SUMMER HOLIDAY HOMEWORK

Make separate homework copy for both the subject. Business studies : Write down question and answers for the questions given after the topics in NCERT Text book for all the three lessons.

Accountancy: Solve the problems given below.

Q.1  P and Q are partners with capitals of Rs. 6,00,000 and Rs. 4,00,000 respectively. The profit and Loss Account of the firm showed a net Profit of Rs. 4, 26,800 for the year. Prepare Profit and Loss account after taking the following into consideration:-

          (i)           Interest on P's Loan of Rs. 2,00,000 to the firm

          (ii)          Interest on 'capital to be allowed @ 6% p.a.

          (iii)         Interest on Drawings @ 8% p.a. Drawings were ; P Rs 80,000 and Q Rs. 1000,000.

          (iv)         Q is to be allowed a commission on sales @ 3%. Sales for the year was Rs. 1000000

          (v)          10% of the divisible profits is to be kept in a Reserve Account.

Q.2   A, and C are partners with fixed capitals of Rs. 2,00,000, Rs. 1,50,000 and Rs. 1,00,000 respectively. The balance of current accounts on 1st January, 2004 were A Rs. 10,000 (Cr.); B Rs. 4,000 (Cr.) and C Rs. 3,000 (Dr.). A gave a loan to the firm of Rs. 25,000 on 1st July, 2004. The Partnership deed provided for the following:-

          (i)           Interest on Capital at 6%.

          (ii)          Interest on drawings at 9%. Each partner drew Rs. 12,000 on 1st July, 2004.

          (iii)         Rs. 25,000 is to be transferred in a Reserve Account.

          (iv)         Profit sharing ratio is 5:3: 2 upto Rs. 80,000 and above Rs. 80,000 equally. Net    Profit of the firm before above adjustments was Rs. 1,98,360.

          From the above information prepare Profit and Loss Appropriation Account, Capital and Current Accounts of the partners.

Q.3   Ram and Shyam were Partners. in a firm sharing profits in the ratio of 3 : 5. Their Fixed Capitals were ': Ram Rs. 5,00,000 and Shyam Rs. 9,00,000. After the accounts of the year had been closed, it was found that interest on capital at 10% per annum as provided in the partnership agreement has not been credited to the Capital Accounts of the partners. pass necessary entry to rectify the error.

.Q.4        Dinesh, Yasmine and Faria are partners in a firm, sharing profits and losses in 11:7:2 respectively. The Balance Sheet of the firm as on 31st Dec 2001 was as follows:

Liabilities	Rs.	Assets	Rs.
Sundry Creditors	800	Factory	7,350
Public Deposits	1,190	Plant & Machinery	1,800
Reserve fund	900	Furniture	2,600
Capital A/c		Stock	1,450
Dinesh	5,100	Debtors            Rs. 1,500
Yasmine	3,000	Less:RDD        Rs.    300	1,200
Faria	5,000	Cash in hand	1,590
	15,900		15,900

               On the same date, Annie is admitted as a partner for on-sixth share in the profits with Capital of Rs. 4,500 and necessary amount for his share of goodwill on the following terms:-

               a.    Furniture of Rs. 2,400 were to be taken over by Dinesh, Yasmine and Faria            equally.

               b.    A Liability of Rs. 1,670 be created against Bills discounted.

               c.    Goodwill of the firm is to be valued at 2.5 years' purchase of average profits of 2 years. The profits are as under:

                      2000:- Rs. 2,000 and 2001 - Rs. 6,000.

               d.    Drawings of Dinesh, Yasmine, and Faria were Rs. 2,750; Rs. 1,750; and Rs. 500 Respectively.

               e.    Machinery and Public Deposits are revalued to Rs. 2,000 and Rs. 1,000 respectively.

               Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the new firm.

Q.5      X and Y are partners as they share profits in the proportion of 3:1 their       balance sheet as at 31.03.07 as follows.

