Question

The following is the Balance Sheet of A and B as on 31^th Dec. 2004.

A & B share profits and losses in the ratio of 5 : 3. They admit C into the partnership for equal share. C brings in Rs. 50,000 as capital and Rs. 5,000 for his share of goodwill. Goodwill of the firm is valued at Rs. 30,000. The following conditions were agreed upon.

1. Land and buildings are appreciated by 20%.

2. Stock is decreased by Rs. 5,000/- 

3. Creditors include Rs. 2,500/- not become payable. 

4. Unexpired insurance or insurance paid in advance Rs. 2,500 is to be recorded.

Record journal entries, prepare ledger accounts and the new Balance Sheet.

Answer 1

Calculation of sacrificing ratio 

Sacrificing ratio = old ratio – new ratio

Journal

Revaluation A/c

Partner’s Capital A/c

Balance sheet as on 1^st January 2005