Page 1
Financial Accounting 6.4.1
6. PARTNERSHIP ACCOUNTING
AMALGAMATION OF FIRMS AND CONVERSION TO A COMPANY
a. When two or more sole proprietors forms new partnership firm;
b. When one existing partnership firm absorbs a sole proprietorship;
c. When one existing partnership firm absorbs another partnership firm;
d. When two or more partnership firms form new partnership firm.
I: Calculation of Purchase Consideration
Calculation of Purchase Consideration
Agreed values of assets taken over ××××
Less: Agreed values of liabilities assumed ××××
Purchase consideration ××××
II: When the sole proprietors form or a partnership firm is closed
Steps to be taken for the existing books
Step 1: Prepare the Balance Sheet of the business on the date of dissolution.
Step 2: Open a Realization Account and transfer all assets and liabilities, except cash in hand and cash
at bank, at their book values. However, cash in hand and cash at bank are transferred to Realization
Account only when they are taken over by the new firm.
Step 3: Credit Realization Account by the amount of Purchase Consideration.
Step 4: If there are any unrecorded assets or liabilities, they are to be recorded.
Step 5: The Profit or loss on realization (balancing figure of Realization Account) to be transferred to
the Capital Account of the proprietor.
Step 6: To ensure that all the accounts of the Sole Proprietor’s / Firm’s business are closed.
III: In the books of purchasing firm or company
Steps for incorporating the transaction relating to purchase
Step 1: Pass entry for purchase consideration payable
Step 2: Pass entry for taking assets and liabilities account
Step 3: Pass entry for settling the purchase consideration
Step 4: Prepare revised balance sheet incorporating all assets and liabilities taken over from transferee
Note 1: The Purchase Consideration is satisfied by the Company either in the form of cash or shares
or debentures or a combination of two or more of these. The shares may be equity or preference
shares. The shares may be issued at par, at a premium or at a discount. For the partnership, the issue
price is relevant which may form a part of the purchase consideration.
Note 2: In the absence of any agreement, share received from purchasing company should be
distributed among the partners in the same ratio as profits and losses are shared.
Page 2
Partnership Accounting 6.4.2
[CMA INTER J09, 10 Marks]
Question 38: Amalgamating sole trades and formation of firm: A and B carry on independent
business in provisions and their position on 31.12.2002 are reflected in the given Balance sheet:
Balance Sheet
Liabilities A B Assets A B
Trade creditors 1,10,000 47,000 Stock-in-trade 1,70,000 98,000
Sundry Creditors for
Expenses
750 2,000 Sundry Debtors 89,000 37,000
Bills payable 12,500 ---- Cash at bank 13,000 7,500
Capital A/c 1,53,000 95,500 Cash in hand 987 234
Furniture and Fixtures 2,750 1,766
Investments 513 ----
2,76,250 1,44,500 2,76,250 1,44,500
Both of them want to form a partnership firm from 1.1.2003 on the following understanding:
a. The capital of the partnership firm would be ₹3,00,000 which would be contributed by them in the
ratio of 2:1.
b. The assets of the individual business would be evaluated by C at which values, the firm will take
them over and the value would be adjusted against the contribution due by A and B.
c. C gave his valuation report as follows:
1. Assets of A: Stock-in-trade to be written down by 15% and a portion of the sundry debtors
amounting to ₹9,000 estimated unrealisable not to be assumed by the firm; furniture and
fixtures to be valued at ₹2,000 and investments to be taken at market value of ₹1,000.
2. Assets of B: Stocks to be written up by 10% and sundry debtors to be admitted at 85% of their
value; rest of the assets to be assumed at their book values.
d. The firm is not to assume any creditors other than the dues on account of purchases made. You
are required to pass necessary journal entries in the books of A and B.
Also prepare the opening Balance Sheet of the firm as on 1st Jan 2003.
