Question : A and B are partners sharing profits and losses in the ratio of 2: 1. They admit C as a partner for $\frac{1}{5}$th share. Cbrings in Rs.5,00,000 as his capital and his share of goodwill in cash. For this purpose, the goodwill of the firm is to be calculated at three year's purchase of the average profits of the total last four years. The profits of the last four years ending 31st March were:
| Year | Profit(Rs.) | |
| 2015-16 | 1,60,000 | (after charging loss of Rs. 25,440 on sale of plant) |
| 2016-17 | 1,40,000 | (after charging voluntary retirement compensation of Rs.50,000) |
| 2017-18 | 2,50,000 | |
| 2018-19 | 2,40,000 |
The following information is provided:
(i) On 1st October 2016, the firm had purchased a Computer for Rs.60,000 and it was debited to stationery expenses. Depreciation is to be charged on Computer @ 20% p.a. on the Diminishing Balance Method.
(ii) The Closing Stock ending 31st March 2017 and 2018 were overvalued by Rs.20,000 and Rs. 30,000 respectively.
(ii) To cover the operating cost, an annual charge of Rs. 10,000 should be made for the purpose of valuation of goodwill.
Amount of goodwill brought by new partner at the time of joining the firm will be ... And sacrificing partner's capital is credited with........
Option 1: Rs 1,29,000 and A credited with Rs 86,000 and B credited with Rs 43,000
Option 2: Rs 1,20,000 and A credited with Rs 80,000 and B credited with Rs 40,000
Option 3: Rs 6,45,000 and A credited with Rs 3,45,000 and B credited with Rs 3,00,000
Option 4: None of the above
Correct Answer: Rs 1,20,000 and A credited with Rs 80,000 and B credited with Rs 40,000
Solution : Answer = Rs 1,20,000 and A credited with Rs 80,000 and B credited with Rs 40,000
| Particulars | 2015-16 | 2016-17 | 2017-18 | 2018-19 | |
| Rs | Rs | Rs | Rs | ||
| Profits | 1,60,000 | 1,40,000 | 2,50,000 | 2,40,000 | |
| Add: | Loss on Sale of Plant | 25,440 | |||
| Add: | Voluntary Retirement Compensation | 50,000 | |||
| Add: | Purchase of Computer charged as an expense | 60,000 | |||
| Less: | Depreciation on Computer | (6,000) | (10,800) | (8,640) | |
| Less: | Overvaluation of Closing Stock | (20,000) | (30,000) | ||
| Add: | Overvaluation of Opening Stock | 20,000 | 30,000 | ||
| Less: | Operating Cost | (10,000) | (10,000) | (10,000) | (10,000) |
| Adjusted Profits | 1,75,440 | 2,14,000 | 2,19,200 | 2,51,360 |
Total profits= Rs. 1,75,440+ Rs. 2,14,000+ Rs. 2,19,200+ Rs. 2,51,360= Rs 8,60,000
Average profits= Rs 8,60,000÷4= Rs 2,15,000
Goodwill= Rs 2,15,000×3= Rs 6,45,000
C's share of goodwill= Rs 6,45,000×$\frac{1}{5}$= Rs 1,29,000.
Bank A/c.......Dr 6,29,000
To C's Capital A/c 5,00,000
To Premium for Goodwill A/c 1,29,000
(The amount of capital and goodwill/premium brought in cash)
Premium for Goodwill A/c........Dr 1,29,000
To A's Capital A/c 86,000
To B's Capital A/c 43,000
(Goodwill/premium credited to old partners in their sacrificing ratio, i.e., 2:1)
Hence, the correct option is 2.
Related Questions
Question : Following is the extract of the balance sheet of A and B as of March 31st, 2021.
| Balance sheet as of March 31st, 2021 | |||
| Liabilities | Amt | Assets | Amt |
| Capital | |||
| A | 10,00,000 | ||
| B | 10,00,000 | ||
| Current a/c | |||
| A | 1,00,000 | ||
| B | 3,00,000 | ||
| Profit | 4,00,000 | ||
During the year A's drawings were Rs 30,000. Profit during the year ended March 31st, 2021 is Rs 10,00,000.
Calculate interest on capital @ 5% p.a. for the year ended March 31st, 2021.
