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Amalgamation, Conversion &

Sale of Partnership Firm


IPCC Paper 5 Advanced Accounting Chapter 3 Unit 2
CA. K. Shanmuganathan, FCA,ACMA
Learning Objectives

The procedure for amalgamation of firms

Accounting treatment for conversion of firm in the form of


a company.

Method of distribution of shares to partners

Accounting entries in the books of purchasing company /


firm.

2
Amalgamation Of Firms

Accounting Procedure for closing the books of old firms

Step 1:Preparation of Realisation account (including


computation of PC) and transfer of Profit/Loss to
partners capital account in Profit Sharing Ratio.

Step 2: Entries for Goodwill & Reserves.

Step 3: Transfer of assets/ liabilities not taken over in


capital ratio.

Step 4: Transfer of Partners Capital to new firm account


or final settlement.

3
Amalgamation Entry’s
An Intro.

4
Realisation A/c Related Entries
S.NO. PARTICULARS DEBIT CREDIT RS.
RS.
1 Transfer of assets:
Realisation A/c Dr. xxx
To Assets A/c xxx
2 Transfer of Liabilities:
Liabilities A/c Dr. Xxx
To Realisation A/c Xxx

3 Purchase Consideration due:


Purchasing Company or firm A/c Dr xxx
To Realisation A/c xxx

4 Receipt of Purchase Consideration:


Bank A/c Dr. xxx
Share of Purchasing company Dr. xxx
To Purchasing Company A/c xxx
(or )
To Purchasing firm A/c
5
Realisation A/c Related Entries - 2

S.NO. PARTICULARS DEBIT CREDIT


RS. RS.
5 Realisation of assets not taken over at Profit:
Bank A/c (sale proceeds) Dr. xxx
To Realisation A/c (Profit) xxx
To Assets A/c (Book Value) Xxx

6 Realisation of assets not taken over at Loss:


Bank A/c (Sale Proceeds) Dr. xxx
Realisation A/c (Loss) Dr. xxx
To Assets A/c (Book Value) xxx

7 Settlement of liability not taken over at discount:


Liabilities A/c Dr. xxx
To Realisation A/c (Gain) xxx
To Bank A/c xxx

6
Realisation A/c Related Entries - 3
S.NO. PARTICULARS DEBIT CREDIT
RS. RS.
8 Settlement of liabilities not taken over at more than book
value:
Liabilities A/c Dr. xxx
Realisation A/c (Loss) Dr. xxx
To Bank A/c xxx
9 Realisation Expenses:
Realisation A/c Dr. xxx
To Bank A/c xxx

10 Transfer of realisation profit:


Realisation A/c Dr. xxx
To Partners capital A/c xxx

11 Transfer of realisation loss:


Partners Capital A/c Dr. xxx
To Realisation A/c xxx

7
Entries for Goodwill & Reserves
S.NO. PARTICULARS DEBIT CREDIT RS.
RS.
1 Goodwill A/c Dr. xxx
To Partners Capital A/c xxx
2 Reserves A/c Dr. xxx
To Partners Capital A/c xxx

8
Transfer of Assets & Liabilities
not taken over at Capital Ratio
S.NO. PARTICULARS DEBIT CREDIT RS.
RS.
1 Assets :
Partners Capital A/c Dr. xxx
To Assets A/c xxx
2 Liability:
Liabilities A/c Dr. xxx
To Partners Capital A/c xxx

9
Settlement of Partners
S.NO. PARTICULARS DEBIT CREDIT RS.
RS.
1 Settlement of Partners:
Partners Capital A/c Dr. xxx
To Shares/ debentures in
purchasing company A/c xxx
To Bank A/c xxx
To Capital in purchasing firm xxx

10
Purchase Consideration (PC)
} PC = Total Assets taken over } PC = Aggregate of Payments
at agreed value-Liabilities made by Purchasing Company
taken over. in various forms viz cash,
shares & debentures.

NET ASSETS METHOD PAYMENTS METHOD

11
Entries in the Books of Purchasing
Firm
S.NO PARTICULARS DEBIT CREDIT
RS. RS.
1 Assets A/c xxx
Dr xxx
To Liabilities A/c xxx
To Partners Capital A/c

Note: The Partner’s capital A/c will be credited with Capital balances agreed as
purchase consideration in the new firm. ( the amounts used in the settlement
entries of selling firm )

12
ENTRIES IN THE BOOKS OF PURCHASING
COMPANY

S.NO. PARTICULARS DEBIT CREDIT RS.


RS.
1 Purchase Consideration due:
Business Purchase A/c Dr. xxx
To Partnership Firm A/c xxx
2 Incorporation of assets & liabilities:
Assets A/c xxx
Dr. xxx
To Liabilities A/c xxx
To Business Purchase A/c

Note: The difference in the above entry shall be either Goodwill or


Capital Reserve.
Debit Side Less → Goodwill
Credit Side Less → Capital Reserve

13
ENTRIES CONTINUED
S.NO. PARTICULARS DEBIT CREDIT
RS. RS.
3 Expenses on taken over / dissolution of
firm paid by purchasing company:
Goodwill (or) Capital Reserve A/c Dr. xxx
To Bank A/c xxx
4 Settlement of Purchase Consideration:
Partnership Firm A/c Dr. xxx
To Equity Share Capital A/c xxx
To Preference Share capital A/c xxx
To Securities Premium A/c xxx

14
Illustaration1
IPCC Dec 2012 PM ( page No.3.28 ) à
Question No.1

15
PROBLEM 1 SOLVING

P and Q are partners of P & On 31st March, 2009 they


Co. sharing Profit and decide to amalgamate and
Losses in the ratio of 3:1 form a new firm M/s PQR & The Balance Sheets of two
and Q and R are partners Co., wherein P,Q and R firms on the above date are
of R & Co., sharing profit would be partners sharing as under:
and losses in the ratio of profits and losses in the
2:1. ratio of 3:2:1.

