Important Questions

Chapter – Change in PSR

Q 1. A and B are partners sharing profits equally. They agree to admit C for equal share. For this purpose
goodwill is to be valued at 150% of the average annual profits of the last 5 year's profits.
Profits were:
Year ended 31st March 2015 40,000
31st March 2016 60,000
31st March 2017 1,00,000
31st March 2018 20,000 (Loss)
31st March 2019 1,50,000
It was observed that:
(i) During the year ended 31st March 2016, an asset of the original cost of 2,00,000 with book value of
1,50,000 was sold for 1,24,000.
(ii) On 1st April, 2017, 2 Computer's costing 1,00,000 were purchased and were wrongly debited to
Travelling Expenses. Depreciation on Computers was to be charged @ 20% p.a. on written down value
basis.
Calculate the value of goodwill.

Q 2. A and B are partners sharing profits and losses in the ratio of 3: 2. They agree to take C into
partnership for 1/3rd share. For this purpose, goodwill is to be valued at two year's purchase of the
average profit of last four years which were as follows:
Year ending on 31st March 2014 50,000 (Profit)
Year ending on 31st March 2015 1,20,000 (Profit)
Year ending on 31st March 2016 1,80,000 (Profit)
Year ending on 31st March 2017 70,000 (Loss)

On 1st April, 2016 a Motor bike costing 50,000 was purchased and debited to travelling expenses
account, on which depreciation is to be charged @ 20% p.a. calculate the value of goodwill.

Q 3. Calculate the goodwill of a firm on the basis of two year's purchase of the weighted average profits
of the last five years. Weights assigned to each year would be: 1, 2, 3, 4 and 5 respectively to the profits
ended 31st March 2015, 2016, 2017, 2018 and 2019. The Profits for these five years were:

Year ended 31st March, 31st March, 31st March, 31st March, 31st March,
2015 2016 2017 2018 2019
Profits (Rs) 36,000 1,70,000 1,90,000 2,00,000 3,50,000

Scrutiny of books of accounts revealed the following:

(i) An abnormal loss of 50,000 was incurred during the year ended 31st March, 2015.
(ii) An abnormal gain of 30,000 was earned during the year ended 31st March, 2016.
(iii) Repairs to Car amounting to 40,000 was wrongly debited to Vehicles A/c on 1st January, 2018.
Depreciation was charged on Vehicles @ 10% p.a. on Straight Line Method.
(iv) Closing Stock as on 31st March 2018 was undervalued by 50,000.

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Q 4. A firm earned net profits during the last seven years as follows:
2015 20,000 Profit 2016 70,000 Loss
2017 40,000 Loss 2018 2,50,000 Profit
2019 2,70,000 Profit 2020 3,00,000 Profit
2021 3,20,000 Profit

The Capital invested in the firm is 12,00,000, Normal rate of return in the similar type of business is 10%.
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Calculate the value of goodwill on the basis of 2 2 years’ purchases of average super profits earned
during the above mentioned seven years.

Q 5. Average profits of a firm during the last few years are 80,000 and the normal rate of return in a
similar business is 10%. If the goodwill of the firm is 1,00,000 at 4 year's purchase of super profit, find
the capital employed by the firm.

Q 6. From the figures given below, calculate goodwill according to the capitalisation of Average Profits
Method:

(i) Actual Average Profits = 72,000

(ii) Normal Rate of Return = 10%
(iii) Assets = 9,70,000
(iv) Liabilities = 4,00,000

Q 7. From the figures given below, calculate goodwill according to the capitalisation of Super Profit
Method:

(i) Actual Average Profits = 72,000

(ii) Normal Rate of Return = 10%
(iii) Assets = 9,70,000
(iv) Liabilities = 4,00,000

Q 8. A, B and C are partners sharing profits and losses in the ratio of 5:4:1. It was decided that with effect
from 1st April, 2021 the profit sharing ratio will be 9:6:5. Goodwill is to be valued at 2 year's purchase of
average of 3 year's profits. The profits for 2018-19, 2019-20 and 2020-21 were 48,000, 42,000 and
60,000 respectively.

Pass the necessary journal entry for the treatment of goodwill.