BALANCE SHEET

Liabilities	Rs.	Assets	Rs.
Capital Account		Land	1,65,000
X	1,76,000	Furniture	24,500
Y	1,45,200	Stock	1,32,000
Creditors	91,300	Debtors	35,200
		Bills Receivable	28,600
		Cash	27,500
	4,12,500		4,12,500

On the same date, Z is admitted into partnership for 1/5^th share on the following terms

a.         Goodwill is to be valued at 3½ years purchase of average profits of last for year which were Rs. 20,000 Rs. 17,000 Rs. 9,000 (Loss) respectively.

٠          Stock is fund to be overvalue by Rs. 2,000 Furniture is reduced and Land to be appreciated by 10% each, a provision for Bad Debts @ 12% is to be created on Debtors and a Provision of Discount of Creditors @ 4% is to be created.

٠          A liability to the extent of Rs. 1,500 should be created for a claim against the firm for damages.

٠          An item of Rs. 1,000 included in Creditors is not likely to be claimed, and hence it should be written off.

               Prepare Revaluation Account, Partners: Capital Accounts and Balance Sheet of the new firm if Z is to contribute proportionate capital and goodwill. The capital of partners are to be in profit sharing ratio by opening current Accounts.

Q.6.     Rashmi and Pooja are partners in a firm. They share profits and losses in the ratio of 2:1. They admit Santosh into partnership firm on the condition that she will bring Rs. 30,000 for Goodwill and will bring such an amount that her capital will be 1/3 of the total capital of the new firm. Santosh will be given 1/3 share in future profits. At the time of admission of Santosh, the Balance Sheet of Rashmi and Pooja was as under:

Liabilities	Rs.	Assets	Rs.
Capital Account		Cash	90,000
Rashmi	1,35,000	Machinery	1,20,000
Pooja	1,25,000	Furniture	10,000
Creditors	30,000	Stock	50,000
Bills Payable	10,000	Debtors	30,000
	3,00,000		3,00,000

It was decided to:

a.            revalue stock at Rs. 45,000.

b.            depreciated furniture by 10% and machinery by 5%.

c.            made provision of Rs. 3,000 on sundry debtors for doubtful debts.

Prepare Revaluation Account, Partners: Capital Accounts and Balance Sheet of the new firm. Give full workings.

Q.7      A, B and C are equal partners in a firm, their Balance Sheet as on 31^st       March 2002 was as follows:

Liabilities	Rs.	Assets	Rs.
Sundry Creditors	27,000	Goodwill	1,17,000
Employees Provident Fund	6,000	Building	1,25,000
Bills Payable	45,000	Machinery	72,000
General Reserve	18,000	Furniture	24,000
Capitals:		Stock	1,14,000
A	2,17,000	Bad Debts	1,02,000
B	1,66,000	Cash	12,000
C	90,000	Advertisement Suspense A/c	3,000
	5,69,000		5,69,000

On that date they agree to take D as equal partner on the following terms:

a.         D should bring in Rs. 1,60,000 as his capital and goodwill. His share of goodwill is valued at Rs. 60,000.

b.         Goodwill appearing in the books must be written off.

c.         Provision for loss on stock and provision for doubtful debts is to be made at 10% and 5% respectively.

d.         The value of building is to taken Rs. 2,00,000.

e.         The total capital of the new firm has been fixed has been fixed at Rs. 4,00,000 and the partners capital accounts are to be adjusted in the profit sharing ratio. Any excess is to be transferred to current account and any deficit is to be brought in cash.

Required : Prepare the Revaluation Account, Partners Capital Accounts, and the Balance Sheet of the new firm.

Q.8   A, Band C were partners in a firm sharing profits equally:   Their Balance Sheet on.31.12.2007 stood  as:

BALANCE SHEET  AS AT  31.12.07

    Liabilities                                            Rs.    Assets                                                       Rs.

