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FIN611 Advanced Financial Accounting GDB 2 Solution Fall 2012

Mr. Asim and Mr. Rehan are equal partners in Zaman Bros. with reference to capital and profit sharing.  Recently, they have decided to admit Mr. Talha in the firm for one-third share against his capital contribution in cash of Rs. 200,000. Total capital of the firm before his admission is Rs. 440,000. Mr. Talha is hesitant to invest Rs. 200,000 in the business. He has argued that as per his investigations, some amount of account receivable seems irrecoverable and inventories and other short period investments seem to be unable to recover their book value in the fair market. He is of the opinion to provide for these amounts being as expected future losses in the recent year’s accounts of the firm. But, Mr. Asim and Mr. Rehan have denied this argument as they thought to have been provided fairly against such losses in the accounts. Yet, after a long discussion, they agreed to admit Mr. Talha against his capital of Rs. 160,000 with no other change. Furthermore, it is mutually decided that in the new firm, capital as well as the profit sharing ratio of all the partners would be equal.


Required:

Discuss the accounting treatment in the new firm’s books on the admission of Mr. Talha – if the capital difference is charged to the old partners. Also suggest the probability of recognizing goodwill in the new firm’s accounts with valid arguments.

Solution:

Mr T capital 160000, pehla capital 440000
total ho gaya 600000, that will be divided now with the ratio of 1/3 as per the condition that three of them will share equally, so total capital among them 200,000 each, yahan talha ko 40,000 bonus milay ga credit hoga total 160000 jo laya + 40000 bonus

aur ye extra ab kaheen to debit hona hi hai na , wo kahan hoga ??

that will be debited to old partners capital accounts equally , 20,000, 20,000
qk unka capital pahly 220,000 tah alag alag ab 200,000 har ek ka

so, entries
cash 160000 dr
asim capital 20,000 dr

rehan capitall 20,000 dr

talha capital 200,000

 

goodwill wahan hoti jana firm height superb profit ly rahi hoti yahan firm ki positon batati k normal profita hain , na hi new partner kuch extra laya so goodwill nahi


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