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A and B are carrying on business in partnership and sharing profits and losses in the ratio of 3 : 2. Their Balance Sheet as at 31st March, 2023 stood as:

Liabilities Assets
Creditors

General Reserve

A’s Capital

B’s Capital

11,800

20,000

51,450

36,750

Cash

Stock

Debtors

Furniture

Machinery

Goodwill

1,500

28,000

19,500

2,500

48,500

20,000

1,20,000 1,20,000

They admit C into partnership on 1st April, 2023 and give him 1/8th share in future profits on the following terms:

a) Goodwill of the firm be valued at twice the average of the last three year’s profits which amounted to ₹ 21,000; ₹ 24,000 and ₹ 25,560.

b) C is to bring cash for the amount of his share of goodwill.

c) C is to bring cash ₹ 15,000 as his capital.

Pass Journal entries recording these transactions, draw out the Balance Sheet of the new firm and determine new profit sharing ratio.

Anurag Pathak Changed status to publish May 23, 2023
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