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CCP402

The document summarizes a lecture on adjusting undistributed profits and reserves when admitting a new partner to a partnership. It discusses how undistributed profits, accumulated profits, reserves, and the general reserve must be distributed to existing partners based on their profit sharing ratios before the new partner can join. An illustration is provided where Harry is admitted as a 1/4 partner and various journal entries are made to adjust asset values and distribute the general reserve and revaluation surplus to the capital accounts of existing partners Tom and Dick. Review questions are included to test understanding.

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69 views

CCP402

The document summarizes a lecture on adjusting undistributed profits and reserves when admitting a new partner to a partnership. It discusses how undistributed profits, accumulated profits, reserves, and the general reserve must be distributed to existing partners based on their profit sharing ratios before the new partner can join. An illustration is provided where Harry is admitted as a 1/4 partner and various journal entries are made to adjust asset values and distribute the general reserve and revaluation surplus to the capital accounts of existing partners Tom and Dick. Review questions are included to test understanding.

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© Attribution Non-Commercial (BY-NC)
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You are on page 1/ 21

GOVERNMENT OF ANDHRA PRADESH

DEPARTMENT OF TECHNICAL EDUCATION

Name of the participant : N Sairam


Designation : Head of section
Branch : DCCP
Institute : GPW, Kakinada
Year/Sem : IV Semester
Subject : Accountancy - III
Subject code : CCP – 402
Major topic : Partnership Accounts
Sub topic : Admission of partner
Duration : 50 minutes
Teaching aids : PPT and Animations.

CCP402.45 1
Objective

 On completion of this period, you would be able


to understand:
 Accumulated/undistributed profits
 Reserves/General Reserves
 The necessity of distribution of the above
profits/reserves by existing partners
 Preparation of necessary accounts

CCP402.45 2
Adjustment of undistributed/
accumulated profits
 Undistributed profits
 Accumulated profits
 Profit and loss account
 Reserves/ General reserve – created out of previous
years’ profits
 All the above accounts existing at the time of admission
of a partner should be transferred to capital or current
accounts of existing partners in their profit sharing ratio

CCP402.45 3
Adjustment of undistributed/
accumulated profits
 Otherwise, the incoming partner will also have a right to
share the same, once he becomes a partner
 Since the above reserves/profits are accrued prior to the
admission of new partner, he should not get a share in it
 Hence, the incoming partner should not be allowed to
share the profits made before his admission

CCP402.45 4
Adjustment of undistributed/
accumulated profits
However, certain funds like:
 Machinery Replacement Fund
 Should not be distributed to partners
 Since the above fund is not a General Reserve

CCP402.45 5
Illustration
 Tom and Dick share profits in the ratio of 3:1.
 Their balance sheet as on 31.12.2007 was as under
Liabilities Assets
Creditors 37,000 Bank 22,000
General Reserve 4,000 Bills receivable 3,000
Capital accounts : Debtors 16,000
Tom 30,000 Stock 20,000
Dick 16,000 Furniture 1,000
Land &Buildings 25,000
87,000
87,000
CCP402.45 6
Illustration

 They admit Harry into partnership from 1.1.08 on the


following terms:
1. Harry to bring Rs.20000/- as capital for 1/4th share and
Rs.10000/- goodwill, both to remain in business
2. Stock and furniture to be reduced by 10%
3. 5% reserve on debtors to be created
4. Land & buildings to be raised by 20%
 Prepare journal, ledger and Balance sheet

CCP402.45 7
Journal entries

1. Bank a/c Dr 30,000


To Harry’s capital a/c 20,000
To goodwill a/c 10,000
(Being the capital and goodwill brought in)

CCP402.45 8
Journal entries
2. Goodwill a/c Dr 10,000
To Tom’s capital a/c 7,500
To Dick’s capital a/c 2,500
(Being the goodwill distributed)

CCP402.45 9
Journal entries
3. Revaluation a/c Dr 2,900
To Stock a/c 2,000
To Furniture a/c 100
To Debtors a/c 800
(Being the revaluation of assets made)

CCP402.45 10
Journal entries
4. Land & buildings a/c Dr 5,000
To Revaluation a/c 5,000
(Being the asset appreciated)

CCP402.45 11
Journal entries

5. Revaluation a/c Dr 2,100


To Tom’s capital a/c 1,575
To Dick’s capital a/c 525
(Being the profit on revaluation
distributed to capital accounts)

CCP402.45 12
Journal entries

6. General reserve a/c DR 4,000


To Tom’s cap a/c 3,000
To Dick’s cap a/c 1,000
(Being Gen res distributed)

CCP402.45 13
Ledger accounts

Revaluation a/c

To Stock A/c 2,000 By Buildings a/c 5,000


To Furniture a/c 100
To Debtors a/c 800
To Tom’s a/c 1,575
To Dick’s a/c 525

5,000 5,000

CCP402.45 14
Tom’s capital a/c

By Balance b/d 30,000


By goodwill a/c 7,500
By Revaluation a/c 1,575
To Balance c/d 42,075 By Reserve a/c 3,000

42,075 42,075

CCP402.45 15
Dick’s capital a/c

By Balance b/d 16,000


By goodwill a/c 2,500
By Revaluation a/c 525
To Balance c/d 20,025 By Reserve a/c 1,000

20,025 20,025

CCP402.45 16
Harry’s capital a/c

By Bank a/c 20,000

To Balance c/d 20,000

20,000 20,000

CCP402.45 17
Bank a/c

To balance b/d 22,000


To Harry’s capital 20,000
To goodwill 10,000 By balance c/d 52,000
52,000 52,000

CCP402.45 18
New balance sheet

Creditors 37,000 Bank 52,000


Capital a/c’s Bills receivable 3,000
Tom 42,075 Debtors 16,000-800 15,200
Dick 20,025 Stock 20,000-2000 28,000
Harry 20,000 82,100 Furniture 1000-100 900
Buildings 25,000+5000 30,000

1,19,100 1,19,100

CCP402.45 19
Review questions

2. What are the different items of profits to be distributed


to existing partners before admission of a new
partner?
3. What is the necessity of distribution of different items
of profits before admission?
4. What is the journal entry for the transfer of reserve to
existing partners?

CCP402.45 20
Quiz
1. The general reserve a/c is to be closed on admission of
a partner by crediting the a/c’s by
a) Old partners
b) New partner
c) All partners
d) None

CCP402.45 21

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