G1 6.4 Partnership - Amalgamation and Business Purchase

6. PARTNERSHIP ACCOUNTING AMALGAMATION OF FIRMS AND CONVERSION TO A COMPANY a. b. c. d.

When two or more sole proprietors forms new partnership firm; When one existing partnership firm absorbs a sole proprietorship; When one existing partnership firm absorbs another partnership firm; When two or more partnership firms form new partnership firm.

I: Calculation of Purchase Consideration Calculation of Purchase Consideration Agreed values of assets taken over

××××

Less: Agreed values of liabilities assumed ×××× Purchase consideration

××××

II: When the sole proprietors form or a partnership firm is closed Steps to be taken for the existing books Step 1: Prepare the Balance Sheet of the business on the date of dissolution. Step 2: Open a Realization Account and transfer all assets and liabilities, except cash in hand and cash at bank, at their book values. However, cash in hand and cash at bank are transferred to Realization Account only when they are taken over by the new firm. Step 3: Credit Realization Account by the amount of Purchase Consideration. Step 4: If there are any unrecorded assets or liabilities, they are to be recorded. Step 5: The Profit or loss on realization (balancing figure of Realization Account) to be transferred to the Capital Account of the proprietor. Step 6: To ensure that all the accounts of the Sole Proprietor’s / Firm’s business are closed. III: In the books of purchasing firm or company Steps for incorporating the transaction relating to purchase Step 1: Pass entry for purchase consideration payable Step 2: Pass entry for taking assets and liabilities account Step 3: Pass entry for settling the purchase consideration Step 4: Prepare revised balance sheet incorporating all assets and liabilities taken over from transferee Note 1: The Purchase Consideration is satisfied by the Company either in the form of cash or shares or debentures or a combination of two or more of these. The shares may be equity or preference shares. The shares may be issued at par, at a premium or at a discount. For the partnership, the issue price is relevant which may form a part of the purchase consideration. Note 2: In the absence of any agreement, share received from purchasing company should be distributed among the partners in the same ratio as profits and losses are shared.

Financial Accounting

6.4.1

[CMA INTER J09, 10 Marks] Question 38: Amalgamating sole trades and formation of firm: A and B carry on independent business in provisions and their position on 31.12.2002 are reflected in the given Balance sheet: Balance Sheet Liabilities

A

Trade creditors Sundry Expenses

Creditors

Bills payable Capital A/c

1,10,000

B

Assets

A 1,70,000

98,000

2,000 Sundry Debtors

89,000

37,000

12,500

---- Cash at bank

13,000

7,500

1,53,000

95,500 Cash in hand

987

234

2,750

1,766

513

----

for

750

47,000 Stock-in-trade

B

Furniture and Fixtures Investments 2,76,250 1,44,500

2,76,250 1,44,500

Both of them want to form a partnership firm from 1.1.2003 on the following understanding: a. The capital of the partnership firm would be ₹3,00,000 which would be contributed by them in the ratio of 2:1. b. The assets of the individual business would be evaluated by C at which values, the firm will take them over and the value would be adjusted against the contribution due by A and B. c. C gave his valuation report as follows: 1. Assets of A: Stock-in-trade to be written down by 15% and a portion of the sundry debtors amounting to ₹9,000 estimated unrealisable not to be assumed by the firm; furniture and fixtures to be valued at ₹2,000 and investments to be taken at market value of ₹1,000. 2. Assets of B: Stocks to be written up by 10% and sundry debtors to be admitted at 85% of their value; rest of the assets to be assumed at their book values. d. The firm is not to assume any creditors other than the dues on account of purchases made. You are required to pass necessary journal entries in the books of A and B. Also prepare the opening Balance Sheet of the firm as on 1st Jan 2003. Answer: Realization A/c Particulars To Stock

A

Particulars

A

98,000 By Creditors purchases

for 1,10,000

89,000

37,000

for

Bank

1,30,000

7,500

Cash

987

234

2,750

1,766

Investment

513

-

Capital a/c

750

-

Debtors

Furniture

Partnership Accounting

1,70,000

B

Creditors expenses Bill payable Purchase consideration Capital a/c Loss

750

B 47,000 2,000

12,500 1,18,987 101,750 34,763

6.4.2

Capital a/c [Crs. for exp]

