P & K were partners in a firm. On March 31, 2017 their Balance Sheet was as follows:
Balance Sheet as at March 31, 2017
|Less: Provision for Doubtful Debts (1,500)|
|Shares in X Limited|
|Plant & Machinery|
|Profit & Loss Account (Profit for 2016-17)|
|Land & Building|
On April 1, 2017, they decided to admit C as a new partner for 1/4th share in profits on the following terms:
(i) C’s Loan will be converted into his capital.
(ii) C will bring his share of goodwill premium by cheque. Goodwill of the firm will be calculated on the basis of Average Profits of previous three years. Profits for the year ended March 31, 2015 and March 31, 2016 were Rs. 55,000 and Rs. 1,00,000 respectively.
(iii) 10% depreciation will be charged on Plant & Machinery and Land & Building will be appreciated by 5%.
(iv) Capitals of P & K will be adjusted on the basis C’s capital. Adjustments be done through bank and in case required overdraft facility be availed.
Pass necessary Journal entries on C’s admission.