6. Advanced Partnership Accounts
UNIT 1 : INTRODUCTION TO PARTNERSHIP ACCOUNTS
Question 1
X, Y Ltd. and Z Ltd. are partners of X & Co. The partnership deed provided that :
(a) The working partner Mr. X is to be remunerated at 15% of the net profits after charging his remuneration, but before charging interest on capital and provision for taxation;
(b) Interest is to be provided on capital at 15% per annum;
(c) Balance profits after making provision for taxation, is to be shared in the ratio of 1 : 2 : 2 by the three partners.
During the year ended 31st March, 1997 :
(i) the net profit before tax and before making any payment to partners amounted to Rs. 6,90,000;
(ii) interest on capitals at 15% per annum amounted to :
Rs. 60,000 for X; Rs. 1,50,000 for Y Ltd. and Rs. 1,80,000 for Z Ltd. The capitals have remained unchanged during the year;
(iii) provision for tax is to be at 40% of “total income” of the firm. The toal income has been computed at Rs. 1,95,000.
You are asked by :
(a) the firm to pass closing entries in relation to the above;
(b) Y Ltd. to pass journal entries in its books pertaining to its income from the firm and show the investment in partnership account as it would appear in its ledger;
(c) Z Ltd. to show, how the above information will appear in its financial statements for the year;
(d) Shri X to show the working, if any, in relation to the above.
(20 marks) (Intermediate–Nov. 1997)
Answer
Journal of partnership firm of Shri X, Y Ltd. and Z Ltd.
Closing entries on 31st March, 1997
Profit and loss account
Dr.
Dr.
Rs.
78,000
Cr.
Rs.
To Provision for taxation for A.Y.1997-98
(Being provision made for taxation at 40% on total income of Rs. 1,95,000)
78,000
Profit and loss appropriation account
Dr.
4,80,000
To Remuneration to X, the working partner
90,000
To Interest on capitals :
X
Y Ltd.
Z Ltd.
60,000
1,50,000
1,80,000
(Being interest on capitals provided at 15% per annum and remuneration to working partner X at 15% of net profit after charging his remuneration but before providing for tax and interest on capitals – now recorded)
Profit and loss appropriation account
Dr.
1,32,000
(Rs. 6,90,000 - Rs.78,000 - Rs.4,80,000)
To Capital Accounts :
X
Y Ltd.
Z Ltd.
26,400
52,800
52,800
(Being balance profits credited to partners’ capital accounts in the ratio of 1 : 2 : 2)
(b) Journal entries in the books of Y Ltd.
1997
March 31
Dr.
Rs.
Cr.
Rs.
Investment in partnership with Shri X and Z Ltd.
Dr.
2,02,800
To Interest on capital (taxable)
1,50,000
To Share to profits (non-taxable)
52,800
(Being entry to record interest income at 15% p.a. on capital of Rs. 10,00,000 and 2/5th share of profit in the firm)
Interest on capital
Dr.
1,50,000
Share of profits
Dr.
52,800
To Profit and Loss A/c
2,02,800
(Being incomes transferred to profit and loss account)
Ledger
Investment in partnership with Shri X and Z Ltd.
1996
Dr.
Rs.
Cr.
Rs.
Balance
Rs.
April 1 1997
To Balance b/d
10,00,000
Dr.10,00,000
March 31
To Interest income from the firm
To Share of profits in the firm
By Balance c/d
1,50,000
52,800
12,02,800
Dr. 11,50,000
Dr. 12,02,800
12,02,800
12,02,800
(c) Extracts from the financial statements of Z Ltd.
Revenue statement for the year ended 31st March, 1997
1996-97
Rs.
1995-96
Rs.
Operating income:
Income from partnership :
Interest on capital invested
Share of profit
1,80,000
52,800
2,32,800
Extracts from schedule of investments attached to and forming part of the balance sheet as at 31st March, 1997.
31.3.1997
Rs.
31.3.1996
Rs.
Investment in partnership with Shri X and Y Ltd.
14,32,800
12,00,000
Partners
Capitals as on 31st March
Share of profit
1997
Rs.
1996
Rs.
1996-97
1995-96
X
5,76,400
4,00,000
1/5
1/5
Y Ltd.
12,02,800
10,00,000
2/5
2/5
Z Ltd.
14,32,800
12,00,000
2/5
2/5
Working for capitals :
X
Rs.
Y Ltd.
Rs.
Z Ltd.
Rs.
Opening capital
4,00,000
10,00,000
12,00,000
Remuneration credited
90,000
--
--
Interest on capital
60,000
1,50,000
1,80,000
Share in profits
26,400
52,800
52,800
5,76,400
12,02,800
14,32,800
(d) Working for remuneration to X, the working partner
Goodwill = Rs. 55,000 ´ 2 years = Rs. 1,10,000.
(3) Bank Account
Rs.
Rs.
