Bobby sold goods worth Rs 25,000 to Bonny. Bonny immediately accepted a bill on 1.11.09, payable after 2 months. Bobby discounted this bill @ 18% p.a. on 15.11.09. On the due date Bonny failed to discharge the bill. Later on Bonny became insolvent and 50 paise is recovered from Bonny’s estate. How much amount of bad debt will be recorded in the books of Bobby?
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Solution
When a person’s liabilities are more than his assets and he is not in a position to pay all of his debts when
they become due. Such a person is called insolvent.
When a person or party is declared by court as insolvent or bankrupt he is considered to be unable to pay
his liabilities. It means, the bills accepted by him will be naturally dishonored. Generally the amount
received from the estate of insolvent party is less than the amount due from him. The unsatisfied balance
is treated as bad debts.
Total amount due from bonny = Rs. 25,000
Thus when Bonny became insolvent and 50 paise is recovered from Bonny’s estate
Amount recovered from bonny = 50% of 25,000 = Rs. 12,500
On 16.6.2010 X draws a bill on Y for Rs 25,000 for 30 days. 19th July 2010 is a public holiday, maturity date of the bill will be:
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Solution
In the case of any type of usance bill, if the due date calculated falls on a public holiday, the bill will
be deemed to fall due on the previous working day i.e.18th of july in this case.
A merchant sends out his goods casually to his dealers on approval basis. All such transactions are, however, recorded as actual sales and are passed through the sales book. On 31-12-2009, it was found that 100 articles at a sale price of 200 each sent on approval basis were recorded as actual sales at that price. The sale price was made at cost plus 25%. The amount of inventory on approval at the end of the year will be _________
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Solution
when goods are sent on approval basis then at the end of the financial year the goods lying with customers
will be valued at cost or market price whichever is less.
Let the cost price of the 100 articles sent on approval be x
Thus the sale price = 1.25x = 20,000
Thus the cost x = 20,000/1.25 = Rs. 16,000
Bill and Monica are partners sharing profits and losses in the ratio of 3:2 having the capital of Rs. 80,000 and Rs. 50,000 respectively. They are entitled to 9% p.a. interest on capital before distributing the profits. During the year firm earned Rs. 7,800 after allowing interest on capital. Profits apportioned among Bill and Monica is _________
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Solution
Profit after allowing interest on capital = Rs. 7,800 which will be divided among the partners in the ratio
3:2
Thus profit apportioned to Bill = 3/5 of 7,800 = Rs. 4,680
And profit apportioned to Monika = 2/5 of 7,800 = Rs. 3,120
A & B are partners sharing profits and losses in the ratio 5:3. On admission, C brings Rs. 70,000 cash and Rs. 48,000 against goodwill. New profit sharing ratio between A, B and C are 7:5:4. The sacrificing ratio of A:B will be _________
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Solution
A and B are partners with capitals of Rs. 10,000 and Rs. 20,000 respectively and sharing profits equally. They admitted C as their third partner with one-fourth profits of the firm on the payment of Rs. 12,000. The amount of hidden goodwill is_________
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Solution
Hidden goodwill is that goodwill the amount of which is not mentioned in the deed , but the amount of which has to calculated by capitalisation method or with the help profit sharing ratio.
Thus Hidden goodwill = 12,000 × 4 – (10000 + 20000 + 12000) = Rs. 6,000
A, B and C are equal partners. D is admitted to the firm for one-fourth share. D brings Rs. 20,000 capital and Rs. 5,000 being half of the premium for goodwill. The total value of goodwill of the firm is_________
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Solution
When the value of goodwill is not given in the question then hidden goodwill is calculated with reference to the total capital of the firm and the profit sharing ratio. Hidden goodwill is that goodwill the amount of which is not mentioned in the deed, but the amount of which has to calculated by capitalisation method or with the help profit sharing ratio. This method is generally used when the new partner is unable to bring in his share of goodwill which is at the same time unknown. So to calculate the value of this hidden goodwill we will follow these steps:
1. First, we will multiply the capital brought by the new partner with his reciprocated ratio.
2. Secondly, we total up the actual capitals of all the partners including the capital brought by the new partner as well.
3 Then we deduct the total of actual capitals of all the partners from the assumed capital.
Hidden goodwill = 25,000 × 6 – (50,000 + 30,000 + 15,000 + 25,000) = Rs. 30,000
Share of C in hidden goodwill = 30,000 × 1/6 = Rs. 5,000 which will be shared by existing partners in 3 :2 ratio
So, the capital account of C will show closing balance of 25,000 – 5,000 = Rs. 20,000
If the new partner brings in cash for his share of goodwill, in addition to his capital, it is known as premium method.
Half of the premium = Rs. 5,000
Thus full premium = Rs. 10,000
Since D’s share i.e. ¼ of the total share in goodwill = Rs. 10,000
Total value of goodwill = 10,000 × 4 = 40,000
A and B are partners sharing profits in the ratio 5:3, they admitted C giving him 3/10th share of profit. If C acquires 1/5th share from A and 1/10th from B, new profit sharing ratio will be _________
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Solution
P and Q are partners sharing Profits in the ratio of 2:1. R is admitted to the partnership with effect from 1st April on the term that he will bring Rs. 20,000 as his capital for 1/4th share and pays Rs. 9,000 for goodwill, half of which is to be withdrawn by P and Q. How much cash will P & Q withdraw from the firm on account of goodwill?
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Solution
When a new partner enters in partnership firm, the old partner sacrifices his share for him, so it is the
duty of new partner to give goodwill in cash or in any other way to old partner. Under this problem, new
partner bring his share of goodwill in cash form in the firm and it is taken by old partner in their sacrifice
ratio.
R pays Rs. 9,000 for goodwill, half of which is withdrawn by P and Q
Withdrawal by P and Q = 1/2 of 9,000 = 4,500
New profit sharing ratio:
P’s share = 2/3 of 3/4 = 1/2
Q’s share = 1/3 of 3/4 = 1/4
P’s sacrifice = 2/3 – 1/2 = 1/6
Q’s sacrifice = 1/3 – 1/4 = 1/12
P and Q will withdraw in their sacrificing ratio i.e. 2 : 1
Thus P withdraws 2/3 of 4,500 = Rs. 3,000 and Q withdraws 1/3 of 4,500 = Rs. 1,500
A and B, who share profits and losses in the ratio of 3:2 has the following balances: Capital of A Rs. 50,000; Capital of B Rs. 30,000; Reserve Fund Rs. 15,000. They admit C as a partner, who contributes to the firm Rs. 25,000 for 1/6th share in the partnership. If C is to purchase 1/6th share in the partnership from the existing partners A and B in the ratio of 3:2 for Rs. 5,000 as goodwill find closing capital of C.
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Solution
Total capital contribute by C = Rs.25,000
Less: Capital towards goodwill = Rs.5,000
Closing capital balance = Rs.20,000