Question

A and B were in partnership sharing profit and losses in the proportion of three fourth and one fourth respectively. Their balance Sheet stood as follows on 31st December 2003.

LIABILITIES …….…….…. Rs.
Creditors …………………....... 37,500
Capital Account
A ……………………………......… 40,000
B…………………………......……. 10,000
TOTAL ……………….…… 87,500

ASSETS …………….….. Rs.
Cash at bank ………... 22,500
Bill receivable……..…. 3,000
Book debts…………..… 16,000
Stock………..………….. 20,000
Furniture………..…….. 1,000
Building………..…….... 25,000
TOTAL……………... 87,500

They admitted C into partnership 1st January 2004 on the following terms:

1. The C pays Rs. 10,000 as his capital for 1/5 share in the future profits.

2. That goodwill for Rs. 20,000 is raised in the books of the new firm.

3. That stock and furniture are reduced by 10% and that a 5% provision is made for likely bad debts.

4. That the capital Accounts of A and B are readjusted on the basis of their profit sharing ratios.

Required: 

Pass the necessary journal entries and give the ledger Accounts and opening Balance Sheet of the new firm.

Answer 1