16
PROBLEM 1 CONT….
LIABILITIES P &CO. R & CO.
RS. RS.
Capital
P 2,40,000 -
Q 1,60,000 2,00,000
R - 1,00,000
Reserves 50,000 1,50,000
Sundry Creditors 1,20,000 1,16,000
Due to P & Co. - 1,00,000
Bank Overdraft 80,000 -
Total 6,50,000 6,66,000

17
Problem Statement
ASSETS P &CO. R & CO.
RS. RS.
Fixed Assets:
Building 50,000 60,000
Plant & Machinery 1,50,000 1,60,000
Office Equipment 20,000 6,000
Current Assets:
Stock-in-trade 1,20,000 1,40,000
Sundry debtors 1,60,000 2,00,00
Bank balance 30,000 90,000
Cash in hand 20,000 10,000
Due from R & Co. 1,00,000 -
Total 6,50,000 6,66,000
18
Problem Statement - 2

The amalgamated firm took over the business on


the following terms:
(a) Building of P & Co., was valued at Rs Rs.1,00,000

(b) Plant and Machinery of P & Co., was valued at Rs. 2,50,000 and that of R & Co., at
Rs. 2,00,000

(c) All stock in trade is to be appreciated by 20%

(d) Goodwill valued of P & Co. at Rs. 1,20,000 and R & Co., Rs.60,000 but the same will
not appear in the books of PQR & Co.,

(e) Partners of a new firm will bring the necessary cash to pay other partners to adjust
their capitals according to the profit sharing ratio.

(f) Provisions for doubtful debts has to be carried forward at Rs. 12,000 in respect of
debtors of P& Co., and Rs.26000 in respect of debtors of R & Co.,

19
Problem Statement - 3

You are required to prepare the


Balance Sheet of new firm and
capital accounts of the partners
in the books of old firms.

20
.
. SOLUTION

21
Working Note1: Purchase Consideration

PARTICULARS P & Co. R & Co.


Assets:
Good will 1,20,000 60,000

22
Working Note: Purchase Consideration

PARTICULARS P & Co. R & Co.


Assets:
Good will 1,20,000 60,000
Building 1,00,000 60,000

23
Working Note: Purchase Consideration

PARTICULARS P & Co. R & Co.


Assets:
Good will 1,20,000 60,000
Building 1,00,000 60,000
Plant & Machinery 2,50,000 2,00,000

24
Working Note: Purchase Consideration

PARTICULARS P & Co. R & Co.


Assets:
Good will 1,20,000 60,000
Building 1,00,000 60,000
Plant & Machinery 2,50,000 2,00,000
Office equipments 20,000 6,000

25
Working Note: Purchase Consideration

PARTICULARS P & Co. R & Co.


Assets:
Good will 1,20,000 60,000
Building 1,00,000 60,000
Plant & Machinery 2,50,000 2,00,000
Office equipments 20,000 6,000
Stock – in – trade 1,44,000 1,68,000

26
Working Note: Purchase Consideration

PARTICULARS P & Co. R & Co.


Assets:
Good will 1,20,000 60,000
Building 1,00,000 60,000
Plant & Machinery 2,50,000 2,00,000
Office equipments 20,000 6,000
Stock – in – trade 1,44,000 1,68,000
Sundry debtors 1,60,000 2,00,000

27
Working Note: Purchase Consideration

PARTICULARS P & Co. R & Co.


Assets:
Good will 1,20,000 60,000
Building 1,00,000 60,000
Plant & Machinery 2,50,000 2,00,000
Office equipments 20,000 6,000
Stock – in – trade 1,44,000 1,68,000
Sundry debtors 1,60,000 2,00,000
Bank balance 30,000 90,000

28
Working Note: Purchase Consideration

PARTICULARS P & Co. R & Co.


Assets:
Good will 1,20,000 60,000
Building 1,00,000 60,000
Plant & Machinery 2,50,000 2,00,000
Office equipments 20,000 6,000
Stock – in – trade 1,44,000 1,68,000
Sundry debtors 1,60,000 2,00,000
Bank balance 30,000 90,000
Cash in hand 20,000 10,000

29
Working Note: Purchase Consideration

PARTICULARS P & Co. R & Co.


Assets:
Good will 1,20,000 60,000
Building 1,00,000 60,000
Plant & Machinery 2,50,000 2,00,000
Office equipments 20,000 6,000
Stock – in – trade 1,44,000 1,68,000
Sundry debtors 1,60,000 2,00,000
Bank balance 30,000 90,000
Cash in hand 20,000 10,000
Due from R & Co. 1,00,000 -

30
Working Note: Purchase Consideration

PARTICULARS P & Co. R & Co.


Assets:
Good will 1,20,000 60,000
Building 1,00,000 60,000
Plant & Machinery 2,50,000 2,00,000
Office equipments 20,000 6,000
Stock – in – trade 1,44,000 1,68,000
Sundry debtors 1,60,000 2,00,000
Bank balance 30,000 90,000
Cash in hand 20,000 10,000
Due from R & Co. 1,00,000 -
Total Assets ( A ) 9,44,000 7,94,000

31
Working Note: Purchase Consideration - 2

PARTICULARS P & Co. R & Co.


Liabilities:
Creditors 1,20,000 1,16,000

32
Working Note: Purchase Consideration - 2

PARTICULARS P & Co. R & Co.


Liabilities:
Creditors 1,20,000 1,16,000
Provision for doubtful debts 12,000 26,000

33
Working Note: Purchase Consideration - 2

PARTICULARS P & Co. R & Co.


Liabilities:
Creditors 1,20,000 1,16,000
Provision for doubtful debts 12,000 26,000
Due to P & Co. - 1,00,000

34
Working Note: Purchase Consideration - 2

PARTICULARS P & Co. R & Co.


