g1 6.4 partnership - amalgamation and business purchase

Financial Accounting 6.4.1

6. PARTNERSHIP ACCOUNTING

AMALGAMATION OF FIRMS AND CONVERSION TO A COMPANY

a. When two or more sole proprietors forms new partnership firm;

b. When one existing partnership firm absorbs a sole proprietorship;

c. When one existing partnership firm absorbs another partnership firm;

d. 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.

Partnership Accounting 6.4.2

[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 B Assets A B

Trade creditors 1,10,000 47,000 Stock-in-trade 1,70,000 98,000

Sundry Creditors for

Expenses

750 2,000 Sundry Debtors 89,000 37,000

Bills payable 12,500 ---- Cash at bank 13,000 7,500

Capital A/c 1,53,000 95,500 Cash in hand 987 234

Furniture and Fixtures 2,750 1,766

Investments 513 ----

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 A B Particulars A B

To Stock 1,70,000 98,000 By Creditors for

purchases

1,10,000 47,000

Debtors 89,000 37,000 Creditors for

expenses

750 2,000

Bank 1,30,000 7,500 Bill payable 12,500

Cash 987 234 Purchase

consideration

1,18,987 101,750

Furniture 2,750 1,766 Capital a/c Loss 34,763

Investment 513 -

Capital a/c 750 -


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


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

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

AB Firm A/c


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

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

Capital A/c


To Purchase consideration 118,987 101,750 By Balance b/d 153,000 95,500

Realization (Loss) 34,763 Realization Profit 750 4,250

Realization

(Crs for exp)

2,000

153,750 153,750 101,750

In the books of Answer: Journal Entry

1 Realization A/c Dr. 276,250 3 New Firm A/c (Note 1) Dr. 118,987

To Stock-in-trade A/c 170,000 To Realization A/c 118,987

To Sundry Debtors A/c 9,000

To Cash at bank A/c 13,000 4 Realization A/c Dr. 750

To Cash in hand A/c 987 To Capital A/c 750

To Furniture & Fixture 2,750

To investments A/c 513 5 Capital A/c Dr 34,763

To Realization a/c 34,763

2 Creditors for Purchases Dr 110,000

Creditors for Expenses Dr 750 6 Capital in New Firm Dr 118,987

Bills Payable A/c Dr 12,500 To New Firm A/c 118,987

To Realization A/c 123,250

7 Capital A/c Dr 118,987

To Capital – New Firm 118,987

In the books of B: Journal Entry

1 Realization A/c Dr 3 New Firm A/c (Note 1) Dr 1,01,750

To Stock-in-trade A/c

98,000

To Realization A/c 1,01,750

To Sundry Debtors


A/c 37,000

To Cash at bank a/c 7,500 4 Realization A/c Dr 4,250

To Cash in hand A/c 234 To Capital A/c 4,250

To Furniture &

Fixture

1,766

5 Capital in New Firm Dr 1,01,750

2 Creditors for purchase Dr 47,000 To New Firm A/c 1,01,750

Creditors for Expenses Dr 2,000

To Realization A/c

49,000

6 Capital A/c Dr 1,01,750

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

(₹13,000+7500+81,013-1,750)

99,763

Cash in hand (₹987+234) 1,221

4,69,500 4,69,500

Working Notes: Calculation of Purchase Consideration

Particulars A B

Furniture 2,000 1,766

Investments 1,000 ---

Stock-in-trade 1,44,500 1,07,800

Sundry Debtors 80,000 31,450

Cash at bank 13,000 7,500

Cash in hand 987 234

2,41,487 1,48,750

Less Sundry Creditors for purchases 1,10,000 47,000

Bills payable (Assumed arising out of credit purchases) 12,500 ----

Net assets taken over by the new firm 1,18,987 1,01,750

Capital as per agreement 2,00,000 1,00,000

Less Net assets taken over 1,18,987 1,01,750

Cash to be introduced (+)/withdrawn (-) (+)81,013 (-)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.

Balance Sheet as at 31.3.2006

Liabilities X & Co Y & Co Assets X & Co Y & Co

Capital: Cash in hand/bank 40,000 30,000


A 1,50,000 --- Debtors 60,000 80,000

B 1,00,000 75,000 Stock 50,000 20,000

C --- 50,000 Vehicles --- 90,000

Reserve 50,000 40,000 Machinery 1,20,000 ---

Creditors 1,20,000 55,000 Building 1,50,000 ---

4,20,000 2,20,000 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

X & Co. 3:2 Y & Co.5:3 in new ratio

A. 45,000 --- 45,000 Cr. 46,000 Dr. 1,000 Dr.

B. 30,000 25,000 55,000 Cr. 57,500 Dr. 2,500 Dr.

C 15,000 15,000 Cr. 11,500 Dr. 3,500 Cr.