Answer:
Realization A/c
Particulars A B Particulars A B
To Stock 1,70,000 98,000 By Creditors for
purchases
1,10,000 47,000
Debtors 89,000 37,000 Creditors for
expenses
750 2,000
Bank 1,30,000 7,500 Bill payable 12,500
Cash 987 234 Purchase
consideration
1,18,987 101,750
Furniture 2,750 1,766 Capital a/c Loss 34,763
Investment 513 -
Capital a/c 750 -
Page 3
Financial Accounting 6.4.3
Capital a/c [Crs. for
exp]
- 2000
Capital a/c [Profit] - 4,250
2,77,000 150,750 2,77,000 150,750
Purchase consideration a/c
Particulars A B Particulars A B
To Realization 118,987 101,750 By AB firm 118,987 101,750
118,987 101,750 118,987 101,750
AB Firm A/c
Particulars A B Particulars A B
To Purchase consideration 118,987 101,750 By Capital 118,987 101,750
118,987 101,750 118,987 101,750
Capital A/c
Particulars A B Particulars A B
To Purchase consideration 118,987 101,750 By Balance b/d 153,000 95,500
Realization (Loss) 34,763 Realization Profit 750 4,250
Realization
(Crs for exp)
2,000
153,750 153,750 101,750
In the books of Answer: Journal Entry
1 Realization A/c Dr. 276,250 3 New Firm A/c (Note 1) Dr. 118,987
To Stock-in-trade A/c 170,000 To Realization A/c 118,987
To Sundry Debtors A/c 9,000
To Cash at bank A/c 13,000 4 Realization A/c Dr. 750
To Cash in hand A/c 987 To Capital A/c 750
To Furniture & Fixture 2,750
To investments A/c 513 5 Capital A/c Dr 34,763
To Realization a/c 34,763
2 Creditors for Purchases Dr 110,000
Creditors for Expenses Dr 750 6 Capital in New Firm Dr 118,987
Bills Payable A/c Dr 12,500 To New Firm A/c 118,987
To Realization A/c 123,250
7 Capital A/c Dr 118,987
To Capital – New Firm 118,987
In the books of B: Journal Entry
1 Realization A/c Dr 3 New Firm A/c (Note 1) Dr 1,01,750
To Stock-in-trade A/c
98,000
To Realization A/c 1,01,750
To Sundry Debtors
Page 4
Partnership Accounting 6.4.4
A/c 37,000
To Cash at bank a/c 7,500 4 Realization A/c Dr 4,250
To Cash in hand A/c 234 To Capital A/c 4,250
To Furniture &
Fixture
1,766
5 Capital in New Firm Dr 1,01,750
2 Creditors for purchase Dr 47,000 To New Firm A/c 1,01,750
Creditors for Expenses Dr 2,000
To Realization A/c
49,000
6 Capital A/c Dr 1,01,750
To Capital in New
Firm
1,01,750
Balance Sheet of New Firm as on 1st January, 2003
Liabilities ₹ Assets ₹
Capital Accounts: Furniture & Fittings 3,766
A 2,00,000 Investments 1,000
B 1,00,000 Stock-in-trade 2,52,300
Creditors for purchases 1,57,000 Sundry Debtors 1,11,450
Bills payable 12,500 Cash at bank
(₹13,000+7500+81,013-1,750)
99,763
Cash in hand (₹987+234) 1,221
4,69,500 4,69,500
Working Notes: Calculation of Purchase Consideration
Particulars A B
Furniture 2,000 1,766
Investments 1,000 ---
Stock-in-trade 1,44,500 1,07,800
Sundry Debtors 80,000 31,450
Cash at bank 13,000 7,500
Cash in hand 987 234
2,41,487 1,48,750
Less Sundry Creditors for purchases 1,10,000 47,000
Bills payable (Assumed arising out of credit purchases) 12,500 ----
Net assets taken over by the new firm 1,18,987 1,01,750
Capital as per agreement 2,00,000 1,00,000
Less Net assets taken over 1,18,987 1,01,750
Cash to be introduced (+)/withdrawn (-) (+)81,013 (-)1,750
[CA PE II M06]
Question 39: Amalgamation of Firms: Firm X & Co. consists of partners A and B sharing Profits
and Losses in the ratio of 3:2. The firm Y & Co. consists of partners B and C sharing Profits and
Losses in the ratio of 5:3.