Q 9. X and Y were partners sharing profits and losses in the ratio of 3:1. They decided that with effect
from 1st April 2021, they would share profits and losses in the ratio of 5:3. The partnership deed
provides that in the event of any change in profit sharing ratio, the goodwill should be valued at the total
of two year's profits preceding the date the decision became effective.

The profits for 2018-19, 2019-20 and 2020-21 were 60,000, 70,000 and 90,000 respectively. Pass the
necessary Journal entry to give effect to the above arrangement.

Q 10. X, Y and Z are partners sharing profits in the ratio of 4:3:2. From April 1, 2017, they decided to
share the profits equally. On that date their books showed the following items:
Profit & Loss Account (Cr.) 1,20,000

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General Reserve 45,000
Workmen Compensation Reserve 60,000
Advertisement Suspense Account (Dr.) 90,000
Record the necessary Journal entries.

Q 11. P, Q and R sharing profits and losses in the ratio of 3:2:1, decide to share future profits and losses
in the ratio of 4: 3: 2 with effect from 1st April, 2017. Following is an extract of their Balance Sheet as at
31st March, 2017:

Liabilities Rs Assets Rs

Workmen 60,000

Compensation Reserve

Show the accounting treatment under the following alternative cases:

Case (i) If there is no other information.

Case (ii) If a claim on account of workmen's compensation is estimated at 24,000.
Case (iii) If a claim on account of workmen's compensation is estimated at ₹60,000.
Case (iv) If a claim on account of workmen's compensation is estimated at ₹75,000.

Q 12. P, Q and R sharing profits and losses in the ratio of 3:2:1, decide to share profits and losses equally
with effect from 1st April, 2021. Following is an extract of their Balance Sheet as at 31st March, 2021:

Liabilities Rs Assets Rs

Investment Fluctuation 30,000 Investments (At Cost) 5,00,000

Reserve

Show the accounting treatment under the following alternative cases:

Case (i) If there is no other information.

Case (ii) If the market value of Investments is 5,00,000.
Case (iii) If the market value of Investments is 4,88,000.
Case (iv) If the market value of Investments is 4,46,000.
Case (v) If the market value of Investments is 5,06,000.

Q 13. Ashok, Bhim and Chetan were partners in a firm sharing profits in the ratio of 3:2:1. Their Balance
Sheet as at 31-3-2015 was as follows:

Balance Sheet of Ashok, Bhim and Chetan as at 31-3-2015

Liabilities Rs Assets Rs

Creditors 1,00,000 Land 1,00,000

Bills Payable 40,000 Building 1,00,000

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 General Reserve 60,000 Plant 2,00,000
Capitals: 3,50,000 Stock 80,000
Ashok 2,00,000 Debtors 60,000
Bhim 1,00,000 Bank 10,000
Chetan 50,000
5,50,000 5,50,000
Ashok, Bhim and Chetan decided to share the future profits equally, w.e.f., April 1, 2015. For this it was
agreed that:

(i) Goodwill of the firm be valued at 3,00,000.

(ii) Land be revalued at 1,60,000 and building be depreciated by 6%.
(iii) Creditors of 12,000 were not likely to be claimed and hence be written off.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the reconstituted firm.

Q 14. A, B & C were partners in a firm sharing profits & losses in the ratio of 3:2:1. On March 31, 2017,
their Balance Sheet was as follows:

` BALANCE SHEET as at March 31, 2017

Liabilities ₹ Assets ₹
Capitals: Fixed Assets 1,50,000
A 50,000 Current Assets 65,000
B 40,000
C 30,000 1,20,000
Reserve Fund 18,000
Creditors 27,000
Employees Provident Fund 50,000
2,15,000 2,15,000
From April 1, 2017, they decided to share future profits equally. For this purpose, the followings were
agreed upon:
(i) Goodwill of the firm was valued at 3,00,000.
(ii) Fixed Assets will be depreciated by 10%.
(iii) Expenses of 3,000 were paid by the firm for getting the value of fixed assets certified.
(iv) Capitals of the partners will be in proportion to their new profit-sharing ratio. For this purpose,
Current Accounts will be opened.
Pass necessary Journal entries for the above transactions and prepare Revaluation Account, Partners'
Capital Accounts and Balance Sheet of the reconstituted firm.

