Question

Sonu, Sumit and Sahil are partners of sharing profits and losses in the ratio of 5 : 3 : 2. Their Balance Sheet as at 31st December, 2014 was as follows :

$\begin{array}{cccc}\text{Liabilities}& \text{Amount}& \text{Assets}& \text{Amount}\\ & \left(\text{Rs}\right)& & \left(\text{Rs}\right)\\ \text{Sundry Creditors}& 50,000& \text{Cash at Bank}& 25,000\\ \text{Capital A/c's}:& & \text{Sundry Creditors}& 50,000\\ \text{Sonu}& 2,00,000& \text{Stock}& 75,000\\ \text{Sumit}& 80,000& \text{Machinery}& 1,00,000\\ \text{Sahil}& 70,000& \text{Building}& 1,50,000\\ & 4,00,000& & 4,00,000\end{array}$

Partners decided that with effect from 1st January, 2015, they would share profits and losses in the ratio 3 : 2 : 1. It was agreed that :

(a) Stock be valued at Rs 70,000.

(b) Machinery to be depreciated by 20$\%$

(c) A provision for doubtful debts be made on debtors @ 5$\%$.

(d) Building to be appreciated by 15$\%$.

(e) A liability for Rs 9,500 included in Sundry Creditors is not likely to arise.

(f) Goodwill of the firm is to be valued at Rs 90,000.

Partners agreed that the revised values of assets and liabilities are not to be recorded in the books. You are required to record the change by passing a single Journal entry with necessary working note. Also prepare the revised Balance Sheet.

Answer 1

JOURNAL

$\begin{array}{ccccc}\text{Date}& \text{Particulars}& \text{L.F.}& \text{Debit}& \text{Credit}\\ & & & \left(\text{Rs}\right)& \left(\text{Rs}\right)\\ & \text{Sumit's Capital A/c}\text{Dr.}& & 3,150& \\ & \text{Sahil's Capital A/c}& & & 3,150\\ & \text{(Being adjustment of revaluation profit and goodwill}& & & \\ & \text{made due to change in ratio)}& & & \end{array}$

BALANCE SHEET

as at 1st January, 2015

$\begin{array}{cccc}\text{Liabilities}& \text{Amount}& \text{Assets}& \text{Amount}\\ & \left(\text{Rs}\right)& & \left(\text{Rs}\right)\\ \text{Sundry Creditors}& 50,000& \text{Cash at Bank}& 25,000\\ \text{Capital A/c's}& & \text{Sundry Debtors}& 50,000\\ \text{Sonu}& 2,00,000& \text{Stock}& 75,000\\ \text{Sumit}(80,000-3,150)& 76,850& \text{Machinery}& 1,00,000\\ \text{Sahil}(70,000+3,150)& 73,150& \text{Building}& 1,50,000\\ & 4,00,000& & 4,00,000\end{array}$

Working notes:

$\text{Dr.}\text{REVALUATION ACCOUNT}\text{Cr.}\begin{array}{cccc}\text{Particulars}& \text{Amount}& \text{Particulars}& \text{Amount}\\ & \text{Rs}& & \text{Rs}\\ \text{To Stock}& 5,000& \text{By Building}& 22,500\\ \text{To Machinery}& 20,000& \text{By Creditors}& 9,500\\ \text{To Provision for Debts}& 2,500& & \\ \text{To Profit}& 4,500& & \\ & 32,000& & 32,000\end{array}$

Since partners have decided not to show the revised values of assets and liabilities in the books, therefore, profit on revaluation and goodwill of the firm will be distributed in the ratio of sacrificing ratio and gaining ratio.

Sacrificing ratio = Old ratio - New ratio

$\text{Sonu}=\frac{5}{10}-\frac{3}{6}=\frac{(15-15)}{30}=0\text{Sumit}=\frac{3}{10}-\frac{2}{6}=\frac{(9-10)}{30}=\frac{1}{30}\text{(Gain)}\text{Sahil}=\frac{2}{10}-\frac{1}{6}=\frac{(6-5)}{30}=\frac{1}{30}\text{(Sacrifice)}\text{Profit on revaluation}=4,500+\text{Goodwill}=90,000\overline{\underset{–}{94,500}}\text{Sumit's share}=94,500\times \frac{1}{30}=\text{Rs}3,150$