Liabilities:
Creditors 1,20,000 1,16,000
Provision for doubtful debts 12,000 26,000
Due to P & Co. - 1,00,000
Bank overdraft 80,000 -

35
Working Note: Purchase Consideration - 2

PARTICULARS P & Co. R & Co.


Liabilities:
Creditors 1,20,000 1,16,000
Provision for doubtful debts 12,000 26,000
Due to P & Co. - 1,00,000
Bank overdraft 80,000 -
Total Liabilities ( B ) 2,12,000 2,42,000

36
Working Note: Purchase Consideration - 2

PARTICULARS P & Co. R & Co.


Liabilities:
Creditors 1,20,000 1,16,000
Provision for doubtful debts 12,000 26,000
Due to P & Co. - 1,00,000
Bank overdraft 80,000 -
Total Liabilities ( B ) 2,12,000 2,42,000
Purchase consideration = A - B 7,32,000 5,52,000

37
WN2 BOOKS OF SELLING FIRM P &
Co. – REALISATION A/C

38
WN2 BOOKS OF SELLING FIRM P &
Co. – REALISATION A/C
PARTICULARS RS. PARTICULARS RS.
To Building 50,000

39
WN2 BOOKS OF SELLING FIRM P &
Co. – REALISATION A/C
PARTICULARS RS. PARTICULARS RS.
To Building 50,000
To Plant & Machinery 1,50,000

40
WN2 BOOKS OF SELLING FIRM P &
Co. – REALISATION A/C
PARTICULARS RS. PARTICULARS RS.
To Building 50,000
To Plant & Machinery 1,50,000
To Office equipments 20,000

41
WN2 BOOKS OF SELLING FIRM P &
Co. – REALISATION A/C
PARTICULARS RS. PARTICULARS RS.
To Building 50,000
To Plant & Machinery 1,50,000
To Office equipments 20,000
To Stock-in-trade 1,20,000

42
WN2 BOOKS OF SELLING FIRM P &
Co. – REALISATION A/C
PARTICULARS RS. PARTICULARS RS.
To Building 50,000
To Plant & Machinery 1,50,000
To Office equipments 20,000
To Stock-in-trade 1,20,000
To Sundry Debtors 1,60,000

43
WN2 BOOKS OF SELLING FIRM P &
Co. – REALISATION A/C
PARTICULARS RS. PARTICULARS RS.
To Building 50,000
To Plant & Machinery 1,50,000
To Office equipments 20,000
To Stock-in-trade 1,20,000
To Sundry Debtors 1,60,000
To Bank balance 30,000

44
WN2 BOOKS OF SELLING FIRM P &
Co. – REALISATION A/C
PARTICULARS RS. PARTICULARS RS.
To Building 50,000
To Plant & Machinery 1,50,000
To Office equipments 20,000
To Stock-in-trade 1,20,000
To Sundry Debtors 1,60,000
To Bank balance 30,000
To Cash in hand 20,000

45
WN2 BOOKS OF SELLING FIRM P &
Co. – REALISATION A/C
PARTICULARS RS. PARTICULARS RS.
To Building 50,000
To Plant & Machinery 1,50,000
To Office equipments 20,000
To Stock-in-trade 1,20,000
To Sundry Debtors 1,60,000
To Bank balance 30,000
To Cash in hand 20,000
To Due from R & Co 1,00,000

46
WN2 BOOKS OF SELLING FIRM P &
Co. – REALISATION A/C
PARTICULARS RS. PARTICULARS RS.
To Building 50,000 By Creditors 1,20,000
To Plant & Machinery 1,50,000
To Office equipments 20,000
To Stock-in-trade 1,20,000
To Sundry Debtors 1,60,000
To Bank balance 30,000
To Cash in hand 20,000
To Due from R & Co 1,00,000

47
WN2 BOOKS OF SELLING FIRM P &
Co. – REALISATION A/C
PARTICULARS RS. PARTICULARS RS.
To Building 50,000 By Creditors 1,20,000
To Plant & Machinery 1,50,000 By Bank Overdraft 80,000
To Office equipments 20,000
To Stock-in-trade 1,20,000
To Sundry Debtors 1,60,000
To Bank balance 30,000
To Cash in hand 20,000
To Due from R & Co 1,00,000

48
WN2 BOOKS OF SELLING FIRM P &
Co. – REALISATION A/C
PARTICULARS RS. PARTICULARS RS.
To Building 50,000 By Creditors 1,20,000
To Plant & Machinery 1,50,000 By Bank Overdraft 80,000
To Office equipments 20,000 By M/s PQR & Co. (PC) 7,32,000
To Stock-in-trade 1,20,000 W.N.1
To Sundry Debtors 1,60,000
To Bank balance 30,000
To Cash in hand 20,000
To Due from R & Co 1,00,000

9,32,000

49
WN2 BOOKS OF SELLING FIRM P &
Co. – REALISATION A/C
PARTICULARS RS. PARTICULARS RS.
To Building 50,000 By Creditors 1,20,000
To Plant & Machinery 1,50,000 By Bank Overdraft 80,000
To Office equipments 20,000 By M/s PQR & Co. (PC) 7,32,000
To Stock-in-trade 1,20,000 W.N.1
To Sundry Debtors 1,60,000
To Bank balance 30,000
To Cash in hand 20,000
To Due from R & Co 1,00,000
To Partners’ Capital A/cs
P 2,11,500
Q 70,500 2,82,000

9,32,000 9,32,000

50
BOOKS OF SELLING FIRM P & CO-
PARTNERS’ CAPITAL A/C

PARTICULARS P Q PARTICULARS P Q
RS. RS. RS. RS.
To Capital A/cs 4,89,000 2,43,000 By Balance b/d 2,40,000 1,60,000
M/s PQR & Co
By Reserve (3:1) 37,500 12,500
By Profit of
Realisation A/c 2,11,500 70,500
(W.N.4)
4,89,000 2,43,000 4,89,000 2,43,000

51
WN3 BOOKS OF SELLING FIRM R & Co. –
REALISATION A/C

52
WN3 BOOKS OF SELLING FIRM R & Co. –
REALISATION A/C

PARTICULARS RS. PARTICULARS RS.