Q 15. A, B, C and D were partners in a firm sharing profits in the ratio of 3:2:3:2. On 1.4.2016, their
Balance Sheet was as follows:

BALANCE SHEET of A, B, C and D as on 1.4.2018

Liabilities ₹ ₹
Capitals: Fixed Assets 8,25,000
A 2,00,000 Current Assets 3,00,000
B 2,50,000
C 2,50,000

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 D 3,10,000 10,10,000
Sundry Creditors 90,000
Workmen
Compensation Reserve 25,000
11,25,000 11,25,000

From the above date the partners decided to share the future profits in the ratio of 4:3:2:1. For this
purpose the goodwill of the firm was valued at 2,70,000. It was also considered that:
(i) The claim against Workmen Compensation Reserve has been estimated at 30,000 and fixed assets will
be depreciated by 25,000.
(ii) Adjust the capitals of the partners according to the new profit sharing ratio by opening Current
Accounts of the partners.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of the reconstituted firm.

Q 16. A, B and C are partners sharing profits and losses in the ratio of 3:3:2. Their balance sheet as at
31st March 2019 was as follows:

Liabilities ₹ Assets ₹
Sundry Creditors 24,000 Cash at Bank 37,000
General Reserve 36,000 Sundry Debtors 44,000
Capital Accounts: Stock 1,20,000
A 2,00,000 Machinery 1,59,000
B 1,50,000 Building 2,00,000
C 1,50,000 5,00,000

5,60,000 5,60,000

Partners decided that with effect from 1st April 2019, they would share profits and losses in the ratio of
4:3:2. It was agreed that:
(i) Stock be valued at 1,10,000.
(ii) Machinery is to be depreciated by 10%.
(iii) A provision for doubtful debts is to be made on debtors @ 5%.
(iv) Building to be appreciated by 20%.
(v) A liability for 2,500 included in sundry creditors is not likely to arise.
Partners agreed that the revised values of assets and liabilities are not to be recorded in the books and
they also do not want to distribute the general reserve. You are required to record the change by passing
a single journal entry with necessary working note. Also prepare the revised balance sheet.

Q 17. P, Q and R are partners in a firm sharing profits in the ratio of 2:2:1. On March 31, 2024, their
Balance Sheet showed a general reserve of ₹ 3,00,000. On that date they decided to share future profits
equally. Record the necessary journal entry in the books of the firm under the following circumstances:

(i) When they want to transfer the general reserve in their capital accounts.

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(ii) When they don't want to transfer general reserve in their capital accounts and prefer to record an
adjustment entry for the same.

Q 18. X, Y and Z were sharing profits and losses in the ratio of 5:3: 2. They decided to share future profits
and losses in the ratio of 2:3:5 with effect from 1.4.2022. They decided to record the effect of the
following, without effecting their book values:

(i) Profit and Loss Account ₹24,000

(ii) Advertisement Suspense Account ₹12,000

Pass the necessary adjusting entry.

Q 19. (A). A, B, C and D are partners in a firm sharing profits and losses in the ratio of 2:2:1:1. They
decided to share future profits and losses in the ratio of 3:2:2:3. For this purpose goodwill of the firm
valued at ₹1,50,000. There was also a reserve of ₹60,000 in the books of the firm.

Find out sacrifice ratio and gaining ratio and pass necessary journal entry assuming that reserve is not to
be distributed.

Q 19. (B). Arun and Varun were in partnership sharing profits in the ratio of 2: 3. With effect from 1st
May 2021 they agreed to share profits in the ratio of 1:2. For this purpose the goodwill of the firm is to
be valued at two year's purchase of the average profits of last three years, which were ₹1,50,000,
₹1,40,000 and ₹2,20,000 respectively. Reserves appear in the books at ₹1,10,000. Partners do not want
to distribute the reserves. You are required to give effect to the change by passing a single journal entry.