To
Balance b/d
1,00,000
By
Robert’s Capital A/c
58,000
To
Richard’s Capital A/c
13,500
By
Balance c/d
55,500
1,13,500
1,13,500
Question 8
The following was the Balance Sheet of ‘A’ and ‘B’, who were sharing profits and losses in the ratio of 2:1 on 31.12.2006:
Liabilities
Rs.
Assets
Rs.
Capital Accounts
Plant and machinery
12,00,000
A
10,00,000
Building
9,00,000
B
5,00,000
Sundry debtors
3,00,000
Reserve fund
9,00,000
Stock
4,00,000
Sundry creditors
4,00,000
Cash
1,00,000
Bills payable
1,00,000
29,00,000
29,00,000
They agreed to admit ‘C’ into the partnership on the following terms:
(i) The goodwill of the firm was fixed at Rs.1,05,000.
(ii) That the value of stock and plant and machinery were to be reduced by 10%.
(iii) That a provision of 5% was to be created for doubtful debts.
(iv) That the building account was to be appreciated by 20%.
(v) There was an unrecorded liability of Rs.10,000.
(vi) Investments worth Rs.20,000 (Not mentioned in the Balance Sheet) were taken into account.
(vii) That the value of reserve fund, the values of liabilities and the values of assets other than cash are not to be altered.
(viii) ‘C’ was to be given one-fourth share in the profit and was to bring capital equal to his share of profit after all adjustments.
Prepare Memorandum Revaluation Account, Capital account of the partners and the Balance Sheet of the newly reconstituted firm. (16 Marks) (PE II, Nov. 2007)
Answer
Memorandum Revaluation Account Rs.
Rs.
To
Stock
40,000
By
Building
1,80,000
To
Plant & machinery
1,20,000
By
Investments
20,000
To
Provision for doubtful debts
15,000
To
Unrecorded liability
10,000
To
Profit transferred to Partners’ Capital A/cs (in old ratio)
A = 10,000
B = 5,000
15,000
2,00,000
2,00,000
To
Building
1,80,000
By
Stock
40,000
To
Investments
20,000
By
Plant & machinery
1,20,000
By
Provision for doubtful debts
15,000
By
Unrecorded liability
10,000
By
Loss transferred to Partners’ Capital A/cs (in new ratio)
A = 7,500
B = 3,750
C = 3,750
15,000
2,00,000
2,00,000
Partners’ Capital Accounts
A
B
C
A
B
C
To
Loss on Revaluation
7,500
3,750
3,750
By
Balance b/d
10,00,000
5,00,000
-
To
Reserve Fund
4,50,000
2,25,000
2,25,000
By
Reserve Fund
6,00,000
3,00,000
-
To
A (W.N.3)
-
-
17,500
By
C (W.N.3)
17,500
8,750
-
To
B (W.N.3)
-
-
8,750
By
Profit on Revaluation
10,000
5,000
To
Balance c/d
(Refer W.N.2)
11,70,000
5,85,000
5,85,000
By
Cash (Bal. Fig.)
8,40,000
16,27,500
8,13,750
8,40,000
16,27,500
8,13,750
8,40,000
Balance Sheet of newly reconstituted firm as on 31.12.2006
Liabilities
Rs.
Assets
Rs.
Capital Accounts
Plant & Machinery
12,00,000
A
11,70,000
Building
9,00,000
B
5,85,000
Sundry Debtors
3,00,000
C
5,85,000
Stock
4,00,000
Reserve Fund
9,00,000
Cash (1,00,000 + 8,40,000)
9,40,000
Sundry Creditors
4,00,000
Bills Payable
1,00,000
37,40,000
37,40,000
Working Notes:
1. Calculation of new profit and loss sharing ratio
C will get 1/4 th share in the new profit sharing ratio.
Therefore, remaining share will be 1-1/4 =3/4
Share of A will be 3/4 x 2/3 = 2/4 i.e. 1/2
Share of B will be 3/4 x 1/3 = 1/4
New ratio will be
A : B : C
1/2 : 1/4 : 1/4
2 : 1: 1
2. Calculation of closing capital of C
Closing capitals of A & B after all adjustments are:
A = Rs.11,70,000
B = Rs. 5,85,000
Since B’s capital is less than A’s capital, therefore B’s capital is taken as base.
Hence, C’s closing capital should be Rs.5,85,000 i.e. at par with B (as per new profit and loss sharing ratio)
3. Adjustment entry for goodwill*
Partners
Goodwill as per old ratio
Goodwill as per new ratio
Effect A
70,000
52,500
+ 17,500
-
B
35,000
26,250
+ 8,750
-
C
-
26,250
-
26,250
1,05,000
1,05,000
26,250
26,250
Adjustment entry will be:
C’s Capital A/c Dr.