-

2000

Capital a/c [Profit]

-

4,250

2,77,000 150,750

2,77,000 150,750

Purchase consideration a/c Particulars To

A

B

Particulars

Realization 118,987 101,750 By AB firm 118,987 101,750

A

B

118,987 101,750 118,987 101,750

AB Firm A/c Particulars

A

B

Particulars

To Purchase consideration 118,987 101,750 By Capital 118,987 101,750

A

B

118,987 101,750 118,987 101,750

Capital A/c Particulars

A

B

Particulars

To Purchase consideration 118,987 101,750 By Balance b/d Realization (Loss)

34,763

A

B

153,000

95,500

750

4,250

Realization Profit Realization

2,000

(Crs for exp) 153,750

1

2

1

Realization A/c To Stock-in-trade A/c To Sundry Debtors A/c To Cash at bank A/c To Cash in hand A/c To Furniture & Fixture To investments A/c Creditors for Purchases Creditors for Expenses Bills Payable A/c To Realization A/c

Realization A/c To Stock-in-trade A/c To

Sundry

In the books of Answer: Journal Entry Dr. 276,250 3 New Firm A/c (Note 1) 170,000 To Realization A/c 9,000 13,000 4 Realization A/c 987 To Capital A/c 2,750 513 5 Capital A/c To Realization a/c Dr 110,000 Dr 750 6 Capital in New Firm Dr 12,500 To New Firm A/c 123,250 7 Capital A/c To Capital – New Firm

Dr

In the books of B: Journal Entry 3 New Firm A/c (Note 1) To Realization A/c 98,000

153,750 101,750

Dr.

118,987 118,987

Dr.

750 750

Dr

34,763 34,763

Dr

118,987 118,987

Dr

118,987 118,987

Dr

1,01,750 1,01,750

Debtors

Financial Accounting

6.4.3

A/c To Cash at bank a/c To Cash in hand A/c To Furniture & Fixture

37,000 7,500 234 1,766

4

5 2

Creditors for purchase Creditors for Expenses To Realization A/c

Dr Dr

47,000 2,000 6

Realization A/c To Capital A/c

Dr

Capital in New Firm To New Firm A/c

Dr

Capital A/c

Dr

4,250 4,250

1,01,750 1,01,750 1,01,750

49,000 To Capital in New Firm

1,01,750

Balance Sheet of New Firm as on 1st January, 2003 Liabilities ₹ Assets ₹ Capital Accounts: Furniture & Fittings 3,766 A 2,00,000 Investments 1,000 B 1,00,000 Stock-in-trade 2,52,300 Creditors for purchases 1,57,000 Sundry Debtors 1,11,450 Bills payable 12,500 Cash at bank 99,763 (₹13,000+7500+81,013-1,750) Cash in hand (₹987+234) 1,221 4,69,500 4,69,500 Working Notes: Calculation of Purchase Consideration Particulars A Furniture 2,000 Investments 1,000 Stock-in-trade 1,44,500 Sundry Debtors 80,000 Cash at bank 13,000 Cash in hand 987 2,41,487 1,10,000 Less Sundry Creditors for purchases Bills payable (Assumed arising out of credit purchases) 12,500 Net assets taken over by the new firm 1,18,987 Capital as per agreement 2,00,000 Net assets taken over 1,18,987 Less Cash to be introduced (+)/withdrawn (-) (+)81,013

B 1,766 --1,07,800 31,450 7,500 234 1,48,750 47,000 ---1,01,750 1,00,000 1,01,750 (-)1,750

[CA PE II M06] Question 39: Amalgamation of Firms: Firm X & Co. consists of partners A and B sharing Profits and Losses in the ratio of 3:2. The firm Y & Co. consists of partners B and C sharing Profits and Losses in the ratio of 5:3. On 31st March, 2006 it was decided to amalgamate both the firms and form a new firm XY & Co., wherein A, B and C would be partners sharing Profits and Losses in the ratio of 4:5:1. Liabilities Capital:

