Question

Following is the Balance Sheet of the firm, Ashirvad, owned by A, B and C who share profits and losses of the business in the ratio of 3 : 2 : 1.

BALANCE SHEET as at 31st March, 2019
Liabilities		₹	Assets	₹
Capital A/cs:			Furniture	95,000
A	1,20,000		Business Premises	2,05,000
B	1,20,000		Stock-in-Trade	40,000
C	1,20,000	3,60,000	Debtors	28,000
Sundry Creditors		20,000	Cash at Bank	15,000
Outstanding Salaries and wages		7,200	Cash in Hand	4,200
		3,87,200		3,87,200

On 1st April, 2019, they admit D as a partner on the following conditions:
(a) D will bring in ₹ 1,20,000 as his capital and also ₹ 30,000 as goodwill premium for a quarter of the share in the future profits/losses of the firm.
(b) Values of the fixed assets of the firm will be increased by 10% before the admission of D.
(c) Mohan, an old customer whose account was written off as bad debts, has promised to pay ₹ 3,000 in full settlement of his dues.
(d) Future profits and losses of the firm will be shared equally by all the partners.
Pass the necessary Journal entries and prepare Revaluation Account, Partners' Capital Accounts and opening Balance Sheet of the new firm.

Answer 1

Revaluation Account
Dr.				Cr.
Particulars	Amount (₹)	Particulars		Amount (₹)
		Fixed Assets:
		Furniture	95,000 × 10%	9,500
Profit transferred to		Business Premises	2,05,000 × 10%	20,500
A Capital	15,000
B Capital	10,000
C Capital	5,000
	30,000			30,000

Partners’ Capital Accounts
Dr.									Cr.
Particulars	A	B	C	D	Particulars	A	B	C	D
A’s Capital (Goodwill)			7,500		Balance b/d	1,20,000	1,20,000	1,20,000
B’s Capital (Goodwill)			2,500		Revaluation (Profit)	15,000	10,000	5,000
					Cash				1,20,000
Balance c/d	1,65,000	1,40,000	1,15,000	1,20,000	Premium for Goodwill	22,500	7,500
					C’s Capital (Goodwill)	7,500	2,500
	1,65,000	1,40,000	1,25,000	1,20,000		1,65,000	1,40,000	1,25,000	1,20,000

Balance Sheet as on April 1, 2019, after D’s admission
Liabilities		Amount (₹)	Assets	Amount (₹)
Capital A/cs:			Furniture (95,000 + 9,500)	1,04,500
A	1,65,000		Business Premises (2,05,000+20,500)	2,25,500
B	1,40,000		Stock-in-Trade	40,000
C	1,15,000		Debtors	28,000
D	1,20,000	5,40,000	Cash at Bank	15,000
Sundry Creditors		20,000	Cash in hand (4,200 + 1,50,000)	1,54,200
Outstanding salaries and wages		7,200
		5,67,200		5,67,200

Working Note:

WN1 Calculation of Sacrificing Ratio

Sacrificing Ratio = Old Ratio − New Ratio



WN2 Calculation of C’s gain in goodwill


WN3 Amount of Goodwill to be distributed between A and B (Sacrificing Partners)



WN4 Journal Entries for D’s Capital and distribution of goodwill

Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
Cash A/c	Dr.		1,50,000
To D’s Capital A/c				1,20,000
To Premium for Goodwill A/c				30,000
(D brought Capital and share of Capital)
Premium for Goodwill	Dr.		30,000
C’s Capital A/c	Dr.		10,000
To A’s Capital A/c				30,000
To B’s Capital				10,000
(Gain goodwill distributed between A and B in sacrificing ratio i.e. 3:1)