26,250
To A’s Capital A/c
17,500
To B’s Capital A/c
8,750
* As per para 36 of AS 10, ‘Accounting for Fixed Assets’, goodwill should be recorded in the books only when some consideration in money or money’s worth has been paid for it. Therefore, the goodwill raised at the time of retirement of Robert is to be written off in new ratio among remaining partners including new partner – Richard.
* As per para 36 of AS 10, ‘Accounting for fixed Assets,’ goodwill should be recorded in the books only when some consideration in money or money’s worth has been paid for it. Therefore, the goodwill raised at the time of admission of C is to be written off in new ratio among all partners including new partner, C.
UNIT 2 : DISSOLUTION OF FIRMS
(A) Practical Questions:
Question 1
The firm of Kapil and Dev has four partners and as of 31st March, 1995, its Balance Sheet stood as follows:
Balance Sheet as on 31st March, 1995
Liabilities Rs. Assets Rs.
Capital A/cs: Land 50,000
F. Kapil 2,00,000 Building 2,50,000
S. Kapil 2,00,000 Office equipment 1,25,000
R. Dev 1,00,000 Computers 70,000
Current A/cs Debtors 4,00,000
F. Kapil 50,000 Stocks 3,00,000
S. Kapil 1,50,000 Cash at Bank 75,000
R. Dev 1,10,000 Other Current Assets 22,600
Loan from NBFC 5,00,000 Current A/c :
Current Liabilities 70,000 B. Dev 87,400
13,80,000 13,80,000
The partners have been sharing profits and losses in the ratio of 4:4:1:1. It has been agreed to dissolve the firm on 1.4.1995 on the basis of the following understanding :
(a) The following assets are to be adjusted to the extent indicated with respect to the book values :
Land 200%
Building 120%
Computers 70%
Debtors 95%
Stocks 90%
(b) In the case of the loan, the lender’s are to be paid at their insistence a prepayment premium of 1%.
(c) B. Dev is insolvent and no amount is recoverable from him. His father, R.Dev, however, agrees to bear 50% of his deficiency. The balance of the deficiency is agreed to be apportioned according to law.
Assuming that the realisation of the assets and discharge of liabilities is carried out immediately, show the Cash A/c, Realisation Account and the Partners’ Accounts.
(20 marks) (Intermediate – May 1995)
Answer In the books of M/s. Kapil and Dev
Cash Account (Bank Column)
Rs. Rs.
To Balance b/d 75,000 By Realisation A/c-
To Realisation A/c (Payment of sundry liabilities) 5,75,000
(Realisation of Sundry assets) 12,46,600 By Partners’ Capital A/cs:
F. Kapil 2,42,600
S. Kapil 3,42,600
R. Dev 1,61,400 7,46,600
13,21,600 13,21,600
Realisation Account
Rs. Rs.
To Land 50,000 By Current Liabilities 70,000
To Building 2,50,000 By Loan from NBFC 5,00,000
To Office equipments 1,25,000 By Cash A/c:
To Computers 70,000 Land 1,00,000
To Debtors 4,00,000 Building 3,00,000
To Stocks 3,00,000 Office Equip. 1,25,000
To Other Current Assets 22,600 Computers 49,000
To Cash A/c: Debtors 3,80,000
Current liabilities 70,000 Stocks 2,70,000
Loan from NBFC 5,05,000 5,75,000 Other Current Assets 22,600 12,46,600
To Partners’ Current A/cs:
Profit on realisation:
F. Kapil 9,600
S. Kapil 9,600
R. Dev 2,400
B. Dev 2,400 24,000
18,16,600 18,16,600
Partners’ Capital Accounts
F. Kapil S. Kapil R. Dev. B. Dev. F. Kapil S. Kapil R. Dev. B. Dev.
Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.
To Partners’ – – 85,000 By Balance b/d 2,00,000 2,00,000 1,00,000 –
Current A/cs
Transfer
To B.Dev A/c – – 42,500 – By Partners’
50% of Current A/c
deficiency transfer 59,600 1,59,600 1,12,400 –
To B.Dev A/c 17,000 17,000 8,500 – By R.Dev A/c
balance of –50% of
deficiency deficiency – – – 42,500
borne by
in capital ratio By F.Kapil A/c – – – 17,000
other partners By S.Kapil A/c – – – 17,000
(2:2:1) By S. Kapil A/c – – – 17,000
By R. Dev A/c – – – 8,500
To Cash 2,42,600 3,42,600 1,61,400 – (as per contra)
A/c-
final
Settlement
2,59,600 3,59,600 2,12,400 85,000 2,59,600 3,59,600 2,12,400 85,000
Partners’ Current Accounts
F. Kapil S. Kapil R. Dev. B. Dev. F. Kapil S. Kapil R. Dev. B. Dev.
Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.