Q 20. A, B and C are partners sharing profits and losses in the ratio of 2:2:1. From 1st April, 2023 they
decided to share future profits and losses equally.
Following balances appeared in their books:
Profit and Loss A/c (Cr.) 20,000
Advertisement Suspense A/c (Dr.) 15,000
Workmen Compensation Reserve 60,000
It was agreed that:
(i) Goodwill should be valued at two year's purchase of super profits. Firm's average profits are ₹75,000.
Capital invested in the business is ₹6,00,000 and normal rate of return is 10%.

(ii) Furniture (book value of ₹50,000) be reduced to ₹30,000.

(iii) Computers (book value of ₹40,000) be reduced by ₹10,000.

(iv) Claim on account of Workmen's Compensation amounted to ₹50,000.

(v) Investments (book value of ₹30,000) were revalued at ₹25,000.

Pass necessary journal entries for the above.

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 Chapter – Admission
Q 1. A and B are partners in a firm sharing profits and losses in the ratio of 3: 2. C is admitted for 1/5th
share in profits of the firm. Calculate the new profit sharing ratio of the partners if,
(a) C gets it equally from A and B
(b) C gets it from A and B in the ratio of 2: 1
(c) C gets it wholly from A
(d) C gets it wholly from B
(e) C gets it 3/20 from A and 1/20 from B.

Q 2. A and B are partners in a firm sharing profits in the ratio of 7: 3. C is admitted as a new partner. A
sacrifices 2/7th of his share in profits in favour of C and B 1/7th of his share in favour of C. Calculate the
new profit sharing ratio between A, B and C.

Q 3. A and B are equal partners. They admit C and D as partners with 1/5 and 1/6 share respectively.
What is the profit sharing ratio of all the partners?

Q 4. Anil and Sunil are partners sharing profits and losses in the ratio of 3: 2. They admit Charan as a new
partner from 1st April, 2020. Anil gives 1/3rd of his share while Sunil gives 1/10th from his share to
Charan. Calculate the sacrificing ratios and the new ratios.

Q 5. Ram and Shyam are partners. Their profit-sharing ratio is 3: 2. Mohan joins the partnership for 1/4th
share in profits (of which he acquires 2/3 from Ram and 1/3 from Shyam). Mohan brings in 6,00,000 for
capital and 2,40,000 for goodwill. 1/4 of the amount of goodwill is withdrawn by old partners.
Pass necessary Journal entries and find out new profit sharing ratio.

Q 6. A and B are partners sharing profits & losses as 2:1. C and D are admitted and profit sharing ratio
becomes 4:2:3:1. Goodwill is valued at 2,00,000. D brings required goodwill and 50,000 cash for Capital.
C brings in 50,000 cash and 40,000 worth stock as his capital in addition to the required amount of
goodwill in cash.
Show the necessary journal entries.

Q 7. A and B are partners in a firm sharing profits in the ratio of 7: 5. On April 1, 2021 they admit C as a
new partner for 1/6th share. The new ratio will be 13:7:4. C contributed the following assets towards his
capital and for his share of goodwill: Stock 60,000; Debtors 80,000; Land 2,00,000; Plant and Machinery
1,20,000. On the date of admission of C, the goodwill of the firm was valued at 7,50,000. Record
necessary journal entries in the books of the firm on C's admission and prepare C's capital account.

Q 8. A, B, C and D were partners in a firm sharing profits and losses equally. E was admitted as a new
partner for 1/3rd share in the profits of the firm which he acquires equally from C and D. On E's admission
the goodwill of the firm was valued at 3,00,000.

Calculate the new profit sharing ratio on E's admission. Also pass necessary journal entry on E's
admission, assuming that he failed to bring his share of goodwill in cash.

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Q 9. A and B are partners sharing profits in the ratio of 3: 2. They admit C into the firm for 1/4th share in
profit which he takes 1/6th from A and 1/12th from B. C brings 50,000 as goodwill out of his share of
90,000. No goodwill account appears in the books of the firm.
Pass necessary journal entries to record this arrangement.

Q 10. Vimal and Kamal are partners sharing profits in the ratio of 4:1. They admit Amal as a new partner
who brings 1,50,000 as his share of goodwill (premium). Amal is entitled to 1/3rd share in profits. As
between themselves, Vimal and Kamal agree to share future profits and losses equally.

You are required to:

(a) Calculate the new profit sharing ratio.

(b) Record journal entries showing the appropriation of premium.

