A and B are partners in a firm. The net profit of the firm is divided as follows: 1/2 to A, 1/3 to B and 1/6 carried to a Reserve. They admit C as a partner on 1st April, 2019 on which date, the Balance Sheet of the firm was:

Liabilities ₹ Assets ₹

Capital A/cs: Building 50,000

A 50,000 Plant and Machinery 30,000

B 40,000 90,000 Stock 18,000

Reserve 10,000 Debtors 22,000

Creditors 20,000 Bank 5,000

Outstanding Expenses 5,000

1,25,000 1,25,000

Following are the required adjustments on admission of C:
(a) C brings in ₹ 25,000 towards his capital.
(b) C also brings in ₹ 5,000 for 1/5th share of goodwill.
(c) Stock is undervalued by 10%.
(d) Creditors include a liability of ₹ 4,000, which has been decided by the court at ₹ 3,200.
(e) In regard to the Debtors, the following Debts proved Bad or Doubtful−
₹ 2,000 due from X−bad to the full extent;
₹ 4,000 due from Y−insolvent, estate expected to pay only 50%.
You are required to prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the new firm.

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Solution

Revaluation Account

Dr.

Cr.

Particulars

Amount

(₹)

Particulars

Amount

(₹)

Bad Debts

2,000

Stock

2,000

Provision for Doubtful Debts

2,000

Creditors (4,000 – 3,200)

800

(4,000 × 50%)

Loss transferred to

A Capital

720

B Capital

480

4,000

4,000

Partners’ Capital Accounts

Dr.

Cr.

Particulars

A

B

C

Particulars

A

B

C

Revaluation

720

480

Balance b/d

50,000

40,000

Reserve

6,000

4,000

Bank

25,000

Balance c/d

58,280

45,520

25,000

Premium for Goodwill

3,000

2,000

59,000

46,000

25,000

59,000

46,000

25,000

Balance Sheet

as on April 01, 2019 after C’s admission

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Capital A/cs:

Building

50,000

A

58,280

Plan and Machinery

30,000

B

45,520

Stock (18,000 × 100/90)

20,000

C

25,000

1,28,800

Debtors

22,000

Creditors (20,000 – 800)

19,200

Less: Bad Debts

2,000

Outstanding Expenses

5,000

Less: Prov. for D. Debts

2,000

18,000

Bank (5,000 + 30,000)

35,000

1,53,000

1,53,000

Working Notes

WN1

WN2
Distribution of Reserve

WN3
Distribution of Premium for Goodwill

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Similar questions

Q. 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.

A and B are partners and the profit is divided as follows: $\frac{1}{2}$ to $A; \frac{1}{3}$ to B and $\frac{1}{6}$ carried to a Reserve Account. They admit C as a partner on 1st April, 2017 at which date the Balance Sheet of the firm was as under:

$\begin{matrix} Capital and Liabilities & Rs & Assets & Rs Creditors & 1, 60, 000 & Cash at Bank & 20, 000 Outstanding Expenses & 12, 000 & Debtors & 2, 20, 000 Reserve & 90, 000 & Stock & 1, 80, 000 Capital A/cs: & Plant and Machinery & 1, 50, 000 A 3, 18, 000 & Buildings & 2, 00, 000 B 2, 00, 000 - -------- - & 5, 18, 000 & Advertisement Expenditure & 10, 000 ¯ ¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯ ¯ 7, 80, 000 - -------- - & ¯ ¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯ ¯ 7, 80, 000 - -------- - \end{matrix}$

Following terms were agreed upon :

(i) Stock is undervalued by 10%.

(ii) Depreciation of Rs 30,000 had been omitted on plant and machinery for the year ended 31st March, 2017.

(iii) Creditors include a contingent liability of Rs 50,000 which has been decided by the Court at Rs 43,000.

(iv) In respect of debtors, the following debts proved bad or doubtful : Rs 15,000 due from Ram - bad to the full extent;

Rs 20,000 due from Shyam - insolvent, estate expected to pay only 40%.

(v) Goodwill of the firm is valued at Rs 60,000. However, C is unable to bring his share of goodwill in cash.

(vi) C is given $\frac{1}{5} t h$ share of profits which he acquires equally from A and B. C is to bring in capital proportionate to his share of profits in the firm.

(vii) The partners decide that 5% of profit of each year be given to a N.G.O. (Non-Government Organisation) which is working for cleanliness drive in the area.

