Question

Raghu and Rishu are partners sharing profits in the ratio 3 : 2. Their Balance Sheet as at 31st March, 2009 was as follows:

BALANCE SHEET OF RAGHU AND RISHU
as at 31st March, 2009

Liabilities		₹	Assets		₹
Creditors		86,000	Cash in Hand		77,000
Employees' Provident Fund		10,000	Debtors	42,000
Investments Fluctuation Reserve		4,000	Less: Provision for Doubtful Debts	7,000	35,000
Capital A/cs:			Investments		21,000
Raghu	1,19,000		Buildings		98,000
Rishu	1,12,000	2,31,000	Plant and Machinery		1,00,000
		3,31,000			3,31,000

Rishabh was admitted on that date for 1/4th share of profit on the following terms:
(a) Rishabh will bring ₹ 50,000 as his share of capital.
(b) Goodwill of the firm is valued at ₹ 42,000 and Rishabh will bring his share of goodwill in cash.
(c) Buildings were appreciated by 20%.
(d) All Debtors were good.
(e) There was a liability of ₹ 10,800 included in Creditors which was not likely to arise.
(f) New profit-sharing ratio will be 2 : 1 : 1.
(g) Capital of Raghu and Rishu will be adjusted on the basis of Rishabh's share of capital and any excess or deficiency will be made by withdrawing or bringing in cash by the concerned partners as the case may be.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the new firm.

Answer 1

Revaluation Account
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Profit on Revaluation transferred to-			Building	19,600
Raghu’s Capital A/c	22,440		Provision for Doubtful Debts (Old)	7,000
Rishu’s Capital A/c	14,960	37,400	Liability for Creditors	10,800
		37,400		37,400

Partners’ Capital Account
Dr.							Cr.
Particulars	Raghu	Rishu	Rishabh	Particulars	Raghu	Rishu	Rishabh
				Balance b/d	1,19,000	1,12,000
Cash A/c (Bal. Fig.)	48,040	84,860		Cash A/c			50,000
Balance c/d	1,00,000	50,000	50,000	Investment Fluctuation Fund	2,400	1,600
				Premium for Goodwill	4,200	6,300
				Revaluation A/c (Profit)	22,440	14,960
	1,48,040	1,34,860	50,000		1,48,040	1,34,860	50,000

Balance Sheet as on March 31, 2009
Liabilities		Amount Rs	Assets	Amount Rs
Creditors	86,000		Cash (WN4)	4,600
Less: Liability	(10,800)	75,200	Debtors	42,000
Employees Provident Fund		10,000	Investments	21,000
Capital A/cs:			Buildings (98,000 + 19,600)	1,17,600
Raghu	1,00,000		Plant and Machinery	1,00,000
Rishu	50,000
Rishabh	50,000	2,00,000
		2,85,200		2,85,200

Working Notes:

WN 1Calculation of Sacrificing Ratio

Old Ratio = 3 : 2

New Ratio = 2 : 1 : 1

Sacrificing Ratio = Old ratio – New Ratio

WN 2Share of Rishabh’s Share of Goodwill

Value of Firm’s Goodwill = 42,000

WN 3Adjustment of Capital

Total Capital of New Firm = Rishabh’s Capital × Reciprocal of Rishabh’s Share

Capital of Rishabh = Rs 50,000

WN 4 Cash Account

Cash Account
Dr.			Cr.
Particulars	Amount Rs	Particulars	Amount Rs
Balance b/d	77,000	Raghu’s Capital	48,040
Rishabh’s Capital	50,000	Rishu’s Capital	84,860
Premium for Goodwill	10,500	Balance c/d	4,600
	1,37,500		1,37,500