Partnership Accounting

Balance Sheet as at 31.3.2006 X & Co Y & Co Assets Cash in hand/bank

X & Co 40,000

Y & Co 30,000

6.4.4

A B C Reserve Creditors

1,50,000 --1,00,000 75,000 --50,000 50,000 40,000 1,20,000 55,000 4,20,000 2,20,000

Debtors Stock Vehicles Machinery Building

60,000 80,000 50,000 20,000 --90,000 1,20,000 --1,50,000 --4,20,000 2,20,000

The following were the terms of amalgamation: 1. Goodwill of X & Co., was valued at ₹75,000. Goodwill of Y & Co. was valued at ₹40,000. Goodwill a/c not to be opened in the books of the new firm but adjusted through the Capital a/c of the partners. 2. Building, Machinery and Vehicles are to be taken over at ₹200,000, ₹1,00,000 and ₹74,000 respectively. 3. Provision for doubtful debts at ₹5,000 in respect of X & Co. and ₹4,000 in respect of Y & Co. are to be provided. You are required to: 1. Show, how the Goodwill value is adjusted amongst the partners. 2. Prepare the B/S of XY & Co. as at 31.3.2006 by keeping partners capital in their profit sharing ratio by taking capital of ‘B’ as the basis. The excess or deficiency to be kept in the respective Partners’ Current a/c. Answer: (i) Adjustment for raising and writing off of goodwill Raised in old profit sharing ratio

Total

Written off

Difference

Y & Co.5:3 in new ratio --- 45,000 Cr. 46,000 Dr.

1,000 Dr.

A.

X & Co. 3:2 45,000

B.

30,000

25,000 55,000 Cr.

57,500 Dr.

2,500 Dr.

75,000

15,000 15,000 Cr. 40,000 1,15,000

11,500 Dr. 1,15,000

3,500 Cr. Nil

C

Balance Sheet of X Y & Co.(New firm) as on 31.3.2006 Liabilities

₹ Assets

₹

Capital Accounts: Vehicle A 1,72,000 Machinery B 2,15,000 Building C 43,000 Stock Current Accounts: Debtors A 22,000 Cash & Bank C 18,000 Creditors 1,75,000 6,45,000

74,000 1,00,000 2,00,000 70,000 1,31,000 70,000

6,45,000

Working Notes: 1.

Balance of Capital Accounts at the time of amalgamation of firms (₹.)

Add

X & Co.Profit and loss sharing ratio 3:2 Balance as per Balance Sheet Reserves

Financial Accounting

A’s Capital B’s Capital 1,50,000 1,00,000 30,000 20,000 6.4.5

Realisation profit (Building) Less Realisation loss (Machinery) Provision for doubtful debt. Y & Co. Profit and loss sharing ratio 5:3 Balance as per Balance sheet Add Reserves Less Revaluation (vehicle) Provision for doubtful debts

30,000 20,000 (12,000) (8,000) (3,000) (2,000) 1,95,000 1,30,000 B’s Capital C’s Capital 75,000 50,000 25,000 15,000 (10,000) (6,000) (2,500) (1,500) 87,500 57,500

Balance of Capital A/c in the balance sheet of the new firm as on 31.3.2006 A-₹ B-₹ C -₹ Balance b/d: X & Co. 1,95,000 1,30,000 -Y & Co. -87,500 57,500 1,95,000 2,17,500 57,500 Adjustment for goodwill (1,000) (2,500) 3,500 1,94,000 2,15,000 61,000 Total capital ₹430,000 (B’s capital as base) to be contributed in 4:5:1 ratio. 1,72,000 2,15,000 43,000 Transfer to Current Account 22,000 --- 18,000 Realization A/c Particulars