    A                       Rs. 30,000                          Goodwill                                             18,000

   B                       Rs. 30,000                          Cash                                                   38,000

   C                       Rs. 25,000          85,000    Debtors                            . 43,000                

   Bills payable                                20,000    Less: Bad Debt provision    3,000   40,000

  Creditors                                       18,000    Bills Receivable                                 25,000

Workers Compensation Fund        8,000     Land and Building                             60,000               Employees prov. Fund              60,000     Plant and Machinery          40,000

General Reserve                           30,000                                                           

                                                2,21,000                                                             2,21,000

         It was mutually agreed that C will retire from partnership and for this purpose following terms were agreed upon.

         i)          Goodwill to be valued on 3 years’ purchase of average profit of last 4 years which were 2004 : Rs.50,000 (loss); 2005 : Rs. 21,000; 2006: Rs.52,000; 2007 : Rs.22,000.

         ii)          The Provision for Doubtful Debt was raised to Rs. 4,000.

         iii)           To appreciate Land by 15%.

         iv)           To decrease Plant and Machinery by 10%.

         v)            Create provision of Rs;600 on Creditors.

         vi)           A sum of Rs.5,000 of Bills Payable was not likely to be claimed.

         vii)        The continuing partners decided to show the firm’s capital at 1,00,000 which would be in their new profit sharing ratio which is 2:3. Adjustments to be made in cash

         Make necessary accounts and prepare the Balance Sheet of the new partners.

Q.9   The balance sheet of X, V, Z who was sharing profits in proportion of capital as follows :- 

Particulars                                  Amount    Particulars                                       Amount

Sundry creditors                           7,000    Cash at bank                                     15,600

Capitals                                                       Debtors                                5,000       

X                                          25,000            Less provision                       100        4,900

Y                                          20,000                                                           

Z                                         15,000             Stock                                                   10,000

                                                                     P/M                                                     11,500

                                                                    Furniture                                              25,000

                                                       67,000                                                              67,000

         Y retires arid the following adjustment of the assets and liabilities has been made before the ascertainment of the amount payable by the firm to Y

         1.That the stock be depreciated by 5%

         2.That the provision for doubtful debts be increased to 5% on debtors.

         3.That a provision of RS.750 be made in respect of outstanding legal charges.

         4. That the land and building be appreciated by 20%.

       5. That the goodwill of the entire firm be fixed at Rs. 16,200 and V share of the same be adjusted  into the account of X and Z (No good will account is to be raised)

        6. That X and Z decide to share future profits of the firm in equal proportions

     7. That the entire capital of the new firm at Rs. 48000 between X and Z in· equal proportion. For the purpose, actual cash is to be brought in or paid off.

  You are required to prepare the revolution account; partner’s capital account and bank account and revised balance sheet after V’s retirement also indicate the gaining rates.

Q.10 The Balance Sheet of A, B and C on 31st December 2007 was as under :

BALANCE SHEET

as at 31.12.2007

Liabilities                                    Amount    Assets                                               Amount

A’s Capital                                    40,000   Buildings                                           20,000

B’s Capital                                    30,000   Motor Car                                           18,000

C’s Capital                                   20,000   Stock                                                   20,000

General Reserve                         17,000    Investments                                    1,20,000

Sundry Creditors                     1,23,000    Debtors                                               40,000

                                                                     Patents                                             12,000

                                                 2,30,000                                                             2,30,000

         The partners share profits in the ratio of 8 : 4 : 5. C retires from the firm on the same date subject to the following term S and conditions:

         i) 20% of the General Reserve is to remain’ as a reserve for bad and doubtful debts.;

         ii) Motor Car is to be decreased by 5%.

         iii)Stock is to be revalued at Rs.17, 500.

         iv)Goodwill is valued at’ 2 ½ years purchase of the average profits of last 3 years.

        Profits were; 2001: Rs.11,000;  200l: Rs. 16,000 and 2003: Rs.24,000.

     C.was paid in July  A and B  borrowed the necessary amount from the Bank on the security of Motor Car and stock to payoff  C.

         Prepare Revaluation Account, Capital Accounts and Balance Sheet of A and B.

