Question

Mohan and Mahesh were partners in a firm sharing profit in the ratio of 3 : 2. On 1st April, 2012, they admitted Nusrat as a partner in the firm. The Balance Sheet of Mohan and Mahesh on that date was as under :

BALANCE SHEET OF MOHAN AND MAHESH

as on 1st April, 2012
$\begin{array}{ccccc}\text{Liabilities}& & \text{Amount}& \text{Assets}& \text{Amount}\\ & & \text{(Rs)}& & \text{(Rs)}\\ \text{Creditors}& & 2,10,000& \text{Cash in Hand}& 1,40,000\\ \text{Workmen's Compensation Fund}& & 2,50,000& \text{Debtors}& 1,60,000\\ \text{General Reserves}& & 1,60,000& \text{Stock}& 1,20,000\\ \text{Capital :}& & & \text{Machinery}& 1,00,000\\ \text{Mohan}& 1,00,000& & \text{Buildings}& 2,80,000\\ \text{Mahesh}& \underset{–}{80,000}& 1,80,000& & \\ & & \overline{8,00,000}& & \overline{8,00,000}\end{array}$

It was agreed that :

(i) The value of building and stock be appreciated to Rs 3,80,000 and Rs 1,60,000 respectively.

(ii) The liabilities of Workmen's Compensation Fund was determined at Rs 2,30,000.

(iii) Nusrat brought in her share of goodwill Rs 1,00,000 in cash.

(iv) Nusrat was to bring further cash as would make her capital equal to 20% of the combined capital of Mohan and Mahesh after above revaluation and adjustment are carried out.

(v) The further profit sharing ratio will be Mohan 2/5th, Mahesh 2/5th, Nusrat 1/5th. Prepare Revaluation Account Partners' Capital Account and Balance Sheet of the new firm. Also show clearly the calculation of capital brought by Nusrat.

OR

Kushal, Kumar and Kavita were partners in a firm sharing profits in the ratio of 3 : 1 : 1. On 1st April, 2012, their Balance Sheet was as follows:

BALANCE SHEET OF KUSHAL, KUMAR AND KAVITA
as on 1st April, 2012
$\begin{array}{cccccc}\text{Liabilities}& & \text{Amount}& \text{Assets}& & \text{Amount}\\ & & \text{(Rs)}& & & \text{(Rs)}\\ \text{Creditors}& & 1,20,000& \text{Cash in Hand}& & 70,000\\ \text{Bills Payable}& & 1,80,000& \text{Debtors}& 2,00,000& \\ \text{General Reserves}& & 1,20,000& \text{Less : Provision}& \underset{–}{10,000}& 1,90,000\\ \text{Capital :}& & & \text{Stock}& & 2,20,000\\ \text{Kushal}& 3,00,000& & \text{Furniture}& & 1,20,000\\ \text{Kumar}& \underset{–}{2,80,000}& & \text{Building}& & 3,00,000\\ \text{Kavita}& \underset{–}{3,00,000}& 8,80,000& \text{Land}& & 4,00,000\\ & & \overline{13,00,000}& & & \overline{13,00,000}\end{array}$

On the above date Kavita retired and the following was agreed.

(i) Goodwill of the firm was valued at Rs 40,000.

(ii) Land was to be appreciated by 30% and building was to be depreciated by Rs 1,00,000.

(iii) Value of furniture was to be reduced by Rs 20,000.

(iv) Bad debts reserve is to be increased to Rs 15,000.

(v) 10% of the amount payable to Kavita was paid in cash and the balance was transferred to her loan account.

(vi) Capital of Kushal and Kumar will be in proportion to their new profit sharing ratio. The surplus/deficit, if any, in their capital account will be adjusted through current accounts.

Prepare Revaluation Account, Partner's Capital Account and Balance Sheet of Kushal and Kumar after Kavita's retirement.

