1

Partnership Accounts
Solution 1
REALISATION ACCOUNT
₹ ₹
To Fixed Assets 5,00,000 By Creditors 3,20,000
To Stock 3,00,000 By Cash
To Debtors 5,00,000 Fixed Assets 5,20,000
To Cash Debtors 4,40,000 9,60,000
Creditors 3,04,000 By Y’s Capital (Stock taken over) 2,50,000
Expenses 6,000 3,10,000 By Loss transferred
X 35,555
Y 26,667
Z 17,778 80,000
16,10,000 16,10,000
PARTNER’S CAPITAL ACCOUNTS
X Y Z X Y Z
To Realisation A/c 35,555 26,667 17,778 By Balance b/d 4,00,000 3,00,000 2,00,000
To Realisation 2,50,000 By General 40,000 30,000 20,000
A/c reserve
To Cash 4,04,445 53,333 2,02,222
4,40,000 3,30,000 2,20,000 4,40,000 3,30,000 2,20,000
CASH ACCOUNT
₹ ₹
To Balance b/d 10,000 By Realisation A/c 3,10,000
To Realisation A/c 9,60,000 By X’s Capital 4,04,445
By Y’s Capital 53,333
By Z’s Capital 2,02,222
9,70,000 9,70,000
Solution 2
Realization Account
Particulars Particulars
To Debtors 25,000 By Creditors 20,000
To Stock 35,000 By Bank overdraft 5,000
To Furniture 40,000 By Bank:
To Machinery 60,000 Investment 25,000
To Bank: Furniture 30,000
Creditors 20,000 Machinery 50,000
Bank overdraft 5,000 Debtors (90%) 22,500
Outstanding bill 2,000 27,000 Stock 20,125
To Profit transferred: 2,620 Bad debts Recovered 1,245 1,48,870
P’s capital 1,310 By P’s Current A/c 15,750
Q’s capital 1,310 (stock taken over)
1,89,620 1,89,620

Partners’ Capital Accounts

Particulars P Q Particulars P Q
To P’s current Account 16,940 By Balance b/d 1,00,000 50,000
To Bank 83,060 68,810 By Q’s current Account 18,810
1,00,000 68,810 1,00,000 68,810

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 2
Bank Account
Particulars Particulars
To Balance b/d 30,000 By Realization 27,000
To Realization 1,48,870 By P’s capital 83,060
By Q’s capital 68,810
1,78,870 1,78,870
Working Note:
Partners’ Current Accounts
P Q P Q
To Balance b/d 10,000 By Balance b/d 10,000
To Realization 15,750 By Reserves 7,500 7,500
To Q’s capital 18,810 By Realization (profit) 1,310 1,310
By P’s Capital 16,940
25,750 18,810 25,750 18,810

Solution 3
REALISATION ACCOUNT
₹ ₹
To Premises 50,000 By Sundry Creditors 84,650
To Plant 1,25,000 By Bank:
To Fixtures 32,500 Premises 60,000
To Stock 43,200 Plant 1,07,500
To Debtors 54,780 Fixtures 20,000
To Bank (Creditors) 84,650 Stock 41,040
To Bank (Expenses) 4,500 Debtors 45,900 2,74,440
By Loss transferred to
Current A/cs
Thin 14,216
Short 14,216
Fat 7,108 35,540
3,94,630 3,94,630

PARTNERS CURRENT ACCOUNTS

Thin Short Fat Thin Short Fat
To Balance b/d - - 14,500 By Balance b/d 29,700 11,300 -
To Realisation 14,216 14,216 7,108 By Capital A/cs - 2,916 21,608
To Capital A/cs 15,484 - - - - -
29,700 14,216 21,608 29,700 14,216 21,608

PARTNERS’ CAPITAL ACCOUNTS

Thin Short Fat Thin Short Fat
To Current A/cs - 2,916 21,608 By Balance b/d 80,000 50,000 20,000
To Fat’s Cap.A/c 990 618 By Current A/cs 15,484 - -
(Deficiency in the
ratio of 8:5)
To Bank 1,08,710 60,682 - By Bank 14,216 14,216
(Realisation loss)
By Thin & Short 1,608
Capital A/cs
1,09,700 64,216 21,608 1,09,700 64,216 21,608
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 3
Working Notes: BANK ACCOUNT
₹ ₹
To Realisation A/c 2,74,440 By Balance b/d 44,330
To Thin’s Capital A/c 14,216 By Realisation A/c (creditors) 84,650
To Short’s Capital A/c 14,216 By Realisaton A/c (Expenses) 4,500
By Thin’s Capital A/c 1,08,710
By Short’s Capital A/c 60,682
3,02,872 3,02,872
Fat’s deficiency has been by borne Thin & Short in the ratio of their fixed capitals i.e., 8:5 following the
rule in Garner vs. Murray

