The Balance Sheet of W and R who shared profits in the ratio of 3:2 was as follows on January 01, 2015.
Balance Sheet of W and R as on Jan. 01, 2015
| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Sundry Creditors | 20,000 | Cash in hand | 5,000 |
| Partner's Capital: W 40,000; R 30,000 | 70,000 | Sundry Debtors 20,000 less Provision for doubtful debts 700 | 19,300 |
| Stock | 25,000 | ||
| Plant and Machinery | 35,000 | ||
| Patents | 5,700 | ||
| Total | 90,000 | Total | 90,000 |
On this date B was admitted as a partner on the following conditions:
- He was to get 4/15 share of profit.
- He had to bring in ₹30,000 as his capital.
- He would pay cash for goodwill which would be based on 2½ years purchase of the profits of the past four years.
- W and R would withdraw half the amount of goodwill premium brought by B.
- The assets would be revalued as: Sundry Debtors at book value less a provision of 5%; Stock at ₹20,000; Plant and Machinery at ₹40,000; and Patents at ₹12,000.
- Liabilities were valued at ₹23,000, one bill for goods purchased having been omitted from books.
- Profit for the past four years were: 2011 — ₹15,000; 2012 — ₹20,000; 2013 — ₹14,000; 2014 — ₹17,000.
Give necessary journal entries and ledger accounts to record the above, and prepare the Balance Sheet after B's admission.
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Start your 14-day free trial to unlock the full solution →Goodwill of the firm ₹41,250; B brings ₹30,000 capital + ₹11,000 goodwill. Revaluation profit ₹3,000 (3:2). W and R withdraw half the premium (₹3,300 and ₹2,200). Closing capitals: W ₹45,100, R ₹33,400, B ₹30,000. New ratio 33:22:20. Balance Sheet totals ₹1,31,500.
Concept
This is a full NCERT Class 12 Accountancy admission problem where goodwill has to be valued (average profits method) before it can be treated. The new partner pays goodwill in cash; because the sacrificing ratio equals the old ratio 3:2 (nothing being said about how B acquires his share), the premium is credited to W and R in 3:2, and they are allowed to withdraw half of it.
Working Notes
1. Goodwill — Total profit of four years = 15,000 + 20,000 + 14,000 + 17,000 = ₹66,000. Average = ₹66,000/4 = ₹16,500. Goodwill = ₹16,500 × 2½ (5/2) = ₹41,250. B's share = ₹41,250 × 4/15 = ₹11,000.
2. Revaluation — Provision for doubtful debts raised to 5% of ₹20,000 = ₹1,000 (increase of ₹300); Stock down ₹5,000; Plant up ₹5,000; Patents up ₹6,300; Creditors (liabilities) up ₹3,000. Net profit = (5,000 + 6,300) − (300 + 5,000 + 3,000) = ₹3,000, shared 3:2 → W ₹1,800, R ₹1,200.
3. New profit-sharing ratio — Remaining share after B = 1 − 4/15 = 11/15.
W = 11/15 × 3/5 = 33/75; R = 11/15 × 2/5 = 22/75; B = 4/15 = 20/75 → 33:22:20.
Solution
Journal
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| 2015 Jan 1 | Cash A/c Dr. | 41,000 | ||
| To B's Capital A/c | 30,000 | |||
| To Goodwill A/c | 11,000 | |||
| (Sum brought in by B as his capital and his share (4/15) of the goodwill) | ||||
| Goodwill A/c Dr. | 11,000 | |||
| To W's Capital A/c | 6,600 | |||
| To R's Capital A/c | 4,400 | |||
| (Goodwill credited to W and R in old ratio 3:2) | ||||
| W's Capital A/c Dr. | 3,300 | |||
| R's Capital A/c Dr. | 2,200 | |||
| To Cash A/c | 5,500 | |||
| (Half of goodwill withdrawn by the old partners) | ||||
| Revaluation A/c Dr. | 5,300 | |||
| To Provision for Doubtful Debts A/c | 300 | |||
| To Stock A/c | 5,000 | |||
| (Increase in provision to ₹1,000 and decrease in stock) | ||||
| Plant and Machinery A/c Dr. | 5,000 | |||
| Patents A/c Dr. | 6,300 | |||
| To Revaluation A/c | 11,300 | |||
| (Increase in value of plant and patents) | ||||
| Revaluation A/c Dr. | 3,000 | |||
| To Sundry Creditors A/c | 3,000 | |||
| (Increase in liabilities) | ||||
| Revaluation A/c Dr. | 3,000 | |||
| To W's Capital A/c | 1,800 | |||
| To R's Capital A/c | 1,200 | |||
| (Profit on revaluation transferred to W and R in 3:2) |
Cash Account
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Balance b/d | 5,000 | By W's Capital | 3,300 |
| To B's Capital | 30,000 | By R's Capital | 2,200 |
| To Goodwill | 11,000 | By Balance c/d | 40,500 |
| Total | 46,000 | Total | 46,000 |
Revaluation Account
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---:|---|---:| …
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