Option 1: 50,000 each
Option 2: 60,000, 40,000
Option 3: 30,000, 20,000
Option 4: None of these
Question : Following is the extract of the balance sheet of A and B as of March 31st, 2021.
| Balance sheet as of March 31st, 2021 | |||
| Liabilities | Amt | Assets | Amt |
| Capital | |||
| A | 10,00,000 | ||
| B | 10,00,000 | ||
| Current a/c | |||
| A | 1,00,000 | ||
| B | 3,00,000 | ||
| Profit | 4,00,000 | ||
During the year A's drawings were Rs 30,000. Profit during the year ended March 31st, 2021 is Rs 10,00,000.
Calculate interest on capital @ 5% p.a. for the year ended March 31st, 2021.
Option 1: 50,000 each
Option 2: 60,000, 40,000
Option 3: 30,000, 20,000
Option 4: None of these
Question : Chain and Harsha were partners in a firm sharing profits in the ratio of 3: 2. On 1-4-2014 their Balance Sheet was as follows :
| Balance Sheet of Charu and Harsha as on 1st April, 2014 | |||
| Liabilities | Amount(Rs) | Assets | Amount(Rs) |
| Creditors | 17,000 | Cash | 6,000 |
| General Reserve | 4,000 | Debtors | 15,000 |
| Workmen Compensation Fund | 9,000 | Investments | 20,000 |
| Investment Fluctuation Fund | 11,000 | Plant | 14,000 |
| Provision for bad debts | 2,000 | Land & buildings | 38,000 |
| Capitals: | |||
| Charu- 30,000 | |||
| Harsha- 20,000 | 50,000 | ||
| 93,000 | 93,000 | ||
On the above date Vaishali was admitted for 1/4 th share in the profits of the firm on the following terms :
(a) Vaishali will bring Rs.20,000 for her capital and Rs.4,000 for her share of goodwill premium.
(b) All debtors were considered good.
(c) The market value of investments was Rs. 15,000.
(d) There was a liability of Rs.6,000 for workmen compensation.
(e) Capital accounts of Charu and Harsha are to be adjusted on the basis of Vaishali's capital by opening current accounts.
Question:
Amount of Revaluation profit and loss will be
Option 1: Rs 2,000
Option 2: Rs 3,000
Option 3: Rs 4,000
Option 4: None of the above
Question : Following is the extract from the Balance Sheet of Beta Ltd.
| Equity and liabilities | 31st March, 2020(Rs) | 31st March, 2019(Rs) |
| Equity share capital | 5,00,000 | 5,00,000 |
| 10% Redeemable Preference share capital | 5,00,000 | 5,00,000 |
| Surplus,i.e Balance in statement of profit and loss | 4,50,000 | 2,50,000 |
| Dividend payable | 20,000 | ........ |
Additional Information:
1. Proposed dividend on equity shares for the years ended 31st March, 2019 and 2020 were Rs. 1,50,000 and Rs. 1,00,000 respectively.
2. An Interim Dividend of Rs. 50,000 on Equity Shares was paid on 31st December, 2019.
Net Profit before Tax and Extraordinary Items are
Option 1: Rs 4,50,000
Option 2: Rs 5,50,000
Option 3: Rs 10,00,000
Option 4: None of the above
Question : Following is the extract from the Balance Sheet of Beta Ltd.
| Equity and liabilities | 31st March, 2020(Rs) | 31st March, 2019(Rs) |
| Equity share capital | 5,00,000 | 5,00,000 |
| 10% Redeemable Preference share capital | 5,00,000 | 5,00,000 |
| Surplus,i.e Balance in statement of profit and loss | 4,50,000 | 2,50,000 |
| Dividend payable | 20,000 | ........ |
Additional Information:
1. Proposed dividend on equity shares for the years ended 31st March, 2019 and 2020 were Rs. 1,50,000 and Rs. 1,00,000 respectively.
2. An Interim Dividend of Rs. 50,000 on Equity Shares was paid on 31st December, 2019.
Net Profit before Tax and Extraordinary Items are
Option 1: Rs 4,50,000
Option 2: Rs 5,50,000
Option 3: Rs 10,00,000
Option 4: None of the above
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