(a) Ahmad and Bilal carry on business in partnership, sharing profits and losses in the proportion of...
Question:
(a) Ahmad and Bilal carry on business in partnership, sharing profits and losses in the proportion of 2/3 and 1/3 respectively. The Balance Sheet at 31st December, 2006 was as follows:
Ahmad’s Capital ----- 15,000
Bilal’s Capital -------- 10,000
Creditors ------------ 2,000
Bank Overdraft ------ 15,000
Total. -------------- 42,000
Plant and Machinery --- 4,000
Stock ---------------- 22,000
Debtors -------------- 15,000
Cash ------------------ 1,000
Total. ----------------42,000
They agreed to admit Saeed into partnership and give him 1/4 share in the profits on the following terms:
(1) Saeed should bring Rs.3,000 for Goodwill and Rs.20,000 as Capital.
(2) The plant and machinery to be reduced by 10 percent, and a provision to be created for bad debts to the extent of Rs.440. The stock to be taken at a valuation of Rs.25,000.
(3) The Capital Accounts of Ahmad & Bilal be adjusted on the basis of their profit sharing ratio.
No account of Goodwill is to be opened in the books of the firm.
Required: Make Journal Entries to record the above transactions. Also prepare the Partners’ Capital Accounts and Opening Balance Sheet of the new Firm.
Qno 1 (b) Saeed and Rasheed carried on business in partnership. On 31st December 2007 Saeed retired. Their Balance Sheet at that date was as follows
Liabilities and Capital
Rs.
Assets
Rs.
Accounts Payable
10,000
Land and Building
5,000
Notes Payable
8,000
Plant and Machinery
12,000
Saeed – Capital Account
21,000
Loose Tools
4,000
Rasheed – Capital Account
14,000
Patterns and Models
2,000
Inventory
15,000
Accounts Receivable
11,000
Notes Receivable
2,500
Cash
1,500
53,000
53,000
Profits and Losses were shared in the proportions of Saeed two-thirds, and Rasheed one-third. Rasheed agreed to take over the business on the following terms:-
The Land and Building were to be taken over by Saeed at the amount stated in the Balance Sheet, and Rasheed was to rent the premises at Rs. 250 per annum.
Revaluations were to be made which resulted as follows:
Plant and Machinery, Rs. 10,000; Loose Tools, Rs. 4,400; Patterns and Models, Rs. 1,800; and Inventory, Rs. 12,000.
Saeed agreed to allow the amount due to him (Less Rs. 300 which was to be paid to him in cash) to remain as a loan to Rasheed at 5 per cent interest.
Required: Make necessary Journal entries to give effect to the above transactions and prepare Rasheed’s Balance Sheet.