On 31st March, 2006 it was decided to amalgamate both the firms and form a new firm XY & Co.,
wherein A, B and C would be partners sharing Profits and Losses in the ratio of 4:5:1.
Balance Sheet as at 31.3.2006
Liabilities X & Co Y & Co Assets X & Co Y & Co
Capital: Cash in hand/bank 40,000 30,000
Page 5
Financial Accounting 6.4.5
A 1,50,000 --- Debtors 60,000 80,000
B 1,00,000 75,000 Stock 50,000 20,000
C --- 50,000 Vehicles --- 90,000
Reserve 50,000 40,000 Machinery 1,20,000 ---
Creditors 1,20,000 55,000 Building 1,50,000 ---
4,20,000 2,20,000 4,20,000 2,20,000
The following were the terms of amalgamation:
1. Goodwill of X & Co., was valued at ₹75,000. Goodwill of Y & Co. was valued at ₹40,000.
Goodwill a/c not to be opened in the books of the new firm but adjusted through the Capital a/c of
the partners.
2. Building, Machinery and Vehicles are to be taken over at ₹200,000, ₹1,00,000 and ₹74,000
respectively.
3. Provision for doubtful debts at ₹5,000 in respect of X & Co. and ₹4,000 in respect of Y & Co. are
to be provided.
You are required to:
1. Show, how the Goodwill value is adjusted amongst the partners.
2. Prepare the B/S of XY & Co. as at 31.3.2006 by keeping partners capital in their profit sharing
ratio by taking capital of ‘B’ as the basis. The excess or deficiency to be kept in the respective
Partners’ Current a/c.
Answer: (i) Adjustment for raising and writing off of goodwill
Raised in old profit sharing ratio Total Written off Difference
X & Co. 3:2 Y & Co.5:3 in new ratio
A. 45,000 --- 45,000 Cr. 46,000 Dr. 1,000 Dr.
B. 30,000 25,000 55,000 Cr. 57,500 Dr. 2,500 Dr.
C 15,000 15,000 Cr. 11,500 Dr. 3,500 Cr.
75,000 40,000 1,15,000 1,15,000 Nil
Balance Sheet of X Y & Co.(New firm) as on 31.3.2006
Liabilities ₹ Assets ₹
Capital Accounts: Vehicle 74,000
A 1,72,000 Machinery 1,00,000
B 2,15,000 Building 2,00,000
C 43,000 Stock 70,000
Current Accounts: Debtors 1,31,000
A 22,000 Cash & Bank 70,000
C 18,000
Creditors 1,75,000
6,45,000 6,45,000
Working Notes:
1. Balance of Capital Accounts at the time of amalgamation of firms (₹.)
X & Co.Profit and loss sharing ratio 3:2 A’s Capital B’s Capital
Balance as per Balance Sheet 1,50,000 1,00,000
Add Reserves 30,000 20,000
Page 6
Partnership Accounting 6.4.6
Balance of Capital A/c in the balance sheet of the new firm as on 31.3.2006
A - ₹ B - ₹ C -₹
Balance b/d: X & Co. 1,95,000 1,30,000 --
Y & Co. -- 87,500 57,500
1,95,000 2,17,500 57,500
Adjustment for goodwill (1,000) (2,500) 3,500
1,94,000 2,15,000 61,000
Total capital ₹430,000 (B’s capital as base)
to be contributed in 4:5:1 ratio.