Business Environment

1. Which environment describes characteristics of the society in which the organization exists?

2. Which element / dimension of business environment involve improvement and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business?

3. Which environment prohibits the advertisement of alcoholic beverages?

4. Banking sector reforms have led to easier credit terms and better services. This is an example of a key component of the “Business Environment “name this component?

5. ‘Demand for reservation in jobs for minorities refers to an example of key component of general environment of business. Name this component.

6. It is the process by which government control over the industry is being loosened. Give the term to which this statement is trying to indicate.

7. Which process aims at giving greater role to the private sector role to the public sector?

8. State the characteristics of business environment.

9. State the economic reforms since 1991 or new Economics policy.

10. State the factors of Micro Environment.

11. State the factors of Macro Environment.

12. State the difference between general and specific environment with example.

13. Explain any five positive effects of liberalization and globalization on business and industry.

14. Explain any five negative effects of liberalization and globalization on business and industry in India.

15. Write the impact of changes in government policy on business and industries.

16. State the component of business Environment.

17. State the importance of business environment.

Answers

1. Social Environment

2. Technological Environment

3. Legal Environment

4. Economic Environment

5. Social Environment

6. Liberalization

7. Privatization

8. 1. Totality of external forces. 2. Specific and general forces

3. Inter-relatedness.4. Dynamics

5. Complexity. 6. Relatively

  9. a. Liberalization

      b. Privatization

      c. Globalization

10. a. Customers

     b. Suppliers

      c. Competitors
     d. Public

     e. Marketing intermediaries.

11. a.  Economical Environment

     b. Political Environment

     c. Social Environment

     d. Legal Regulatory Environment

     e. Technological Environment

 12   Examples of Specific Environment of Business.

Basis of difference	Specific Environment	General Environment
Examples	Investors, Customers, Competitors and suppliers	Social, Political, Legal and Technological conditions
Direct or Indirect.	It effects individual enterprises directly	It has indirect impact on all business enterprise.

   

13. The positive effects of liberalization and globalization on business and industry are

1. All round competition

2. Export became matter of survival.

3. World class technology.

4. Buyer’s market increase in production capacity.

14. The negative effects of liberalization and globalization on business and industry in India are

a) Destabilization of protected environment.

b) Threat from MNC’s

c)  Corporate vulnerability

d) Past failure fails to guide

e) Acquisitions and mergers

15.  Impact of changes in govt. policy on business is:

  a. Increasing competition

  b. More demanding

  c. Rapidly changing technology environment

  d. Necessity for change

  e. Need for developing human resources.

  f. market orientation

  g. Loss of budgetary support to the public sector.

16. Components of Business Environment

a. Internal Environment

b. External Environment

c. Micro Environment

d. Macro Environment

17. Importance of business Environment is:

a. First mover advantage

b. Warning signal

c. Taping useful resources

d. Coping with rapid changes

e. Assisting in planning and policy

f. Improving in performance.

BUSINESS ENVIRONMENT

PRINCIPLES OF MANAGEMENT

ANSWER BRIEFLY

Q.1         Fayol points out the danger and cost of unnecessary labour turnover in one of this ‘Principle’. Name & explain the principle.

Ans.       Principle of stability of tenure of personnel: According to this principle, employees should not be moved from their place frequently. The period of service in a position should be fixed. Fayol suggest that employee turnover should be minimized to maintain organizational efficiency. There should not be frequent terminations & transfers. Effects:

1.    Provides a feeling of job – security among the employees.

2.    Employees efficiency increases and they contribute their maximum when feel that their job is secure.

3.    No wastage of time & resources.

Adverse effects of violation:-

1.    Cost of unnecessary labour turnover. Recruitment, selection & training cost will be high.

2.    If the job of a person is not secure, he/she will look out job elsewhere and his/her work will not be satisfactory.

Q.2         Workers should be encouraged to development carry out their plans for improvements. Identify the principle of management formulated by Fayol.