X & Co Y & Co

To Cash

Particulars

X & Co Y & Co

40,000

30,000 By Creditors

Debtors

60,000

80,000

Stock

50,000

20,000

Machinery

120,000

-

Realization Loss

Building

150,000

-

B’s Capital

12,500

Vehicles

-

90,000

C’s Capital

7,500

Purchase Consideration

120,000

55,000

325,000

145,000

Realization Profit A’s Capital

15,000

B’s Capital

10,000 445,000 220,000

445,000

220,000

Purchase consideration a/c Particulars X & Co Y & Co To

Realization

Partnership Accounting

Particulars X & Co Y & Co

325,000 145,000 By AB firm

325,000 145,000

325,000 145,000

325,000 145,000

6.4.6

XY Firm A/c Particulars

X & Co Y & Co

To Purchase consideration

Particulars

X & Co Y & Co

325,000 145,000 By A’s Capital

195,000

B’s Capital

130,000

C’s Capital

87,500 57,500

325,000 145,000

325,000

145,000

Capital A/c X & Co

To

Y & Co

Particulars

A

B

B

C

XY Firm

195,000

130,000

87,500

57,500

12,500

7,500

Realization

195,000

130,000

100,000

X & Co

By

Y & Co

Particulars

A

B

Balance b/d

150,000

100,000

75,000

50,000

30,000

20,000

25,000

15,000

15,000

10,000

195,000

130,000

100,000

65,000

Reserve

65,000

B

C

[PE II N06] Question 40: Conversion of Partnership Firm into Company: ‘X’ and ‘Y’ carrying on business in partnership sharing Profits and Losses equally, wished to dissolve the firm and sell the business to newly formed ‘X’ Limited Company on 31-3-2006, when the firm’s position was as follows: Balance Sheet Liabilities

₹

X’s Capital

1,50,000 Land and Building

Y’s Capital

1,00,000 Furniture

Sundry Creditors

₹

Assets

60,000 Stock

1,00,000 40,000 1,00,000

Debtors

66,000

Cash 3,10,000

4,000 3,10,000

The arrangement with X Limited Company was as follows: 1. Land and Building was purchased at 20% more than the book value. 2. Furniture and stock were purchased at book values less 15%. 3. The goodwill of the firm was valued at ₹40,000. 4. The firm’s debtors, cash and creditors were not to be taken over, but the company agreed to collect the book debts of the firm and discharge the creditors of the firm as an agent, for which services, the company was to be paid 5% on all collections from the firm’s debtors and 3% on cash paid to firm’s creditors. 5. The purchase price was to be discharged by the company in fully paid equity shares of ₹10 each at a premium of ₹2 per share.

Financial Accounting

6.4.7

The company collected all the amounts from debtors. The creditors were paid off less by ₹1,000 allowed by them as discount. The company paid the balance due to the vendors in cash. Prepare the Realization a/c, the Capital a/c of the partners and the Cash a/c in the books of partnership firm. Answer: Realization Account To Land & Building

1,00,000

Furniture

By Sundry Creditors

40,000

Stock

Purchase consideration

66,000

X Ltd. Co. Creditors

–

2,79,000

X Ltd. Company – 66,000 Drs

1,00,000

Debtors

60,000

Less: 5%

Commission

3,300

62,700

S. 59,000

Less: Commission 3%

1,770

X’s Capital A/c:

17,465

Y’s Capital A/c:

17,465

57,230 34,930 4,01,700

4,01,700

Capital Accounts X To Shares in X Ltd. Co. To Cash – Payment

Y

X

1,63,980 1,15,020 By

Final

3,485

Balance b/d

2,445 By

Realization Profit

Y

1,50,000 1,00,000 A/c

1,67,465 1,17,465

-

17,465

17,465

1,67,465 1,17,465

Cash Account To

Balance b/d

4,000 By

A’s Capital A/c: payment

3,485

To

X Ltd. Co. (Drs – Crs)

1,930 By

B’s Capital A/c: Payment

2,445

5,930

5,930

WN1: Calculation of Purchase consideration: Land & Building

1,20,000

Furniture

34,000

Stock

85,000

Goodwill

40,000 2,79,000

Partnership Accounting

6.4.8

WN2: The shares received from the company have been distributed between the two partners A & B in the ratio of their final claims i.e., 167,465: 117,465 . Number of shares received from the company = 279,000/12 =23,250 A gets = 23,250 ×167,465/284,930 shares valued at 13,665 × 12 = ₹163,980. B gets the remaining 9,585 shares, valued at ₹115,020 (9,585  12) WN3: Calculation of net amount received from X Ltd on account of amount realized from debtors less amount paid to creditors. Amount realized from Debtors 66,000 Less:

Commission for realization from debtors (5% on 66,000)

3,300 62,700

Less:

