G and S were partners to a manufacturing concern sharing profits and losses equally on 31st December,
Question:
G and S were partners to a manufacturing concern sharing profits and losses equally on 31st December, 2017. The firms books revealed the following position:On 1st January, 2018, it was agreed to admit T into partnership on the following terms:
That he should bring into business sundry debtors amounting to ₹2,400 (Less a provision of 10% for bad debts). Sundry creditors amounting to ₹500 and also goodwill of his business at a valuation of ₹1,500. His capital in the new business is to be ₹5,000, the balance of which he pays in cash and in consideration thereof he receives one fifth share of the profits of the firm. It was mutually agreed that the following adjustments should be made as regards the business of G and S. Stock to be reduced by ₹800; Plant and Machinery to be increased by ₹300; Fixtures and fittings to be completely written off. It was further agreed that after the above adjustments had been effected, S should introduce sufficient cash to make his capital equal to that of G. From the above particulars show the opening balance sheet of the new firm as at 1st January, 2018 and state in what proportions the profits and losses will be shared.
Step by Step Answer:
Financial Accounting Volume II
ISBN: 9789387886230
4th Edition
Authors: Mohamed Hanif, Amitabha Mukherjee