1,72,000
2,15,000
43,000
Transfer to Current Account 22,000 --- 18,000
Realization A/c
Particulars X & Co Y & Co Particulars X & Co Y & Co
To Cash 40,000 30,000 By Creditors 120,000 55,000
Debtors 60,000 80,000
Stock 50,000 20,000 Purchase Consideration 325,000 145,000
Machinery 120,000 - Realization Loss
Building 150,000 - B’s Capital 12,500
Vehicles - 90,000 C’s Capital 7,500
Realization Profit
A’s Capital 15,000
B’s Capital 10,000
445,000 220,000 445,000 220,000
Purchase consideration a/c
Particulars X & Co Y & Co Particulars X & Co Y & Co
To Realization 325,000 145,000 By AB firm 325,000 145,000
325,000 145,000 325,000 145,000
Realisation profit (Building) 30,000 20,000
Less Realisation loss (Machinery) (12,000) (8,000)
Provision for doubtful debt. (3,000) (2,000)
Y & Co. Profit and loss sharing ratio 5:3 1,95,000 1,30,000
B’s Capital C’s Capital
Balance as per Balance sheet 75,000 50,000
Add Reserves 25,000 15,000
Less Revaluation (vehicle) (10,000) (6,000)
Provision for doubtful debts (2,500) (1,500)
87,500 57,500
Page 7
Financial Accounting 6.4.7
XY Firm A/c
Particulars X & Co Y & Co Particulars X & Co Y & Co
To Purchase consideration 325,000 145,000 By A’s Capital 195,000
B’s Capital 130,000 87,500
C’s Capital 57,500
325,000 145,000 325,000 145,000
Capital A/c
X & Co Y & Co X & Co Y & Co
Particulars A B B C Particulars A B B C
To XY Firm 195,000 130,000 87,500 57,500 By Balance b/d 150,000 100,000 75,000 50,000
Realization 12,500 7,500 Reserve 30,000 20,000 25,000 15,000
15,000 10,000
195,000 130,000 100,000 65,000 195,000 130,000 100,000 65,000
[PE II N06]
Question 40: Conversion of Partnership Firm into Company: ‘X’ and ‘Y’ carrying on
business in partnership sharing Profits and Losses equally, wished to dissolve the firm and sell
the business to newly formed ‘X’ Limited Company on 31-3-2006, when the firm’s position was
as follows:
Balance Sheet
Liabilities ₹ Assets ₹
X’s Capital 1,50,000 Land and Building 1,00,000
Y’s Capital 1,00,000 Furniture 40,000
Sundry Creditors 60,000 Stock 1,00,000
Debtors 66,000
Cash 4,000
3,10,000 3,10,000
The arrangement with X Limited Company was as follows:
1. Land and Building was purchased at 20% more than the book value.
2. Furniture and stock were purchased at book values less 15%.
3. The goodwill of the firm was valued at ₹40,000.
4. The firm’s debtors, cash and creditors were not to be taken over, but the company agreed to
collect the book debts of the firm and discharge the creditors of the firm as an agent, for
which services, the company was to be paid 5% on all collections from the firm’s debtors and
3% on cash paid to firm’s creditors.
5. The purchase price was to be discharged by the company in fully paid equity shares of ₹10
each at a premium of ₹2 per share.
Page 8
Partnership Accounting 6.4.8
The company collected all the amounts from debtors. The creditors were paid off less by ₹1,000
allowed by them as discount. The company paid the balance due to the vendors in cash. Prepare
the Realization a/c, the Capital a/c of the partners and the Cash a/c in the books of partnership
firm.
Answer:
Realization Account
To Land & Building 1,00,000 By Sundry Creditors 60,000
Furniture 40,000 Purchase
consideration
2,79,000
Stock 1,00,000 X Ltd. Company –
Drs
66,000
Debtors 66,000 Less: Commission
5%
3,300 62,700
X Ltd. Co. – S.
Creditors
59,000
Less: Commission 3% 1,770 57,230
X’s Capital A/c: 17,465
Y’s Capital A/c: 17,465 34,930
4,01,700 4,01,700
Capital Accounts
X Y X Y
To Shares in X Ltd.
Co.