Answer 1

Dr REVALUATION ACCOUNT Cr.
$\begin{array}{ccccc}\text{Particulars}& & \text{Amount}& \text{Particulars}& \text{Amount}\\ & & \text{(Rs)}& & \text{(Rs)}\\ \text{To Profit transferred to}& & & \text{By Building A/c}& 1,00,000\\ \text{Mohan's Capital A/c}& 84,000& & \text{By Stock A/c}& 40,000\\ \text{Mahesh's Capital A/c}& \underset{–}{56,000}& 1,40,000& & \\ & & \overline{1,40,000}& & \overline{1,40,000}\end{array}$

Dr. PARTNERS'S CAPITAL ACCOUNTS Cr.
$\begin{array}{cccccccc}\text{Particulars}& \text{Mohan}& \text{Mahesh}& \text{Nusrat}& \text{Particulars}& \text{Mohan}& \text{Mahesh}& \text{Nusrat}\\ \text{To Balance c/d}& 3,92,000& 2,08,000& 1,20,000& \text{By Balance b/d}& 1,00,000& 80,000& \overline{}\\ \text{(Balancing Figure)}& & & & \text{By Revaluation A/c}& 84,000& 56,000& \overline{}\\ & & & & \text{By General Reserve}& 96,000& 64,000& \overline{}\\ & & & & \text{By Workmen's}& & & \\ & & & & \text{Compensation Fund}& 12,000& 8,000& \overline{}\\ & & & & \text{By Premium for}& & & \\ & & & & \text{Goodwill A/c}& 1,00,000& \overline{}& \overline{}\\ & & & & \text{By Cash A/c}& \overline{}& \overline{}& 1,20,000\\ & 3,92,000& 2,08,000& 1,20,000& & 3,92,000& 2,08,000& 1,20,000\end{array}$

BALANCE SHEET OF THE RECONSTITUTED FIRM
as on 1st April, 2012
$\begin{array}{ccccc}\text{Liabilities}& & \text{Amount}& \text{Assets}& \text{Amount}\\ & & \text{(Rs)}& & \text{(Rs)}\\ \text{Creditors}& & 2,10,000& \text{Cash in Hand}& 3,60,000\\ \text{Workmen's Compensation Fund}& & 2,30,000& \text{Debtors}& 1,60,000\\ \text{Capitals :}& & & \text{Stock}& 1,60,000\\ \text{Mohan}& 3,92,000& & \text{Machinery}& 1,00,000\\ \text{Mahesh}& 2,08,000& & \text{Building}& 3,80,000\\ \text{Nusrat}& \underset{–}{1,20,000}& 7,20,000& & \\ & & \overline{11,60,000}& & \overline{11,60,000}\end{array}$

Working Notes :

(i) Calculation of Gaining/Sacrificing Ratio :

Gaining Ratio = New Ratio - Old Ratio

Mohan's Gain = $\frac{2}{5}-\frac{3}{5}=\left(\frac{1}{5}\right)$ Sacrifice

Mahesh's Gain = $\frac{2}{5}-\frac{2}{5}=0$

Adjusting entry for goodwill brought in by new partner.

Premium for Goodwill A/c Dr. 1,00,000

To Mohan's Capital A/c 1,00,000

(Being goodwill brought in by Nusrat adjusted in sacrificing ratio)

(ii) Capital adjustment :

Nustrat's Capital = (Mohan's Capital + Mahesh's Capital) $\times \frac{20}{100}$

= (Rs. 3,92,000 + Rs. 2,08,000) $\times \frac{20}{100}$

$=6,00,000\times \frac{20}{100}=Rs.1,20,000$

CASH / BANK ACCOUNT
$\begin{array}{cccc}\text{Particulars}& \text{Amount}& \text{Particulars}& \text{Amount}\\ & \text{(Rs)}& & \text{(Rs)}\\ \text{To Balance b/d}& 1,40,000& \text{By Balance c/d}& 3,60,000\\ \text{To Nusrat's Capital A/c}& 1,20,000& & \\ \text{To Premium for Goodwill A/c}& 1,00,000& & \\ & \overline{3,60,000}& & \overline{3,60,000}\end{array}$

