Question

L, M and N were partners in a firm sharing profits in the ratio of 3 : 2 : 1. Their Balance Sheet on 31st March, 2015 was as follows:

Liabilities		₹	Assets	₹
Creditors		1,68,000	Bank	34,000
General Reserve		42,000	Debtors	46,000
Capital's A/cs: L	1,20,000		Stock	2,20,000
M	80,000		Investments	60,000
N	40,000	2,40,000	Furniture	20,000
			Machinery	70,000
		4,50,000		4,50,000

On the above date, O was admitted as a new partner and it was decided that:
(i) The new profit-sharing ratio between L, M, N and O will be 2 : 2 : 1 : 1.
(ii) Goodwill of the firm was valued at ₹ 1,80,000 and O brought his share of goodwill premium in cash.
(iii) The market value of investments was ₹ 36,000.
(iv) Machinery will be reduced to ₹ 58,000.
(v) A creditor of ₹ 6,000 was not likely to claim the amount and hence was to be written off.
(vi) O will bring proportionate capital so as to give him 1/6th share in the profits of the firm.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of the new firm.

Answer 1

Revaluation Account
Dr.						Cr.
Particulars		Amount Rs	Particulars		Amount Rs
Investments		24,000	Creditors		6,000
Machinery		12,000	Loss on Revaluation
			L’s Capital A/c	15,000
			M’s Capital A/c	10,000
			N’s Capital A/c	5,000	30,000
		36,000			36,000

Partners’ Capital Account
Dr.									Cr.
Particulars	L	M	N	O	Particulars	L	M	N	O
Reval. A/c	15,000	10,000	5,000		Balance b/d	1,20,000	80,000	40,000
Balance c/d	1,56,000	84,000	42,000	56,400	Gen. Reserve	21,000	14,000	7,000
					Premium for G/w	30,000
					Cash A/c				56,400
	1,71,000	94,000	47,000	56,400		1,71,000	94,000	47,000	56,400

Balance Sheet as on March 31, 2015
Liabilities		Amount (Rs)	Assets	Amount (Rs)
Creditors		1,62,000	Bank (34,000+56,400+30,000)	1,20,400
Capitals:			Debtors	46,000
L	1,56,000		Stock	2,20,000
M	84,000		Investments	36,000
N	42,000		Furniture	20,000
O	56,400	3,38,400	Machinery	58,000
		5,00,400		5,00,400

Working Notes:

WN1: Calculation of Sacrificing Ratio



WN2: Adjustment of Goodwill



WN3 Calculation of O’s Proportionate Capital