Solution 4
Cash & Bank Account
Particulars Amount Particulars Amount
To Balance b/d 240 By Realisation A/c- 14,040
Creditors
To Realisation A/c- 19,920 By Realisation A/c- 1,800
(Assets Realised) Expenses
To Capital Accounts: By G’s Loan A/c 9,600
G 27,200 By G’s Capital A/c 16,280
S 20,400 By S’s Capital A/c 28,680
J 2,640 50,240
70,400 70,400
Realisation Account
Particulars Amount Particulars Amount
To Goodwill 48,000 By Trade Creditors 14,880
To Land 9,600 By Provision for Bad Debts 120
To Plant and Machinery 15,360 By Bank:
To Motor Car 840 Land 8,400
To Stock 4,680 Plant & Machinery 6,000
To Sundry Debtors 2,400 Stock 3,600
To Bank (Creditors) 14,040 Debtors 1,920 19,920
To Bank (Expenses) 1,800 By G (Car) 600
By Capital Accounts: (Loss)
G 27,200
S 20,400
J 13,600 61,200
96,720 96,720
Partners’ Fixed Capital Accounts
Particulars G S J Particulars G S J
To Current 5,800 - 3,680 By Balance b/d 24,000 24,000 12,000
A/c (Transfer)
To Realisation 27,200 20,400 13,600 By Cureent A/c - 6,000 -
A/c (Loss) (Transfer)
To Realisation 600 - - By Bank - - 2,640
A/c (Car)
To J's Capital 1,320 1,320 - By Bank 27,200 20,400 -
A/c (realization loss)
(Deficiency)
To Bank* 16,280 28,680 - By G&S - - 2,640
(Deficiency)
51,200 50,400 17,280 51,200 50,400 17,280
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 4
Note:
1. G, S and J will bring cash to make good their share of the loss on realization.
2. As per Garner Vs. Murray rule, solvent partners- G and S have to bear the loss due to insolvency of a
partner J in their fixed capital ratio.
*Alternatively, posting may be done for the net amount being received from /paid to G and S
respectively.
Working Note:
Current account balances of partners have been arrived after adjusting profit and loss account debit
balance as follows:
Current Profit & Loss
account balance
G 600 (6,400) 5,800 Dr.
S 10,800 (4,800) 6,000 Cr.
J (480) (3,200) 3,680 Dr.
Solution 5
REALISATION ACCOUNT
Particulars Amount Particulars Amount
To Land and building 2,46,000 By Sundry creditors 36,000
To Furniture & fixtures 65,000 By Mortgage loan 1,10,000
To Stock 1,00,000 By Cash Account
To Debtors 72,500 Land and building 2,30,000
To Cash A/c Stock 72,000
Expenses 7,800 Furniture & Fix. 42,000
Creditors (36,000+18,000) 54,000 Debtors 65,000 4,09,000
Mortgage loan 1,10,000 1,71,800 By Partners’ Capital A/cs (Loss)
P = 40,120
Q = 30,090
R = 20,060
S = 10,030 1,00,300
6,55,300 6,55,300

PARTNER’S CAPITAL ACCOUNTS

Particulars P Q R S Particulars P Q R S
To Bal. b/d - - 25,000 18,000 By Bal. b/d 1,68,000 1,08,000 - -
To Real. A/c 40,120 30,090 20,060 10,030 By General 38,000 28,500 19,000 9,500
(Loss) Reserve
To R’s 12,636 8,424 -- -- By Capital 10,000 7,500 5,000 2,500
Capital A/c Reserve
(Deficiency)
To Cash A/c 2,03,364 1,35,576 - - By Cash A/c 40,120 30,090 - 10,030
(Real. loss)
By P’s 12,636
Capital A/c
By Q’s 8,424
Capital A/c
By Cash A/c 6,000
2,56,120 1,74,090 45,060 28,030 2,56,120 1,74,090 45,060 28,030
Note: P, Q and S brought cash to make good, their share of the loss on realization. However in actual
practice they will not be bringing any cash, only a notional entry will be made.

CASH ACCOUNT
To Balance b/d 15,500 By Realisation A/c: 1,71,080
To Realisation A/c: 4,09,000 By P’s Capital A/c 2,03,364
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 5
To P’s Capital A/c 40,120 By Q’s Capital A/c 1,35,576
To Q’s Capital A/c 30,090
To S’s Capital A/c 10,030
To S’s Capital A/c 6,000
5,10,740 5,10,740
Working Note:
As per Garner Vs. Murray rule, solvent partners have to bear the loss due to insolvency of a partner in
their capital ratio.
Calculation of Capital Ratio of Solvent Partners
P Q S
Opening capital 1,68,000 1,08,000 (18,000)
Add: General reserve 38,000 28,500 9,500
Capital Reserve 10,000 7,500 2,500
2,16,000 1,44,000 (6,000)
Though S is a solvent partner yet he cannot be called upon to bear loss on account of insolvency of R
because his capital account has a debit balance.
Therefore, capital ratio of P & Q = 216:144 = 3:2
Deficiency of R = ₹ {(25,000 + 20,060) – (19,000 + 5,000)} = ₹45,060 – ₹24,000 = ₹21,060
Deficiency of R will be shared by P & Q in the capital ratio of 3 : 2 i.e.
P = ₹ 21,060 X 3/5 = ₹12,636
Q = ₹21,060 X 2/5 = ₹8,424

