000
Madan 60,000 Investments 50,000
Mohan 40,000 1,00,000 Patents 10,000
1,60,000 1,60,000
They decided to admit Gopal on 1st April, 2010 for 1/4th share on the following terms:
(i) Gopal shall bring ` 25,000 as his share of premium for goodwill.
(ii) That unaccounted Accrued Income of ` 500 be provided for.
(iii) The market value of Investments was ` 45,000.
(iv) A Debtor whose dues of ` 1,000 were written off as Bad Debts paid ` 800 in full
settlement.
(v) A claim of ` 2,000 on account of Workmen Compensation to be provided for.
(vi) Patents are undervalued by ` 5,000.
(vii) Gopal to bring in capital equal to 1/4th of the total capital of the new firm after
all adjustments.
Prepare Revaluation Account, Capital Accounts of Partners and the Balance Sheet of the new
firm. (Delhi 2011 C)
Solution:
Dr. REVALUATION ACCOUNT Cr.

Particulars ` Particulars `
To Investments A/c 5,000 By Accrued Income A/c 500
To Gain (Profit) transferred to: By Bad Debts Recovered A/c 800
Madan’s Capital A/c 780 By Patents A/c 5,000
Mohan’s Capital A/c 520 1,300
6,300 6,300