To Balance b/d – – – 87,400 By Balance b/d 50,000 1,50,000 1,10,000 –
To Partners’ 59,600 1,59,600 1,12,400 – By Realisation A/c 9,600 9,600 2,400 2,400
Capital A/c By Partners’
(transfer) Capital A/c
(transfer) – – – 85,000
59,600 1,59,600 1,12,400 87,400 59,600 1,59,600 1,12,600 87,400
Note: In the absence of specific information, it is assumed that the assets are realised at the agreed values.
Question 2
The firm of LMS was dissolved on 31.3.95, at which date its Balance Sheet stood as follows:
Liabilities Rs. Assets Rs.
Creditors 2,00,000 Fixed Assets 45,00,000
Bank Loan 5,00,000 Cash and Bank 2,00,000
L’s Loan 10,00,000
Capital
L 15,00,000
M 10,00,000
S 5,00,000
Total 47,00,000 47,00,000
Partners share profits equally. A firm of Chartered Accountants is retained to realise the assets and distribute the cash after discharge of liabilities. Their fees which are to include all expenses is fixed at Rs. 1,00,000. No loss is expected on realisation since fixed assets include valuable land and building.
Realisations are:
S.No. Amount in Rs.
1 5,00,000
2 15,00,000
3 15,00,000
4 30,00,000
5 30,00,000
The Chartered Accountant firm decided to pay off the partners in ‘Higher Relative Capital Method’. You are required to prepare a statement showing distribution of cash with necessary workings. (15 Marks) (Intermediate–Nov. 1995)
Answer
In the Books of M/s LMS
Statement of Piecemeal Distribution (Under
Higher Relative Capital method)
Particulars Amount Creditors Bank L’s loan Capital A/cs
available Loan L M S
Rs. Rs. Rs. Rs. Rs. Rs. Rs.
Balance due 2,00,000 5,00,000 10,00,000 15,00,000 10,00,000 5,00,000
1st Instalment (including
cash and bank balances) 5,00,000
Less: Liquidator’s Expenses
and fees
(iii) Sale of machinery 1,200
Maximum possible loss Rs. 22,800
(total of capitals Rs. 24,000 less
cash available Rs. 1,200) allocated
to partners in the profit sharing
ratio i.e. 5 : 3 : 2 (11,400) (6,840) (4,560) (22,800)
Amounts at credit (1,800) (840) 3,840 1,200
Deficiency of A and B written off
against C 1,800 840 (2,640) –
Amount paid – – 1,200 1,200
Balances in capital acounts 9,600 6,000 7,200 22,800
(iv) Sale of stock 4,000
Maximum possible loss Rs. 18,800
(Rs. 22,800 – Rs. 4,000) Allocated
to partners in the ratio 5 : 3 : 2 (9,400) (5,640) (3,760) (18,800)
Amounts at credit and cash paid 200 360 3,440 (4,000)
Balances in capital accounts left unpaid—Loss 9,400 5,640 3,760 18,8000
Question 6
Neptune, Jupiter, Venus and Pluto had been carrying on business in partnership sharing profits and losses in the ratio of 3 : 2 : 1 : 1. They decide to dissolve the partnership on the basis of the following Balance Sheet as on 30th April, 2003:
Liabilities
Rs.
Rs.
Assets
Rs.
Rs.
Capital Account:
Neptune
Jupiter
1,00,000
60,000
1,60,000
Premises
Furniture
Stock
1,20,000
40,000
1,00,000
General Reserve
56,000
Debtors
40,000
Capital Reserve
14,000
Cash
8,000
Sundry Creditors
20,000
Capital Overdrawn:
Mortgage Loan
80,000
Venus
10,000
_______
Pluto
12,000
22,000
3,30,000
3,30,000
(i) The assets were realised as under:
Rs.
Debtors
24,000
Stock
60,000
Furniture
16,000
Premises
90,000
(ii) Expenses of dissolution amounted to Rs. 4,000.
(iii) Further Creditors of Rs. 12,000 had to be met.
(iv) General Reserve unlike Capital Reserve was built up by appropriation of profits.
You are required to draw up the Realisation Account, Partners’ Capital Accounts and the Cash Account assuming that Venus became insolvent and nothing was realised from his private estate. Apply the principles laid down in Garner vs Murray. (16 marks) (PE – II – Nov. 2003)
Answer
Realisation Account
Rs.
Rs.
Rs.
To
Sundry assets A/c (transfer):
By
Sundry creditors A/c
20,000
Premises
Furniture
1,20,000
40,000
By
Cash A/c (assets realised):
Premises
90,000
Stock
1,00,000
Furniture
16,000
Sundry Debtors
40,000
Stock
60,000
To
Cash A/c (creditors paid)
32,000
Debtors
24,000
1,90,000
To
Cash A/c (expenses)
4,000
By
Loss transferred to
Capital Accounts:
Neptune
54,000
Jupiter
36,000
Venus
18,000
_______
Pluto
18,000
1,26,000
3,36,000
3,36,000
Cash Account
Rs.
Rs.