Solution 6
In the Books of M/s Omega
Statement of Piecemeal Distribution (Under Higher Relative Capital method)
Particulars Amount Creditors Bank L’s loan Capital A/cs
Available Loan
Balance due 2,00,000 5,00,000 10,00,000 15,00,000 10,00,000 5,00,000
1st Installment 5,00,000
(including) cash
and bank balances
Less: Liquidators (1,00,000)
Expenses and fee
4,00,000
Less: Payment to
Creditors & Bank
Loan in the ratio of
2:5 (4,00,000) (1,14,286) (2,85,714) - - - -
Balance Due - 85,714 2,14,286 10,00,000 15,00,000 10,00,000 5,00,000
2nd Installment 15,00,000
Less: Payment to - - - -
Creditors & bank
loan 3,00,000 (85,714) (2,14,286)
Balance Due 12,00,000 Nil Nil 10,00,000 15,00,000 10,00,000 5,00,000
Less: Repayment of (10,00,000) (10,00,000) - - -
L’s Loan
Balance Due 2,00,000 - 15,00,000 10,00,000 5,00,000
Less: Payment to (2,00,000) (2,00,000) - -
Mr. L towards
relative higher
capital (W.N. 1)
Balance Due Nil Nil 13,00,000 10,00,000 5,00,000
3rd Installment 15,00,000
Less: Payment to (3,00,000) (3,00,000) - -
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 6
Mr. L towards
higher relative
capital (W.N.2)
Balance Due 12,00,000 10,00,000 10,00,000 5,00,000
Less: Payment to (10,00,000) (5,00,000) (5,00,000) -
Mr. L & Mr. M.
towards excess
capital (W.N 1 & 2)
Balance Due 2,00,000 5,00,000 5,00,000 5,00,000
Less: Payment to (2,00,000) (66,667) (66,667) (66,666)
all the partners
equally
Balance Due Nil 4,33,333 4,33,333 4,33,334
4 Installment
th
30,00,000
Less: Payment to (30,00,000) (10,00,000) (10,00,000) (10,00,000)
all the partners
equally
Realisation profit 5,66,667 5,66,667 5,66,666
credited to Partners
5th Installment 30,00,000
Less: Payment to (30,00,000) 10,00,000 10,00,000 10,00,000
all partners equally
Realisation profit 15,66,667 15,66,667 15,66,666
credited to partners

Working Notes:
Scheme of payment of surplus amount of ₹2,00,000 out of second Installment:
L M S
Balance (i) 15,00,000 10,00,000 5,00,000
Profit sharing ratio (ii) 1 1 1
Capital taking S’s capital (iii) 5,00,000 5,00,000 5,00,000
Excess capital (iv) = (i) –(iii) 10,00,000 5,00,000
Profit sharing ratio 1 1
Excess capital taking M’s Excess capital as base (v) 5,00,000 5,00,000
Higher Relative Excess (iv)-(iv) 5,00,000
So, Mr. L should get ₹5,00,000 first which will bring down his capital account balance from ₹15,00,000
to ₹10,00,000. Accordingly, surplus amounting to ₹2,00,000 will be paid to Mr. L towards higher relative
capital.
Scheme of payment of ₹15,00,000 realized in 3rd installment:
Payment of ₹3,00,000 will be made to Mr. L to discharge higher relative capital. This makes the higher
capital of both Mr. L and Mr. M ₹ 5,00,000 as compared to capital of Mr. S.
Payment of ₹5,00,000 each of Mr. L & Mr. M to discharge the higher capital.
Balance ₹2,00,000 equally to L, M and S, i.e., ₹66,667 ₹66,667 and ₹66,666 respectively.

Solution 7

Particulars Cash Creditors Capitals

Balance due after loan 16,000 52,000 43,500 32,000
January
Balance available 9,000
Realization less expenses and cash retained 10,000
Amount available and paid 19,000 (16,000) - - (3,000)
Balance due - - 52,000 43,000 29,000
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 7
February
Opening Balance 6,000
Expenses paid and cash carried forward 3,000
Available for distribution 3,000
Cash paid to Q and Machinery given to R - (3,000) (9,000)
Balance due - 52,000 40,500 20,000
March
Opening Balance 2,000
Amount realisation less expenses 87,300
Amount paid to partners (89,300)
Paid to Q (1,500)
Payment ₹21,000 (12,000) (9,000)
Balance 66,800 Paid to P,Q & R(4:3:2) (29,689) (22,267) (14,844)
Loss 10,311 7,733 5,156

Working Note:
(i) Highest Relative Capital Basis
P Q R
Scheme of payment for January 2020
Balance of Capital Accounts 65,000 50,500 32,000
Less: Loans (13,000) (7,000) -
(A) 52,000 43,500 32,000
Profit Sharing Ratio 4 3 2
Capital/Profit sharing ratio 13,000 14,500 16,000
Capital in profit sharing ratio, taking P’s capital as base 52,000 39,000 26,000
(B)
Excess of R’s capital and Q’s capital (A-B) (i) 4,500 6,000
Profit sharing ratio 3 2
Capital/profit sharing ratio 1,500 3,000
Capital in profit sharing ratio, taking Q’s capital as base 4,500 3,000
(ii)
Excess of R’s Capital over Q’s capital (i-ii) 3,000