1,63,980 1,15,020 By Balance b/d 1,50,000 1,00,000
To Cash – Final
Payment
3,485 2,445 By Realization A/c -
Profit
17,465 17,465
1,67,465 1,17,465 1,67,465 1,17,465
Cash Account
To Balance b/d 4,000 By A’s Capital A/c: payment 3,485
To X Ltd. Co. (Drs – Crs) 1,930 By B’s Capital A/c: Payment 2,445
5,930 5,930
WN1: Calculation of Purchase consideration:
Land & Building 1,20,000
Furniture 34,000
Stock 85,000
Goodwill 40,000
2,79,000
Page 9
Financial Accounting 6.4.9
WN2: The shares received from the company have been distributed between the two partners A
& B in the ratio of their final claims i.e., 167,465: 117,465.
Number of shares received from the company = 279,000/12 =23,250
A gets = 23,250 ×167,465/284,930 shares valued at 13,665 × 12 = ₹163,980. B gets the remaining
9,585 shares, valued at ₹115,020 (9,585 12)
WN3: Calculation of net amount received from X Ltd on account of amount
realized from debtors less amount paid to creditors.
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 41: Sale to a Company: S and T were carrying on business as equal partners. Their
Balance Sheet as on 31st March, 2007 stood as follows:
Balance Sheet
Liabilities ₹ Assets ₹
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 were 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 ₹50,000, Bills payables by ₹11,500 and bank overdraft
by ₹75,000. The Joint life policy was surrendered for ₹47,500 on 30th September, 2007. Stock was
valued at ₹3,17,000 and debtors at ₹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
₹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 ₹10 each. You
are required to prepare a Realization account and Capital accounts of the partners.
Answer:
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. ₹ 2,79,000 × ½ =₹ 1,39,500 each. In that case, firm will pay cash
amounting ₹ 27,965 to A and will receive cash ₹22,035 from B.
Page 10
Partnership Accounting 6.4.10
Realization Account
Particulars ₹ Particulars ₹
To Sundry
assets:
By Creditors 2,77,500
Stock 3,17,000 Bills payables 51,000
Debtors 3,25,000 Bank overdraft 75,000
Plant 1,63,875 Shares in ST Ltd. 18,80,000
Building 8,64,500
Furniture 73,125
Capital:
S 2,70,000
T 2,70,000 5,40,000
22,83,500 22,83,500
Capital Accounts
Date S T Date S T
1.4.08 To Cash –
Drawings
20,000 20,000 1.4.08 Balance b/d 6,40,000 6,60,000
30.9.08 Shares in ST 9,30,000 9,50,000 30.9.08 Profit
W.N.2)
40,000 40,000
Realization 2,70,000 2,70,000
9,50,000 9,70,000 9,50,000 9,70,000
WN1: Ascertainment of total capital
Balance Sheet as at 30th
September, 2007
Liabilities ₹ Assets ₹
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 (balance) 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
WN2 S T Total
Capital opening 640,000 660,000 1,300,000
Add Net Profit 40,000 40,000 80,0001
Less Drawings 20,000 20,000 40,000
Closing Capital 660,000 680,000 1,340,000 WN1
1 (Net Profit – Drawings) = (Closing Capital – Opening Capital) = ₹40,000
Drawings = 0.5 Net Profit [given], hence
Net Profit – 0.5 Net Profit = ₹40,000
Net Profit = ₹80,000
Page 11
Financial Accounting 6.4.11
WN3 Purchase consideration ₹
Net Worth (Capital)WN1
1,340,000
Add Goodwill 540,000
1,880,000
[CMA INTER J02, 16 Marks]
Question: Conversion into company: A and B were carrying on business as equal partners. The
firm’s Balance Sheet as on 31st December 2000 was as follows:
Liabilities ₹ Assets ₹
Capital Accounts : Fixed Assets :
A 1,38,000 Leasehold Building 80,000
B 1,52,000 Plant and Machinery 1,80,000
Bank Loan 40,000 Furniture 20,000
Current Liabilities : Current Assets:
Sundry Debtors 70,000 Stock 60,000
Bills Payable 10,000 Book Debts 68,000
Cash at Bank 2,000
4,10,000 4,10,000
The business was carried on till 30th June, 2001. The partners withdrew in equal amounts half the
amount of profits made during the period of six months (from January to June 2001) after charging
depreciation on
Leasehold Building 10% per annum
Plant and Machinery 10% per annum
Furniture 10% per annum
Meanwhile Sundry Creditors were reduced by ₹15,000, Bills Payable by ₹2,500 and Bank Loan by
₹20,000. On 30th June stock was valued at ₹70,000, Book Debts were ₹75,000 and Cash at Bank was
₹2,500. On 30th June, 2001 the firm sold the business to a limited company for ₹4,00,000 payable in
Equity Shares of ₹10 each. The partners decided to take shares in the profit sharing ratio, any
difference to be settled in cash.