To
Balance b/d
8,000
By
Realisation A/c (creditors)
32,000
To
Realisation A/c
By
Realisation A/c (expenses)
4,000
(assets realised)
1,90,000
By
Mortgage loan
80,000
To
Capital A/c
By
Neptune's Capital A/c
1,18,857
(realisation loss
By
Jupiter's Capital A/c
73,143
made good):
Neptune
54,000
Jupiter
36,000
Pluto
18,000
1,08,000
To
Pluto's Capital A/c
2,000
_______
3,08,000
3,08,000
Partners’ Capital Accounts
Particulars
Neptune
Jupiter
Venus
Pluto
Particulars
Neptune
Jupiter
Venus
Pluto
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
To
Balance b/d
-
-
10,000
12,000
By
Balance b/d
1,00,000
60,000
-
-
To
Realisastion
A/c (loss)
54,000
36,000
18,000
18,000
By
General reserve A/c
(3 : 2 : 1 :1)
24,000
16,000
8,000
8,000
To
Venus's Capital
A/c (loss)
11,143
6,857
-
-
By
Capital reserve A/c
(3 : 2 : 1 :1)
6,000
4,000
2,000
2,000
To
Cash A/c
1,18,857
73,143
-
-
By
Cash A/c (loss on realization)
54,000
36,000
-
18,000
By
Neptune's Capital A/c
-
-
11,143
-
By
Jupiter's Capital A/c
-
-
6,857
-
_______
_______
_____
_____
By
Cash A/c
-
-
-
2,000
1,84,000
1,16,000
28,000
30,000
1,84,000
1,16,000
28,000
30,000
Question 7
X, Y and Z are partners of the firm XYZ and Co., sharing Profits and Losses in the ratio of 4 : 3 : 2.
Following is the Balance sheet of the firm as at 31st March, 2008:
Balance Sheet as at 31st March, 2008
Liabilities
Rs.
Assets
Rs.
Partners’ Capitals:
Fixed Assets
5,00,000
X
4,00,000
Stock in trade
3,00,000
Y
3,00,000
Sundry debtors
5,00,000
Z
2,00,000
Cash in hand
10,000
General Reserve
90,000
Sundry Creditors
3,20,000
________
13,10,000
13,10,000
Partners of the firm decided to dissolve the firm on the above said date. It was found that a credit purchase of Rs. 20,000 in January, 2008 had not been recorded in the books of the firm.
Fixed assets realized Rs. 5,20,000 and book debts Rs. 4,40,000.
Stocks were valued at Rs. 2,50,000 and it was taken over by partner Y.
Creditors allowed discount of 5% and the expenses of realization amounted to Rs. 6,000.
You are required to prepare:
(i) Realisation account;
(ii) Partners capital account; and
(iii) Cash account. (8 Marks) (PE-II Nov. 2008)
Answer
(i) Realisation Account
Rs.
Rs.
To
Fixed assets
5,00,000
By
Creditors
3,20,000
To
Stock in trade
3,00,000
By
Cash (5,20,000+4,40,000)
9,60,000
To
Debtors
5,00,000
By
Y (Stock taken over)
2,50,000
To
Cash - Expenses
6,000
By
Loss transferred to partners’ capital accounts
To
Cash -Creditors
3,23,000
X
44,000
(3,40,000x 95% )
Y
33,000
Z
22,000
16,29,000
16,29,000
(ii) Partners’ Capital Accounts
X
Y
Z
X
Y
Z
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
To
Realisation Account
44,000
33,000
22,000
By
Balance b/d
4,00,000
3,00,000
2,00,000
To
Realisation Account
-
2,50,000
-
By
General reserve
40,000
30,000
20,000
To
Cash
3,96,000
47,000
1,98,000
4,40,000
3,30,000
2,20,000
4,40,000
3,30,000
2,20,000
(iii) Cash Account
Rs.
Rs.
To
Balance b/d
10,000
By
Realisation A/c (Expenses)
6,000
To
Realisation A/c
(Fixed assets and
9,60,000
By
Realisation A/c (Creditors)
3,23,000
book debts realized)
By
X
3,96,000
By
Y
47,000
By
Z
1,98,000
9,70,000
9,70,000
Unit 3 : Amalgamation, conversion and sale of partnership firms
(A) Practical Questions:
Question 1
Mr. B and Mr. E are partners sharing Profits and Losses in the ratio of 3:2. On 30th September, 1993 they admit Mr. C as a partner, and the new profit ratio is 2:2:1. C brought in Fixtures Rs. 3,000 and cash Rs. 10,000, the goodwill being (i) B and E Rs. 20,000 and (ii) C Rs. 10,000 but neither figure is to be brought into the books.