(ii) Scheme of distribution of available cash for March:

P Q R
Balance of capital Account end of February (A) 52,000 40,500 20,000
Profit sharing ratio 4 3 2
Capital/profit sharing ratio 13,000 13,500 10,000
Capital in profit sharing ratio, taking R’s capital as base 40,000 30,000 20,000
(B) (i)
Excess of P’s Capital and Q’s capital (A-B) (i) 12,000 10,500
Profit Sharing Ratio 4 3
Capital/Profit sharing Ratio 3,000 3,500
Capital in profit sharing ratio taking P’s Capital (I – ii) 12,000 9,000
Excess Capital - 1,500

Solution 8
Statement showing distribution of cash amongst the partners
(Under Higher Relative Capital method)
Particulars Amount Trade Y’s loan Capital A/cs
Available Payables X Y Z
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 8
Balance due 66,000 18,000 60,000 40,000 50,000
1st Installment (including) cash
& bank (1,100+74,600) 75,700
Less: Dissolution Expenses (12,000)
provided for
63,700
Less: Z’s remuneration of (746)
1% on assets realized
(74,600 x 1%)
62,954
Less: Payment to Trade
Payables (62,954) (62,954) - - - -
Balance Due - 3,046 18,000 60,000 40,000 50,000
2nd Installment 69,301
Less: Z’s remuneration of (693)
1% on assets realized
(69,301 x 1%)
68,608
Less: Payment to Trade
Payables (646) (646)
Transferred to Realisation A/c 2,400
Less: Repayment of Y’s Loan (18,000) (18,000)
Amount available for
distribution to partners 49,962
Less: Z’s remuneration of
10% of the amount
distributed to partners (4,542)
(49,962 x 10/110)
Balance to be distributed
to partners 45,420
Less: Payment to Z towards
relative higher capital (W.N. 1) (2,000) (2,000)
43,420 48,000
Less: Payment to X & Z. in 5:4
towards excess capital (W.N.1) (18,000) (10,000) (8,000)
Balance Due 25,420 50,000 40,000 40,000
Less: Paid to X, Y & Z in 5:4:4 (25,420) (9,778) (7,821) (7,821)
Balance Due 40,222 32,179 32,179
3rd Installment 40,000
Less: Z’s remuneration of
1% on assets realized
(40,000 x 1%) (400)
Amount available for 39,600
distribution to partners
Less: Z’s remuneration of
10% of the amount
distributed to partners (3,600)
(39,600 x 10/110)
Balance to be distributed 36,000
to partners
Less: Paid to X, Y & Z in 5:4:4 (36,000) (13,846) (11,077) (11,077)
Balance Due 26,376 21,102 21,102
4th Installment 28,000
Less: Z’s remuneration of
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 9
1% on assets realized
(28,000 x 1%) (280)
Amount available for 27,720
distribution to partners
Less: Z’s remuneration of
10% of the amount
distributed to partners (2,520)
(27,720 x 10/110)
Balance to be distributed 25,200
to partners
Less: Paid to X, Y & Z in 5:4:4 (25,200) (9,692) (7,754) (7,754)
Loss Suffered by partners 16,684 13,348 13,348

Working Notes 1:
Highest Relative Capital Method
X Y Z
Balance (i) 60,000 40,000 50,000
Profit sharing ratio (ii) 5 4 4
Capital profit sharing ratio 12,000 10,000 12,500
Capital taking Y’s capital (iii) 50,000 40,000 40,000
Excess capital (iv) = (i) –(iii) 10,000 Nil 10,000
Profit sharing ratio 5 4
Capital profit sharing ratio 2,000 2,500
Capital taking X’s capital (v) 10,000 8,000
Excess capital (vi) = (iv) –(v) Nil 2,000
Therefore, firstly ₹2,000 is to be paid to Z, then X and Z to be paid in proportion of 5:4 upto ₹ 18,000 to
bring the capital of all partners X, Y and Z in proportion to their profit sharing ratio. Thereafter, balance
available will be paid in the profit sharing ratio 5:4:4 to all partners viz X, Y and Z

Solution 9
First of all the following table will be constructed to show the amounts available for distribution:
Statement showing and distribution of Cash payments
Realisation Creditors Partners Partners
Loan Capitals
After taking into account cash balance and 1,000 1,000 - -
amount set aside for expenses
3,000 1,000 2,000 -
3,900 - 3,000 900
6,000 - - 6,000
Including saving in expenses 20,100 - - 20,100
34,000 2,000 5,000 27,000
To ascertain the amount distributable out of each installment realized among the partners, the following
table will be constructed:
Statement of Distribution on Capital Account
Calculation to determine the mode of distribution of ₹900
Total A B C
Balance 42,000 15,000 18,000 9,000
Less: Possible loss, should remaining assets (41,100) (16,440) (16,440) (8,220)
prove to be worthless
+900 -1,440 +1,560 +780
Deficiency of A’s capital written off against (960) (480)
those of B and C in the ratio of their capital,
18,000 : 9,000 (Garner vs. Murray)
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 10
Manner in which the first ₹900 should be + 600 + 300
distributed
Distribution of ₹6,000
Balance after making payment of amount 41,100 15,000 17,400 8,700
shown in step (1)
Less: Possible loss assuming remaining asset to (35,100) (14,040) (14,040) (7,020)
be valueless
Balance available and to be distributed 6,000 960 3,360 1,680

