Question

​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.

Answer 1

Revaluation Account
Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
Plant and Machinery (70,000 – 60,000)	10,000	Land and Building (65,000 – 40,000)	25,000
Profit transferred to		Provision for Doubtful Debts	400
A Capital	12,450	Creditors	1,200
B Capital	4,150
	26,600		26,600

Partners’ Capital Accounts
Dr.							Cr.
Particulars	A	B	C	Particulars	A	B	C
				Balance b/d	50,000	80,000
				General Reserve	7,500	2,500
				Revaluation (Profit)	12,450	4,150
				Cash			60,000
Balance c/d	74,450	88,150	60,000	C's Current A/c	4,500	1,500
	74,450	88,150	60,000		74,450	88,150	60,000
B’s Current A/c		43,150		Balance b/d	74,450	88,150	60,000
Balance c/d (Adjusted)	1,35,000	45,000	60,000	A’s Current A/c	60,550
	1,35,000	88,150	60,000		1,35,000	88,150	60,000

Balance Sheet as on April 01, 2019 after C’s admission
Liabilities		Amount (₹)	Assets		Amount (₹)
Creditors (70,000 – 1,200)		68,800	Land and Building		65,000
Capital A/cs:			Plant and Machinery		60,000
A	1,35,000		Stock		30,000
B	45,000		Debtors	35,000
C	60,000	2,40,000	Less: Prov. for Doubtful Debts	600	34,400
B’s Current A/c		43,150	Investments		26,000
			Cash		70,000
			A’s Current A/c		60,550
			C's Current A/c		6,000
		3,51,950			3,51,950

Working Notes:

WN1


WN2

As C has not brought his share of goodwill in cash, hence, his share shall be debited to his current account.

WN3 Distribution of Revaluation Profit


WN4 Adjustment of Capital

Total Capital of the firm after C’s admission	=	60,000 × 4	=	2,40,000
Less: C’s Capital			=	60,000
Combined Capital of A and B			=	1, 80,000

WN5

Cash Account
Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
Balance b/d	10,000	Balance c/d	70,000
C’s Capital	60,000	(Balancing Figure)
	70,000		70,000