Question

Alfa and Beta were partners in a firm. They were trading in artificial limbs. On 1st April, 2013 they admitted Gama, a good friend of Beta into the partnership. Gama lost his one hand in an accident and Alfa and Beta decided to give one artificial hand free of cost to Gama. The Balance Sheet of Alfa and Beta as at 31st March, 2013 was as follows:

BALANCE SHEET OF ALFA AND BETA as at 31st March, 2013

$\begin{array}{cccc}\text{Capital and Liabilities}& \text{Rs}& \text{Assets}& \text{Rs}\\ \text{Provision for Doubtful Debts}& 40,000& \text{Cash}& 1,00,000\\ \text{Workmen's Compensation}& & \text{Sundry Debtors}& 8,00,000\\ \text{Reserve}& 56,000& \text{Stock}& 2,00,000\\ \text{Outstanding Expenses}& 30,000& \text{Machinery}& 3,86,000\\ \text{Creditors}& 3,00,000& \text{Profit and Loss A/c}& 40,000\\ \text{Capitals:}& & & \\ \text{Alfa}5,00,000& & & \\ \text{Beta}\underset{–}{6,00,000}& 11,00,000& & \\ & \underset{–}{\overline{15,26,000}}& & \underset{–}{\overline{15,26,000}}\end{array}$

Gama was admitted in the firm on the following terms:

(i) Gama will bring in Rs 4,00,000 as his share of capital, but he was unable to bring any amount for goodwill.

(ii) The new profit sharing ratio between Alfa, Beta and Gama will be 3:2:1.

(iii) Claim on account of workmen compensation was Rs 30,000.

(iv) To write off bad debts amounting to Rs 40,000.

(v) A liability of Rs 20,000 included in creditors is not likely to arise.

(vi) Outstanding expenses be brought down to Rs 12,000.

(vii) Rs 20,000 be provided for an unforeseen liability.

(viii) Goodwill of the firm was valued at Rs 1,80,000.

Prepare Revaluation Account, Capital Accounts of Partners and the opening Balance Sheet of the new firm. Also identify any one value which the partners wanted to communicate to the society.

Answer 1

Dr. REVALUATION ACCOUNT Cr.

$\begin{array}{cccc}\text{Particulars}& \text{Rs}& \text{Particulars}& \text{Rs}\\ \text{Unforeseen Liability A/c}& 20,000& \text{Creditors A/c}& 20,000\\ \text{Profit on Revaluation}& & \text{Outstanding Expenses A/c}& 18,000\\ \text{transferred to:}& & & \\ \text{Alfa's Capital A/c}9,000& & & \\ \text{Beta's Capital A/c}\underset{–}{9,000}& 18,000& & \\ & \underset{–}{\overline{38,000}}& & \underset{–}{\overline{38,000}}\end{array}$

Dr. PARTNER'S CAPITAL ACCOUNTS Cr.

$\begin{array}{cccccccc}\text{Particulars}& \text{Alfa}& \text{Beta}& \text{Gama}& \text{Particulars}& \text{Alfa}& \text{Beta}& \text{Gama}\\ & Rs& Rs& Rs& & Rs& Rs& Rs\\ \text{Profit and}& & & & \text{Balance b/d}& 5,00,000& 6,00,000& -\\ \text{Loss A/c}& & & & \text{Revaluation}& & & \\ \text{(Loss)}& 20,000& 20,000& -& A/c& & & \\ \text{Balance}& & & & \text{(Profit)}& 9,000& 9,000& -\\ \text{cd}& 5,02,000& 6,32,000& 4,00,000& \text{Workmen Compensation}& & & \\ & & & & \text{Reserve (56,000-30,000)}& 13,000& 13,000& -\\ & & & & \text{Gama's Current A/c}& & & \\ & & & & \text{(for Goodwill) (Note 1)}& -& 30,000& -\\ & & & & \text{Bank A/c}& -& -& 4,00,000\\ & \underset{–}{\overline{5,22,000}}& \underset{–}{\overline{6,52,000}}& \underset{–}{\overline{4,00,000}}& & \underset{–}{\overline{5,22,000}}& \underset{–}{\overline{6,52,000}}& \underset{–}{\overline{4,00,000}}\end{array}$

OPENING BALANCE SHEET OF THE NEW FIRM

as at 1st April, 2013

$\begin{array}{cccc}\text{Capital and Liabilities}& \text{Rs}& \text{Assets}& \text{Rs}\\ \text{Creditors}& 2,80,000& \text{Cash}& 1,00,000\\ \text{Workmen Compensation Claim}& 30,000& \text{Bank}& 4,00,000\\ \text{Provision for unforeseen Liability}& 20,000& \text{Sundry Debtors}8,00,000& \\ \text{Outstanding Expenses}& 12,000& \text{Less: Bad Debts}\underset{–}{40,000}& 7,60,000\\ \text{Capitals:}& & \text{Stock}& 2,00,000\\ \text{Alfa}5,02,000& & \text{Machinery}& 3,86,000\\ \text{Beta}6,32,000& & \text{Gama's Current A/c}& 30,000\\ \text{Gama}\underset{–}{4,00,000}& 15,34,000& & \\ & \underset{–}{\overline{18,76,000}}& & \underset{–}{\overline{18,76,000}}\end{array}$

Working Notes:
(1) Entry for Goodwill:
Gama's Current A/c Dr. 30,000
To Beta's Capital A/c 30,000

(2) Journal Entries for Bad Debts:

$\begin{array}{ccccc}\text{Date}& \text{Particulars}& \text{L.F.}& \text{Dr.(Rs)}& \text{Cr.(Rs)}\\ & \text{Bad Debts A/c}Dr.& & 40,000& \\ & \text{To Debtors A/c}& & & 40,000\\ & \text{(Bad Debts written off)}& & & \\ & \underset{–}{}& & & \\ & \text{Provision for Doubtful Debts A/c}Dr.& & 40,000& \\ & \text{To Bad Debts A/c}& & & 40,000\\ & \text{(Bad Debts transferred to Provision for Doubtful}& & & \\ & \text{Debts A/c)}& & & \end{array}$

Values which the partners wanted to communicate to the Society:

- Sensitivity towards specially abled.

- Value of Emotions.