Distribution of ₹ 20,100
Balance after making payment of amount 35,100 14,040 14,040 7,020
shown in step (2)
Less: Possible loss, assuming remaining assets (15,000) (6,000) (6,000) (3,000)
to be valuables
Manner of distribution of ₹20,100 20,100 8,040 8,040 4,020

Summary:
Balance 42,000 15,000 18,000 9,000
Total amounts paid (27,000) (9,000) (12,000) (6,000)
Loss 15,000 6,000 6,000 3,000

Solution 10
Statement of Distribution of Cash
Realizati Trade Partner’s Partner’s capital
on Creditor Loan
Balances due (1) 2,800 1,400 13,440 8,400 11,760 33,600
(i) Sale of Patent 1,400 (1,400) -
1,400 1,400
(ii) Sale of 2,800 (1,400) (1,400)
furniture
(iii) Sale of 1,680
machinery
Maximum 31,920 (15,960) (9,576) (6,384) (31,920)
possible loss
(33,600-1,680)
allocated to
partners in the
PSR i.e. 5:3:2
Amounts at credit (2,520) (1,176) 5,376 1,680
Deficiency of AD 2,520 1,176 (3,696) -
and BD written
off against SD
Amount paid (2) - - 1,680 1,680
Balances in 13,440 8,400 10,080 31,920
capital a/cs
(1 – 2) = (3)
(iv) Sale of stock 5,600
Maximum 26,320 (13,160) (7,896) (5,264) (26,320)
possible loss
(31,920–5,600)
allocated to

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 11
partners in the
ratio 5 : 3 : 2
Amounts at credit 280 504 4,816 5,600
and cash paid (4)
Balances in 13,160 7,896 5,264 26,320
capital accounts
left unpaid: Loss
(3 – 4) = (5)

Solution 11
BALANCE SHEET OF THE FIRM AS AT 30.09.2020
Liabilities ₹ Assets ₹
Capital Accounts Machinery:
Mohan’s capital 1,47,990 Opening balance 1,80,000
Sohan’s capital 1,40,790 Less: dep. @ 10% p.a.(6M) (9,000) 1,71,000
Trade Payables 60,000 Leasehold Premises
Bank overdraft 24,000 Opening balance 40,800
Less: Dep. @ 5% p.a (6M) (1,020) 39,780
Trade Receivables 72,000
Inventories 90,000
3,72,780 3,72,780

REALISATION ACCOUNT
Particulars Amount Particulars Amount
To Sundry assets: By Trade Payables 60,000
Machinery 1,71,000 By Bank overdraft 24,000
Leasehold Premises 39,780 By PKR Ltd. A/c 4,08,780
Inventores 90,000 (working note 2)
Trade Receivables 72,000
To Profit:
Mohan’s capital a/c 60,000
Sohan’s capital A/c 60,000
4,92,780 4,92,780

PARTNER’S CAPITAL ACCOUNT

Date Particulars Mohan Sohan Date Particulars Mohan Sohan
01.04 To P&L A/c 15,600 15,600 1.4 By balance b/d 1,68,000 1,56,000
01.04 To Current A/c 12,000 7,200 30.09 By Profit (WN1) 15,180 15,180
30.09 To drawing A/c 7,590 7,590
(W.N.-1)
30.09 To Bal c/d 1,47,990 1,40,790

1,83,180 1,71,180 1,83,180 1,71,180

30.09 To shares in 2,07,990 2,00,790 30.09 By balance b/d 1,47,990 1,40,790

Purchasing Company
30.09 By Realisation A/c 60,000 60,000
(profit)
2,07,990 2,00,790 2,07,990 2,00,790

Working notes
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 12
1. Ascertainment of profit for the 6 Months ended 30.09.2020
Closing assets Amount (₹)
Inventories 90,000
Trade Receivables 72,000
Machinery less depreciation 1,71,000
Leasehold Premises less written off 39,780
Total 3,72,780
Less; Closing liabilities
Creditors 60,000
Bank overdraft 24,000 (84,000)
Closing net assets 2,88,780
Less: Opening adjusted capital
Mohan (1,68,000-15,600-12,000) 1,40,400
Sohan (1,56,000-15,600-7,200) 1,33,200 2,73,600
Profit net of drawings 15,180
Actual profit for six before drawings (half of profit)= 15,180x2 30,360
Combined drawing during six months (half of profit) 15,180

2. Ascertainment of purchase consideration

₹
Closing net assets (as above) 2,88,780
Add goodwill 1,20,000
Total purchase consideration 4,08,780