Amount paid to creditors

59,000 3,700

Less:

Commission for cash paid to creditors (3% on 59,000)

Net amount received

1,770 1,930

Question 41: Sale to a Company: S and T were carrying on business as equal partners. Their Balance Sheet as on 31st March, 2007 stood as follows: Balance Sheet Liabilities ₹ Assets Capital accounts: Stock S 6,40,000 Debtors T 6,60,000 13,00,000 Furniture Creditors 3,27,500 Joint life policy Bank overdraft 1,50,000 Plant Bills payable 62,500 Building 18,40,000

₹ 2,70,000 3,65,000 75,000 47,500 1,72,500 9,10,000 18,40,000

The operations of the business were carried on till 30th September, 2007. S and T both withdrew in equal amounts, half the amount of profits made during the current period of 6 months after 10% p.a. had been written off on building and plant and 5% p.a. written off on furniture. During the current period of 6 months, creditors were reduced by ₹50,000, Bills payables by ₹11,500 and bank overdraft by ₹75,000. The Joint life policy was surrendered for ₹47,500 on 30th September, 2007. Stock was valued at ₹3,17,000 and debtors at ₹3,25,000 on 30th September, 2007. The other items remained the same as they were on 31st March, 2007. On 30th September, 2007 the firm sold its business to ST Ltd. The goodwill was estimated at ₹5,40,000 and the remaining assets were valued on the basis of the balance sheet as on 30th September, 2007. The ST Ltd. paid the purchase consideration in equity shares of ₹10 each. You are required to prepare a Realization account and Capital accounts of the partners. Answer: 

In the above situation, shares received from X Ltd. Company have been distributed between two partners A and B in the ratio of their final claims. Alternatively, shares received from X Ltd. can be distributed among the partners in their profit sharing ratio i.e. ₹ 2,79,000 × ½ =₹ 1,39,500 each. In that case, firm will pay cash amounting ₹ 27,965 to A and will receive cash ₹22,035 from B.

Financial Accounting

6.4.9

Realization Account Particulars To Sundry assets: Stock Debtors Plant Building Furniture Capital: S T

₹

Particulars By Creditors

3,17,000 3,25,000 1,63,875 8,64,500 73,125 2,70,000 2,70,000

Bills payables Bank overdraft Shares in ST Ltd.

5,40,000 22,83,500

₹ 2,77,500 51,000 75,000 18,80,000

22,83,500

Capital Accounts Date 1.4.08 30.9.08

To Cash Drawings Shares in ST

–

S 20,000

T Date 20,000 1.4.08

Balance b/d

S T 6,40,000 6,60,000

9,30,000 9,50,000 30.9.08 Profit W.N.2) Realization

40,000

40,000

2,70,000 2,70,000

9,50,000 9,70,000

9,50,000 9,70,000

WN1: Ascertainment of total capital Balance Sheet as at 30th September, 2007 Liabilities ₹ Assets ₹ Sundry creditors 2,77,500 Building 9,10,000 Bills payable 51,000 Less: Depreciation 45,500 8,64,500 Bank overdraft 75,000 Plant 1,72,500 Total capital (balance) 13,40,000 Less: Depreciation 8,625 1,63,875 Furniture 75,000 Less: Depreciation 1,875 73,125 Stock 3,17,000 Debtors 3,25,000 17,43,500 17,43,500 WN2 Add Less

S T Total Capital opening 640,000 660,000 1,300,000 Net Profit 40,000 40,000 80,0001 Drawings 20,000 20,000 40,000 Closing Capital 660,000 680,000 1,340,000 WN1

1

(Net Profit – Drawings) = (Closing Capital – Opening Capital) = ₹40,000 Drawings = 0.5 Net Profit [given], hence Net Profit – 0.5 Net Profit = ₹40,000 Net Profit = ₹80,000

Partnership Accounting

6.4.10

WN3 Purchase consideration Net Worth (Capital)WN1 Add

Goodwill

₹ 1,340,000 540,000 1,880,000

[CMA INTER J02, 16 Marks] Question: Conversion into company: A and B were carrying on business as equal partners. The firm’s Balance Sheet as on 31st December 2000 was as follows: Liabilities Capital Accounts : A B Bank Loan Current Liabilities : Sundry Debtors Bills Payable

