Question

A and B are in partnership sharing profits and losses in the proportion of 2/3rd and 1/3rd respectively . Their Balance Sheet as at 31st March, 2018 was: Cash ₹ 1,000; Sundry Debtors ₹ 15,000; Stock ₹ 22,000; Plant and Machinery ₹ 4,000; Sundry Creditors ₹ 2,000; Bank Overdraft ₹ 15,000; A's Capital ₹ 15,000; B's Capital ₹ 10,000.
On 1st April, 2018 they admitted into partnership on the following terms:
(a) C to purchase one-quarter of the goodwill for ₹ 3,000 and provide ₹ 10,000 as capital .
C brings in necessary cash for goodwill and capital.
(b) Profits and Losses are to be shared in the proportion of one-half to A , one-quarter to B and one quarter to C .
(c) Plant and Machinery is to be reduced by 10% and ₹ 500 are to be provided for estimated Bad Debts. Stock is to be taken at a valuation of ₹ 24,940.
(d) By bringing in or withdrawing cash the capitals of A and B are to be made proportionate to that of C on their profit-sharing basis.
Prepare necessary Ledger Accounts in the books of the firm relating to the above arrangement and submit the opening Balance Sheet of the new firm.

Answer 1

Revaluation Account
Dr.			Cr.
Particulars	Amount Rs	Particulars	Amount Rs
Plant and Machinery (4,000 × 10%)	400	Stock (24,940 – 22,000)	2,940
Provision for Bad Debts	500
Profit transferred to
A Capital	1,360
B Capital	680
	2,940		2,940

Partners’ Capital Accounts
Dr.							Cr.
Particulars	A	B	C	Particulars	A	B	C
				Balance b/d	15,000	10,000
				Cash			10,000
				Premium for Goodwill	2,000	1,000
Balance c/d	18,360	11,680	10,000	Revaluation	1,360	680
	18,360	11,680	10,000		18,360	11,680	10,000
Cash		1,680		Balance c/d	18,360	11,680	10,000
Balance c/d	20,000	10,000	10,000	Cash	1,640
(Adjusted)
	20,000	11,680	10,000		20,000	11,680	10,000

Balance Sheet as on April 01, 2018 after C’s admission
Liabilities		Amount Rs	Assets		Amount Rs
Sundry Creditors		2,000	Cash		13,960
Bank Overdraft		15,000	Sundry Debtors	15,000
Capital A/cs:			Less: Prov. for Bad Debts	500	14,500
A	20,000		Stock		24,940
B	10,000		Plant and Machinery		3,600
C	10,000	40,000
		57,000			57,000

Cash Account
Dr.			Cr.
Particulars	Amount Rs	Particulars	Amount Rs
Balance b/d	1,000	B’s Capital	1,680
C’s Capital	10,000
Premium for Goodwill	3,000
A’s Capital	1,640	Balance c/d	13,960
	15,640		15,640

Working Notes

WN1: Sacrificing Ratio


WN2: Distribution of Premium for Goodwill


WN3: Distribution of Revaluation Profit


WN4: Adjustment of Capitals (in new ratio)