Question

Balance Sheet of Ram and Shyam who shares profits in the ratio of their capitals as at 31st March, 2019 is:

Liabilities		Amount (₹)	Assets	Amount (₹)
Capital A/cs:			Freehold Premises	20,000
Ram	30,000		Plant and Machinery	13,500
Shyam	25,000	55,000	Fixtures and Fittings	1,750
Current A/cs:			Vehicles	1,350
Ram	2,000		Stock	14,100
Shyam	1,800	3,800	Bills Receivable	13,060
Creditors		19,000	Debtors	27,500
Bills Payable		16,000	Bank	1,590
			Cash	950
		93,800		93,800

On 1st April, 2019, they admitted Arjun into partnership on the following terms:
(a) Arjun to bring ₹ 20,000 as capital and ₹ 6,600 for goodwill, which is to be left in the business and he is to receive 1/4th share of the profits.
(b) Provision for Doubtful Debts is to be 2% on Debtors.
(c) Value of Stock to be written down by 5% .
(d) Freehold Premises are to be taken at a value of ₹ 22,400; Plant and Machinery ₹ 11,800; Fixtures and Fittings ₹ 1,540 and Vehicles ₹ 800.
You are required to make necessary adjustments entries in the firm, give Balance Sheet of the new firm as at 1st April, 2019 and also determine the ratio in which the partners will share profits, there being no change in the ratio of Ram and Shyam.

Answer 1

Revaluation Account
Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
Reserve for D. Debts (27,500 × 2%)	550	Free hold Premises (22,400 – 20,000)	2,400
Stock	705	Loss transferred to
Plant and Machinery (13,500 – 11,800)	1,700	Ram’s Current A/c	717
Fixture and Fittings	210	Shyam’s Current A/c	598
Vehicles	550
	3,715		3,715

Partners’ Capital Accounts
Dr.							Cr.
Particulars	Ram	Shyam	Arjun	Particulars	Ram	Shyam	Arjun
				Balance b/d	30,000	25,000
Balance c/d	30,000	25,000	20,000	Cash			20,000
	30,000	25,000	20,000		30,000	25,000	20,000

Partners’ Current Accounts
Dr.									Cr.
Particulars		Ram	Shyam	Arjun	Particulars	Ram	Shyam	Arjun
Revaluation		717	598		Balance b/d	2,000	1,800
					Premium for Goodwill	3,600	3,000
Balance c/d		4,883	4,202
		5,600	4,800			5,600	4,800

Balance Sheet as on 1st April, 2019
Liabilities		Amount (₹)	Assets		Amount (₹)
Creditors		19,000	Freehold Premises		22,400
Bills Payable		16,000	Plant and Machinery		11,800
Capital A/cs:			Fixture and Fittings		1,540
Ram	30,000		Vehicles		800
Shyam	25,000		Stock (14,100 – 705)		13,395
Arjun	20,000	75,000	Bills Receivables		13,060
			Debtors	27,500
Current A/cs:			Less: 2% Reserve for D. Debts	550	26,950
Ram	4,883		Bank		1,590
Shyam	4,202	9,085	Cash (950 + 20,000 + 6,600)		27,550
		1,19,085			1,19,085

Journal
Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
Cash A/c	Dr.		26,600
To Arjun’s Capital				20,000
To Premium for Goodwill				6,600
(Arjun brought Capital and share of goodwill)
Premium for Goodwill A/c	Dr.		6,600
To Ram’s Current A/c				3,600
To Shyam’s Current A?C				3,000
(Premium for Goodwill transferred to partners current account in sacrificing ratio i.e. 6:5)

Arjun admitted for share of profit
Let the combined share of all partner after Arjun’s admission be = 1
Combined share of Ram and Shyam after Arjun’s admission

New Ratio = Old Ratio − Combined share of Ram and Shyam



Working Notes

WN1 Distribution of Premium for Goodwill


WN2 Distribution of Loss on Revaluation