1
Question
A, B and C are partners sharing profits and losses in the ratio of 2 : 3 : 5. On 31st March, 2019, their Balance Sheet was:
Liabilities
Amount
(₹)
Assets
Amount
(₹)
Creditors
64,000
Cash
18,000
Bills Payable
22,000
Bills Receivable
14,000
General Reserve
14,000
Stock
44,000
Capital A/cs:
Debtors
42,000
A
36,000
Machinery
94,000
B
44,000
Goodwill
20,000
C
52,000
1,32,000
2,32,000
2,32,000
They admit D into partnership on the following terms:
(a) Machinery is to be depreciated by 15%.
(b) Stock is to be revalued at ₹ 48,000.
(c) It is found that the Creditors included a sum of ₹ 12,000 which was not to be paid.
(d) Outstanding Rent is ₹ 1,900.
(e) D is to bring in ₹ 6,000 as goodwill and sufficient capital for 2/5th share.
(f) The partners decided to use 10% of the profits every year in providing drinking water in schools, where required.
Prepare Revaluation Account, Partners' Capital Accounts, Cash Account and Balance Sheet of the new firm.
| Liabilities | Amount (₹) |
Assets | Amount (₹) |
||
| Creditors | 64,000 | Cash |
18,000
|
||
| Bills Payable | 22,000 | Bills Receivable | 14,000 | ||
| General Reserve | 14,000 | Stock | 44,000 | ||
| Capital A/cs: | Debtors | 42,000 | |||
| A | 36,000 | Machinery | 94,000 | ||
| B | 44,000 | Goodwill | 20,000 | ||
| C | 52,000 | 1,32,000 | |||
| 2,32,000 | 2,32,000 | ||||
They admit D into partnership on the following terms:
(a) Machinery is to be depreciated by 15%.
(b) Stock is to be revalued at ₹ 48,000.
(c) It is found that the Creditors included a sum of ₹ 12,000 which was not to be paid.
(d) Outstanding Rent is ₹ 1,900.
(e) D is to bring in ₹ 6,000 as goodwill and sufficient capital for 2/5th share.
(f) The partners decided to use 10% of the profits every year in providing drinking water in schools, where required.
Prepare Revaluation Account, Partners' Capital Accounts, Cash Account and Balance Sheet of the new firm.
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Solution
In the books of A, B, C and D
Dr.
Revaluation A/c
Cr.
Particulars
Amount
(₹)
Particulars
Amount
(₹)
To Machinery A/c
14,100
By Stock A/c
4,000
To Outstanding Rent A/c
1,900
By Creditors A/c
12,000
16,000
16,000
Dr.
Partner’s Capital A/c
Cr.
Particulars
A
(₹)
B
(₹)
C
(₹)
D
(₹)
Particulars
A
(₹)
B
(₹)
C
(₹)
D
(₹)
To Goodwill A/c
4,000
6,000
10,000
By balance b/d
36,000
44,000
52,000
By Bank A/c (WN2)
88,000
To balance c/d
36,000
44,000
52,000
88,000
By Premium for Goodwill A/c
1,200
1,800
3,000
By General Reserve A/c
2,800
4,200
7,000
40,000
50,000
62,000
88,000
40,000
50,000
62,000
88,000
Working Notes:
1. Calculation of New profit-sharing ratio
D’s Share of Profits
=
2/5
Remaining Profits
=
(1 –2/5) = 3/5
A’s New Share of Profits
=
(3/5 × 2/10) = 6/50
B’s New Share of Profits
=
(3/5 × 3/10) = 9/50
C’s New Share of Profits
=
(3/5 × 5/10) = 15/50
A : B : C : D
=
6 : 9 : 15 : 20
2. Calculation of D’s Capital
Total Adjusted Capital of the Old Partners = A’s Capital + B’s Capital + C’s Capital = ₹ (36,000 + 44,000 + 52,000) = ₹ 1,32,000 Combined New Share of the Old Partners = (6/50 + 9/50 + 15/50) = 30/50 or 3/5
