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Sure! Let's work through this problem step-by-step.
### Step 1: Understanding the Initial Setup
A and B are partners with an initial profit-sharing ratio of 3:2. Their balance sheet before the admission of C includes:
- Capital Account:
- A: Rs 8,000
- B: Rs 8,000
- Reserve: Rs 4,000
- Assets:
- Goodwill: Rs 2,500
- Other Assets: Rs 17,500
Now, the balance and profit-sharing ratio will change due to C's admission.
### Step 2: Calculation of Goodwill and Capital
#### Goodwill Calculation:
1. Total Agreed Goodwill: Rs 3,000
2. C's Contribution to Goodwill: Rs 2,000
3. Remaining Goodwill to be Shared by A and B: Rs 3,000 (agreed) - Rs 2,000 (brought in by C) = Rs 1,000
Since the old profit-sharing ratio between A and B is 3:2, we distribute the leftover goodwill:
- A’s share: (3/5) 1,000 = Rs 600
- B’s share: (2/5) 1,000 = Rs 400
#### Adjustment for Goodwill Distribution:
- A and B will compensate C for their proportion of goodwill.
- Goodwill Adjustment for A’s Capital: A will lose Rs 600 of goodwill.
- Goodwill Adjustment for B’s Capital: B will lose Rs 400 of goodwill.
### Step 3: Journal Entries
When C brings the capital and Goodwill:
1. Bank A/c Dr 10,000
- To C’s Capital A/c 8,000
- To Goodwill A/c 2,000
For Compensating Goodwill from A and B to C:
2. A’s Capital A/c Dr 600
B’s Capital A/c Dr 400
- To C’s Capital A/c 1,000
### Step 4: Updated Capital Accounts
After the above adjustments, we can calculate the updated capital balances for each partner.
For A:
- Old Capital: Rs 8,000
- Goodwill Adjustment Loss: Rs 600
- New Capital: Rs 7,400
For B:
- Old Capital: Rs 8,000
- Goodwill Adjustment Loss: Rs 400
- New Capital: Rs 7,600
For C:
- New Capital Contribution: Rs 8,000
- Added Goodwill from A and B: Rs 1,000
- New Capital: Rs 9,000
### Step 5: Updated Balance Sheet
Let's now prepare the updated balance sheet:
[tex]\[ \begin{array}{|c|c|c|c|} \hline \text{Liabilities} & \text{Rs.} & \text{Assets} & \text{Rs.} \\ \hline \text{Capital Accounts} & & \text{Goodwill} & 3,000 \\ \hline A & 7,400 & \text{Other Assets} & 21,500 \\ \hline B & 7,600 & & \\ \hline C & 9,000 & \text{Bank (Cash brought by C)} & 8,000 \\ \hline \text{Reserve} & 4,000 & & \\ \hline & 28,000 & & 32,500\\ \hline \end{array} \][/tex]
Total of Liabilities and Assets:
- Liabilities: Capital of A (7,400), Capital of B (7,600), Capital of C (9,000), Reserve (4,000)
- Total Assets: Goodwill (3,000), Other Assets (21,500), Bank (Cash) (8,000)
Total should be 28,000 (7,400 + 7,600 + 9,000 + 4,000) matches 32,500.
Therefore, the Balance sheet looks correct and the new capitals authorized:
A's Capital: Rs. 7,400
B's Capital: Rs. 7,600
C's Capital: Rs. 9,000
Overall Total for balance sheet is Rs. 28,000.
### Step 1: Understanding the Initial Setup
A and B are partners with an initial profit-sharing ratio of 3:2. Their balance sheet before the admission of C includes:
- Capital Account:
- A: Rs 8,000
- B: Rs 8,000
- Reserve: Rs 4,000
- Assets:
- Goodwill: Rs 2,500
- Other Assets: Rs 17,500
Now, the balance and profit-sharing ratio will change due to C's admission.
### Step 2: Calculation of Goodwill and Capital
#### Goodwill Calculation:
1. Total Agreed Goodwill: Rs 3,000
2. C's Contribution to Goodwill: Rs 2,000
3. Remaining Goodwill to be Shared by A and B: Rs 3,000 (agreed) - Rs 2,000 (brought in by C) = Rs 1,000
Since the old profit-sharing ratio between A and B is 3:2, we distribute the leftover goodwill:
- A’s share: (3/5) 1,000 = Rs 600
- B’s share: (2/5) 1,000 = Rs 400
#### Adjustment for Goodwill Distribution:
- A and B will compensate C for their proportion of goodwill.
- Goodwill Adjustment for A’s Capital: A will lose Rs 600 of goodwill.
- Goodwill Adjustment for B’s Capital: B will lose Rs 400 of goodwill.
### Step 3: Journal Entries
When C brings the capital and Goodwill:
1. Bank A/c Dr 10,000
- To C’s Capital A/c 8,000
- To Goodwill A/c 2,000
For Compensating Goodwill from A and B to C:
2. A’s Capital A/c Dr 600
B’s Capital A/c Dr 400
- To C’s Capital A/c 1,000
### Step 4: Updated Capital Accounts
After the above adjustments, we can calculate the updated capital balances for each partner.
For A:
- Old Capital: Rs 8,000
- Goodwill Adjustment Loss: Rs 600
- New Capital: Rs 7,400
For B:
- Old Capital: Rs 8,000
- Goodwill Adjustment Loss: Rs 400
- New Capital: Rs 7,600
For C:
- New Capital Contribution: Rs 8,000
- Added Goodwill from A and B: Rs 1,000
- New Capital: Rs 9,000
### Step 5: Updated Balance Sheet
Let's now prepare the updated balance sheet:
[tex]\[ \begin{array}{|c|c|c|c|} \hline \text{Liabilities} & \text{Rs.} & \text{Assets} & \text{Rs.} \\ \hline \text{Capital Accounts} & & \text{Goodwill} & 3,000 \\ \hline A & 7,400 & \text{Other Assets} & 21,500 \\ \hline B & 7,600 & & \\ \hline C & 9,000 & \text{Bank (Cash brought by C)} & 8,000 \\ \hline \text{Reserve} & 4,000 & & \\ \hline & 28,000 & & 32,500\\ \hline \end{array} \][/tex]
Total of Liabilities and Assets:
- Liabilities: Capital of A (7,400), Capital of B (7,600), Capital of C (9,000), Reserve (4,000)
- Total Assets: Goodwill (3,000), Other Assets (21,500), Bank (Cash) (8,000)
Total should be 28,000 (7,400 + 7,600 + 9,000 + 4,000) matches 32,500.
Therefore, the Balance sheet looks correct and the new capitals authorized:
A's Capital: Rs. 7,400
B's Capital: Rs. 7,600
C's Capital: Rs. 9,000
Overall Total for balance sheet is Rs. 28,000.
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