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5.14 Double Entry Book Keeping—CBSE XII
They admit D into partnership from 1st April, 2018 and give him a share of 1/8th in the
rupee on the following terms:
(i) D should bring in ` 4,200 as goodwill and ` 7,000 as capital.
(ii) Furniture be depreciated by 12%.
(iii) The Stock be depreciated by 10%.
(iv) Provision of 5% be created for Doubtful Debts.
(v) The value of Land and Building having over-depreciated, be brought up to ` 31,000.
(vi) After making the above adjustments, the Capital Accounts of the old partners (who
continue to share in the same proportion as before) be adjusted on the basis of the
proportion of D’s Capital to his share in the business, i.e., cash to be paid or brought
in by the old partners, as the case may be.
Prepare Profit and Loss Adjustment Account, Cash Account, and opening Balance Sheet of
the new firm.

Solution: In the Books of the Firm
Dr. PROFIT AND LOSS ADJUSTMENT ACCOUNT Cr.

Particulars ` Particulars `
To Furniture A/c 420 By Land and Building A/c 7,000
To Stock A/c 1,400
To Provision for Doubtful Debts A/c 630
To Gain (Profit) transferred to:
A’s Capital A/c (6/14) 1,950
B’s Capital A/c (5/14) 1,625
C’s Capital A/c (3/14) 975 4,550
7,000 7,000

Dr. CASH ACCOUNT Cr.
Particulars ` Particulars `
To Balance b/d 900 By A’s Capital A/c (WN 3) 1,750
To D’s Capital A/c 7,000 By B’s Capital A/c (WN 3) 1,625
To Premium for Goodwill A/c 4,200 By Balance c/d 9,350
To C’s Capital A/c (WN 3) 625
12,725 12,725

BALANCE SHEET OF A, B, C AND D as at 1st April, 2018
Liabilities ` Assets `
Capital A/cs: A 21,000 Land and Building 31,000
B 17,500 Furniture 3,080
C 10,500 Debtors 12,600
D 7,000 56,000 Less: Provision for Doubtful Debts 630 11,970
Creditors 9,000 Stock 12,600
Bills Payable 3,000 Cash 9,350
68,000 68,000