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Delhi

Not For Profit Organisation And Partnership Basics

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Published in: Accountancy
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Easy to adapt the method of solving the problems.

Shambhu I / Bangalore

year of teaching experience

Qualification:

Teaches: Accounts, Book Keeping, ACCA, CA - CPT, CA Foundation, CA Intermediate, CMA Foundation, Costing, CS - Foundation, Accountancy, Business Mathematics, Business Organisation, Business Studies, Commerce Subjects

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  1. Non-Profit Organization 1) Subscription : Recd during the year+ (o/s at end of the year + recd in advance in the previous year for current year) — (o/s at beginning of the year — recd in advance in current year related to next year). 2)Life Membership fees 3) Specific Donation/ General Donation 4) Endowment Fund Calculation of Cost of Material consumed during the year Opening Inventory +Total Purchases- Closing stock SHAMBHU INSTITUTE
  2. Partnership Fundamentals Division of profits Charge against profits (debited to profit and loss account) Appropriation of profits—--- Debited to profit and loss Appropriation Account. Capital Accounts---m Fluctuating Capital Method & Fixed Capital Method--- Current Account Past wrong profit which has been credited should be debited. Wrong interest on Capital which has been credited should be debited Right Interest on Capital should be credited Right Salary should be credited Right Interest on Drawings should be debited Find Net Profit and distribute it among partners in their profit-sharing ratio. Find out the Net balance of each Partner for making an adjustment entry. Guarantee of Minimum Profit to a Partner. Find out the deficiency of profit guaranteed to a partner. Deficiency is shared by partners/firm Guaranteeing Partner's Capital/Current a/c dr. To Guaranteed Partner's Capital/Current a/c SHAMBHU INSTITUTE
  3. • Accounting for Partnership Firms--- Goodwill • Valuation of Goodwill----- Average Profit Method Formula------- Average Profit x Number of years purchase • Where Average profit ----Sum of Normal profits/ Total number of years • Super Profit Method Super profit x Number of years purchase • Where Super profit = Average profit - Normal profit. • Normal Profit = Capital Employed x Normal Rate of Return/ 100 = Sum of Normal Profit / Total Number of years. • Average Profit SHAMBHU INSTITUTE
  4. Capitalization of Average Normal Profit Goodwill = Capitalized Value - Net Assets (Actual Capital) Net Assets = Total Assets — Outside Liabilities Capitalized Value = Average profit x 100/ Rate of Return. Capitalization of Super Profit Goodwill = Super Profit x 100/ Rate of Return. Where , Super profit=Adjusted Average profit - Normal Profit. Normal Profit = Capital Employed x Rate of Return/100 Average Profit = Sum of Normal Profit/ Total number of years. NOTE Adjusted Profit = Net Profit — Abnormal Gain + Abnormal Loss — Normal Expenses. As per AS-26, only purchase Goodwill should be recorded and written off immediately. Self generated Goodwill is not recognized as an asset as per AS-26 NOT RECORDED in the books of accounts. SHAMBHU INSTITUTE
  5. • Reconstitution of a partnership firm- ADMISSION OF A PARTNER • Calculation of New Profit-sharing ratio New Ratio = Old Ratio - Sacrificing Ratio Sacrificing Ratio = Old Ratio - New Ratio. • Treatment of Goodwill CASE 1:New partner bring Cash for Goodwill Bank a/c dr. //// To Premium for Goodwill a/c Premium for Goodwill a/c dr. //// To Sacrificing Partner's Capital/Current A/c( In Sacrificing ratio) • CASE 2: New Partner is unable to bring Cash for Goodwill Bank a/c dr. //// To New Partner's Capital (with Capital) a/c • New Partner's Capital/ Current a/c dr.//// To Sacrificing Partner's Capital/Current a/c.(ln Sacrificing ratio) SHAMBHU INSTITUTE
  6. • Case 3: New partner is able to bring only a part of Goodwill in Cash • Premium for Goodwill a/c dr. (share of goodwill brought by new partner in cash) • New Partners Capital/Current a/c ////( amount not brought by the partner) To Sacrificing Partner's Capital/Current a/c. ( Sacrificing ratio) • Reserve and Accumulated Profit/Loss • It should be distributed among all partners in their old ratio. (unless otherwise specified). Accumulated Profit/Reserve a/c dr. To Old Partner's Capital /Current a/c (in old ratio ) • (In case of loss, reverse entry is passed). SHAMBHU INSTITUTE
  7. • If Partners do not want to distribute:: • Gaining Partners Capital / Current a/c dr. ( in Gaining ratio) • To Sacrificing Partner's Capital / Current a/c ( in Sacrificing ratio.) • (In case of loss, reverse entry is passed) • After this, Reserve and Accumulated profits or loss should continue in new books. • Prepare Revaluation Account • Account debited with Decrease in Value of Assets ; Increases in Value of Liabilities; Recording Unrecorded Liabilities ; Payment of Unrecorded Liabilities. • Account Credited with Increase in value of Assets ; Decrease in value of Liabilities ; Recording Unrecorded Assets ; Sale of Unrecorded Assets. Distribute the Profit / Loss between Old Partner's in their Old Profit sharing ratio. SHAMBHU INSTITUTE
  8. • Adjustments of Capitals Method 1: Calculation of New Partner's Capital on the basis of old Partner's Capitals A)Total capital of new firm = Adjusted Capitals of Old partners x Reciprocal of remaining profit share of old partners. B) Proportionate capital of New Partner = Total Capital of New firm x New Partner's proportion of share of profit. • Method 2: Adjustment of old Partner's Capitals on the basis of new Partner's Capital:: A) Total Capital of new firm = New Partner's Capital x Reciprocal of proportion of share of profit of new partner. B) Calculate the new Capital of old partners by dividing the total Capital in their new profit-sharing ratio. • C) Calculate the surplus / deficiency in each of the old partners Capital account by comparing the new capital with their adjusted old Capital, which is adjusted through cash a/c or is transferred to their current a/c. SHAMBHU INSTITUTE
  9. • New and Sacrificing Ratios:: When no information is given about Sacrificing share by the old partner - • means--Old Ratio = Sacrificing Ratio = New Ratio. When Sacrificing share of Old partners is given means Old Ratio — Sacrificing Ratio. When the new partner acquires his share from old partners in specific fraction means— Sacrificing Share = Old share — New share. When the new partner acquires his share from old partners in a specific ratio - New share = Old share — Sacrificing share. means - When the New Profit-Sharing ratio of old partners is given means • find the new share of old partners and • then find the Sacrificing ratio. • When the New Profit-sharing ratio of ALL partners is given then find the Sacrificing Ratio of the old partners. SHAMBHU INSTITUTE

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