Question

PRACTICAL PROBLEM

Following is the Balance Sheet of Dhiraj and Niraj who shared profits and losses equally.

Balance Sheet as on 31st March, 2013
Liabilities		Amount Rs	Assets	Amount Rs
Capital A/c’s			Plant and Machinery	45,000
	Dhiraj	1,25,000	Land and Building	84,000
	Niraj	35,000	Patents	3,400
Creditors		86,200	Stock	47,800
Bills Payable		28,000	Furniture	10,600
General Reserve		6,800	Debtors	80,000
			Cash	10,200
		2,81,000		2,81,000

On 1^st April, 2013 they agreed to admit Suraj on the following terms and conditions:

1) Suraj to bring for 1/3^rd share in future profit in cash Rs 90,000 towards his capital.

2) The firms goodwill should be raised to Rs 90,000 and it is to be written off after Suraj admission in new profit ratio.

3) Plant and Machinery was found undervalued by 10% and Land and Building was found overvalued by 20%.

4) Stock to be increased by Rs 2,200 and furniture to be reduced to Rs 10,000/-

5) Out of creditors Rs 1,200 is no more payable.

6) The Capital A/c to be adjusted in new profit sharing ratio by opening the current accounts.

Prepare Revaluation A/c, Capital A/c and New Balance Sheet.

Answer 1

Profit and Loss Adjustment Account
Dr.		Cr.
Particulars	Amount Rs	Particulars		Amount Rs
Land and Building	14,000	Plant and Machinery		5,000
Furniture	600	Stock		2,200
		Creditors		1,200
		Loss transferred to:
		Dhiraj’s Capital	3,100
		Niraj’s Capital	3,100	6,200
	14,600			14,600

Partners’ Capital Accounts
Dr.				Cr.
Particulars	Dhiraj	Niraj	Suraj		Particulars	Dhiraj	Niraj	Suraj
Goodwill (Written off)	30,000	30,000	30,000		Balance b/d	1,25,000	35,000
Profit and Loss Adjustment (Loss)	3,100	3,100			General Reserve	3,400	3,400
Current A/c	50,300				Premium for Goodwill	45,000	45,000
Balance c/d	90,000	50,300	60,000		Cash			90,000
	1,73,400	83,400	90,000			1,73,400	83,400	90,000
Balance b/d	90,000	90,000	90,000		Balance b/d	90,000	50,300	60,000
					Current A/c		39,700	30,000
	90,000	90,000	90,000			90,000	90,000	90,000

Balance Sheet as on April 01, 2013 after Suraj’s admission
Liabilities			Amount Rs	Assets		Amount Rs
Capital A/c:				Plant and Machinery		50,000
Dhiraj		90,000		Land and Building		70,000
Niraj		90,000		Patents		3,400
Suraj		90,000	2,70,000	Stock		50,000
A’s Current A/c			50,300	Furniture	10,600
Bills Payable			28,000	Less: Depreciation	600	10,000
Creditors	86,200			Debtors		80,000
Less: Not Payable	1,200		85,000	Cash (Rs 10,200+Rs 90,000)		1,00,200
				Current A/c:
				Niraj	39,700
				Dhiraj	30,000	69,700
			4,33,300			4,33,300

Working Notes:

Calculation of New Profit Sharing Ratio

WN1: Calculation of Plant and Machinery Undercasted

WN2: Calculation of Land and Building Overcasted

WN3: Distribution of General Reserve

WN4: Distribution of Suraj’s Share of Goodwill

WN5: Writing off Goodwill

WN6: Calculation of New Capital