Q 11. Pass journal entries to record the following transactions on the admission of a new partner:

(i) Stock is undervalued by 10% (Book Value of Stock 54,000)

(ii) Stock is overvalued by 10% (Book Value of Stock 66,000)
(iii) Value of Land & Building is to be increased to 5,00,000 (Book Value 4,00,000)
(iv) Value of Land & Building is to be increased by 5,00,000 (Book Value 4,00,000)
(v) A debtor whose due of 40,000 was written off as bad debts last year, paid 30,000 in full
settlement.
(vi) An old customer, whose account was written off as bad debts has promised to pay 15,000 in full
settlement of his account of 25,000.
(vii) A liability for claim, included in creditors for 20,000 is settled at 16,000.
(viii) A computer purchased on 1st October 2016 for 40,000 debited to Office Expenses Account is to
be brought into account on 31st March 2018 charging depreciation @10% p.a. on written down
value basis.

Q 12. Krishna and Suresh were partners in a firm sharing profits in the ratio of 3: 1. On 1st April, 2015
they admitted Rahul as a new partner for 1/5th share in profits of the firm. On the date of Rahul's
admission the Balance Sheet of Krishna and Suresh showed a General Reserve of 1,20,000, a debit
balance of 60,000 in Profit and Loss A/c and Workmen Compensation Reserve of 1,50,000.
The following was agreed upon on Rahul's admission:
(i) Rahul will bring 1,50,000 as his capital and his share of goodwill premium in cash.
(ii) Goodwill of the firm be valued at 2,40,000.
(iii) There was a claim of Workmen Compensation for 1,70,000.
(iv) The partners decided to share future profits in the ratio of 3:1:1.
Pass the necessary Journal entries for the above on Rahul's admission.
Q 13. A and B share the profits of a business in the ratio of 5: 3. They admit C, into the firm for 1/4th
share in the profits to be contributed equally by A and B. On the date of admission of C, the Balance
Sheet of the firm was as follows:

Liabilities Rs Assets Rs

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 A's Capital 40,000 Machinery 30,000
B's Capital 30,000 Furniture 20,000
Workmen's 4,000 Stock 15,000
Compensation Reserve Debtors 15,000
Creditors 2,000 Bank 6,000
Provident Fund 10,000

86,000 86,000
Terms of C's admission were as follows:

(i) C will bring 30,000 for his share of capital and goodwill.

(ii) Goodwill of the firm has been valued at 3 year's purchase of the average super profits of last four
years. Average profits of the last four years are 20,000 while the normal profits that can be earned with
the capital employed are 12,000.

(iii) Furniture is undervalued by 12,000 and the value of stock is reduced to 13,000. Provident Fund be
raised by 1,000.

(iv) Creditors are unrecorded to the extent of 6,000.

Prepare Revaluation Account, Partner's Capital Accounts and the new Balance Sheet of A, B and C.

Q 14. Sunaina and Tamanna are partners in a firm sharing profits and losses in the ratio of 3:2. Their
Balance Sheet as at 31st March, 2020 stood as follows:

BALANCE SHEET

Liabilities Rs Assets Rs
Capital Accounts: Plant & Machinery 1,20,000
Sunaina 60,000 Land and Building 1,40,000
Tamanna 80,000 1,40,000 Debtors 1,90,000
Current Accounts: Less: Provision for
Sunaina 10,000 Doubtful debts (40,000) 1,50,000
Tamanna 30,000 40,000 Stock 40,000
General Reserve 1,20,000 Cash 30,000
Workmen's Compensation 50,000 Goodwill 20,000
Reserve
Creditors 1,50,000
5,00,000 5,00,000
They agreed to admit Pranav into partnership for 1/5th share of profits on 1st April, 2020, on the
following terms:

(a) All Debtors are good.

(b) Value of land and building to be increased to 1,80,000.

(c) Value of plant and machinery to be reduced by 20,000.

(d) The liability against Workmen's Compensation Reserve is determined at 20,000 which is to be paid
later in the year.

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(e) Mr. Anil, to whom 40,000 were payable (already included in above creditors), drew a bill of exchange
for 3 months which was duly accepted.