On 31st March, 1994, the partnership is dissolved, B retiring and the other two partners forming a company called BC Limited with equal capitals, taking over all remaining assets and liabilities, goodwill being agreed at Rs. 40,000 and brought into books of the company. B agrees to take over the business car at Rs. 3,700: Plant was sold for Rs. 3,000 being in excess of requirements. The profit of the two preceding years were Rs. 17,200 and Rs. 19,000 respectively and it was agreed that for the half year ended 30th September, 1993 the net profit was to be taken as equal to the average of the two preceding years and the current year.
No entries has been made when C entered, except cash. No new book being opened by BC Company Ltd., B agreed to have Rs. 50,000 as loan to the company, secured by 12% Debentures. The following is the Trial Balance as on 31st March, 1994.
Debit Credit
Rs. Rs.
Capital Accounts:
B 35,000
E 20,000
C 10,000
Drawing Accounts:
B 6,000
E 5,000
C 2,800
Debtors & Creditors 31,000 12,000
Plant (Book value of plant sold Rs. 4,000) 23,000
Fixtures 7,000
Motor Car 2,700
Stock on 31st March, 94 13,000
Bank 16,300 P & L A/c for the year 29,800
1,06,800 1,06,800
Prepare :
(1) Goodwill Adjustment Account
(2) Capital Accounts of Partner
(3) Profit and Loss Appropriation Account
(4) Balance Sheet of BC Ltd. as on 31st March,1994 (20 Marks) (Intermediate–Nov. 1994)
Answer
Goodwill Adjustment Account
Rs. Rs.
1993 1993
30th Sept. To Partners’ Capital A/c 30th Sept. By Partners’ Capital A/c
(Goodwill raised) (Goodwill written off)
(W.N.1)
B 12,000 B 12,000
E 8,000 E 12,000
C 10,000 C 6,000
1994 1994
31st March To Partners’ Capital A/cs 31st March By Goodwill A/c
(goodwill raised) (Goodwill raised in the
B 16,000 books transferred) 40,000
E 16,000
C 8,000
70,000 70,000
(2) Partners’ Capital Accounts
1994 B E C 1994 B E C 31st March 31st March
To Drawings 6,000 5,000 2,800 By Balance b/d 35,000 20,000 10,000
To Motor Car 3,700 – – By Fixtures
(not recorded earlier) – – 3,000
To 12% Debentures 50,000 – – By Profit upto
To Goodwill Adjust 30th Sept 93 (W.N.2) 13,200 8,800
ment Account 12,000 12,000 6,000 By Profit for 6 months
To Bank Account 7,620 ended 31st March 1994 3,120 3,120 1,560
To Bank Account(WN 3) – 7,580 – By Goodwill
To Share Capital – 31,340 31,340 Adjustment A/c 12,000 8,000 10,000
By Goodwill
Adjustment A/c 16,000 16,000 8,000
By Bank A/c (W.N. 3) – – 7,580
79,320 55,920 40,140 79,320 55,920 40,140
(3) Profit & Loss Appropriation Account
For the year ended 31st March, 1994
Rs. Rs.
To Partners’ Capital Account By Profit & Loss A/c
(Distribution of Profit) (Net profit transferred) 29,800
B 16,320
E 11,920
C 1,560
29,800 29,800
(4) Balance Sheet of BC Ltd.
As on 31st March, 1994
Liabilities Rs. Assets Rs.
Share Capital 62,680 Fixed Assets :
Secured Loan : Goodwill 40,000
12% Debentures 50,000 Plant 19,000
Current Liabilities & Provisions: Fixtures 10,000
Creditors 12,000 Current Assets, Loans &
Advances :
Stock 13,000
Debtors 31,000
Cash at bank (W.N.4) 11,680
1,24,680 1,24,680
Working Notes :
(1) Goodwill Adjustment as on 30th September, 1993
Total B E C
Rs. Rs. Rs. Rs.
Goodwill raised -
B and E (3:2) 20,000 12,000 8,000 –
C 10,000 10,000
30,000
Goodwill written off in the new
profit sharing ratio (2:2:1) 30,000 12,000 12,000 6,000
(2) Calculation of half yearly profit: Rs. Rs.
Profit of the preceding two years
(Rs. 17,200 + Rs. 19,000) 36,200
Current year’s profit 29,800
66,000
Profit for six months ended
30th September, 1993 ( × 66,000) 22,000
Profit for next six months ended
31st March, 1994 (Rs. 29,800 – Rs. 22,000) 7,800
(3) Share Capital of BC Ltd:
Total Capital of the firm before conversion -
E 38,920
C 23,760 62,680
E and C should have have equal share in BC Ltd.
C should bring in cash (shares valued at 13,665 x 12 = Rs.1,63,980. B gets the remaining 9,585 shares, valued at Rs.1,15,020 (9,585 ´ 12)
3. Calculation of net amount received from X Ltd on account of amount realized from debtors less amount paid to creditors.
Rs.
