Question

Deepika and Rajshree are partners in a firm sharing profits and losses in the ratio of 3 : 2. On 31st March, 2019 their Balance Sheet was:

Liabilities			₹	Assets		₹
Sundry Creditors			16,000	Cash in Hand		1,200
Public Deposits			61,000	Cash at Bank		2,800
Bank Overdraft			6,000	Stock		32,000
Outstanding Liabilities			2,000	Prepaid Insurance		1,000
Capital A/cs:				Sundry Debtors	28,000
Deepika	48,000			Less: Provision for Doubtful Debts	800
Rajshree	40,000		88,000	Plant and Machinery		48,000
				Land and Building		50,000
				Furniture		10,000
			1,73,000			1,73,000

On 1st April, 2019 the partners admit Anshu as a partner on the following terms:
(a) The new profit-sharing ratio of Deepika, Rajshree and Anshu will be 5 : 3 : 2 respectively.
(b) Anshu shall bring in ₹ 32,000 as his capital.
(c) Anshu is unable to bring in any cash for his share of goodwill. Partners, therefore, decide to calculate the goodwill on the basis of Anshu's share in the profits and the capital contribution made by her to the firm.
(d) Plant and Machinery is to be valued at ₹ 60,000, Stock at ₹ 40,000 and the Provision for Doubtful Debts is to be maintained at ₹ 4,000. Value of Land and Building has appreciated by 20%. Furniture has been depreciated by 10%.
(e) There is an additional liability of ₹ 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 account of the reconstituted firm.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of Deepika, Rajshree and Anshu.

Answer 1

Revaluation Account
Dr.				Cr.
Particulars		Amount (₹)	Particulars	Amount (₹)
Reserve for D. Debts	4,000		Plant and Machinery	12,000
Less: Old Reserve	800	3,200	(60,000 – 48,000)
Furniture 10,000 × 10%		1,000	Stock (40,000 – 32,000)	8,000
Outstanding salary		8,000
Profit transferred to			Land and Building	10,000
Deepika Capital		10,680	(50,000 × 20%)
Rajshree Capital		7,120
		30,000		30,000

Partners’ Capital Accounts
Dr.							Cr.
Particulars	Deepika	Rajshree	Anshu	Particulars	Deepika	Rajshree	Anshu
Balance c/d	58,680	47,120	32,000	Balance b/d	48,000	40,000
(before adjustment of Goodwill)
				Revaluation	10,680	7,120
				Cash			32,000
	58,680	47,120	32,000		58,680	47,120	32,000
Deepika			2,220	Balance b/d	58,680	47,120	32,000
Rajshree			2,220	Anshu’s Capital (Goodwill)	2,220	2,220
Balance c/d	60,900	49,340	27,560
	60,900	49,340	32,000		60,900	49,340	32,000

Balance Sheet as on March 31, 2019 after Anshu’s admission
Liabilities		Amount (₹)	Assets		Amount (₹)
Outstanding Salaries		8,000	Cash in Hand		1,200
Sundry Creditors		16,000	Cash at Bank		28,800
Public Deposits		61,000	Stock		40,000
Outstanding Liabilities		2,000	Prepaid Insurance		1,000
Capital A/cs:			Sundry Debtors	28,800
Deepika	60,900		Less: reserve for D. Debts	4,000	24,800
Rajshree	49,340		Plant and Machinery		60,000
Anshu	27,560	1,37,800	Land and Building		60,000
			Furniture		9,000
		2,24,800			2,24,800

Working Notes

WN1: Calculation of Sacrificing Ratio

Sacrificing Ratio = Old Ratio − New Ratio



WN2: Valuation of Goodwill
Capitalised value on the basis of Anshu’s share
Actual Capital of all partners before adjustment of Goodwill = 58,680 + 47,120 + 32,000
= Rs 1,37,800
Goodwill = Capitalised value − Actual Capital of all partners before adjustment of Goodwill
= 1,60,000 − 1,37,800
= Rs 22,200
Anshu’s share of Goodwill
Deepika and Rajshree each will entitle for Goodwill