Ans.       Principle of initiative.

Q.3         Why does the principle of unity of command not hold good in the case of functional foremanship?

Ans.       According to the principle of unity of command, an employee should receive orders / instruction from one & only one boss or superior On the other hand, the principle of functional foremanship insists on orders and instructions from eight specialists.

               So, if an organization has appointed eight functional specialists, then it is not possible to allow only one superior to give orders. Hence, the principle of unity of command does not hold good in the case of functional foremanship.

Q.4         Explain four techniques which facilitate application of the principle of scientific management.

Ans.       1) Time study: It determines the standard time taken to perform a well-defined job the objective of time study is to determine the no of workers to be employed, frame suitable incentive schemes and determine labour costs.

               2) Method study: The objective of method study is to find out one best way of doing the job.

               Example: To manufacture shoes, the methods could be manual or mechanical but the cost of labour & capital to manufacture shoes may vary. The management has to decide about the method to be used to manufacture shoes.

               3) Motion study: Motion study refers to the study of movements like lifting, putting objects, sitting etc., which are undertaken while doing a typical job.

               Example: Suppose a worker is engaged in a motor mechanic job. The expert in motion study observes how he moves various parts of his body, how many times he has to pick up and keep the tools back.

               4) Fatigue study: Fatigue study seeks to determine the amount & frequency of rest intervals in completing a task.

               Example: Suppose an employee is working in a plant where three shifts are in operation. If he continues to work in the second & third shift, he may feel totally exhausted and will not continue to work any longer.

Q.5         Which principle of management envisages that each group of activities having the same objectives must have one head and one plan? Explain the principle with a suitable example.

Ans.       Unity of Direction:

               The principle implies that there should be “ONE HEAD AND ONE PLAN” for a group of activities having the same objective.

               Example: If a company is manufacturing motor cycle as well as cars, then it should have two separate divisions. Each divisions should have its own in charge, plans & resources effects.

1.    Ensures unity of action.

2.    Facilitates coordination.

Adverse effects:

1.    There will be unnecessary duplication of efforts & wastage of resources.

2.    Efficiency of the organization will also be adversely affected because of lack of unity of action.

Q.6         Name and explain the technique of Taylor which is the strongest motivation for a worker to reach standard performance.

Ans.       Differential piece way system. This is method of wage payment suggested by F.W. Taylor in which efficient & inefficient workers are paid at different rates. He wanted to reword efficient worker. The efficient workers are paid at higher rates than the inefficient ones. Workers are paid on the basis of the number of units produced. If a worker produces more than standard units, he is given a higher wage per unit. Due to different rates for different sets of workers, it is known as differential wages system.

Q.7         The directors of Bhupender Ltd. An arganisation manufacturing computers, want to double the sales & have given this responsibility of their sales manager. The sales manager has no authority either to increase the sales expenses or appoint new salesman. Hence he could not achieve this target. Is the sales manager responsible for not achieving the target? Explain in brief, the relevant principle in support of your answer.

Ans.       No, the sales manager is not responsible because he has no authority either to increases the sales expenses or appoints new salesmen.

               In this case the principle of ‘Parity of Authority and Responsibility is violated.

               Authority means the right orders & obtains obedience. There are two types of authority (a) official authority i.e. authority to command & (b) Personal authority which is the authority of the individual manager. ‘Responsibility’ means obligation to perform the job assigned on time. Fayol suggested that there must be balance between authority and responsibility. Giving authority without responsibility may lead to irresponsible use of authority. So an organization should build safeguards against abuse of managerial power.

Effects:-

1.        No misuse of authority.

2.        Helps in performing duties on time without any delay

Adverse effect 

If authority is less, the subordinate will not be able to perform his duties well.

If the subordinate is given excess authority he may misuse his authority.

Q.8         Name the principle and explain of Fayol which suggests that communication from top to bottom should follow the official lines of command.

Ans.       Principle of scalar chain.