Amount realized from Debtors
66,000
Less:
Commission for realization from debtors (5% on 66,000)
3,300
62,700
Less:
Amount paid to creditors
59,000
3,700
Less:
Commission for cash paid to creditors (3% on 59,000)
1,770
Net amount received
1,930
Question 9
A, B and C carried on business in partnership, sharing Profits and Losses in the ratio of 1:2:3. They decided to form a private limited company, AB (P) Ltd. and C is not interested to take over the shares in AB (P) Ltd. The authorized share capital of the company is Rs.12,00,000 divided into 12,000 ordinary shares of Rs.100 each.
The company was incorporated and took over goodwill as valued and certain assets of the partnership firm on 31.3.2006. The Balance Sheet of the partnership firm on that date was as follows:
Liabilities
Rs.
Assets
Rs.
Capital Accounts:
Fixed Assets:
A
1,00,000
Machinery
1,20,000
B
2,00,000
Land
1,74,000
C
3,00,000
Motorcycles
30,000
Current Accounts:
Furniture & fittings
11,000
A
39,420
Current Assets:
B
60,580
Stock
2,35,000
A’s Loan A/c
28,000
Debtors
43,000
(+) Interest accrued
2,000
30,000
Cash in hand
87,000
Current Liability:
C’s overdrawn
1,00,000
Creditors
70,000
8,00,000
8,00,000
C, who retired was presented by the other partners (A and B) with one motorcycle valued in the books of the firm Rs.9,000. The remaining motorcycles were sold in the open market for Rs.13,000. C also received certain furniture for which he was charged Rs.2,000. The debtors which were all considered good, were taken over by C for Rs.40,000. A and B were charged in their profit sharing ratio for the book value of Motorcycle presented by them to C.
It was agreed that C who is not willing to take the shares in AB (P) Ltd. was discharged first by providing necessary cash. A and B should bring cash, if necessary.
AB (P) Ltd. took over the remaining furniture and fittings at a price of Rs.13,000, the machinery for Rs.1,25,000, the stock at an agreed value of Rs.2,00,000 and the land at its book value. The value of the goodwill of the partnership firm was agreed at Rs.88,000. The creditors of the firm were settled by the firm for Rs.70,000. A’s loan account together with interest accrued was transferred to his capital account.
The purchase consideration was discharged by the company by the issue of equal number of fully paid up equity shares at par to A and B.
Prepare Realisation A/c, Capital A/cs of the partners and Cash A/c. Also draw the Balance Sheet of AB (P) Ltd. (20 Marks) (PE-II – May, 2007))
Answer
Realization Account Dr.
Cr.
Rs.
Rs.
To
Machinery
1,20,000
By
Creditors
70,000
To
Land
1,74,000
By
AB (P) Ltd. – Purchase consideration
(Refer Working Note )
6,00,000
To
Motor Cycles
30,000
By
A’s Capital A/c
3,000
To
Furniture & Fittings
11,000
By
B’s Capital A/c
6,000
To
Stock
2,35,000
By
C’s Capital A/c (2,000 + 40,000)
42,000
To
Debtors
43,000
By
Cash A/c (Sale of Motor Cycle)
13,000
To
Cash (payment to creditors)
70,000
To
Profit transferred to
A’s Capital A/c
B’s Capital A/c
C’s Capital A/c
8,500
17,000
25,500
7,34,000
7,34,000
Partners’ Capital Accounts Dr
Cr.
A
B
C
A
B
C
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
To
Current A/c
-
-
1,00,000
By
Balance b/d
1,00,000
2,00,000
3,00,000
To
Realisation A/c (Assets taken over)
3,000
6,000
42,000
By
Current A/c
39,420
60,580
-
To
Equity shares in AB (P) Ltd.
3,00,000
3,00,000
-
By
A’s Loan A/c
30,000
-
-
To
Cash A/c
-
-
1,83,500
By
Realization A/c (Profit)
8,500
17,000
25,500
By
Cash A/c
1,25,080
28,420
3,03,000
3,06,000
3,25,500
3,03,000
3,06,000
3,25,500
Cash Account Dr.
Cr.
Rs.
Rs.
To
Balance b/d
87,000
By
Realisation A/c
70,000
To
Realisation A/c
13,000
By
C’s Capital A/c
1,83,500
To
A’s Capital A/c
1,25,080
To
B’s Capital A/c
28,420
2,53,500
2,53,500
Balance Sheet of AB (P) Ltd.
Liabilities
Rs.
Assets
Rs.
Authorised Share Capital:
Fixed Assets:
12,000 Equity Shares of Rs.100 each
12,00,000
Goodwill
Land
88,000
1,74,000
Issued, Subscribed & Paid up: 6,000 equity shares of Rs.100 each fully paid up (shares were issued for consideration otherwise than for cash)
6,00,000
Machinery
Furniture & Fittings
Current Assets: Stock
1,25,000
13,000
2,00,000
6,00,000
6,00,000
Working Note:
Calculation of Purchase Consideration
Assets taken over by AB (P) Ltd.
