Question

Balance Sheet of X and Y , who share profits and losses as 5 : 3 , as at 1st April, 2017 is :

Liabilities	₹	Assets	₹
X's Capital	52,000	Goodwill	8,000
Y's Capital	54,000	Machinery	38,000
General Reserve	4,800	Furniture	15,000
Sundry Creditors	5,000	Sundry Debtors	33,000
Employees' Provident Fund	1,000	Stock	7,000
Workmen Compensation Reserve	10,000	Bank	25,000
		Advertisement Suspense A/c	800
	1,26,800		1,26,800

On the above date, they decided to change their profit-sharing ratio to 3 : 5 and agreed upon the following :
(a) Goodwill be valued on the basis of two years' purchase of the average profit of the last three years .
Profits for 2014-15$—$₹ 7,500; 2015-16$—$₹ 4,000; 2016-17$—$₹ 6,500.
(b) Machinery and Stock be revalued at ₹ 45,000 and ₹ 8,000 respectively.
(c) Claim on account of workmen compensation is ₹ 6,000.
Prepare Revaluation Account Partners' Capital Accounts and the Balance Sheeet of the new firm .

Answer 1

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Revaluation Account
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Profit transferred to:			Machinery	7,000
X’s Capital A/c	5,000		Stock	1,000
Y’s Capital A/c	3,000	8,000
		8,000		8,000

Partners’ Capital Account
Dr.			Cr.
Particulars	X	Y	Particulars	X	Y
Advertisement Suspense A/c	500	300	Balance b/d	52,000	54,000
Goodwill A/c	5,000	3,000	General Reserve A/c	3,000	1,800
X’s Capital	–	3,000	WCF	2,500	1,500
(Adjustment of Goodwill)			Revaluation A/c (Profit)	5,000	3,000
			Y’s Capital A/c	3,000	–
Balance c/d	60,000	54,000	(Adjustment of Goodwill)
	65,500	60,300		65,500	60,300

Balance Sheet
as on April 01, 2017 (after Change in Profit Sharing Ratio)
Liabilities	Amount Rs	Assets	Amount Rs
X’s Capital	58,500	Machinery (38,000 + 7,000)	45,000
Z’s Capital	55,500	Furniture	15,000
Sundry Creditors	5,000	Sundry Debtors	33,000
Employees’ Provident Fund	1,000	Stock (7,000 + 1,000)	8,000
Workmen’s Compensation Reserve	6,000	Bank	25,000
	1,26,000		1,26,000

Working Notes:

WN 1 Calculation of Sacrificing (or Gaining) Ratio

Old Ratio (X and Y) = 5 : 3

New Ratio (X and Y) = 3 : 5

Sacrificing (or Gaining) Ratio = Old Ratio − New Ratio

WN 2 Calculation of New Goodwill

Goodwill = Average Profit × Number of Year′s Purchase = 6,000 × 2 = Rs 12,000

∴Goodwill = 6,000 × 2 = Rs 12,000

WN 3 Adjustment of Goodwill

Journal
Date	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
	Workmen’s Compensation Reserve A/c	Dr.		10,000
	To Workmen’s Compensation Claim A/c				6,000
	To X’s Capital A/c				2,500
	To Y’s Capital A/c				1,500
	(Workmen’s compensation claim distributed among partners in their old ratio i.e. 5 : 3)
	X’s Capital A/c	Dr.		5,000
	Y’s Capital A/c	Dr.		3,000
	To Goodwill A/c				8,000
	(Goodwill written off among partners in their old ratio)
	X’s Capital A/c	Dr.		500
	Y’s Capital A/c	Dr.		300
	To Advertisement Suspense A/c				800
	(Advertisement Suspense written off among partners in their old ratio)
	General Reserve A/c	Dr.		4,800
	To X’s Capital A/c				3,000
	To Y’s Capital A/c				1,800
	(General Reserve distributed among partners in their old ratio)
	Revaluation A/c	Dr.		8,000
	To X’s Capital A/c				5,000
	To Y’s Capital A/c				3,000
	(Revaluation profit distributed among partners in their old ratio)
	Y’s Capital A/c	Dr.		3,000
	To X’s Capital A/c				3,000
	(Adjustment of goodwill made)