Question

Om, Ram and Shanti were partners in firm sharing profits in the ratio of 3:2:1. On 1st April, 2014 their Balance sheet are as follows:

$\begin{array}{ccccc}\text{Liabilities}& & \text{Amount}& \text{Assets}& \text{Amount}\\ & & \text{(Rs)}& & \text{(Rs)}\\ \text{Capital Accounts :}& & & \text{Land and building}& 3,64,000\\ \text{Om}& 3,58,000& & \text{Plane and Machiery}& 2,95,000\\ \text{Ram}& 3,00,000& & \text{Furniture}& 2,33,000\\ \text{Shanti}& 2,62,000& 9,20,000& \text{Bills Receivable}& 38,000\\ \text{General Reserve}& & 48,000& \text{Sundry Debtors}& 90,000\\ \text{Creditors}& & 1,60,000& \text{Stock}& 1,11,000\\ \text{Bills Payable}& & \underset{–}{90,000}& \text{Bank}& \underset{–}{87,000}\\ & & 12,18,000& & 12,18,000\end{array}$

On the above date, Hanuman was admitted on the following terms:

(i) He will bring Rs 1,00,000 for his capital and will get 1/10th share in the profits.

(ii) He will bring necessary amount in cash for his good will premium. The goodwill of the firm was valued at Rs 3,00,000.

(iii) A liability of Rs 18,000 will be created against Bill Receivable discountd.

(iv) The value of stock and furniture will be reduced by 20%.

(v) The value of land and buildings will be increased by 10%.

(vi) Capital accounts of the partners will be adjusted on the basis of Hanuman's capital in their profit sharing ratio by opening curent accounts. Prepare Revaluation Account and Partner's Capital Accounts.

OR

Xavier, Yusuf and Zaman were parners in a firm sharing profits in the ratio of 4:3:2. On 1-4-2014, their Balance Sheet was as follows:

$\begin{array}{cccccc}\text{Liabilities}& & \text{Amount}& \text{Assets}& & \text{Amout}\\ & & \text{(Rs)}& & & \text{(Rs)}\\ \text{Sundry Creditors}& & 41,400& \text{Cash at Bank}& & 33,000\\ \text{Capital Accounts:}& & & \text{Sundry Debtors}& 30,450& \\ \text{Xavier}& 1,20,000& & \text{Less : Provision for Bad}& & \\ \text{Yusuf}& 90,000& & \text{Debts}& \underset{–}{1050}& 29,400\\ \text{Zaman}& \underset{–}{60,000}& 2,70,000& \text{Stock}& & 48,000\\ & & & \text{Plant and Machinery}& & 51,000\\ & & & \text{Land and Building}& & \underset{–}{1,50,000}\\ & & \overline{3,11,400}& & & 3,11,000\end{array}$

Yusuf had been suffering from ill health and thus gave notice of retirement from the firm, An agreement was, therefore, entered into as on 1-4-2014, the terms of which were as follows.

(i) That land and building be appreciated by 10%.

(ii) That provision for bad debts in no longer necessary.

(iii) That stock be appreciated by 20%

(iv) That good will of the firm be fixed, at Rs 54,000. Yusuf's share of the same is adjustes from Xavier's and Zaman's capital accounts, who are going to share future profits in the ratio of 2:1.

(v) The entire capital of the newly constituted firm be redjusted by bringing in or paying necessary cash so that future capital of Xavier and Zaman will be in their profit sharing ratio. Prepare Revaluation Account and Partner's Capital Accounts.

Answer 1

Dr. REVALUATION ACCOUNT Cr.
$\begin{array}{cccc}\text{Particulars}& \text{Amount}& \text{Particulars}& \text{Amount}\\ & \text{(Rs)}& & \text{(Rs)}\\ \text{To Liability for Bill Receivable}& & \text{By Land Building A/c}& 36,000\\ \text{Discounted A/c}& 18,000& \text{By Loss Transfered to :}& \\ \text{To Stock A/c}& 22,000& \text{Om's Capital A/c}& 25,200\\ \text{To Furniture A/c}& 46,600& \text{Ram's Capital A/c}& 16,800\\ & & \text{Shanti's Capital A/c}& 8,400\\ & \overline{86,800}& & \overline{86,800}\end{array}$

Dr PARTNER'S CAPITAL ACCOUNT Cr.
$\begin{array}{cccccccc}\text{Particulars}& \text{Om}& \text{Ram}& \text{Shanti}& \text{Particulars}& \text{Om}& \text{Ram}& \text{Shanti}\\ \text{To Revaluation A/c}& 25,200& 16,800& 8,400& \text{By Balance b/d}& 3,58,000& 3,00,000& 2,62,000\\ \text{To Current A/c}& ---& 9,200& 1,16,000& \text{By General}& & & \\ \text{(Balanceing fig.)}& & & & \text{Reserve}& 24,000& 16,000& 8,000\\ \text{To Balance c/d}& 4,50,000& 3,00,000& 1,50,000& \text{By Premium for}& & & \\ & & & & \text{goodwill}& 15,000& 10,000& 5,000\\ & & & & \text{By Current A/c}& & & \\ & & & & \text{(Balancing}& & & \\ & & & & \text{fig)}& 78,000& ---& ---\\ & \overline{4,75,200}& \overline{3,26,000}& \overline{2,75,000}& & \overline{4,75,200}& \overline{3,26,000}& \overline{2,75,000}\end{array}$

