Question

Edwin and Abel are partners sharing profits and losses in the ratio of 4:3. Their Balance sheet as on 30^th June 2005 is as follows.

Jerin is admitted into the firm with 2/7^th share. The following are the terms and conditions. 

1. Jerin should bring in Rs. 40,000 as his capital and share of goodwill. The value of the goodwill of the firm is fixed at Rs. 35,000. 

2. The amount of furniture and fittings should be written down by Rs. 5,000. 

3. The full amount of goodwill should be withdrawn by old partners. 

4. Creditors should be reduced by Rs. 2,000.

5. The new profit sharing ratio should be 3: 2:2.

Prepare necessary accounts and the Balance Sheet after the admission of Jerin.

Answer 1

Working notes : 

1. Jerin’sshare of goodwill = Goodwill of the firm × 2/7 = 35,000 × 2/7 = 10,000 

2. Sacrificing ratio = Old share – New share 

Edwin’s sacrifice = 4/7 – 3/7 = 1 / 7 

Abel’s sacrifice = 3/7 – 2/7 = 1 / 7 

Ratio = 1/7 : 1/7 i.e. = 1 :1 

Revaluation A/c

Partner’s capital a/c

Balance Sheet as on 1^st July 2005