You are required to prepare:
1. Statement of Net Assets as on 30th June 2001;
2. Statement of Profit earned during the period six months ended on 30.06.2001:
3. Realisation Account;
4. Capital Accounts of the partners.
[WN1] Statement of Net Assets as on 30.06.01
Liabilities Amount Assets Amount
Capital (Balancing Figure) 3,31,000 Lease Hold Building 76,000
Bills Payable 7,500 Plant & Machinery 1,71,000
Creditors (70,000 – 15,000) 55,000 Furniture 19,000
Page 12
Partnership Accounting 6.4.12
Bank loan 20,000 Stock 70,000
Cash at Bank 2,500
Debtors 75,000
4,13,500 4,13,500
WN2 A B Total
Capital opening 1,38,000 1,52,000 2,90,000
Add Net Profit 41,000 41,000 82,0001
Less Drawings 20,500 20,500 40,000
Closing Capital 1,58,500 1,72,500 3,31,000WN1
Realisation A/c
Particulars Amount Particulars Amount
To Lease Hold Building 76,000 By Sundry Creditors 55,000
Plant & Machinery 1,71,000 Bills Payable 7,500
Furniture 19,000 Bank Loan 20,000
Stock 70,000 New Co. Ltd. (PC) 4,00,000
Cash at Bank 2,500
Debtors 75,000
Profit
A 34,500
B 34,500 69,000
4,82,500 4,82,500
Partners’ Capital A/c
Particulars A B Particulars A B
To Drawings A/c 20,500 20,500 By Balance b/d 1,38,000 1,52,000
Equity Share in Company
Ltd.
2,00,000 2,00,000 Realisation on
Profit
34,500 34,500
Cash A/c 7000 Profit (6 months) 41,000
Cash 41,000
2,20,500 2,27,500 2,20,500 2,27,500
ADDITIONAL PROBLEMS
[CMA INTER D08, 10 Marks]
Question: Conversion into company: Suchandra, Ashmita and Kasturi were running partnership
business sharing Profit and Losses in 2:2:1 ratio. Their Balance Sheet as on 31.03.2008 stood as
following:
( ₹ In 000’s)
Liabilities ₹ ₹ Assets ₹ ₹
Fixed Capital: Fixed Assets 920
1 (Net Profit – Drawings) = (Closing Capital – Opening Capital) = ₹40,000
Drawings = 0.5 Net Profit [given], hence
Net Profit – 0.5 Net Profit = ₹41,000
Net Profit = ₹82,000
Page 13
Financial Accounting 6.4.13
Suchandra 690 Investment 115
Ashmita 460 Current Assets
Kasturi 230 1,380 Stock 230.00
Current Account : Debtors 632.50
Suchandra 138 Cash at Bank 287.50 1,150
Kasturi 92 230
Unsecured Loan 230
Current Liabilities 345
2,185 2,185
On 01.04.2008, they agreed to form new company Tata (P) Ltd. With Ashmita and Kasuri each taking
up 460 eq. share of ₹10 each, which shall take over the firm as going concern including Goodwill, but
excluding cash and bank balance.
The following are also agreed upon:
a) Goodwill will be valued at 3 years purchase of super profit.
b) The actual profit for the purpose of Goodwill valuation will be ₹4,60,000.
c) The normal rate of return will be 18% p.a. on Fixed Capital
d) All other assets and liabilities will be taken at Book Value.
e) Ashmita and Kasturi are to acquire interest in the new company at the ratio 3 : 2.
f) The purchase consideration will be payable partly in shares of ₹10 each and partly in cash.