To Building 60,000

53
WN3 BOOKS OF SELLING FIRM R & Co. –
REALISATION A/C

PARTICULARS RS. PARTICULARS RS.


To Building 60,000
To Plant & Machinery 1,60,000

54
WN3 BOOKS OF SELLING FIRM R & Co. –
REALISATION A/C

PARTICULARS RS. PARTICULARS RS.


To Building 60,000
To Plant & Machinery 1,60,000
To Office Equipment 6,000

55
WN3 BOOKS OF SELLING FIRM R & Co. –
REALISATION A/C

PARTICULARS RS. PARTICULARS RS.


To Building 60,000
To Plant & Machinery 1,60,000
To Office Equipment 6,000
To Stock-in-trade 1,40,000

56
WN3 BOOKS OF SELLING FIRM R & Co. –
REALISATION A/C

PARTICULARS RS. PARTICULARS RS.


To Building 60,000
To Plant & Machinery 1,60,000
To Office Equipment 6,000
To Stock-in-trade 1,40,000
To Sundry Debtors 2,00,000

57
WN3 BOOKS OF SELLING FIRM R & Co. –
REALISATION A/C

PARTICULARS RS. PARTICULARS RS.


To Building 60,000
To Plant & Machinery 1,60,000
To Office Equipment 6,000
To Stock-in-trade 1,40,000
To Sundry Debtors 2,00,000
To Bank balance 90,000

58
WN3 BOOKS OF SELLING FIRM R & Co. –
REALISATION A/C

PARTICULARS RS. PARTICULARS RS.


To Building 60,000
To Plant & Machinery 1,60,000
To Office Equipment 6,000
To Stock-in-trade 1,40,000
To Sundry Debtors 2,00,000
To Bank balance 90,000
To Cash in hand 10,000

59
WN3 BOOKS OF SELLING FIRM R & Co. –
REALISATION A/C

PARTICULARS RS. PARTICULARS RS.


To Building 60,000 By Creditors 1,16,000
To Plant & Machinery 1,60,000
To Office Equipment 6,000
To Stock-in-trade 1,40,000
To Sundry Debtors 2,00,000
To Bank balance 90,000
To Cash in hand 10,000

60
WN3 BOOKS OF SELLING FIRM R & Co. –
REALISATION A/C

PARTICULARS RS. PARTICULARS RS.


To Building 60,000 By Creditors 1,16,000
To Plant & Machinery 1,60,000 By Due to P & Co. 1,00,000
To Office Equipment 6,000
To Stock-in-trade 1,40,000
To Sundry Debtors 2,00,000
To Bank balance 90,000
To Cash in hand 10,000

61
WN3 BOOKS OF SELLING FIRM R & Co. –
REALISATION A/C

PARTICULARS RS. PARTICULARS RS.


To Building 60,000 By Creditors 1,16,000
To Plant & Machinery 1,60,000 By Due to P & Co. 1,00,000
To Office Equipment 6,000 By M/s PQR & Co. 5,52,000
To Stock-in-trade 1,40,000 (PC)W.N.1
To Sundry Debtors 2,00,000
To Bank balance 90,000
To Cash in hand 10,000

7,68,000

62
WN3 BOOKS OF SELLING FIRM R & Co. –
REALISATION A/C

PARTICULARS RS. PARTICULARS RS.


To Building 60,000 By Creditors 1,16,000
To Plant & Machinery 1,60,000 By Due to P & Co. 1,00,000
To Office Equipment 6,000 By M/s PQR & Co. 5,52,000
To Stock-in-trade 1,40,000 (PC)W.N.1
To Sundry Debtors 2,00,000
To Bank balance 90,000
To Cash in hand 10,000
To Partners’ Capital A/cs
Q 68,000
R 34,000 1,02,000
7,68,000 7,68,000

63
BOOKS OF SELLING FIRM R & CO-
PARTNERS’ CAPITAL A/C

64
BOOKS OF SELLING FIRM R & CO-
PARTNERS’ CAPITAL A/C

PARTICULARS Q R PARTICULARS Q R
RS. RS. RS. RS.
By Balance b/d 2,00,000 1,00,000

65
BOOKS OF SELLING FIRM R & CO-
PARTNERS’ CAPITAL A/C

PARTICULARS Q R PARTICULARS Q R
RS. RS. RS. RS.
By Balance b/d 2,00,000 1,00,000

By Reserve (2:1) 1,00,000 50,000

66
BOOKS OF SELLING FIRM R & CO-
PARTNERS’ CAPITAL A/C

PARTICULARS Q R PARTICULARS Q R
RS. RS. RS. RS.
By Balance b/d 2,00,000 1,00,000

By Reserve (2:1) 1,00,000 50,000


By Realisation
A/c (W.N.5) 68,000 34,000
( profit )
3,68,000 1,84,000

67
BOOKS OF SELLING FIRM R & CO-
PARTNERS’ CAPITAL A/C

PARTICULARS Q R PARTICULARS Q R
RS. RS. RS. RS.
To Capital A/c s 3,68,000 1,84,000 By Balance b/d 2,00,000 1,00,000
M/s PQR & Co
By Reserve (2:1) 1,00,000 50,000
By Realisation
A/c (W.N.5) 68,000 34,000
( profit )
3,68,000 1,84,000 3,68,000 1,84,000

