Question

Following is the Balance Sheet of Abha and Binay as at 31st March, 2014:

Liabilities		₹	Assets		₹
Creditors		13,000	Bank		15,000
Employees Provident Fund		8,000	Debtors	22,000
Workmen Compensation Fund		15,000	Less : Provision for Doubtful Debts	1,000	21,000
Capital A/cs:			Stock		10,000
Abha	55,000		Plant and Machinery		60,000
Binay	30,000	85,000	Goodwill		10,000
			Profit and Loss		5,000
		1,21,000			1,21,000

Chitra was admitted as a partner for 1/4th share in the profits of the firm. It was decided that:
(a) Bad Debts amounted to ₹ 1,500 will be written off.
(b) Stock worth ₹ 8,000 was taken over by Abha and Binay at Book Value in their profit-sharing ratio. The remaining stock was valued at ₹ 2,500.
(c) Plant and Machinery and Goodwill were valued at ₹ 32,000 and ₹ 20,000 respectively.
(d) Chitra brought her share of goodwill in cash.
(e) Chitra will bring proportionate capital and the capitals of Abha and Binay will be adjusted in their profit-sharing ratio by bringing in or paying off cash as the case may be.
Prepare Revaluation Account and Partners' Capital Accounts.

Answer 1

Revaluation Account
Dr.		Cr.
Particulars	Amount Rs	Particulars		Amount Rs
Bad debts	500	Stock		500
Plant and Machinery	28,000	Loss on Revaluation
		Abha’s Capital A/c	14,000
		Binay’s Capital A/c	14,000	28,000
	28,500			28,500

Partners’ Capital Accounts
Dr.							Cr.
Particulars	Abha	Binay	Chitra	Particulars	Abha	Binay	Chitra
Revaluation	14,000	14,000		Balance b/d	55,000	30,000
Goodwill	5,000	5,000		Bank			18,000
Profit and Loss	2,500	2,500		Premium for Goodwill	2,500	2,500
Stock	4,000	4,000		WCF	7,500	7,500
Balance c/d	39,500	14,500	18,000
	65,000	40,000	18,000		65,000	40,000	18,000
Bank	12,500			Balance c/d	39,500	14,500	18,000
Balance c/d (adjusted)	27,000	27,000	18,000	Bank		12,500
	39,500	27,000	18,000		39,500	27,000	18,000

Working Notes:

WN1 Calculation of Chitra's Capital

$$\begin{gathered} \mathrm{Chitra}\text{'}\mathrm{s}\mathrm{Capital}=\mathrm{Total}\mathrm{Adjusted}\mathrm{Capital}\mathrm{of}\mathrm{Abha}\mathrm{and}\mathrm{Binay}\times \mathrm{Reciprocal}\mathrm{of}\mathrm{Combined}\mathrm{Profit}\mathrm{Share}\times \mathrm{Chitra}\text{'}\mathrm{s}\mathrm{Profit}\mathrm{Share} \\ \mathrm{Abha}\text{'}\mathrm{s}\mathrm{Adjusted}\mathrm{Capital}=55,000+2,500+7,500-14,000-5,000-2,500-4,000=\mathrm{Rs}39,500 \\ \mathrm{Binay}\text{'}\mathrm{s}\mathrm{Adjusted}\mathrm{Capital}=30,000+2,500+7,500-14,000-5,000-2,500-4,000=\mathrm{Rs}14,500 \\ \mathrm{Chitra}\text{'}\mathrm{s}\mathrm{Capital}=(39,500+14,500)\times \frac{4}{3}\times \frac{1}{4}=\mathrm{Rs}18,000 \end{gathered}$$

WN2 Calculation of New Capital

$$\begin{gathered} \mathrm{New}\mathrm{Capital}=\mathrm{Total}\mathrm{Adjusted}\mathrm{Capital}\times \mathrm{Respective}\mathrm{Partner}\text{'}\mathrm{s}\mathrm{Profit}\mathrm{Share} \\ \mathrm{Abha}\text{'}\mathrm{s}\mathrm{New}\mathrm{Capital}=(39,500+14,500)\times \frac{1}{2}=\mathrm{Rs}27,000 \\ \mathrm{Binay}\text{'}\mathrm{s}\mathrm{New}\mathrm{Capital}=(39,500+14,500)\times \frac{1}{2}=\mathrm{Rs}27,000 \end{gathered}$$

WN3 Calculation of Chitra's Share of Goodwill

$$\begin{gathered} \mathrm{Chitra}\text{'}\mathrm{s}\mathrm{Share}=\mathrm{Firm}\text{'}\mathrm{s}\mathrm{Goodwill}\times \mathrm{Chitra}\text{'}\mathrm{s}\mathrm{Profit}\mathrm{Share} \\ =20,000\times \frac{1}{4}=\mathrm{Rs}5,000 \\ \mathrm{Rs}5,000\mathrm{will}\mathrm{be}\mathrm{shared}\mathrm{between}\mathrm{Abha}\mathrm{and}\mathrm{Binay}\mathrm{in}\mathrm{sacrificing}\mathrm{ratio}1:1 \end{gathered}$$