Question

Mita and Vihaan were partners in a firm sharing profits and losses in the ratio of 3:2.

On 31st March, 2024 their Balance Sheet was as follows:

Balance Sheet of Mita and Vihaan as at 31st March, 2024

Liabilities	Amount (₹)	Assets	Amount (₹)
Sundry Creditors	2,00,000	Cash	50,000
Capitals:		Sundry Debtors	2,00,000
Mita	4,00,000	Less: Provision for Doubtful Debts	(7,000)
Vihaan	3,00,000		1,93,000
		Stock	2,50,000
		Plant and Machinery	3,50,000
		Patents	57,000
Total	9,00,000	Total	9,00,000

On the above date, Zen was admitted as a new partner for 4/15 share in the profits on the following terms:

1. Zen will bring ₹3,00,000 as his capital and his share of goodwill premium in cash. On Zen’s admission, goodwill of the firm was valued at ₹4,12,500.
2. The provision for bad debts will be maintained at 5% of the debtors.
3. Stock will be valued at ₹2,00,000, plant and machinery at ₹4,00,000 and patents at ₹1,20,000.
4. There was a bill of ₹30,000 for goods purchased which was omitted from the books.

Pass necessary journal entries for the above transactions in the books of the firm on Zen’s admission

Hint:

For admission of a partner: calculate goodwill contribution and revaluation impacts before passing journal entries. Use sacrificing ratio for goodwill, and old ratio for revaluation.

Answer 1

(i) Capital and Goodwill Premium:
Zen brings ₹3,00,000 as capital and goodwill share:
Total goodwill = ₹4,12,500 ⇒ Zen’s share = 4/15 × ₹4,12,500 = ₹1,10,000
Sacrificing ratio: Mita : Vihaan = 3:2 (old) ⇒ Zen gets from Mita only ⇒ Mita sacrifices 4/25, Vihaan 0.
Entire goodwill of ₹1,10,000 goes to Mita.

(ii) Revaluation of Assets and Liabilities:
New provision = 5% of ₹2,00,000 = ₹10,000 ⇒ Increase = ₹3,000
Stock decreased = ₹50,000
Plant & Machinery appreciated = ₹50,000
Patents appreciated = ₹63,000
Omitted liability = ₹30,000 (to be added)
Revaluation Profit = (Appreciation) - (Depreciation + Additional liability)
= ₹(50,000 + 63,000 + 50,000) - ₹(50,000 + 3,000 + 30,000) = ₹1,63,000 - ₹83,000 = ₹80,000
Profit shared in old ratio 3:2: Mita = ₹48,000, Vihaan = ₹32,000

Journal Entries in the books of the firm:

Particulars	Dr. (₹)	Cr. (₹)
Cash A/c Dr.    To Zen’s Capital A/c     To Mita’s Capital A/c (Goodwill)	4,10,000	3,00,000 1,10,000
Provision for Doubtful Debts A/c Dr. Stock A/c Dr.     To Revaluation A/c	3,000 50,000	53,000
Revaluation A/c Dr.     To Plant and Machinery A/c     To Patents A/c     To Outstanding Liabilities A/c	1,63,000	50,000 63,000 30,000
Revaluation A/c Dr.     To Mita’s Capital A/c     To Vihaan’s Capital A/c	80,000	48,000 32,000