75,000 40,000 1,15,000 1,15,000 Nil

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


Capital Accounts: Vehicle 74,000

A 1,72,000 Machinery 1,00,000

B 2,15,000 Building 2,00,000

C 43,000 Stock 70,000

Current Accounts: Debtors 1,31,000

A 22,000 Cash & Bank 70,000

C 18,000

Creditors 1,75,000

6,45,000 6,45,000

Working Notes:

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

X & Co.Profit and loss sharing ratio 3:2 A’s Capital B’s Capital

Balance as per Balance Sheet 1,50,000 1,00,000

Add Reserves 30,000 20,000


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 Particulars X & Co Y & Co

To Cash 40,000 30,000 By Creditors 120,000 55,000

Debtors 60,000 80,000

Stock 50,000 20,000 Purchase Consideration 325,000 145,000

Machinery 120,000 - Realization Loss

Building 150,000 - B’s Capital 12,500

Vehicles - 90,000 C’s Capital 7,500

Realization Profit

A’s Capital 15,000

B’s Capital 10,000

445,000 220,000 445,000 220,000

Purchase consideration a/c


To Realization 325,000 145,000 By AB firm 325,000 145,000

325,000 145,000 325,000 145,000

Realisation profit (Building) 30,000 20,000

Less Realisation loss (Machinery) (12,000) (8,000)

Provision for doubtful debt. (3,000) (2,000)

Y & Co. Profit and loss sharing ratio 5:3 1,95,000 1,30,000

B’s Capital C’s Capital

Balance as per Balance sheet 75,000 50,000

Add Reserves 25,000 15,000

Less Revaluation (vehicle) (10,000) (6,000)

Provision for doubtful debts (2,500) (1,500)

87,500 57,500


XY Firm A/c


To Purchase consideration 325,000 145,000 By A’s Capital 195,000

B’s Capital 130,000 87,500

C’s Capital 57,500

325,000 145,000 325,000 145,000

Capital A/c

X & Co Y & Co X & Co Y & Co

Particulars A B B C Particulars A B B C

To XY Firm 195,000 130,000 87,500 57,500 By Balance b/d 150,000 100,000 75,000 50,000

Realization 12,500 7,500 Reserve 30,000 20,000 25,000 15,000

15,000 10,000

195,000 130,000 100,000 65,000 195,000 130,000 100,000 65,000

[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


X’s Capital 1,50,000 Land and Building 1,00,000

Y’s Capital 1,00,000 Furniture 40,000

Sundry Creditors 60,000 Stock 1,00,000

Debtors 66,000

Cash 4,000

3,10,000 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.


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 By Sundry Creditors 60,000

Furniture 40,000 Purchase

consideration

2,79,000

Stock 1,00,000 X Ltd. Company –

Drs

66,000

Debtors 66,000 Less: Commission

5%

3,300 62,700

X Ltd. Co. – S.

Creditors

59,000

Less: Commission 3% 1,770 57,230

X’s Capital A/c: 17,465

Y’s Capital A/c: 17,465 34,930

4,01,700 4,01,700

Capital Accounts

X Y X Y

To Shares in X Ltd.

Co.

1,63,980 1,15,020 By Balance b/d 1,50,000 1,00,000

To Cash – Final

Payment

3,485 2,445 By Realization A/c -

Profit

17,465 17,465

1,67,465 1,17,465 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


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) 1,770

Net amount received 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


Capital accounts: Stock 2,70,000

S 6,40,000 Debtors 3,65,000

T 6,60,000 13,00,000 Furniture 75,000

Creditors 3,27,500 Joint life policy 47,500

Bank overdraft 1,50,000 Plant 1,72,500

Bills payable 62,500 Building 9,10,000

18,40,000 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.


Realization Account

Particulars ₹ Particulars ₹

To Sundry

assets:

By Creditors 2,77,500

Stock 3,17,000 Bills payables 51,000

Debtors 3,25,000 Bank overdraft 75,000

Plant 1,63,875 Shares in ST Ltd. 18,80,000

Building 8,64,500

Furniture 73,125

Capital:

S 2,70,000

T 2,70,000 5,40,000

22,83,500 22,83,500

Capital Accounts

Date S T Date S T

1.4.08 To Cash –

Drawings

20,000 20,000 1.4.08 Balance b/d 6,40,000 6,60,000

30.9.08 Shares in ST 9,30,000 9,50,000 30.9.08 Profit

W.N.2)

40,000 40,000

Realization 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


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 S T Total

Capital opening 640,000 660,000 1,300,000

Add Net Profit 40,000 40,000 80,0001

Less 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


WN3 Purchase consideration ₹

Net Worth (Capital)WN1

1,340,000

Add Goodwill 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:


Capital Accounts : Fixed Assets :

A 1,38,000 Leasehold Building 80,000

B 1,52,000 Plant and Machinery 1,80,000

Bank Loan 40,000 Furniture 20,000

Current Liabilities : Current Assets:

Sundry Debtors 70,000 Stock 60,000

Bills Payable 10,000 Book Debts 68,000

Cash at Bank 2,000

4,10,000 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. Statement of Net Assets as on 30th June 2001;

2. Statement of Profit earned during the period six months ended on 30.06.2001:

3. Realisation Account;

4. 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


Bank loan 20,000 Stock 70,000

Cash at Bank 2,500

Debtors 75,000

4,13,500 4,13,500

WN2 A B Total

Capital opening 1,38,000 1,52,000 2,90,000

Add Net Profit 41,000 41,000 82,0001

Less Drawings 20,500 20,500 40,000

Closing Capital 1,58,500 1,72,500 3,31,000WN1

Realisation A/c

Particulars Amount Particulars Amount

To Lease Hold Building 76,000 By Sundry Creditors 55,000

Plant & Machinery 1,71,000 Bills Payable 7,500

Furniture 19,000 Bank Loan 20,000

Stock 70,000 New Co. Ltd. (PC) 4,00,000

Cash at Bank 2,500

Debtors 75,000

Profit

A 34,500

B 34,500 69,000

4,82,500 4,82,500

Partners’ Capital A/c


To Drawings A/c 20,500 20,500 By Balance b/d 1,38,000 1,52,000

Equity Share in Company

Ltd.

2,00,000 2,00,000 Realisation on

Profit

34,500 34,500

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:

( ₹ In 000’s)

Liabilities ₹ ₹ Assets ₹ ₹

Fixed Capital: 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


Suchandra 690 Investment 115

Ashmita 460 Current Assets

Kasturi 230 1,380 Stock 230.00

Current Account : Debtors 632.50

Suchandra 138 Cash at Bank 287.50 1,150

Kasturi 92 230

Unsecured Loan 230

Current Liabilities 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 Dr. 26,49,600

To Fixed Assets A/c 9,20,000

To Investment A/c 1,15,000

To Stock A/c 2,30,000

To Sundry Debtors A/c 6,32,000

To Goodwill A/c 6,34,800

To Bank A/c (Realisation Expenses) 1,17,300

(Being transfer of Assets of Realisation A/c)

b. Unsecured loan A/c Dr. 2,30,000

Current Liabilities A/c Dr. 3,45,000

To Realisation A/c 5,75,000

(Being transfer of liabilities to Realisation A/c)

c. Suchandra’s Capital A/c Dr. 46,920

Ashmita’s Capital A/c Dr. 46,920

Kastmis’s Capital A/c Dr. 23,460


(Being transfer of realisation losses to partner’s Capital A/c)

d. Tata (P) Ltd. A/c (W.n.3) Dr. 19,57,300


(Being purchase consideration due)


e. Goodwill A/c (W.n.2) Dr. 6,34,800

To Suchandra’s Capital A/c 2,53,900

To Ashmita’s Capital A/c 2,53,900

To Kasturi’s Capital A/c 1,26,900

(Being transfer of goodwill to parties Capital A/c)

f. Suchandra’s Current A/c Dr. 1,38,000

Kasturi’s Current A/c Dr. 92,000

To Suchandra’s Capital A/c 1,38,000

To Kasturi’s Capital A/c 92,000

(Being transfer of Current A/c balances to Capital A/c)

g. Suchandra’s Capital A/c Dr. 10,35,000

To Bank A/c 10,35,000

(Being amount of Capital paid to Suchandra)

h. Ashamita’s Capital A/c Dr. 11,500

To Kasturi’s Capital A/c 11,500

(Being amount payable by Kasturi to Anshuitab

in order to make their Claim in new company as 3:2)

i. Bank A/c Dr. 8,64,800

Shares in Tata (P) Ltd. A/c Dr. 10,92,500

To Tata (P) Ltd. A/c 19,57,300

(Being amount received amount shares in Tata(P) Ltd.

Distributed for Purchase consideration)

Working Notes: 1

Anshuitab Capital A/c


To Realisation A/c 46,920 By Balance c/d 4,60,000

Kausturi’s Capital 11,500 Goodwill A/c 2,53,920

Balance c/d 6,55,500

7,13,920 7,13,920

Kausturi’s Capital A/c


To Realisation A/c 23,460 By Balance c/d 2,30,000

Balance c/d 4,37,000 Goodwill A/c 1,26,960

Current A/c 9,20,000

Anushmita’s Capital A/c 11,500

4,60,460 4,60,460

2. Calculation of goodwill

Normal Ratio of return

18 % p.a. or fixed capital

13,80,000×18% ₹248,400

Actual Profit ₹4,60,000

(-) Normal Profit ₹2,48,400


Super profit ₹2,11,600

Goodwill = 2,11,600 x 3 years of purchase of S.P 6,34,800

Suchandra’s Share 6,34,800 × 2/5 2,53,920

Ashmitra’s Share 6,34,800× 2/5 2,53,920

Kusturi’s Share 6,34,800 × 1/5 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

g1 6.4 partnership - amalgamation and business purchase

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