₹ 1,38,000 1,52,000 40,000 70,000 10,000 4,10,000

Assets ₹ Fixed Assets : Leasehold Building 80,000 Plant and Machinery 1,80,000 Furniture 20,000 Current Assets: Stock 60,000 Book Debts 68,000 Cash at Bank 2,000 4,10,000

The business was carried on till 30th June, 2001. The partners withdrew in equal amounts half the amount of profits made during the period of six months (from January to June 2001) after charging depreciation on Leasehold Building 10% per annum Plant and Machinery 10% per annum Furniture 10% per annum Meanwhile Sundry Creditors were reduced by ₹15,000, Bills Payable by ₹2,500 and Bank Loan by ₹20,000. On 30th June stock was valued at ₹70,000, Book Debts were ₹75,000 and Cash at Bank was ₹2,500. On 30th June, 2001 the firm sold the business to a limited company for ₹4,00,000 payable in Equity Shares of ₹10 each. The partners decided to take shares in the profit sharing ratio, any difference to be settled in cash. You are required to prepare: 1. 2. 3. 4.

Statement of Net Assets as on 30th June 2001; Statement of Profit earned during the period six months ended on 30.06.2001: Realisation Account; Capital Accounts of the partners. [WN1] Statement of Net Assets as on 30.06.01 Liabilities Amount Assets Amount Capital (Balancing Figure) 3,31,000 Lease Hold Building 76,000 Bills Payable 7,500 Plant & Machinery 1,71,000 Creditors (70,000 – 15,000) 55,000 Furniture 19,000

Financial Accounting

6.4.11

Bank loan

WN2 Add Less

20,000 Stock Cash at Bank Debtors 4,13,500

70,000 2,500 75,000 4,13,500

A B Total Capital opening 1,38,000 1,52,000 2,90,000 Net Profit 41,000 41,000 82,0001 Drawings 20,500 20,500 40,000 Closing Capital 1,58,500 1,72,500 3,31,000WN1 Realisation A/c Amount 76,000 By 1,71,000 19,000 70,000 2,500 75,000

Particulars To Lease Hold Building Plant & Machinery Furniture Stock Cash at Bank Debtors Profit A 34,500 B 34,500

Particulars Amount Sundry Creditors 55,000 Bills Payable 7,500 Bank Loan 20,000 New Co. Ltd. (PC) 4,00,000

69,000 4,82,500

4,82,500

Partners’ Capital A/c Particulars A B Particulars A B To Drawings A/c 20,500 20,500 By Balance b/d 1,38,000 1,52,000 Equity Share in Company 2,00,000 2,00,000 Realisation on 34,500 34,500 Ltd. Profit Cash A/c 7000 Profit (6 months) 41,000 Cash 41,000 2,20,500 2,27,500 2,20,500 2,27,500

ADDITIONAL PROBLEMS [CMA INTER D08, 10 Marks] Question: Conversion into company: Suchandra, Ashmita and Kasturi were running partnership business sharing Profit and Losses in 2:2:1 ratio. Their Balance Sheet as on 31.03.2008 stood as following:

Liabilities Fixed Capital:

₹

( ₹In 000’s) Assets ₹ Fixed Assets

₹

₹ 920

1

(Net Profit – Drawings) = (Closing Capital – Opening Capital) = ₹40,000 Drawings = 0.5 Net Profit [given], hence Net Profit – 0.5 Net Profit = ₹41,000 Net Profit = ₹82,000

Partnership Accounting

6.4.12

Suchandra Ashmita Kasturi Current Account : Suchandra Kasturi Unsecured Loan Current Liabilities

690 Investment 115 460 Current Assets 230 1,380 Stock 230.00 Debtors 632.50 138 Cash at Bank 287.50 1,150 92 230 230 345 2,185 2,185

On 01.04.2008, they agreed to form new company Tata (P) Ltd. With Ashmita and Kasuri each taking up 460 eq. share of ₹10 each, which shall take over the firm as going concern including Goodwill, but excluding cash and bank balance. The following are also agreed upon: a) Goodwill will be valued at 3 years purchase of super profit. b) The actual profit for the purpose of Goodwill valuation will be ₹4,60,000. c) The normal rate of return will be 18% p.a. on Fixed Capital d) All other assets and liabilities will be taken at Book Value. e) Ashmita and Kasturi are to acquire interest in the new company at the ratio 3 : 2. f) The purchase consideration will be payable partly in shares of ₹10 each and partly in cash. Payment in cash being to meet the requirement to discharge Suchandra, who has agreed to retire. g) Realisation expenses amounted to ₹1,17,300 You are required to close the books of the firm by passing necessary journal entries. Answer: a.

