Question

Deepika and Rajshree are partners in a firm sharing profits and losses in the ratio of 3:2. On 31 st March,2017, their Balance Sheet was as under:

$\begin{array}{cccc}\text{Capital and Liabilities}& \text{Rs}& \text{Assets}& \text{Rs}\\ \text{Sundry Creditors}& 16,000& \text{Cash in Hand}& 1,200\\ \text{Public Deposits}& 61,000& \text{Cash at bank}& 2,800\\ \text{Bank Overdraft}& 6,000& \text{Stock}& 32,000\\ \text{Outstanding Expense}& 2,000& \text{Prepaid Insurance}& 1,000\\ \text{Capital Accounts:}& & \text{Sundry Debtors}28,800& \\ Deepika48,000& & \text{Less: Provision for}& \\ Rajshree\underset{–}{40,000}& 88,000& \text{Doubtful Debts}\underset{–}{800}& 28,000\\ & & \text{Plant and Machinery}& 48,000\\ & & \text{Land and Building}& 50,000\\ & & \text{Furniture}& 10,000\\ & \underset{–}{\overline{1,73,000}}& & \underset{–}{\overline{1,73,000}}\end{array}$

On the above date, the partners decide to admit Anshu as a partner on the following terms :

(i) The new profit-sharing ratio of Deepika, Rajshree and Anshu will be 5 : 3 : 2, respectively.

(ii) Anshu shall bring Rs 32,000 as his capital.

(iii) Anshu is unable to bring in any cash for his share of goodwill. Partners, therefore, decide to calculate goodwill on the basis of Anshu's share in the profits and the capital contribution made by him to the firm.

(iv) Plant and Machinery would be increased by Rs 12,000.

(v) Stock would be increased to Rs 40,000.

(vi) Provision for Doubtful Debts is to be maintained at Rs 4,000. Value of Land and Building has appreciated by 20%. Furniture has depreciated by 10%.

(vi) There is an additional liability of Rs 8,000 being outstanding salary payable to employees of the firm. This liability is not included in the outstanding liabilities, stated in the above Balance Sheet. Partners decide to show this liability in the books of accounts of the reconstituted new firm.

Prepare Revaluation Account, Partner's Capital Accounts and the Balance Sheet of Deepika, Rajshree and Anshu.

Answer 1

Dr. REVALUATION ACCOUNT Cr.

$\begin{array}{cccc}\text{Particulars}& \text{Rs}& \text{Particulars}& \text{Rs}\\ \text{Provision for Doubtful Debts}& 3,200& \text{Plant and Machinery}& 12,000\\ \text{Furniture A/c}& 1,000& \text{Stock A/c}& 8,000\\ \text{Outstanding Salary A/c}& 8,000& \text{Land and Building A/c}& 10,000\\ \text{Profit transferred to Capital}& & & \\ \text{A/cs:}& & & \\ \text{Deepika}\left(\frac{3}{5}\right)10,680& & & \\ \text{Rajshree}\left(\frac{2}{5}\right)\underset{–}{7,120}& 17,800& & \\ & \underset{–}{\overline{30,000}}& & \underset{–}{\overline{30,000}}\end{array}$

Dr. CAPITAL ACCOUNT Cr.

$\begin{array}{cccccccc}\text{Particulars}& \text{Deepika}& \text{Rajshree}& \text{Anshu}& \text{Particulars}& \text{Deepika}& \text{Rajshree}& \text{Anshu}\\ & Rs& Rs& Rs& & Rs& Rs& Rs\\ & & & & \text{Balance b/d}& 48,000& 40,000& -\\ & & & & \text{Revaluation A/c}& 10,680& 7,120& -\\ & & & & \text{Anshu's}& & & \\ & & & & \text{Current A/c}& 2,220& 2,220& -\\ \text{Balance c/d}& 60,900& 49,340& 32,000& \text{Bank A/c}& -& & 32,000\\ & \underset{–}{\overline{60,900}}& \underset{–}{\overline{49,340}}& \underset{–}{\overline{32,000}}& & \underset{–}{\overline{60,900}}& \underset{–}{\overline{49,340}}& \underset{–}{\overline{32,000}}\end{array}$

BALANCE SHEET

as at 1st April, 2017

$\begin{array}{cccc}\text{Capital and Liabilities}& \text{Rs}& \text{Assets}& \text{Rs}\\ \text{Sundry Creditors}& 16,000& \text{Cash in Hand}& 1,200\\ \text{Public Deposits}& 61,000& \text{Bank Balance}& 28,800\\ \text{Outstanding Expenses}& 10,000& \text{Stock}& 40,000\\ \text{Capital Accounts:}& & \text{Prepaid Insurance}& 1,000\\ \text{Deepika}60,900& & \text{Sundry Debtors}28,800& \\ \text{Rajshree}49,340& & \text{Less: Provision}\underset{–}{4,000}& 24,800\\ \text{Anshu}\underset{–}{32,000}& 1,42,240& \text{Plant and Machinery}& 60,000\\ & & \text{Land and Buildings}& 60,000\\ & & \text{Furniture}& 9,000\\ & & \text{Anshu's Current A/c}& 4,440\\ & \underset{–}{\overline{2,29,240}}& & \underset{–}{\overline{2,29,240}}\end{array}$

Note (1): Bank Balance: Rs 2,800 + Rs 32,000 - Bank Overdraft Rs 6,000 = Rs 28,800.

(2) In this question the amount of goodwill is hidden, which will be found out as below:

$\begin{array}{ccc}\text{Based on Anshu's share of profit, the total capital of the}& & Rs\\ \text{firm should be Rs 32,000}\times \frac{10}{2}& =& 1,60,000\\ \text{Less: Capital of Deepika}& & \\ \text{(Rs 48,000 +Profit on Revaluation Rs 10,680)}& =58,680& \\ \text{Capital of Rajshree}& & \\ \text{Rs 40,000 +Profit on Revaluation Rs 7,120}& =47,120& \\ \text{Capital of Anshu}& =\underset{–}{32,000}& 1,37,800\\ \text{Value of Goodwill:}& & \underset{–}{\overline{22,200}}\end{array}$

Anshu's share of Goodwill $=22,200\times \frac{2}{10}=Rs4,440$

Anshu's Current A/c will be debited by her share of goodwill, i.e., 4,440 and Deepika and Rajshree will be credited in their sacrificing ratio, i.e., equally.

Sacrifice made by Deepika $=\frac{3}{5}-\frac{5}{10}=\frac{1}{10}$

Sacrifice made by Rajshree $=\frac{2}{5}-\frac{3}{10}=\frac{1}{10}$