Solution 12
M/s Red, Black and White
Profit and Loss Account for the year ending on 31st March, 2020
₹ ₹
To Depreciation of Building 6,000 By Trading Profit 80,000
To Interest on Red’s loan 1,200 By Interest on Investment 2,400
To Net Profit to:
Red’s Capital A/c 45,120
Black’s Capital A/c 15,040
White’s Capital A/c 15,040 75,200
82,400 82,400
Balance Sheet of the RBW Pvt. Ltd. as on 1st April, 2020
Note No. Amount
Equity and Liabilities
Shareholders’ funds
Share capital 2,39,040
Non Current liabilities
Long term borrowings 1 21,200
Total 2,60,240
II. Assets
Non-current Assets
Property, Plant & Equipment & Intangible Assets
Property, Plant & Equipment 2 1,14,000
Non-current investments 40,000
Current Assets
Inventories 80,000
Cash and cash equivalents 26,240
2,60,240
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
 13

Notes to Accounts
1. Short term borrowings
Loan from Red 21,200
2. Property, Plant & Equipment
Building 1,14,000
Working Notes:
1. Calculation of goodwill
2015 2016 2017 2018 2019
Profits/(Loss) 40,000 (20,000) 40,000 50,000 60,000
Adjustment for extraneous profit of 2015 (60,000) 40,000 - - -
and abnormal loss of 2016
(20,000) 20,000 40,000 50,000 60,000
Add: Remuneration of Red 12,000 12,000 12,000 12,000 12,000
(8,000) 32,000 52,000 62,000 72,000
Less: Debenture Interest being (2,400) (2,400) (2,400) (2,400) (2,400)
nonoperating income
(10,400) 29,600 49,600 59,600 69,600
Total profit from 2016 to 2019 2,08,400
Less: Loss for 2015 (10,400)
1,98,000
Average Profit 39,600
Goodwill equal to 2 years purchase 79,200
Contribution from White for 1/5 share 15,840
*Investments are assumed to be non-trading investments

2. Adjustment for goodwill

To be raised in old Ratio To be written off in new ratio Difference
Red 47,520 47,520 Nil
Black 31,680 15,840 15,840 Cr.
White 15,840 15,840 Dr.

3. Partner’s Capital Accounts

Red Black White Red Black White
To Drawings 24,000 24,000 24,000 By Balance b/d 80,000 1,00,000 --
To Black 15,840 By General Reserve 12,000 8,000 --
To Balance c/d 1,13,120 1,14,880 11,040 By White - 15,840 --
By Bank -- -- 35,840
By Profit& LossA/c 45,120 15,040 15,040
1,37,120 1,38,880 50,880 1,37,120 1,38,880 50,880

4. Balance Sheet of the firm as on 31st March, 2020

Liabilities ₹ ₹ Assets ₹ ₹
Red’s Capital 1,13,120 Land & Building 1,20,000
Black’s Capital 1,14,880 Less; Depreciation (6,000) 1,14,000
White’s Capital 11,040 Investments 40,000
Red’s Loan 20,000 Stock in trade 80,000
Add: Interest due 1,200 21,200 Cash (W.N. 6) 26,240
2,60,240 2,60,240

5. Cash Balance as on 31.3.2020

₹ ₹
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 14
Cash trading profit 80,000
Add: Debentures Interest 2,400
Add: Decrease in Debtors Balance 40,000
1,22,400
Less: Increase in Stock 20,000
Less: Decrease in Creditors 40,000 (60,000)
62,400
Add: Opening cash balance 20,000
Add: Cash brought in by White 35,840
Less: Drawings 72,000
Less: Additions to Building 20,000 (92,000)
Closing cash balance 26,240

6. Distribution of shares – Conversion into Company

Capital: Red
1,13,120
Black
1,14,880
White
11,040
Share Capital 2,39,040
Distribution of shares: Red (3/5) 1,43,424
Black (1/5) 47,808
White (1/5) 47,808
Red should subscribe shares of ₹ 30,304 (₹ 1,43,424 – ₹ 1,13,120) and White should subscribe shares of ₹
36,768 (₹ 47,808 less 11,040). Black withdraws ₹ 67,072 (₹ 47,808 – ₹ 1,14,880).

Solution 13
Partner’s Current Accounts
Particulars X Y Z Particulars X Y Z
31.3.2019 31.3.2019
To Balanced b/d - - 10,000 By Balance b/d 40,000 30,000 -
To X’s Current A/c - 30,000 15,000 By Y’s Current A/c 30,000 - -
– goodwill – Goodwill
To X’s current A/c - 20,000 10,000 By Z’s current A/c 15,000 - -
– Revaluation Profit – goodwill
To X’s capital A/c 1,21,000 -- - By Y’s current A/c 20,000 - -
–Transfer – Revaluation profit
By Z’s Current A/c 10,000
– Revaluation profit
By Joint assurance 6,000 4,000 2,000
policy
-- -- -- By Balance c/d -- 16,000 33,000

