Preparation of Journal Entries, Capital Accounts, and Opening Balance Sheet

Accounting Problem: Preparation of Journal Entries, Capital Accounts, and Opening Balance Sheet

Given Information:

– Partners A and B’s balance sheet as at 31st March, 2022
– C joins the partnership on 1st April, 2022 with a capital contribution of 40,000
– New profit sharing ratio is 3:2:1
– Adjustments to be made for Workmen Compensation, Bad Debts, Creditors, Unforeseen Liability, Outstanding Expenses, and Goodwill valuation

Journal Entries:

1. Adjustment for Workmen Compensation:

– Workmen Compensation Reserve Dr 2,000
To Workmen Compensation Reserve Cr 2,000

2. Write off Bad Debts:

– Bad Debts Dr 6,000
To Sundry Debtors Cr 6,000

3. Payment to Creditors:

– Creditors Dr 2,000
To Bank Cr 2,000

4. Provision for Unforeseen Liability:

– Unforeseen Liability Dr 2,000
To Provision for Unforeseen Liability Cr 2,000

5. Adjustment for Outstanding Expenses:

– Outstanding Expenses Dr 1,800
To Outstanding Expenses Cr 1,800

6. Calculation of Goodwill:

– Goodwill Dr [Calculation based on average profits]

Capital Accounts:

– A:

– Opening balance: Capital 50,000 + Profit & Loss A/c 4,000 = 54,000
– C’s share of goodwill (3/6 * Goodwill value)
– Closing balance: (Adjust for new profit sharing ratio)

– B:

– Opening balance: Capital 60,000
– C’s share of goodwill (2/6 * Goodwill value)
– Closing balance: (Adjust for new profit sharing ratio)

– C:

– Opening balance: Capital 40,000
– C’s share of goodwill (1/6 * Goodwill value)
– Closing balance: (Adjust for new profit sharing ratio)

Opening Balance Sheet:

Liabilities Amount Assets Amount
Provision for Doubtful 4,000 Cash 10,000
Debts Sundry Debtors 80,000
Workmen Compensation 5,600 Stock 20,000
Reserve Fixed Assets 38,600
Outstanding Expenses 3,000
Creditors 30,000
Capitals:
A xx Total xx
B xx
C xx
Goodwill xx
Total xx Total xx

After making the necessary journal entries, updating the capital accounts and preparing the opening balance sheet will provide a clear picture of the financial position of the partnership after the admission of partner C and adjustments to various accounts.