68
WN4 COMPUTATION OF PROPORTIONATE
CAPITAL
RS.
M/s PQR & Co. (PC) (Rs.7,32,000+Rs.5,52,000) 12,84,000
Less: Goodwill Adjustment (1,80,000)
Total Capital of New firm (Distributed in ratio 3:2:1) 11,04,000
P’s proportionate capital 5,52,000
Q’s proportionate capital 3,68,000
R’s Proportionate capital 1,84,000

69
WN3 Computation of capital
adjustments

70
WN3 Computation of capital
adjustments
P Q R TOTAL
RS. RS. RS. RS.
Balance transferred from P & Co. 4,89,000 2,43,000 7,32,000

71
WN3 Computation of capital
adjustments
P Q R TOTAL
RS. RS. RS. RS.
Balance transferred from P & Co. 4,89,000 2,43,000 7,32,000
Balance transferred from R & Co. 3,68,000 1,84,000 5,52,000

72
WN3 Computation of capital
adjustments
P Q R TOTAL
RS. RS. RS. RS.
Balance transferred from P & Co. 4,89,000 2,43,000 7,32,000
Balance transferred from R & Co. 3,68,000 1,84,000 5,52,000
4,89,000 6,11,000 1,84,000 12,84,000

73
WN3 Computation of capital
adjustments
P Q R TOTAL
RS. RS. RS. RS.
Balance transferred from P & Co. 4,89,000 2,43,000 7,32,000
Balance transferred from R & Co. 3,68,000 1,84,000 5,52,000
4,89,000 6,11,000 1,84,000 12,84,000
Less: Goodwill written off (3:2:1) (90,000) (60,000) (30,000) (1,80,000)

74
WN3 Computation of capital
adjustments
P Q R TOTAL
RS. RS. RS. RS.
Balance transferred from P & Co. 4,89,000 2,43,000 7,32,000
Balance transferred from R & Co. 3,68,000 1,84,000 5,52,000
4,89,000 6,11,000 1,84,000 12,84,000
Less: Goodwill written off (3:2:1) (90,000) (60,000) (30,000) (1,80,000)
Existing Capital 3,99,000 5,51,000 1,54,000 11,04,000

75
WN3 Computation of capital
adjustments
P Q R TOTAL
RS. RS. RS. RS.
Balance transferred from P & Co. 4,89,000 2,43,000 7,32,000
Balance transferred from R & Co. 3,68,000 1,84,000 5,52,000
4,89,000 6,11,000 1,84,000 12,84,000
Less: Goodwill written off (3:2:1) (90,000) (60,000) (30,000) (1,80,000)
Existing Capital 3,99,000 5,51,000 1,54,000 11,04,000
Proportionate Capital 5,52,000 3,68,000 1,84,000 11,04,000

76
WN3 Computation of capital
adjustments
P Q R TOTAL
RS. RS. RS. RS.
Balance transferred from P & Co. 4,89,000 2,43,000 7,32,000
Balance transferred from R & Co. 3,68,000 1,84,000 5,52,000
4,89,000 6,11,000 1,84,000 12,84,000
Less: Goodwill written off (3:2:1) (90,000) (60,000) (30,000) (1,80,000)
Existing Capital 3,99,000 5,51,000 1,54,000 11,04,000
Proportionate Capital 5,52,000 3,68,000 1,84,000 11,04,000
Amount to be brought in (Paid Off) 1,53,000 (1,83,000) 30,000

77
BALANCE SHEET OF M/S PQR & CO. AS AT
31ST MARCH,2009

78
BALANCE SHEET OF M/S PQR & CO. AS AT
31ST MARCH,2009

LIABILITIES: RS. RS.


Capital
P 5,52,000
Q 3,68,000
R 1,84,000 11,04,000

79
BALANCE SHEET OF M/S PQR & CO. AS AT
31ST MARCH,2009

LIABILITIES: RS. RS.


Capital
P 5,52,000
Q 3,68,000
R 1,84,000 11,04,000
Sundry Creditors (Rs.1,20,000+Rs.1,16,000) 2,36,000

80
BALANCE SHEET OF M/S PQR & CO. AS AT
31ST MARCH,2009

LIABILITIES: RS. RS.


Capital
P 5,52,000
Q 3,68,000
R 1,84,000 11,04,000
Sundry Creditors (Rs.1,20,000+Rs.1,16,000) 2,36,000
Bank Overdraft 80,000

81
BALANCE SHEET OF M/S PQR & CO. AS AT
31ST MARCH,2009

LIABILITIES: RS. RS.


Capital
P 5,52,000
Q 3,68,000
R 1,84,000 11,04,000
Sundry Creditors (Rs.1,20,000+Rs.1,16,000) 2,36,000
Bank Overdraft 80,000
14,20,000

82
BALANCE SHEET CONT….
ASSETS: RS. RS.

83
BALANCE SHEET CONT….
ASSETS: RS. RS.
Building (Rs.1,00,000+Rs.60,000) 1,60,000

84
BALANCE SHEET CONT….
ASSETS: RS. RS.
Building (Rs.1,00,000+Rs.60,000) 1,60,000
Plant & Machinery (Rs.2,50,000+Rs.2,00,000) 4,50,000

85
BALANCE SHEET CONT….
ASSETS: RS. RS.
Building (Rs.1,00,000+Rs.60,000) 1,60,000
Plant & Machinery (Rs.2,50,000+Rs.2,00,000) 4,50,000
Office Equipment(Rs.20,000+Rs.6,000) 26,000

86
BALANCE SHEET CONT….
ASSETS: RS. RS.
Building (Rs.1,00,000+Rs.60,000) 1,60,000
Plant & Machinery (Rs.2,50,000+Rs.2,00,000) 4,50,000
Office Equipment(Rs.20,000+Rs.6,000) 26,000
Stock-in-trade (Rs.1,44,000+Rs.1,68,000) 3,12,000

