Question

Raman and Aman were partners in a firm and were sharing profits in 3:1 ratio. On 31.3.2019 their balance sheet was as follows : Balance Sheet of Raman and Aman as on 31.03.2019 Liabilities Amount (`) Assets Amount (`) Provision for bad debts 7,000 Bank 24,000 Outstanding Expenses 18,000 Bills Receivable 80,000 Bills Payable 47,000 Sundry Debtors 95,000 Sundry Creditors 1,02,000 Stock 14,000 Workmen Furniture 70,000 Compensation Reserve 55,000 Machinery 2,00,000 Capital Land & Building 1,96,000 Raman 3,00,000 Aman 1,50,000 4,50,000 6,79,000 6,79,000 On the above date, Suman was admitted as a new partner for 1/5th share in the profits on the following conditions : (i) Suman will bring Rs.2,00,000 as her capital and necessary amount for her share of goodwill premium. The goodwill of the firm on Suman’s admission was valued at Rs.1,00,000. (ii) Outstanding expenses will be paid off. Rs.5,000 will be written off as bad debts and a provision of 5% for bad debts on debtors was to be maintained. (iii) The liability towards workmen compensation was estimated at Rs.60,000. (iv) Machinery was to be depreciated by Rs.18,000 and Land and Building was to be depreciated by Rs. 54.000 Pass necessary journal entries for the above transactions in the books of the firm.

Answer 1

pon bFinal answer:

To account for the admission of Suman as a new partner, journal entries are made for her capital injection, share of goodwill, and adjustments to existing accounts such as provisions for bad debts, workmen compensation reserves, and depreciation of assets.

Step-by-step explanation:

The journal entries required for the admission of a new partner in a partnership are used to record changes in the accounts due to new terms and conditions agreed uy the partners. In the scenario provided, the following journal entries would be made in partnership account:

1. For the cash brought in by Suman as capital:
   Bank A/c ..................... Dr 200,000
   To Suman's Capital A/c ..................... 200,000
2. For goodwill brought in by Suman for her 1/5th share:
   Bank A/c ..................... Dr 100,000
   To Goodwill A/c ..................... 100,000
   Goodwill A/c ..................... Dr 100,000
   To Raman's Capital A/c ..................... 60,000
   To Aman's Capital A/c ..................... 40,000
3. For outstanding expenses paid off:
   Outstanding Expenses A/c ..................... Dr 18,000
   To Bank A/c ..................... 18,000
4. For bad debts adjustment:
   Provision for Bad Debts A/c ..................... Dr 7,000
   P&L A/c (Bad debts written off) ..................... Dr 5,000
   To Sundry Debtors A/c..................... 12,000
   Provision for Bad Debts A/c (New Provision) ..................... Dr 4,275
   To Provision for Bad Debts A/c (Old balance)..................... 7,000
   To P&L A/c (Balance amount)..................... 725
5. For workmen compensation reserve adjustment:
   Workmen Compensation Reserve A/c ..................... Dr 55,000
   P&L A/c ..................... Dr 5,000
   To Workmen Compensation Reserve A/c ..................... 60,000
6. For depreciation of Machinery and Land & Building:
   Machinery A/c ..................... Dr 18,000
   Land & Building A/c ..................... Dr 54,000
   To Profit & Loss A/c ..................... 72,000

Note: All adjustments are based on the additional information provided concerning the revaluation of assets and settlement of liabilities on the admission of the new partner, Suman.

Answer 2

In order to account for the introduction of a new partner and various adjustments in the firm's financial statements, specific journal entries, such as capital introduction, goodwill adjustments, payment of outstanding expenses, bad debts write-off, and depreciation, are necessary.

Step-by-step explanation:

For the admission of Suman as a new partner into the existing partnership of Raman and Aman, the following journal entries must be recorded:

1. Suman brings in her capital:
2. Bank A/C Dr 2,00,000
3. To Suman's Capital A/C 2,00,000
4. (Being the capital brought in by Suman)
5. Recording goodwill for Suman's share:
6. Suman's Capital A/C Dr 25,000
7. To Goodwill A/C 25,000
8. (Being goodwill premium brought in for 1/5th share)
9. Payment of outstanding expenses:
10. Outstanding Expenses A/C Dr 18,000
11. To Bank A/C 18,000
12. (Being payment of outstanding expenses)
13. Writing off bad debts and creating new provision for bad debts:
14. Bad Debts A/C Dr 5,000
15. Provision for Doubtful Debts A/C Dr 4,750
16. To Sundry Debtors 9,750
17. (Being bad debts written off and new provision created)
18. Adjustment for workmen compensation:
19. Workmen Compensation Reserve A/C Dr 5,000
20. To Workmen Compensation A/C 5,000
21. (Being excess provision for workmen's compensation)
22. Depreciation on machinery and land & building:
23. Depreciation A/C Dr 72,000
24. To Machinery A/C 18,000
25. To Land & Building A/C 54,000
26. (Being depreciation on machinery and land & building)

Once these entries are posted, the new balance sheet will reflect the changed values in assets and liabilities. Importantly, the goodwill that Suman brings in contributes to the firm's intangible assets and her capital increases the firm's financial resources.