Total Capital of the new firm
=
(Adjusted Capital of the Old Partners × Reciprocal of Combined New Share of the Old Partners)
=
₹ (1,32,000 × 5/3) = ₹ 2,20,000
D’s Capital
=
(Total Capital of the new firm × His Share of Profits)
=
₹ (2,20,000 × 2/5) = ₹ 88,000
Balance Sheet
as at 31st March, 2020
Liabilities
Amount
(₹)
Assets
Amount
(₹)
Capitals A/cs:
Cash (18,000 + 88,000 + 6,000)
1,12,000
A
36,000
Bills Receivable
14,000
B
44,000
Stock
48,000
C
52,000
Debtors
42,000
D
88,000
2,20,000
Machinery
94,000
Creditors
52,000
Less: Depreciation
14,100
79,900
Bills Payable
22,000
Outstanding Rent
1,900
2,95,900
2,95,900
|
In the books of A, B, C and D |
|||||
| Dr. |
Revaluation A/c |
Cr. | |||
|
Particulars |
Amount (₹) |
Particulars |
Amount (₹) |
||
| To Machinery A/c |
14,100 |
By Stock A/c |
4,000 |
||
| To Outstanding Rent A/c |
1,900 |
By Creditors A/c |
12,000 |
||
|
|
|
||||
|
16,000 |
16,000 |
||||
|
|
|
||||
| Dr. |
Partner’s Capital A/c |
Cr. |
|||||||||
|
Particulars |
A (₹) |
B (₹) |
C (₹) |
D (₹) |
Particulars |
A (₹) |
B (₹) |
C (₹) |
D (₹) |
||
| To Goodwill A/c |
4,000 |
6,000 |
10,000 |
|
By balance b/d |
36,000 |
44,000 |
52,000 |
|
||
|
|
|
|
|
By Bank A/c (WN2) |
|
|
|
88,000 |
|||
| To balance c/d |
36,000 |
44,000 |
52,000 |
88,000 |
By Premium for Goodwill A/c |
1,200 |
1,800 |
3,000 |
|
||
|
|
|
|
|
By General Reserve A/c |
2,800 |
4,200 |
7,000 |
|
|||
|
|
|
|
|
|
|
|
|
||||
|
40,000 |
50,000 |
62,000 |
88,000 |
40,000 |
50,000 |
62,000 |
88,000 |
||||
|
|
|
|
|
|
|
|
|
||||
Working Notes:
1. Calculation of New profit-sharing ratio| D’s Share of Profits | = | 2/5 |
| Remaining Profits | = | (1 –2/5) = 3/5 |
| A’s New Share of Profits | = | (3/5 × 2/10) = 6/50 |
| B’s New Share of Profits | = | (3/5 × 3/10) = 9/50 |
| C’s New Share of Profits | = | (3/5 × 5/10) = 15/50 |
| A : B : C : D | = |
6 : 9 : 15 : 20 |
2. Calculation of D’s Capital
Total Adjusted Capital of the Old Partners = A’s Capital + B’s Capital + C’s Capital = ₹ (36,000 + 44,000 + 52,000) = ₹ 1,32,000 Combined New Share of the Old Partners = (6/50 + 9/50 + 15/50) = 30/50 or 3/5
| Total Capital of the new firm | = | (Adjusted Capital of the Old Partners × Reciprocal of Combined New Share of the Old Partners) |
| = | ₹ (1,32,000 × 5/3) = ₹ 2,20,000 | |
| D’s Capital | = | (Total Capital of the new firm × His Share of Profits) |
| = | ₹ (2,20,000 × 2/5) = ₹ 88,000 |
|
Balance Sheet |
|||||
|
as at 31st March, 2020 |
|||||
|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
||
| Capitals A/cs: |
|
Cash (18,000 + 88,000 + 6,000) |
1,12,000 |
||
| A |
36,000 |
|
Bills Receivable |
14,000 |
|
| B |
44,000 |
|
Stock |
48,000 |
|
| C |
52,000 |
|
Debtors |
42,000 |
|
| D |
88,000 |
2,20,000 |
Machinery |
94,000 |
|
| Creditors |
52,000 |
Less: Depreciation |
14,100 |
79,900 |
|
| Bills Payable |
22,000 |
|
|||
| Outstanding Rent |
1,900 |
|
|||
|
|
|
||||
|
2,95,900 |
2,95,900 |
||||
|
|
|
||||
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