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, 2019 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, 2019 they admitted C 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 (₹)	Particulars	Amount (₹)
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, 2019 after C’s admission
Liabilities		Amount (₹)	Assets		Amount (₹)
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 (₹)	Particulars	Amount (₹)
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)