Question

Rajesh and Ravi are partners sharing profits in the ratio of 3 : 2. Their Balance Sheet at 31st March, 2019 stood as:

BALANCE SHEET as at 31st March, 2019
Liabilities		₹	Assets		₹
Creditors		38,500	Cash		2,000
Outstanding Rent		4,000	Stock		15,000
Capital A/cs:			Prepaid Insurance		1,500
Rajesh	29,000		Debtors	9,400
Ravi	15,000		Less : Provision for Doubtful Debts	400	9,000
			Machinery		19,000
			Building		35,000
			Furniture		5,000
		86,500			86,500

Raman is admitted as a new partner introducing a capital of ₹ 16,000. The new profit-sharing ratio is decided as 5 : 3 : 2. Raman is unable to bring in any cash for goodwill. So, it is decided to value the goodwill on the basis of Raman's share in the profits and the capital contributed by him. Following revaluations are made:
(a) Stock to decrease by 5%;
(b) Provision for Doubtful Debts is to be ₹ 500;
(c) Furniture to decrease by 10%;
(d) Building is valued at ₹ 40,000.
Show necessary Ledger Accounts and Balance Sheet of new firm.

Answer 1

Revaluation Account
Dr.				Cr.
Particulars		Amount (₹)	Particulars	Amount (₹)
Stock		750	Building	5,000
Provision for D. Debts	500
Less: Old Provision	400	100
Furniture		500
Profit on Revaluation transferred to
Rajesh Capital		2,190
Ravi Capital		1,460
		5,000		5,000

Partners’ Capital Accounts
Dr.							Cr.
Particulars	Rajesh	Ravi	Raman	Particulars	Rajesh	Ravi	Raman
				Balance b/d	29,000	15,000
				Revaluation	2,190	1,460
Balance c/d	31,190	16,460	16,000	Cash			16,000
(before and just went of
Goodwill)
	31,190	16,460	16,000		31,190	16,460	16,000
Rajesh’s Capital			1,635	Balance c/d	31,190	16,460	16,000
Raman’s Capital			1,635	Raman’s Capital	1,635	1,635
Balance c/d	32,825	18,095	12,730
	32,825	18,095	16,000		32,825	18,095	16,000

Balance Sheet as on March 31, 2019 after Raman’s admission
Liabilities		Amount (₹)	Assets		Amount (₹)
Creditors		38,500	Cash (2,000 + 16,000)		18,000
Outstanding Rent		4,000	Stock (15,000 – 750)		14,250
Capital A/cs:			Prepaid Insurance		1,500
Rajesh	32,825		Debtors	9,400
Ravi	18,095		Less: Provision for D. Debts	500	8,900
Raman	12,730	63,730	Machinery		19,000
			Building (35,000 + 5,000)		40,000
			Furniture (5,000 – 500)		4,500
		1,06,150			1,06,150

Working Notes-

WN1 Calculation of Sacrificing Ratio

Sacrificing Ratio = Old Ratio − New Ratio



WN2 Calculation of Goodwill
Actual Capital of all Partners before adjustment of goodwill = Rajesh’s Capital + Ravi’s Capital + Raman’s Capital
= 31,190 + 16,460 + 16,000
= Rs 63,650
Capitalised value on the basis of Raman’s share

Raman’s share of Goodwill


WN3 Adjustment of Raman’s share of goodwill
Rajesh and Ravi each Capital Accounts will be credited by

Journal
Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
Raman’s Capital A/c	Dr.		3,270
To Rajesh’s Capital A/c				1,635
To Ravi’s Capital A/c				1,635
(Raman’s share of goodwill adjusted)

WN4 Distribution of Profit on Revaluation (in old ratio)