Payment in cash being to meet the requirement to discharge Suchandra, who has agreed to retire.
g) Realisation expenses amounted to ₹1,17,300
You are required to close the books of the firm by passing necessary journal entries.
Answer:
a. Realisation A/c Dr. 26,49,600
To Fixed Assets A/c 9,20,000
To Investment A/c 1,15,000
To Stock A/c 2,30,000
To Sundry Debtors A/c 6,32,000
To Goodwill A/c 6,34,800
To Bank A/c (Realisation Expenses) 1,17,300
(Being transfer of Assets of Realisation A/c)
b. Unsecured loan A/c Dr. 2,30,000
Current Liabilities A/c Dr. 3,45,000
To Realisation A/c 5,75,000
(Being transfer of liabilities to Realisation A/c)
c. Suchandra’s Capital A/c Dr. 46,920
Ashmita’s Capital A/c Dr. 46,920
Kastmis’s Capital A/c Dr. 23,460
To Realisation A/c 1,17,300
(Being transfer of realisation losses to partner’s Capital A/c)
d. Tata (P) Ltd. A/c (W.n.3) Dr. 19,57,300
To Realisation A/c 19,57,300
(Being purchase consideration due)
Page 14
Partnership Accounting 6.4.14
e. Goodwill A/c (W.n.2) Dr. 6,34,800
To Suchandra’s Capital A/c 2,53,900
To Ashmita’s Capital A/c 2,53,900
To Kasturi’s Capital A/c 1,26,900
(Being transfer of goodwill to parties Capital A/c)
f. Suchandra’s Current A/c Dr. 1,38,000
Kasturi’s Current A/c Dr. 92,000
To Suchandra’s Capital A/c 1,38,000
To Kasturi’s Capital A/c 92,000
(Being transfer of Current A/c balances to Capital A/c)
g. Suchandra’s Capital A/c Dr. 10,35,000
To Bank A/c 10,35,000
(Being amount of Capital paid to Suchandra)
h. Ashamita’s Capital A/c Dr. 11,500
To Kasturi’s Capital A/c 11,500
(Being amount payable by Kasturi to Anshuitab
in order to make their Claim in new company as 3:2)
i. Bank A/c Dr. 8,64,800
Shares in Tata (P) Ltd. A/c Dr. 10,92,500
To Tata (P) Ltd. A/c 19,57,300
(Being amount received amount shares in Tata(P) Ltd.
Distributed for Purchase consideration)
Working Notes: 1
Anshuitab Capital A/c
Particulars Amount Particulars Amount
To Realisation A/c 46,920 By Balance c/d 4,60,000
Kausturi’s Capital 11,500 Goodwill A/c 2,53,920
Balance c/d 6,55,500
7,13,920 7,13,920
Kausturi’s Capital A/c
Particulars Amount Particulars Amount
To Realisation A/c 23,460 By Balance c/d 2,30,000
Balance c/d 4,37,000 Goodwill A/c 1,26,960
Current A/c 9,20,000
Anushmita’s Capital A/c 11,500
4,60,460 4,60,460
2. Calculation of goodwill
Normal Ratio of return
18 % p.a. or fixed capital
13,80,000×18% ₹248,400
Actual Profit ₹4,60,000
(-) Normal Profit ₹2,48,400
Page 15
Financial Accounting 6.4.15
Super profit ₹2,11,600
Goodwill = 2,11,600 x 3 years of purchase of S.P 6,34,800
Suchandra’s Share 6,34,800 × 2/5 2,53,920
Ashmitra’s Share 6,34,800× 2/5 2,53,920
Kusturi’s Share 6,34,800 × 1/5 1,26,960
3. Computation of Purchases Consideration
Investments 1,15,000
Fixed Assets 9,20,000
Stock 2,30,000
Debtors 6,32,500
Goodwill 6,34,800
25,32,300
Less: Unsecured Loan 2,30,000
Current Liabilities 3,45,000
19,57,300