87
BALANCE SHEET CONT….
ASSETS: RS. RS.
Building (Rs.1,00,000+Rs.60,000) 1,60,000
Plant & Machinery (Rs.2,50,000+Rs.2,00,000) 4,50,000
Office Equipment(Rs.20,000+Rs.6,000) 26,000
Stock-in-trade (Rs.1,44,000+Rs.1,68,000) 3,12,000
Sundry Debtors (Rs.1,60,000+Rs.2,00,000) 3,60,000

88
BALANCE SHEET CONT….
ASSETS: RS. RS.
Building (Rs.1,00,000+Rs.60,000) 1,60,000
Plant & Machinery (Rs.2,50,000+Rs.2,00,000) 4,50,000
Office Equipment(Rs.20,000+Rs.6,000) 26,000
Stock-in-trade (Rs.1,44,000+Rs.1,68,000) 3,12,000
Sundry Debtors (Rs.1,60,000+Rs.2,00,000) 3,60,000
Less: Provision for doubtful debts (38,000) 3,22,000
(Rs.12,000+Rs.26,000)

89
BALANCE SHEET CONT….
ASSETS: RS. RS.
Building (Rs.1,00,000+Rs.60,000) 1,60,000
Plant & Machinery (Rs.2,50,000+Rs.2,00,000) 4,50,000
Office Equipment(Rs.20,000+Rs.6,000) 26,000
Stock-in-trade (Rs.1,44,000+Rs.1,68,000) 3,12,000
Sundry Debtors (Rs.1,60,000+Rs.2,00,000) 3,60,000
Less: Provision for doubtful debts (38,000) 3,22,000
(Rs.12,000+Rs.26,000)
Bank balance (Rs.30,000+Rs.90,000) 1,20,000

90
BALANCE SHEET CONT….
ASSETS: RS. RS.
Building (Rs.1,00,000+Rs.60,000) 1,60,000
Plant & Machinery (Rs.2,50,000+Rs.2,00,000) 4,50,000
Office Equipment(Rs.20,000+Rs.6,000) 26,000
Stock-in-trade (Rs.1,44,000+Rs.1,68,000) 3,12,000
Sundry Debtors (Rs.1,60,000+Rs.2,00,000) 3,60,000
Less: Provision for doubtful debts (38,000) 3,22,000
(Rs.12,000+Rs.26,000)
Bank balance (Rs.30,000+Rs.90,000) 1,20,000
Cash in Hand 30,000*

91
BALANCE SHEET CONT….
ASSETS: RS. RS.
Building (Rs.1,00,000+Rs.60,000) 1,60,000
Plant & Machinery (Rs.2,50,000+Rs.2,00,000) 4,50,000
Office Equipment(Rs.20,000+Rs.6,000) 26,000
Stock-in-trade (Rs.1,44,000+Rs.1,68,000) 3,12,000
Sundry Debtors (Rs.1,60,000+Rs.2,00,000) 3,60,000
Less: Provision for doubtful debts (38,000) 3,22,000
(Rs.12,000+Rs.26,000)
Bank balance (Rs.30,000+Rs.90,000) 1,20,000
Cash in Hand 30,000*
14,20,000

92
*Cash – in - hand
}Cash taken over from P & co 20,000
Add: Cash taken over from R & co. 10,000
Add: Cash brought in by P 1,53,000
Add: Cash brought in by R 30,000
-----------
2,13,000
Less: Cash paid to Partner Q 1,83,000
-----------
Closing balance 30,000

93
Illustration 2
IPCC RTP NOV 2011 Question 2 (
modified )

94
PROBLEM 2 SOLVING

2.Ramesh,Roshan and Rohan were


partners of the firm ‘3R Enterprises’
sharing profits and losses in the ratio
of 3:2:1 respectively. On 31st
march,2011 their Balance Sheet
stood as follows :

95
PROBLEM 2 CONT…..
LIABILITIES Rs. ASSETS Rs.

Ramesh’s Capital A/c 16,80,000 Land and Buildings 14,00,000


Roshan’s Capital A/c 11,60,000 Machinery 11,00,000
Rohan’s Capital A/c 6,70,000 Furniture 6,10,000
General Reserve 6,30,000 Stock 8,40,000
Creditors 6,00,000 Debtors 6,00,000
Cash at Bank 1,90,000
47,40,000 47,40,000

96
PROBLEM 2 CONT….
On the above-mentioned date, the partners decided to convert their firm into a
private limited company and named it ‘3R Enterprises (Private) Ltd’.

The Company took over all the assets including cash at bank and all the
creditors for Rs.42,00,000 payable in the form of fully paid equity shares of
Rs.10 each.

It recorded in its books, land and buildings at Rs. 16,40,000 machinery at


Rs.9,90,000 and created a provision for bad debts @5% on debtors.

The expenses of the take-over came to Rs.23,000 which were paid and borne by
the company.

97
PROBLEM 2 CONT….

The expenses of getting the company incorporate were Rs.57,000

The partners distributed the company’s shares amongst themselves in


their profit sharing ratio. The settled their accounts by paying or
receiving cash

Prepare Realisation Account and all the partners’ capital accounts in the
firm’s ledger and pass journal entries in the books of the company and
Balance Sheet after incorporating the transactions mentioned above.