Dr. REVALUATION ACCOUNT Cr.
$\begin{array}{ccccc}\text{Particulars}& \text{Amount}& \text{Particulars}& & \text{Amount}\\ & \text{(Rs)}& & \text{(Rs)}& \\ \text{To Building A/c}& 1,00,000& \text{By Land A/c}& & 1,20,000\\ \text{To Furniture A/c}& 20,000& \text{By Loss transferred to :}& & \\ \text{To Reserve for Doubtful}& & \text{Kushal's Capital A/c}& 3,000& \\ \text{Debts (15,000 - 10,000)}& 5,000& \text{Kumar's Capital A/c}& 1,000& \\ & & \text{Kavita's Capital A/c}& \underset{–}{1,000}& 5,000\\ & \overline{1,25,000}& & & \overline{1,25,000}\end{array}$

Dr. PARTNER'S CAPITAL ACCOUNTS Cr.
$\begin{array}{cccccccc}\text{Particulars}& \text{Kushal}& \text{Kumar}& \text{Kavita}& \text{Particulars}& \text{Kushal}& \text{Kumar}& \text{Kavita}\\ \text{To Revaluation A/c}& 3,000& 1,000& 1,000& \text{By Balance b/d}& 3,00,000& 2,80,000& 3,00,000\\ \text{To Kavita's Capital}& & & & \text{By General Reserve}& 72,000& 24,000& 24,000\\ \text{A/c (Goodwill)}& 6,000& 2,000& \overline{}& \text{By Kushal's Capital}& \overline{}& \overline{}& 6,000\\ & & & & \text{A/c}& & & \\ \text{To Cash A/c}\left(10\%\right)& \overline{}& \overline{}& 33,100& \text{By Kumar's Capital}& \overline{}& \overline{}& 2,000\\ & & & & \text{A/c}& & & \\ \text{To Kavita's Loan}& & & & & & & \\ \text{A/c}& \overline{}& \overline{}& 2,97,900& & & & \\ \text{To Balance c/d}& 3,63,000& 3,01,000& \overline{}& & & & \\ & \overline{\underset{–}{3,72,000}}& \overline{\underset{–}{3,04,000}}& \overline{\underset{–}{3,32,000}}& & \overline{\underset{–}{3,72,000}}& \overline{\underset{–}{3,04,000}}& \overline{\underset{–}{3,32,000}}\\ \text{To Kumar's Current}& & & & \text{By Balance b/d}& 3,63,000& 3,01,000& \overline{}\\ \text{A/c}& \overline{}& 1,35,000& \overline{}& & & & \\ \text{To Balance c/d}& 4,98,000& 1,66,000& \overline{}& \text{By Kushal's Current}& 1,35,000& \overline{}& \overline{}\\ & & & & \text{A/c}& & & \\ & 4,98,000& 3,01,000& \overline{}& & 4,98,000& 3,01,000& \overline{}\end{array}$

Working Notes :

Capital of Kushal before adjustment = 3,72,000 - 9,000 = 3,63,000

Capital of Kumar before adjustment = 3,04,000 - 3,000 = $\underset{–}{3,01,000}$

Total Capital $\underset{–}{6,64,000}$

Kushal's Adjusted Capital = $\frac{3}{4}\times 6,64,000=4,98,000$

Kumar's Adjusted Capital = $\frac{1}{4}\times 6,64,000=1,66,000$

BALANCE SHEET OF THE RECONSTITUTED FIRM as on 1st April 2012
$\begin{array}{cccccc}\text{Liabilities}& & \text{Amount}& \text{Assets}& & \text{Amount}\\ & & \text{(Rs)}& & & \text{(Rs)}\\ \text{Creditors}& & 1,20,000& \text{Cash}& & 36,900\\ \text{Bills Payable}& & 1,80,000& \text{Debtors}& 2,00,000& \\ \text{Kavita's Loan}& & 2,97,900& \text{Less : Provision}& \underset{–}{(15,000)}& 1,85,000\\ \text{Capitals :}& & & \text{Stock}& & 2,20,000\\ \text{Kushal}& 4,98,000& & \text{Furniture}& & 1,00,000\\ \text{Kumar}& \underset{–}{1,68,000}& 6,64,000& \text{Building}& & 2,00,000\\ \text{Kumar's Current A/c}& & 1,35,000& \text{Land}& & 5,20,000\\ & & & \text{Kushal's Capital A/c}& & 1,35,000\\ & & \overline{13,96,900}& & & \overline{13,96,900}\end{array}$

Cash in Hand = 70,000 - 33,100 = Rs 36,900