               The formal lines of authority from highest to lowest ranks are known as scalar chain. The principle of scalar chain suggests that communication from top to bottom should follow the official lines of command.

               According to Fayol, organizations should have a chain of authority & communication that runs from top to bottom and should be followed by managers & the subordinates.

                           Scalar chain and Gang Plank

Effect:

Smooth flow of communication in organization.

No communication Gap in the organization.

There will be unity of command in the organization

No confusion of Dual order.

Adverse effect:-

Authority responsibility relationship will not be clear

Communication gap in the organization.

Q.9         Hina and Harish are typists in a company having same educational qualifications. Hina is getting Rs. 3000 per month and Harish Rs. 400 per month as salary for the same working hours. Which principle of management is violated in this case? Name and explain the principle.

Ans.       Principle of Equity:-

               The principle of ‘Equity’ emphasizes kindliness and justice in the behavior of managers towards works. According to Fayol, employees can be made to put in their best only when they are given kind, fair and just treatment.

Q.10       Taylor’s techniques of management are universally applicable. Do you agree? Give any four reasons in support of your answer.

Ans.       Taylor’s techniques are developed through scientific approach and not by rule of thumb.  Any principle developed scientifically is universally applicable because these are not effected by personal feelings or biasness of managers. The techniques which facilitate the universal applicability of Taylor’s principles are:-

               ®    Time study                                        ®   Motion study

               ®      Method study                                 ®   Fatigue study

               But, some techniques of scientific management are not universally applicable under some situations. These are

i)             Functional Foremanship  ® This technique is not applicable in the organization following the principle of unity of command.

ii)            Differential Piece Wage system: This technique is also not applicable in the organization following the principle of equity.

Q.11       “Taylor’s principles of scientific management and Fayol’s principle of management are mutually complementary “. Do you agree? Give any five reasons in support of your answer.

Ans.       Yes, I agree with the view – “Taylor’s principle of scientific management and Fayol’s principles of management are mutually complementary “.

               While Taylor succeeded in revolutionizing the working of factory shop floor, Hennry Fayol explained the general principles of management which the managers should follow in doing their work.

               ® Fayol’s perspective is top level management which Taylor’s perspective is shop floor level of factory. Taylor’s scientific principles aim at increasing worker’s efficiency by devising the best method, fair day’s work, differential piece wage system and functional foremanship. On the other hand, Taylor’s principle aims at increasing managerial efficiency.

               ® The aim of the principles of both Taylor’s and Fayol is the same, i.e. to maximize efficiency of work and performance.

                ® Both sets of principle suggest mutual cooperation b/w employer and employees.

Q.12       The production manager of Bharat Ltd. Instructs a salesman to go slow in selling the product, whereas the marketing manager is insisting on fast selling to achieve the target. Which principle of management is being violated in this case? State the consequences of violation of the this principle.

Ans.       Unity of Command:-

               Consequences of Violation:-

               If an employee gets orders from two superiors at the same time i.e., principle of unity of command is violated.

               ® authority is undermined

               ® discipline and order is disturbed

               ® stability is threatened

               ® conflict among superiors

               ® loyalty of employee is divided

               ®  employees will remain in confusion regarding whose tasks to be done. He will have option for excuses.

Q.13       Priya and Nandita are working in an organization. They perform similar jobs but they are paid their salaries at different rates. Which principle of management is violated in this situation? Explain the principles in brief.

Ans.       Principle of Equity:-

               The principle of “Equity” emphasizes kindliness and justice in the behaviour of managers towards workers.

               According to Fayol, employees can be made to put in their best only when are given kind, fair and just treatments.

Q.14       In each of the following cases tells which principle of management as given by Henry Fayol being violated and how.

               a) When a sales manager is not given the right to discount to the buyer necessary to conclude a large scale. Contract, which will be profitable for the company.

              Ans.  Authority and responsibility.

               b) When each division of the company does not have a separate plan of action.

               Ans. Unity of Direction.

               c) When a subordinate receives order from two superiors.