Dr. HANUMAN'S CAPITAL ACCOUNT Cr.
$\begin{array}{cccc}\text{Particulars}& \text{Amount}& \text{Particulars}& \text{Amount}\\ & \text{(Rs)}& & \text{(Rs)}\\ \text{To Balance c/d}& \underset{–}{1,00,000}& \text{Particulars}& \underset{–}{1,00,000}\\ & 1,00,000& & 1,00,000\end{array}$

Working Notes :

(a) Hanuman's share of goodwill $=3,00,000\times \frac{1}{10}=Rs30,000$ will be distributed among the existing partners in their sacrificing ratio.

(b) Hanuman's capital for $\frac{1}{10}th$ share = Rs 1,00,000

Adjusted capital of the new firm $(1,00,000\times 10)=Rs10,00,000$

Less : Hanuman's capital = 10,00,000 - 1,00,000 = Rs 9,00,000

Om's new capital $=9,00,000\times \frac{3}{6}=Rs4,50,000$

Ram's new capital $=9,00,000\times \frac{2}{6}=Rs3,00,000$

Shanti's new capital $=9,00,000\times \frac{1}{6}=Rs1,50,000$

Dr. REVALUATION ACCOUNT Cr.
$\begin{array}{cccc}\text{Particulars}& \text{Amount}& \text{Particulars}& \text{Amount}\\ & \text{(Rs)}& & \text{(Rs)}\\ \text{To Profit transferred to :}& & \text{By Land and Building A/c}& 15,000\\ \text{Xavier's Capital A/c}& 11,400& \text{By Provision for Bad Debts}& 1,050\\ \text{Yusuf's Capital A/c}& 8,550& \text{By Stock}& 9,600\\ \text{Zaman's Capital A/c}& \underset{–}{5,700}& & \\ & 25,600& & \overline{25,600}\end{array}$

Dr PARTNER'S CAPITAL ACCOUNT Cr.
$\begin{array}{cccccccc}\text{Partiuclars}& \text{Xavier}& \text{Zaman}& \text{Yusuf}& \text{Particulars}& \text{Xavier}& \text{Yusuf}& \text{Zaman}\\ \text{To Yusuf's Capital}& 12,000& \underset{–}{}& 6,000& \text{By Balance b/d}& 1,20,000& 90,000& 60,000\\ \text{A/c}& & & & & & & \\ \text{To Yusuf's Loan}& \underset{–}{}& 1,16,550& & \text{By Revaluation}& & & \\ \text{A/c}& & & & \text{A/c}& 11,400& 8,550& 5,700\\ \text{To Balance c/d}& 1,19,400& \underset{–}{}& 59,700& \text{By Xavier's}& & & \\ & & & & \text{Capital A/c}& \underset{–}{}& 12,000& \underset{–}{}\\ & & & & \text{By Zaman's}& & & \\ & & & & \text{Capital A/c}& \underset{–}{}& 6,000& \underset{–}{}\\ & \overline{1,31,400}& \overline{1,16,550}& \overline{65,700}& & \overline{1,31,400}& \overline{1,16,550}& \overline{65,700}\\ \text{To Balance c/d}& \overline{1,19,400}& \overline{---}& \overline{59,700}& \text{By Balance b/d}& \overline{1,19,400}& \overline{---}& \overline{59,700}\\ & \overline{1,19,400}& \overline{---}& \overline{59,700}& & \overline{1,19,400}& \overline{---}& \overline{59,700}\end{array}$

Working Notes :

(a) Gaining ratio = New share - Old share

Xavier ratio $=\frac{2}{3}-\frac{4}{9}=\frac{6}{9}-\frac{4}{9}=\frac{2}{9}$

Zaman ratio $=\frac{1}{3}-\frac{2}{9}=\frac{3}{9}-\frac{2}{9}=\frac{1}{9}$

Gaining ratio = 2 : 1

Yusuf's share of goodwill $(Rs54,000\times \frac{3}{9})=Rs18,000$

Contribution from Xavier Capital A/c

$(Rs18,000\times \frac{2}{3})=Rs12,000$

Contribution from Zaman's Capital A/c $(Rs18,000\times \frac{1}{3})=Rs6,000$

(b) Total unadjustable capital of Xavier and Zaman = (Rs 1,19,400 + Rs 59,700)

Xavier's Adjusted Capital $(Rs1,79,100\times \frac{2}{3})=1,19,400$

Zaman's Adjusted Capital (Rs~1,79,100 \times \frac{1}{3}) = Rs~59,700\)