(f) Pranav to bring in capital of 1,00,000 and 10,000 as premium for goodwill in cash.

Journalize.

Q 15. X and Y are in partnership, sharing profits in the ratio of 5:3 respectively. Their balance sheet is as
follows:

Liabilities Rs Assets Rs
Creditors 28,000 Cash at Bank 15,800
Workmen's Compensation Debtors 40,000
Reserve 12,000 Less: Provision 1,800 38,200
Z's Loan A/c 30,000 Stock 56,000
Capital A/cs: Investments 10,000
X 50,000 Goodwill 10,000
Y 40,000 Plant 30,000
1,60,000 1,60,000
Z is admitted into partnership on the following terms:

(1) The new profit-sharing ratio will be 4:3:2 between X, Y and Z respectively.

(2) Z's loan should be treated as his capital.

(3) Goodwill of the firm is valued at 27,000.

(4) 8,000 of investments were to be taken over by X and Y in their profit sharing ratio.

(5) Stock be reduced by 10%.

(6) Provision for doubtful debts should be @ 5% on debtors and a provision for discount on debtors @
2% should also be made.

(7) The liability of Workmen's Compensation Reserve was determined to be 15,000.

(8) X is to withdraw 6,000 in cash.

Give journal entries to record the above and prepare balance sheet of the new firm.

Q 16. Following is the balance sheet of A and B who share profits and losses in the ratio of 2: 1 as at 31st
March, 2018:

Liabilities Rs Assets Rs
A's Capital 3,00,000 Cash and Bank 25,000
B's Capital 2,00,000 Sundry Debtors 2,00,000
Reserves 70,000 Stock 2,15,000
Profit and Loss A/c 50,000 Plant and Machinery 1,80,000
Sundry Creditors 80,000 Goodwill 60,000
Advertisement Expenditure 20,000
7,00,000 7,00,000

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They admit C as a partner from 1st April 2018 with 1/4th share in the profits of the firm. C brings
3,20,000 as his Capital. Give journal entries for the adjustment of goodwill.

Q 17. The following is the Balance Sheet of A and B as at 31st March, 2018 who share profits in the ratio
of 2: 1.

Liabilities Rs Assets Rs
Bank Overdraft 15,000 Sundry Debtors 40,000
Reserve Fund 12,000 Less: Provision 3,600 36,400
Sundry Creditors 20,000 Stock 20,000
Capitals: Building 25,000
A 40,000 Patents 2,000
B 30,000 Machinery 33,600
1,17,000 1,17,000

They admitted C into partnership on 1st April, 2018. New profit sharing ratio is agreed as 3:2:1. C brings
in proportionate capital after the following adjustments:

(1) C brings in 10,000 in cash as his share of Goodwill.

(2) Provision for doubtful debts is to be reduced by 2,000.

(3) There is an old typewriter valued 2,600. It does not appear in the books of the firm. It is now to be
recorded.

(4) Patents are valueless.

(5) 2% discount is to be received from creditors.

Prepare Revaluation A/c, Capital A/cs and the opening Balance Sheet.

Q 18. A and B are partners and the profit is divided as follows: 1/2 to A; 1/3 to B and 1/6 carried to a
Reserve Account. They admit C as a partner on 1st April, 2021 at which date the Balance Sheet of the
firm was as under:

Liabilities Rs Assets Rs
Creditors 1,60,000 Cash at Bank 20,000
Outstanding Expenses 12,000 Debtors 2,20,000
Reserve 90,000 Stock 1,80,000
Capital A/cs: Plant and Machinery 1,50,000
A 3,18,000 Buildings 2,00,000
B 2,00,000 5,18,000 Advertisement Expenditure
10,000

7,80,000 7,80,000

Following terms were agreed upon :

(i) Stock is undervalued by 10%.