You are required to prepare revaluation account

Q. A and B were partners in a firm sharing profits in 3 : 1 ratio. They admitted C as a partner for 1/4th share in the future profits. C was to bring ₹ 60,000 for his capital. The Balance Sheet of A and B as at 1st April, 2019, the date on which C was admitted, was:


Liabilities		₹	Assets		₹
Capital A/cs:			Land and Building		40,000
A	50,000		Plant ad Machinery		70,000
B	80,000	1,30,000	Stock		30,000
General Reserve		10,000	Debtors	35,000
Creditors		70,000	Less: Provision for Doubtful Debts	1,000	34,000
			Investments		26,000
			Cash		10,000
		2,10,000			2,10,000

The other terms agreed upon were:
(a) Goodwill of the firm was valued at ₹ 24,000.
(b) Land and Building were valued at ₹ 65,000 and Plant and Machinery at ₹ 60,000.
(c) Provision for Doubtful Debts was found in excess by ₹ 400.
(d) A liability of ₹ 1,200 included in Sundry Creditors was not likely to arise.
(e) The capitals of the partners be adjusted on the basis of C's contribution of capital to the firm.
(f) Excess of shortfall, if any, be transferred to Current Accounts.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the new firm.

Q. A and B are partners in a firm sharing profits in the ratio of 3 : 2 . They admit C as a partner on 1st April, 2018 on which date the Balance Sheet of the firm was:


Liabilities		₹	Assets	₹
Capital A/cs:			Building	50,000
A	60,000		Plant and Machinery	30,000
B	40,000	1,00,000	Stock	20,000
Creditors		20,000	Debtors	10,000
			Bank	10,000


		1,20,000		1,20,000

You are required to prepare the Revaluation Account , Partners' Capital Accounts and Balance Sheet of the new firm after considering the following;
(a) C brings in ₹ 30,000 as capital for 1/4th share. He also brings ₹ 10,000 for his share of goodwill.
(b) Part of the Stock which had been included at cost of ₹ 2,000 had been badly damaged in storage and could only expect to realise ₹ 400.
(c) Bank Charges had been overlooked and amounted to ₹ 200 for the year 2017-18.
(d) Depreciation on Building of ₹ 3,000 had been omitted for the year 2017-18.
(e) A credit for goods for ₹ 800 had been omitted from both purchases and creditors although the goods had been correctly included in Stock.
(f) An expense of ₹ 1,200 for insurance premium was debited in the Profit and Loss Account of 2017-18 but ₹ 600 of this are related to the period after 31st March, 2018.

Q. X and Y are partners sharing profits and losses in the ratio of 3/4 and 1/4 . Their Balance Sheet as at 31st March, 2018 is:


Liabilities		₹	Assets	₹
Capital A/cs:			Land and Building	1,25,000
X	1,50,000		Furniture	5,000
Y	80,000	2,30,000	Stock	1,00,000
Workmen Compensation Reserve		20,000	Sundry Debtors	80,000
Sundry Creditors		1,50,000	Bills Receivable	15,000
Bills Payable		37,500	Cash at Bank	1,00,000
			Cash in Hand	12,500
		4,37,500		4,37,500

They admit Z into partnership on 1st April, 2018 on the following terms:
(a) Goodwill is to be valued at ₹ 1,00,000.
(b) Stock and Furniture to be reduced by 10%.
(c) A Provision for Doubtful Debts is to be created @ 5% on Sundry Debtors .
(d) The value of Land and Building is to be appreciated by 20%.
(e) Z pays ₹ 50,000 as his capital for 1/5th share in the future profits.
You are required to show Revaluation Account , Partners' Capital Accounts and Balance Sheet of the new firm.

Note: Z's Share of Goodwill ₹ 20,000 (i.e, ₹ 1,00,000

\times

1/5 ) can be adjusted through Z's Current A/c. In that situation, Partners' Capital A/cs: X

—

₹ 1,87,875; Y

—

₹ 92,625; Z

—

₹ 50,000; Z's Current A/c (Dr.)

—

₹ 20,000; Balance Sheet Total

—

₹ 5,18,000.

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Revaluation Account
Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
Bad Debts	2,000	Stock	2,000
Provision for Doubtful Debts	2,000	Creditors (4,000 – 3,200)	800
(4,000 × 50%)
		Loss transferred to
		A Capital	720
		B Capital	480
	4,000		4,000

Partners’ Capital Accounts
Dr.							Cr.
Particulars	A	B	C	Particulars	A	B	C
Revaluation	720	480		Balance b/d	50,000	40,000
				Reserve	6,000	4,000
				Bank			25,000
Balance c/d	58,280	45,520	25,000	Premium for Goodwill	3,000	2,000
	59,000	46,000	25,000		59,000	46,000	25,000

Balance Sheet as on April 01, 2019 after C’s admission
Liabilities		Amount (₹)	Assets		Amount (₹)
Capital A/cs:			Building		50,000
A	58,280		Plan and Machinery		30,000
B	45,520		Stock (18,000 × 100/90)		20,000
C	25,000	1,28,800	Debtors	22,000
Creditors (20,000 – 800)		19,200	Less: Bad Debts	2,000
Outstanding Expenses		5,000	Less: Prov. for D. Debts	2,000	18,000
			Bank (5,000 + 30,000)		35,000
		1,53,000			1,53,000