Question

​A and B are partners in a firm sharing profits and losses in the ratio 3 : 1. They admit C for 1/4th share on 31st March, 2014 when their Balance Sheet was as follows:

Liabilities		₹	Assets		₹
Employees Provident Fund		17,000	Cash		6,100
Workmen Compensation Reserve		6,000	Stock		15,000
Investment Fluctuation Reserve		4,100	Debtors	50,000
Capital's A/cs:			Less : Provision for Doubtful Debts	2,000	48,000
A	54,000
B	35,000	89,000	Investments		7,000
			Goodwill		40,000
		1,16,100			1,16​,100

The following adjustments were agreed upon:
(a) C brings in ₹ 16,000 as goodwill and proportionate capital.
(b) Bad debts amounted to ₹ 3,000.
(c) Market value of investment is ₹ 4,500.
(d) Liability on account of Workmen Compensation Reserve amounted to ₹ 2,000.
Prepare Revaluation Account and Partners' Capital Accounts.

Answer 1

Revaluation Account
Dr.		Cr.
Particulars	Amount (₹)	Particulars		Amount (₹)
Bad debts	1,000
		Loss on Revaluation
		A's Capital A/c	750
		B’s Capital A/c	250	1,000
	1,000			1,000

Partners’ Capital Accounts
Dr.							Cr.
Particulars	A	B	C	Particulars	A	B	C
Revaluation	750	250		Balance b/d	54,000	35,000
Goodwill	30,000	10,000		Bank			23,200
				Premium for Goodwill	12,000	4,000
				WCF	3,000	1,000
Balance c/d	39,450	30,150	23,200	IFF	1,200	400
	70,200	40,400	23,200		70,200	40,400	23,200

Working Notes:

WN1 Calculation of C's Capital

$$\begin{gathered} C\text{'}\mathrm{s}\mathrm{Capital}=\mathrm{Total}\mathrm{Adjusted}\mathrm{Capital}\mathrm{of}A\mathrm{and}B\times \mathrm{Reciprocal}\mathrm{of}\mathrm{Combined}\mathrm{Profit}\mathrm{Share}\times C\text{'}\mathrm{s}\mathrm{Profit}\mathrm{Share} \\ A\text{'}\mathrm{s}\mathrm{Adjusted}\mathrm{Capital}=54,000+12,000+3,000+1,200-750-30,000=\mathrm{Rs}39,450 \\ B\text{'}\mathrm{s}\mathrm{Adjusted}\mathrm{Capital}=35,000+4,000+1,000+400-250-10,000=\mathrm{Rs}30,150 \\ C\text{'}\mathrm{s}\mathrm{Capital}=(39,450+30,150)\times \frac{4}{3}\times \frac{1}{4}=\mathrm{Rs}23,200 \end{gathered}$$
Notes:
1. Premium for Goodwill Rs 16,000 will be distributed between A and B in sacrificing ratio i.e. 3 : 1.
2. Excess WCF of Rs 4,000 will be shared in old ratio among old partners.
3. Excess IFF of Rs 1,600 will be shared in old ratio among old partners.