1,21,000 50,000 35,000 1,21,000 50,000 35,000

1.4.19 31.3.20
To Balance b/d 16,000 33,000 By Profit & loss App. A/c 29,136 14,568
31.3.20 By Balance c/d 1,864 26,432
To Drawings A/c 15,000 8,000
31,000 41,000 31,000 41,000
1.4.20 1.4.20
To Balance b/d 1,864 26,432 By Realisation A/c profit 31,674 15,837
To Y’s Capital A/c – Transfer 29,810 -- By Z’s Capital A/c – transfer - 10,595
31,674 26,432 31,674 26,432
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
 15
Partners’ Capital Accounts
Particulars X Y Z Particulars X Y Z
31.3.2019 ₹ ₹ ₹ 31.3.2019 ₹ ₹ ₹
To X’s Executors 1,81,000 --- --- By Balance b/d 60,000 40,000 20,000
A/c
To Balance c/d -- 40,000 20,000 By X’s Current A/c 1,21,000 -- --
1,81,000 40,000 20,000 1,81,000 40,000 20,000
31.3.20 1.4.20
To Z’s current A/c - 10,595 By Balance b/d 40,000 20,000
transfer
30.6.20 1.4.20
To Bank A/c 69,810 9,405 By Y’s current A/c 29,810 --
– transfer
69,810 20,000 69,810 20,000
X’s Executor’s Account
Date Particulars ₹ Date Particulars ₹
01.4.2019 To Bank A/c 30,000 31.3.2019 By X’s Capital A/c 1,81,000
31.3.2019 To Balance c/d 1,51,000
1,81,000 1,81,000
30.9.2019 To Bank A/c 30,000 01.4.2019 By Balance b/d 1,51,000
30.9.2019 To Balance c/d 1,25,530 30.9.2019 By Interest A/c 4,530
1,55,530 1,55,530
31.3.2020 To Bank A/c 30,000 1.10.2019 By Balance b/d 1,25,530
31.3.2020 To Balance c/d 99,296 31.3.2020 By Interest A/c 3,766
1,29,296 1,29,296
30.6.2020 To Bank A/c 1,00,785 01.4.2020 By Balance b/d 99,296
30.6.2020 By Interest A/c 1,489
1,00,785 1,00,785

Working Notes:
Adjustment in regard to Goodwill
Particulars X Y Z
Share of goodwill before death 45,000 30,000 15,000
Share of goodwill after death -- 60,000 30,000
Gain ( + ) Sacrifice ( - ) (45,000) 30,000 15,000
Cr. Dr. Dr.
Adjustment in regard to revaluation of assets
Particulars X Y Z
Share of profit on revaluation credited to 30,000 20,000 10,000
all the partners
Debited to the continuing partners -- 40,000 20,000
(30,000) 20,000 10,000
Cr. Dr. Dr.

Ascertainment of profit for the year ended 31.3.20

₹ ₹
Profit before charging interest on balance due to X’s executors 52,000
Less: Interest payable to X’s executors:
From 1.04.19 to 30.09.19 4,530
From 1.10.19 to 31.03.20 3,766 (8,296)
Balance of profit to be shared by Y and Z in 2:1 43,704

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No part of these notes may be reproduced in any manner without his prior permission in writing.
 16
Ascertainment of Sundry Assets as on 31.3.2020
Liabilities ₹ Assets ₹
Capital Account – Y 40,000 Sundry Assets (Balancing figure) 1,31,000
Capital Account – Z 20,000 Partners Current A/c – Y 1,864
X’s Executors A/c 99,296 Partner’s Current A/c - Z 26,432
1,59,296 1,59,296

Realisation Account
₹ ₹
To Sundry Assets A/c 1,31,000 By Bank A/c 1,80,000
(Purchase consideration)
To Interest A/c – X’s Executors 1,489
To Partner’s Capital A/c – Y 31,674
To Partner’s Capital A/c – Z 15,837
1,80,000 1,80,000

Bank Account
₹ ₹
To Purchase consideration 1,80,000 By X’s Executors A/c 1,00,785
By Y 69,810
By Z 9,405
1,80,000 1,80,000

Solution 14
Balance Sheet of M/s RSM & Co. as at 31st March, 2020
Liabilities ₹ Assets ₹
Capital: Building
R 4,55,250 (₹1,00,000+₹1,00,000) 2,00,000
S 2,73,150 Plant & Machinery
M 1,82,100 9,10,500 (₹1,75,000 + ₹1,60,000) 3,35,000
Sundry creditor Office equipment (₹30,000 45,000
(60,000 + 2,25,000) 2,85,000 + ₹15,000)
Bank overdraft 1,00,000 Stock in trade
(₹1,43,000 + ₹1,43,750) 2,86,750
Sundry debtors
(₹1,50,000+₹1,75,000) 3,25,000
Less: Provision for doubtful
debts (7,500+8,750) (16,250) 3,08,750
Bank balance
(₹40,000+₹35,000) 75,000
Cash in hand 45,000
12,95,500 12,95,500

Partners’ Capital Accounts in the books of RS & Co.