98
JOURNAL ENTRIES

99
JOURNAL ENTRIES
S. Particulars l.F Dr Cr
NO No (Rs.) (Rs.)
1. Business Purchase A/c - Dr 42,00,000
To M/s 3R Enterprises Pvt Ltd –A/c 42,00,000
(Consideration Payable for business purchase)

10
0
JOURNAL ENTRIES
S. Particulars l.F Dr Cr
NO No (Rs.) (Rs.)
1. Business Purchase A/c - Dr 42,00,000
To M/s 3R Enterprises Pvt Ltd –A/c 42,00,000
(Consideration Payable for business purchase)

2. Land and Building A/c - Dr 16,40,000


Machinery A/c - Dr 9,90,000
Furniture A/c - Dr 6,10,000
Stock - A/c - Dr 8,40,000
Debtors –A/C - Dr 6,00,000
Bank – A/c - Dr 1,90,000
To Creditors A/c 6,00,000
To Provision for Doubtful debts A/c 30,000
To Business Purchase A/c 42,00,000
To Capital Reserve A/c 40,000
(Assets and liabilities taken over for Rs.42,00,000
balance Cr to Capital Reserve

10
1
JOURNAL ENTRIES CONT….
S. Particulars LF Dr Cr
NO NO (Rs.) (Rs.)
3. Capital Reserve-A/c - Dr 23,000
To Bank A/c 23,000
(Expenses for take over debited to Capital Reserve)

10
2
JOURNAL ENTRIES CONT….
S. Particulars LF Dr Cr
NO NO (Rs.) (Rs.)
3. Capital Reserve-A/c - Dr 23,000
To Bank A/c 23,000
(Expenses for take over debited to Capital Reserve)
4. M/s 3R Enterprises expeses A/c- Dr 42,00,000
To Equity Shares Capital A/C 42,00,000
(Allotment of fully paid equity shares to discharge
consideration for business)

10
3
JOURNAL ENTRIES CONT….
S. Particulars LF Dr Cr
NO NO (Rs.) (Rs.)
3. Capital Reserve-A/c - Dr 23,000
To Bank A/c 23,000
(Expenses for take over debited to Capital Reserve)
4. M/s 3R Enterprises expeses A/c- Dr 42,00,000
To Equity Shares Capital A/C 42,00,000
(Allotment of fully paid equity shares to discharge
consideration for business)
5. Preliminary expenses A/c - Dr 57,000
To Bank A/c 57,000
(Expenses incurred to get the company
incorporated)

10
4
IN THE BOOKS OF 3R ENTERPRISES
REALISATION A/C

10
5
IN THE BOOKS OF 3R ENTERPRISES
REALISATION A/C

Particulars Rs. Particulars Rs.


To Land and Buildings 14,00,000

10
6
IN THE BOOKS OF 3R ENTERPRISES
REALISATION A/C

Particulars Rs. Particulars Rs.


To Land and Buildings 14,00,000
To Machinery 11,00,000

10
7
IN THE BOOKS OF 3R ENTERPRISES
REALISATION A/C

Particulars Rs. Particulars Rs.


To Land and Buildings 14,00,000
To Machinery 11,00,000
To Furniture 6,10,000

10
8
IN THE BOOKS OF 3R ENTERPRISES
REALISATION A/C

Particulars Rs. Particulars Rs.


To Land and Buildings 14,00,000
To Machinery 11,00,000
To Furniture 6,10,000
To Stock 8,40,000

10
9
IN THE BOOKS OF 3R ENTERPRISES
REALISATION A/C

Particulars Rs. Particulars Rs.


To Land and Buildings 14,00,000
To Machinery 11,00,000
To Furniture 6,10,000
To Stock 8,40,000
To Debtors 6,00,000

11
0
IN THE BOOKS OF 3R ENTERPRISES
REALISATION A/C

Particulars Rs. Particulars Rs.


To Land and Buildings 14,00,000
To Machinery 11,00,000
To Furniture 6,10,000
To Stock 8,40,000
To Debtors 6,00,000
To Cash at Bank 1,90,000

11
1
IN THE BOOKS OF 3R ENTERPRISES
REALISATION A/C

Particulars Rs. Particulars Rs.


To Land and Buildings 14,00,000 By Creditors 6,00,000
To Machinery 11,00,000
To Furniture 6,10,000
To Stock 8,40,000
To Debtors 6,00,000
To Cash at Bank 1,90,000

11
2
IN THE BOOKS OF 3R ENTERPRISES
REALISATION A/C

Particulars Rs. Particulars Rs.


To Land and Buildings 14,00,000 By Creditors 6,00,000
To Machinery 11,00,000 By 3R Enterprises 42,00,000
To Furniture 6,10,000
To Stock 8,40,000
To Debtors 6,00,000
To Cash at Bank 1,90,000
48,00,00

11
3
IN THE BOOKS OF 3R ENTERPRISES
REALISATION A/C

Particulars Rs. Particulars Rs.


To Land and Buildings 14,00,000 By Creditors 6,00,000
To Machinery 11,00,000 By 3R Enterprises 42,00,000
To Furniture 6,10,000
To Stock 8,40,000
To Debtors 6,00,000
To Cash at Bank 1,90,000
To Ramesh’s Capital A/c 30,000
To Roshan’s Capital A/c 20,000
To Rohan’s Capital A/c 10,000
48,00,000 48,00,00

11
4
PARTNERS CAPITAL A/C

11
5
PARTNERS CAPITAL A/C
Dr Ramesh Roshan Rohan
Particulars
Rs. Rs. Rs.
To Shares in 3R Enterprises pvt Ltd 21,00,000 14,00,000 7,00,000
A/c

11
6
PARTNERS CAPITAL A/C
Dr Ramesh Roshan Rohan
Particulars
Rs. Rs. Rs.
To Shares in 3R Enterprises pvt Ltd 21,00,000 14,00,000 7,00,000
A/c
To Bank A/c 85,000

11
7
PARTNERS CAPITAL A/C
Dr Ramesh Roshan Rohan
Particulars
Rs. Rs. Rs.
To Shares in 3R Enterprises pvt Ltd 21,00,000 14,00,000 7,00,000
A/c
To Bank A/c 85,000
Total 21,00,000 14,00,000 7,85,000