Rs.
Machinery
1,25,000
Furniture & Fittings
13,000
Land
1,74,000
Stock
2,00,000
Goodwill
88,000
Purchase Consideration
6,00,000
Purchase consideration is discharged by the issue of equal number of equity shares of Rs.100 each (3,000 shares) at par to A & B.
Question 10
S and T were carrying on business as equal partners. Their Balance Sheet as on 31st March, 2007 stood as follows:
Liabilities
Rs.
Assets
Rs.
Capital accounts:
Stock
2,70,000
S
6,40,000
Debtors
3,65,000
T
6,60,000
13,00,000
Furniture
75,000
Creditors
3,27,500
Joint life policy
47,500
Bank overdraft
1,50,000
Plant
1,72,500
Bills payable
62,500
Building
9,10,000
18,40,000
18,40,000
The operations of the business was carried on till 30th September, 2007. S and T both withdrew in equal amounts, half the amount of profits made during the current period of 6 months after 10% p.a. had been written off on building and plant and 5% p.a. written off on furniture. During the current period of 6 months, creditors were reduced by Rs.50,000, Bills payables by Rs.11,500 and bank overdraft by Rs.75,000. The Joint life policy was surrendered for Rs.47,500 on 30th September, 2007. Stock was valued at Rs.3,17,000 and debtors at Rs.3,25,000 on 30th September, 2007. The other items remained the same as they were on 31st March, 2007.
On 30th September, 2007 the firm sold its business to ST Ltd. The goodwill was estimated at Rs.5,40,000 and the remaining assets were valued on the basis of the balance sheet as on 30th September, 2007. The ST Ltd. paid the purchase consideration in equity shares of Rs.10 each. You are required to prepare a Realisation account and Capital accounts of the partners.
(16 Marks) (PE II- May, 2008 )
Answer
Realisation Account
Particulars
Rs.
Particulars
Rs.
To
Sundry assets:
By
Creditors
2,77,500
Stock
3,17,000
By
Bills payables
51,000
Debtors
3,25,000
By
Bank overdraft
75,000
Plant
1,63,875
By
Shares in ST Ltd. (W.N. 3)
18,80,000
Building
8,64,500
Furniture
73,125
To
Profit:
S
2,70,000
T
2,70,000
5,40,000
22,83,500
22,83,500
Partners’ Capital Accounts
Date
Particulars
S
T
Date
Particulars
S
T
2008
2008
April 1
To
Cash –Drawings (W.N. 2)
20,000
20,000
April 1
By
Balance b/d
6,40,000
6,60,000
Sept. 30
To
Shares in ST Ltd.
9,30,000
9,50,000
Sept. 30
By
Profit (W.N.2)
40,000
40,000
By
Realisation A/c (Profit)
2,70,000
2,70,000
9,50,000
9,70,000
9,50,000
9,70,000
Working Notes:
(1) Ascertainment of total capital
Balance Sheet
as at 30th September, 2007
Liabilities
Rs.
Assets
Rs.
Sundry creditors
2,77,500
Building
9,10,000
Bills payable
51,000
Less: Depreciation
45,500
8,64,500
Bank overdraft
75,000
Plant
1,72,500
Total capital (bal. fig.)
13,40,000
Less: Depreciation
8,625
1,63,875
Furniture
75,000
Less: Depreciation
1,875
73,125
Stock
3,17,000
Debtors
3,25,000
17,43,500
17,43,500
(2)
Profit earned during six months to 30 September, 2007
Rs.
Total capital (of S and T) on 30th September, 2007 (W.N.1)
13,40,000
Capital on 1st April, 2007
S
6,40,000
T
6,60,000
13,00,000
Net increase (after drawings)
40,000
Since drawings are half of profits therefore, actual profit earned is Rs.40,000 x 2 = Rs.80,000 (shared equally by partners S and T).
Half of the profits, has been withdrawn by both the partners equally i.e. drawings
Rs. 40,000 (Rs.80,000 x ½) withdrawn by S and T in 1:1 (i.e. Rs.20,000 each).
(3)
Purchase consideration:
Rs.
Total assets (W.N.1)
17,43,500
Add: Goodwill
5,40,000
22,83,500
Less: Liabilities (2,77,500 + 51,000 + 75,000)
4,03,500
Purchase consideration
18,80,000
Note: The above solution is given on the basis that reduction in bank overdraft is after surrender of Joint life policy.
* B’s Capital Rs.21,500 being one-half of the total capital of the firm.
* In the above situation, shares received from X Ltd. Company have been distributed between two partners A and B in the ratio of their final claims. Alternatively, shares received from X Ltd. can be distributed among the partners in their profit sharing ratio i.e. Rs. 2,79,000 x ½ =Rs. 1,39,500 each. In that case, firm will pay cash amounting
Rs. 27,965 to A and will receive cash Rs.22,035 from B.