Realisation A/c To Fixed Assets A/c To Investment A/c To Stock A/c To Sundry Debtors A/c To Goodwill A/c To Bank A/c (Realisation Expenses) (Being transfer of Assets of Realisation A/c)

b. Unsecured loan A/c Current Liabilities A/c To Realisation A/c (Being transfer of liabilities to Realisation A/c) c.

Dr. 26,49,600 9,20,000 1,15,000 2,30,000 6,32,000 6,34,800 1,17,300

Dr. Dr.

5,75,000

Suchandra’s Capital A/c Dr. Ashmita’s Capital A/c Dr. Kastmis’s Capital A/c Dr. To Realisation A/c (Being transfer of realisation losses to partner’s Capital A/c)

d. Tata (P) Ltd. A/c (W.n.3) To Realisation A/c (Being purchase consideration due) Financial Accounting

2,30,000 3,45,000

46,920 46,920 23,460 1,17,300

Dr. 19,57,300 19,57,300

6.4.13

e.

f.

Goodwill A/c (W.n.2) To Suchandra’s Capital A/c To Ashmita’s Capital A/c To Kasturi’s Capital A/c (Being transfer of goodwill to parties Capital A/c)

Dr.

Suchandra’s Current A/c Kasturi’s Current A/c To Suchandra’s Capital A/c To Kasturi’s Capital A/c (Being transfer of Current A/c balances to Capital A/c)

Dr. Dr.

6,34,800 2,53,900 2,53,900 1,26,900

1,38,000 92,000 1,38,000 92,000

g. Suchandra’s Capital A/c To Bank A/c (Being amount of Capital paid to Suchandra)

Dr. 10,35,000

h. Ashamita’s Capital A/c To Kasturi’s Capital A/c (Being amount payable by Kasturi to Anshuitab in order to make their Claim in new company as 3:2)

Dr.

i.

Dr. 8,64,800 Dr. 10,92,500

Bank A/c Shares in Tata (P) Ltd. A/c To Tata (P) Ltd. A/c (Being amount received amount shares in Tata(P) Ltd. Distributed for Purchase consideration)

10,35,000

11,500 11,500

19,57,300

Working Notes: 1 Anshuitab Capital A/c Particulars Amount Particulars To Realisation A/c 46,920 By Balance c/d Kausturi’s Capital 11,500 Goodwill A/c Balance c/d 6,55,500 7,13,920

Amount 4,60,000 2,53,920 7,13,920

Kausturi’s Capital A/c Particulars Amount Particulars To Realisation A/c 23,460 By Balance c/d Balance c/d 4,37,000 Goodwill A/c Current A/c Anushmita’s Capital A/c 4,60,460 Calculation of goodwill Normal Ratio of return 18 % p.a. or fixed capital Actual Profit (-) Normal Profit

Amount 2,30,000 1,26,960 9,20,000 11,500 4,60,460

2.

Partnership Accounting

13,80,000×18%

₹248,400 ₹4,60,000 ₹2,48,400

6.4.14

Super profit Goodwill = 2,11,600 x 3 years of purchase of S.P Suchandra’s Share 6,34,800 × 2/5 Ashmitra’s Share 6,34,800× 2/5 Kusturi’s Share 6,34,800 × 1/5

₹2,11,600 6,34,800 2,53,920 2,53,920 1,26,960

3. Computation of Purchases Consideration Investments 1,15,000 Fixed Assets 9,20,000 Stock 2,30,000 Debtors 6,32,500 Goodwill 6,34,800 25,32,300 Less: Unsecured Loan 2,30,000 Current Liabilities 3,45,000 19,57,300

Financial Accounting

6.4.15