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(ii) Depreciation of 30,000 had been omitted on plant and machinery for the year ended 31st March,
2021.
(iii) Creditors include a contingent liability of 50,000 which has been decided by the Court at 43,000.
(iv) In respect of debtors, the following debts proved bad or doubtful:
15,000 due from Ram-bad to the full extent;
20,000 due from Shyam - insolvent, estate expected to pay only 40%.
(v) Goodwill of the firm is valued at 60,000. However, C is unable to bring his share of goodwill in cash.
(vi) C is given 1/5th share of profits which he acquires equally from A and B. C is to bring in capital
proportionate to his share of profits in the firm.
You are required to prepare Revaluation Account, Capital Accounts and the new balance sheet of the
firm.
Q 19. The following is the balance sheet of A, B and C sharing profits and losses in proportion of 6:5:3
respectively:

Liabilities Rs Assets Rs
Creditors 18,900 Cash 1,890
Bills Payable 6,300 Debtors 26,460
General Reserve 10,500 Stock 29,400
Capitals: Furniture 7,350
A 35,400 Land & Building 45,150
B 29,850 Goodwill 5,250
C 14,550 79,800

1,15,500 1,15,500
They agreed to take D into partnership and give him 1/8th share on the following terms:-

(1) That Furniture be depreciated by 2,920.

(2) An Old Customer, whose account was written off as bad, has promised to pay 2,000 in full settlement
of his full debt.

(3) That a provision of 1,320 be made for outstanding repair bills.

(4) That the value of land and building having appreciated be brought upto 56,910.

(5) That D should bring in 14,700 as his capital.

(6) That D should bring in 14,070 as his share of goodwill.

(7) That after making the above adjustments, the capital accounts of old partners be adjusted on the
basis of the proportion of D's Capital to his share in business, i.e., actual cash to be paid off or brought in
by the old partners, as the case may be.

Pass the necessary journal entries and prepare the balance sheet of the new firm.

Q 20. A, B and C are partners in a firm sharing profits and losses in the ratio of 3: 2: 1. Their Balance
Sheet as at 31st March, 2018 is as follows:

Liabilities Rs Assets Rs
Sundry Creditors 36,000 Cash 14,000

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 Bank Overdraft 20,000 Sundry Debtors 50,000
Reserve 15,000 Less: Provision 2,500 47,500
Capital Accounts: Stock 60,000
A 60,000 Patents 6,000
B 60,000 Fixed Assets 98,500
C 50,000 1,70,000 Goodwill 15,000

2,41,000 2,41,000

On 1st April, 2018, D is admitted into the firm with 1/4th share in the profits, which he gets 1/8th from A
and 1/8th from B. Other terms of agreement are as under:

(a) D will introduce 60,000 as his capital and pay 18,000 as his share of goodwill.

(b) 20% of the reserve is to remain as a provision against bad and doubtful debts.

(c) A liability to the extent of 1,000 be created in respect of a claim for damages against the firm.

(d) An item of 4,000 included in sundry creditors is not likely to be claimed.

(e) Stock is to be reduced by 30% and patents to be written off in full.

(f) A is to pay off the Bank Overdraft.

After making the above adjustments the capital accounts of the old partners be adjusted on the basis of
D's capital to his share in the business, i.e., actual cash to be paid off to, or brought in by, the old
partners, as the case may be.

Prepare journal entries, Capital Accounts and the Balance Sheet of the new firm.

Q 21. Pass Journal entries to record following transactions on the admission of Manoj, as a partner in the
Journal of Leena and Rohit:
(i) Value of furniture is to be increased by ₹10,000.
(ii) Value of furniture is to be increased to 40,000 (Book value of furniture: ₹20,000).
(iii) Value of furniture is to be brought up to 120% of its value. (Book value of furniture: ₹50,000)
(iv) Stock is undervalued by 10% (Book value of stock: ₹18,000).
(v) Stock is overvalued by 10% (Book value of stock: ₹22,000).
(vi) Market value of computers is ₹25,000 (Book value of computers: ₹20,000).
(vii) Machinery is taken by Leena for ₹80,000 (Book value of machinery: ₹60,000).
(viii) One-third of machinery is taken by Rohit for ₹30,000 and balance is revalued ₹57,600 (Book value
of machinery: ₹72,000)
(ix) Out of the amount of insurance premium which was debited to Profit & Loss Account, ₹5,000 to be
carried forward to next year as prepaid expenses.
(x) Expenses on revaluation of ₹ 5,000 paid by Leena.
(xi) A debtor whose due of ₹14,000 were written off as bad debts last year, paid ₹10,000 in settlement.

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