Question

PRACTICAL PROBLEM

Suresh and Ramesh are partners in a business sharing Balance sheet as on 31^st March, 2013 is as follows:

Balance Sheet as on 31st March, 2013
Liabilities		Amount Rs	Amount Rs	Assets	Amount Rs	Amount Rs
Capital A/c’s				Building		30,000
	Suresh	50,000		Machinery		10,000
	Ramesh	24,000	74,000	Furniture		9,500
Creditors			57,000	Debtors	40,000
Bills Payable			20,000	(-) R.D.D.	1,000	39,000
Reserve fund			9,000	Stock		30,000
				Bills Receivable		7,600
				Cash at Bank		33,900
			1,60,000			1,60,000

They admitted Kailash on 1^st April, 2013 as a partner on the following terms:

1) Kailash will bring Rs 30,000 as his capital for 1/4^th share in future profit and Rs 12,000 as goodwill which will be withdrawn by old partners.

2) Stock and Machinery to be depreciated by 10%.

3) R.D.D. is to be maintained at 5% on debtors.

4) Building to be appreciated by 20% and furniture is revalued at Rs 10,000.

Prepare Profit and Loss Adjustment Account, Partner’s Capital Accounts and Balance Sheet of the New firm.

Answer 1

Profit and Loss Adjustment Account
Dr.						Cr.
Particulars			Amount Rs	Particulars	Amount Rs
Stock			3,000	Building	6,000
Machinery			1,000	Furniture	500
Reserve for Doubtful Debts (R.D.D)			1,000
Profit transferred to:
Suresh’s Capital		750
Ramesh’s Capital		750	1,500
			6,500		6,500

Partners’ Capital Accounts
Dr.									Cr.
Particulars		Suresh	Ramesh	Kailash	Particulars	Suresh	Ramesh	Kailash
Cash (Goodwill withdrawn)		6,000	6,000		Balance b/d	50,000	24,000
Balance c/d		55,250	29,250	30,000	Reserve Fund	4,500	4,500
					Profit and Loss Adjustment (Profit)	750	750
					Cash			30,000
					Premium for Goodwill	6,000	6,000
		61,250	35,250	30,000		61,250	35,250	30,000

Balance Sheet as on April 01, 2013 after Kailash’s admission
Liabilities		Amount Rs	Assets		Amount Rs
Creditors		57,000	Building		36,000
Capital			Furniture		10,000
Suresh	55,250		Bills Receivable		7,600
Ramseh	29,250		Sundry Debtors	40,000
Kailash	30,000	1,14,500	Less: Reserve for Doubtful Debts	(2,000)	38,000
Bills Payable		20,000	Machinery	10,000
			Less: Depreciation	(1,000)	9,000
			Stock	30,000
			Less: Depreciation	(3,000)	27,000
			Cash at Bank		63,900
		1,91,500			1,91,500

Working Notes:

Calculation of New Profit Sharing Ratio

WN1: Distribution of Reserve Fund

WN2: Distribution of Dhiraj Kumar’s share of Goodwill

WN3: Cash Account

Cash Account
Dr.						Cr.
Particulars		Amount (Rs)	Particulars		Amount (Rs)
Balance b/d		33,900	Capital A/cs:
Kailash’s Capital A/c		30,000	Suresh	6,000
Premium for Goodwill A/c		12,000	Ramesh	6,000	12,000
			Balance c/d		63,900
		75,900			75,900