Particulars R S Particulars R S
To Capital A/cs – 2,77,300 1,68,200 By Balance b/d 2,50,000 1,50,000
M/s RSM & Co.
By Reserve (3:2) 24,000 16,000
By Profit on Revaluation 3,300 2,200
A/c (W.N.)
2,77,300 1,68,200 2,77,300 1,68,200

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No part of these notes may be reproduced in any manner without his prior permission in writing.
 17
Partners Capital Accounts in the books of SM & Co.
Particulars S M Particulars S M
To Capital A/cs 3,07,000 1,58,000 By Balance b/d 1,75,000 1,25,000
M/s RSM & Co.
By Reserve (4:1) 1,00,000 25,000
By Profit on Revaluation 32,000 8,000
(W.N.)
3,07,000 1,58,000 3,07,000 1,58,000

Working Notes: Revaluation Profits/Loss

Particulars RS & Co. SM & Co.
Building 25,000 20,000
Plant & Machinery (25,000) 10,000
Stock in trade 13,000 18,750
Provision for Doubtful Debts (7,500) (8,750)
5,500 40,000
R 3,300 -
S 2,200 32,000
M - 8,000

Adjustment for raising and writing off of goodwill

Raised in old profit sharing Total Written off in Difference
ratio new ratio
RS & Co. SM & Co.
3:2 4:1 5:3:2
₹ ₹ ₹ ₹ ₹
R 90,000 -- 90,000 Cr. 1,25,000 Dr. 35,000 Dr.
S 60,000 80,000 1,40,000 Cr. 75,000 Dr. 65,000 Cr.
M - 20,000 20,000 Cr. 50,000 Dr. 30,000 Dr.
1,50,000 1,00,000 2,50,000 2,50,000 Nil
Computation of Capital Adjustments
R S M Total
Balance transferred from P & Co. 2,77,300 1,68,200 4,45,500
Balance transferred from R & Co. 3,07,000 1,58,000 4,65,000
2,77,300 4,75,200 1,58,000 9,10,500
Goodwill adjustment (35,000) 65,000 (30,000) Nil
Existing capital 2,42,300 5,40,200 1,28,000 9,10,500
Proportionate capital (5:3:2) 4,55,250 2,73,150 1,82,100 9,10,500
Amount to be brought in (paid off) 2,12,950 (2,67,050) 54,100

Solution 15
Balance Sheet of M/s ABC & Co. as at 1st April, 2020
Liabilities ₹ Assets ₹
Capital: Building
A 67,300 (₹30,000+₹16,000) 46,000
B 44,867 Plant & Machinery
C 22,433 1,34,600 (₹19,000 + ₹32,000) 51,000
Current Acc: Vehicle (10,000+2,000) 12,000
B 92,333 Furniture (4,000+7,500) 11,500
C 28,067 1,20,400 Stock in trade
(₹50,500 + ₹19,500) 70,000
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 18
Sundry creditor Sundry debtors
(41,000 + 38,000) 79,000 (₹80,500+₹16,000) 96,500
Bank balance
(₹15,000+₹18,000) 33,000
Cash in hand 14,000
3,34,000 3,34,000

Partners’ Capital Accounts in the books of AB & Co.

Particulars A B Particulars A B
To Capital A/cs – 73,800 72,200 By Balance b/d 66,000 67,000
M/s ABC & Co.
By Reserve (3:2) 6,000 4,000
By Profit on Revaluation 1,800 1,200
A/c (W.N.)
73,800 72,200 73,800 72,200

Partner’s Capital Accounts in the books of BC & Co.

Particulars B C Particulars B C
To Capital A/cs 57,333 51,667 By Balance b/d 50,000 48,000
M/s ABC & Co. By Reserve (2:1) 3,333 1,667
By Profit on Rev (W.N.) 4,000 2,000
57,333 51,667 57,333 51,667
Working Notes:
Revaluation Profits/Loss
Particulars AB & Co. BC & Co.
Building 10,000 6,000
Plant & Machinery (2,000) 3,000
Vehicle (5,000) (3,000)
3,000 6,000
A 1,800 -
B 1,200 4,000
C - 2,000
Adjustment for raising and writing off of goodwill
Raised in old PSR Total W/off in NR Difference
AB & Co. BC & Co.
3:2 2:1 3:2:1
A 15,000 -- 15,000 Cr. 21,500 Dr. 6,500 Dr.
B 10,000 12,000 22,000 Cr. 14,333 Dr. 7,667 Cr.
C - 6,000 6,000 Cr. 7,167 Dr. 1,167 Dr.
25,000 18,000 43,000 43,000 Nil
Computation of Capital Adjustments
A B C Total
Balance transferred from AB & Co. 73,800 72,200 1,46,000
Balance transferred from BC & Co. 57,333 51,667 1,09,000
Goodwill adjustment (6,500) 7,667 (1,167) Nil
Existing capital 67,300 1,37,200 50,500 2,55,000
Total Capital in the ratio of 3:2:1 taking A’s 67,300 44,867 22,433
Capital as base
Amount to be transfer to current accounts - 92,333 28,067

The copyright of these notes is with C.A. Nitin Goel

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