               Ans. Unity of command.

               d) When a manager awards contract for supply of raw material to a particular party which happens to be owned by his relative ignoring other parties who can supply the same at a cheaper rate.

               Ans. Subordination of individual interest to group interest.

               e) When a subordinate habitually contacts higher authority in the company by passing his/her immediate superior.

               Ans. Scalar chain.

               f) When the tools and /or raw materials are not found at the right place in the company.

               Ans. Order.

Q.15       Identify the techniques of scientific management which are described by the statements given below. Also give reason.

               a) When many specialists supervise each worker.

               Ans. Functional foremanship.

               b) When uniformity is introduced in materials machines tools method of work and working condition after due research.

               Ans. Standardisation of work.

               c) To determine standard time taken to perform a will defined job.

               Ans. Time study.

               d) Giving variable wages to workers and management based on their performance.

               Ans. Deferential piece wage system.

               e) Change in the attitude of workers and management towards are another from competition to cooperation.

               Ans. Mental Revolution.

               f) To fine out one best way to do job.

               Ans. Method study.

Q.16       If an organization does not provide the right place for physical & human resources in the organization. Which principle is violated? What are the consequences?

Ans.       Principle of order :-

               Consequences:

1.    Violation of material order leads to wasteful movement of materials & tools.

2.    If social order is violated, it may not be easy to contact the needed employee.

Q.17 Are the principles of management given by Henry Fayol and F.W. Taylor are complimentary or supplementary to each other. Justify your answer.

Ans.  Taylor’s principles of scientific management and Fayol’s principles of management are mutually complementary.

    Reasons for this view are given below:—

1.            The aim of the principles of both Taylor and Fayol is the same, i.e., to maximize efficiency of work and performance.

2.            Both sets of principles suggest mutual cooperation between employer and employees.

3.            Taylor and Fayol both advocate division of work and responsibility.

4.            Both of them have contributed immensely to the knowledge of management, which has formed a basis for further practice by managers.

ADMISSION OF A PARTNER

ACCOUNTANCY

ADMISSION OF A PARTNER

1. Why should a new partner contribute towards goodwill on his admission?

2. Why are assets and liabilities revalued on the admission of a new partner?

3.Give the journal entry to distribute general reserve and profit and loss account balance appearing on the liabilities side of the balance sheet.

4.Under what circumstances premium for goodwill paid by the incoming partner would never be recorded in the books of account?

5. X and Y should profits in the ratio of 3:1. They admit Z to one-third share in the future profits. What will be the new profit sharing ratio?

6.A and B who shared profits in the ratio of 3:1 admit C as a partner for 1/5 share in profits, which he requires equally from the old partners. What will be the new profit sharing ratio?

7. A and B share profits in the ratio of 2:1. C is admitted with 1/3 share in profits. C acquires 2/3 of his share from A and 1/3 of his share from B. What will be new profit sharing ratio?

8. X and Y are partners sharing profits in the ratio of 3:1. They admit Z as a partner. X surrenders 1/3^rd of his share and Y 1/4^th of his share in favour of Z. What will be new profit sharing ratio?

9. P and Q are partners sharing profits in the ratio of 5:3. R is admitted and the new ratio is 4:3:2. What will be sacrificing ratio?

10. M and N are partners. P is admitted for ¼ shares. What is the ratio in which M and N will sacrifice their share in favour of P?

11. Explain the accounting treatment of Goodwill when goodwill account already appears in the books of the firm and new partner brings his share of goodwill in cash.

12.Explain the accounting treatment of Goodwill when new partner cannot bring his share of goodwill in cash.

SOLUTIONS

1. Since a new partner gets his share of profit from old partners, he must compensate the old partners for the share sacrificed by them. The amount of compensation given by the new partner is known as goodwill.

2. Assets and liabilities are revalued because the entire profit and loss due to their revaluation is divided amongst the old partners in their old profits sharing ratio. The new partner should not share such profit or loss because it belongs to the period prior to his admission.