11
8
PARTNERS CAPITAL A/C
Cr Ramesh Roshan Rohan
By Balance b/d 16,80,000 11,60,000 6,70,000

11
9
PARTNERS CAPITAL A/C
Cr Ramesh Roshan Rohan
By Balance b/d 16,80,000 11,60,000 6,70,000
By General Reserve 3,15,000 2,10,000 1,05,000

12
0
PARTNERS CAPITAL A/C
Cr Ramesh Roshan Rohan
By Balance b/d 16,80,000 11,60,000 6,70,000
By General Reserve 3,15,000 2,10,000 1,05,000
By Realisation A/c (Profit) 30,000 20,000 10,000

12
1
PARTNERS CAPITAL A/C
Cr Ramesh Roshan Rohan
By Balance b/d 16,80,000 11,60,000 6,70,000
By General Reserve 3,15,000 2,10,000 1,05,000
By Realisation A/c (Profit) 30,000 20,000 10,000
By Bank A/c (Settlement) 75,000 10,000 -
Total 21,00,000 14,00,000 7,85,000

12
2
PARTNERS CAPITAL A/C
Dr Ramesh Roshan Rohan
Particulars
Rs. Rs. Rs.
To Shares in 3R Enterprises pvt Ltd 21,00,000 14,00,000 7,00,000
A/c
To Bank A/c 85,000
21,00,000 14,00,000 7,85,000
Total
Cr
By Balance b/d 16,80,000 11,60,000 6,70,000
By General Reserve 3,15,000 2,10,000 1,05,000
By Realisation A/c (Profit) 30,000 20,000 10,000
By Bank A/c (Settlement) 75,000 10,000 -
Total 21,00,000 14,00,000 7,85,000
12
3
BALANCE SHEET OF 3R ENTERPRISES PVT.
LTD.

12
4
BALANCE SHEET OF 3R ENTERPRISES PVT.
LTD.

EQUITY & LIABILITIES NOTE NO. RS.


1. Shareholders Funds:
Share Capital 1 42,00,000

12
5
BALANCE SHEET OF 3R ENTERPRISES PVT.
LTD.

EQUITY & LIABILITIES NOTE NO. RS.


1. Shareholders Funds:
Share Capital 1 42,00,000
Reserves & Surplus 2 (40,000)

12
6
BALANCE SHEET OF 3R ENTERPRISES PVT.
LTD.

EQUITY & LIABILITIES NOTE NO. RS.


1. Shareholders Funds:
Share Capital 1 42,00,000
Reserves & Surplus 2 (40,000)
2. Non Current Liabilities: -

12
7
BALANCE SHEET OF 3R ENTERPRISES PVT.
LTD.

EQUITY & LIABILITIES NOTE NO. RS.


1. Shareholders Funds:
Share Capital 1 42,00,000
Reserves & Surplus 2 (40,000)
2. Non Current Liabilities: -
3. Current Liabilities:
Trade Payables 3 6,00,000

12
8
BALANCE SHEET OF 3R ENTERPRISES PVT.
LTD.

EQUITY & LIABILITIES NOTE NO. RS.


1. Shareholders Funds:
Share Capital 1 42,00,000
Reserves & Surplus 2 (40,000)
2. Non Current Liabilities: -
3. Current Liabilities:
Trade Payables 3 6,00,000
Provisions 4 30,000

12
9
BALANCE SHEET OF 3R ENTERPRISES PVT.
LTD.

EQUITY & LIABILITIES NOTE NO. RS.


1. Shareholders Funds:
Share Capital 1 42,00,000
Reserves & Surplus 2 (40,000)
2. Non Current Liabilities: -
3. Current Liabilities:
Trade Payables 3 6,00,000
Provisions 4 30,000
47,90,000

13
0
BALANCE SHEET CONT….
ASSETS NOTE NO. RS.
1. Non Current Assets:
Tangible Fixed Assets 5 32,40,000

13
1
BALANCE SHEET CONT….
ASSETS NOTE NO. RS.
1. Non Current Assets:
Tangible Fixed Assets 5 32,40,000
2. Current Assets:
Inventory 8,40,000
Trade Receivables 6,00,000
Cash & Cash Equivalent 6 1,10,000
47,90,000

13
2
NOTES TO BALANCE SHEET

13
3
NOTES TO BALANCE SHEET
PARTICULARS RS.
1. Share Capital:
4,20,000 Equity Shares of Rs.10 each 42,00,000
42,00,000

13
4
NOTES TO BALANCE SHEET
PARTICULARS RS.
2. Reserves & Surplus:
Capital Reserve 17,000
Profit & Loss Account (57,000)#
40,000

# As per AS 26 Preliminary expenses written off to P & L

13
5
NOTES TO BALANCE SHEET
PARTICULARS RS.
3. Trade Payables:
Creditors 6,00,000
4.Provisions:
Provision for Bad debts 30,000

13
6
NOTES TO BALANCE SHEET
PARTICULARS RS.
4.Provisions:
Provision for Bad debts 30,000

13
7
NOTES CONT….
PARTICULARS RS.
5. Tangible Fixed Assets:
Land 16,40,000
Machinery 9,90,000
Furniture 6,10,000
Total 32,40,000

13
8
NOTES CONT….
PARTICULARS RS.
6.Cash & Cash Equivalent:
Bank balance 1,90,000
Less: Expenses Taken Over (23,000)
Less: Preliminary Expenses written off (52,000)
Net Bank Balance 1,10,000

13
9
Lesson Summary

} Preparation of accounting entries in selling firm (


specifically closure of books )
} Opening entries in purchasing firm /company books
} Preparation of Balance sheet of purchasing firm or
company
} When one firm merged with another existing firm,
entries will be made in the pattern of winding up in
the firm ceases to exist. The other firm will record it
as business purchase.

14
0
14
1