3. General Reserve A/c                           Dr.

Profit & Loss A/c                                Dr.

            To old partner’s capital A/c                (In old ratio)

4. When the circumstances premium for the goodwill in cash to the old partners privately outside the business no entries are passed for it.

5. Calculation of new profit sharing ratio:

Let total profit be = 1

Share given to Z = 1/3

Remaining share = 1-1/3 = 2/3

Now the old partners will share remaining profit in their old profit sharing ratio:

Hence,

x’s share = 3/4 of 2/3 = 6/12 or ¾ * 2/3 = 6/12

y’s share = ¼ of 2/3 = 2/12 or ¼ * 2/3 = 2/12

z’s share = 1/3

            Thus, the new profit sharing ratio of x, y and z will be:

= 6/12 : 2/12 : 1/3

= (6:2:4)/12 = 6:2:4 or 3:1:2

6. Share of profit given to C = 1/5

Share acquired by C from A = ½ of 1/5 = 1/10

Share acquired by C from B = ½ of 1/5 = 1/10

Therefore,

            A’s new share after surrendering 1/10 in C’s favour

                                    = ¾ - 1/10 = (15-2)/20

                                    = 13/20

            B’s new share after surrendering 1/10 in C’s favour

                                    = 1/4 - 1/10 = (5-2)/20

                                    = 3/20

            C’s share         = 1/10 + 1/10 = 2/10

            Therefore new share equal to

                                    13/20:3/20: 2:10          = (13:3:4)/20

                                                                        = 13:3:4 Ans.

7. Share of profit given to ‘C’ = 1/3 share

Share acquired by C from A = 1/3 * 2/3 = 2/9

Share acquired by C from B = 1/3 * 1/3 = 1/9

A’s new share after surrendering 2/9 = 2/3 – 2/9 = (6-2)/9

                                                            = 4/9

B’s new share after surrendering 1/9 = 1/3 – 1/9 = (3-1)/9

                                                            = 2/9

C’s share = 1/3

Therefore, new profit sharing ratio

            = 4/9 : 2/9: 1/3 = (4:2:3)/9 or 4:2:3

8. x : y – 3 : 1,                 z admitted

x -> 1/3 * ¾ = ¼         (x surrender 1/3 of his share)

y -> 1/4 * 1/4 = 1/6     (y surrender 1/4 of his share)

Therefore,  z’s share ->  ¼ + 1/16 = (4+1)/16 = 5/16

New profit sharing ratio:

            x = ¾ - ¼ = 2/4

            y = 1/4 – 1/16 = (4-1)/16 = 3/16

            z = 5/16

Therefore, 2/4 : 3/16 : 5/16

ð  (8:3:5)/16

ð  8:3:5

9. Old profit sharing ratio of P = 5/8

New profit sharing ratio of P = 4/9

P’s sacrificing ratio     = old ratio – new ratio

                                    = 5/8 – 4/9

                                    = (45 -32)/72 = 13/72

Old profit sharing ratio of Q = 3/8

New profit sharing ratio of Q = 3/9

Q’s sacrificing ratio     = old ratio – new ratio

                                    = 3/8 – 3/9 = (27-24)/72 = 3/72

Sacrificing ratio           = 13/72 : 3/72 or 13:3

10. Profit distributed equally.

11. For writing off the goodwill A/c already appearing in the books

Old partner’s Capital A/c’s                 Dr. (In old ratio)

            To Goodwill A/c

            (ii) For bringing goodwill in cash

                        Bank A/c                                             Dr.

                                    To premium for goodwill (with his share of goodwill)

            (iii) For distributing the amount of goodwill brought in by new partner:

                        Premium for goodwill A/c                  Dr.

                                    To sacrifice partner’s Capital A/c’s (In sacrificing ratio)

12. New Partner’s Capital A/c                              Dr. (with his share of goodwill)

                  To sacrificing Partner’s Capital A/c’s (In sacrifice ratio)