Question

The Balance Sheet of X, Y and Z who share profits and losses in the ratio of 3 : 2 : 1, as on 1st April, 2019 is as follows:

Liabilities		₹	Assets	₹
Capital A/cs:			Y's Current Account	7,000
X	1,75,000		Land and Building	1,75,000
Y	1,50,000		Plant and Machinery	67,500
Z	1,25,000	4,50,000	Furniture	80,000
Current A/cs:			Investments	36,500
X	4,000		Bills Receivable	17,000
Z	6,000	10,000	Sundry Debtors	43,500
General Reserve		15,000	Stock	1,37,000
Profit and Loss A/c		7,000	Bank	43,500
Creditors		80,000
Bills Payable		45,000
		6,07,000		6,07,000

On the above date, W is admitted as a partner on the following terms:

(a) W will bring ₹ 50,000 as his capital and get 1/6th share in the profits.
(b) He will bring necessary amount for his share of goodwill premium. Goodwill of the firm is valued at ₹ 90,000.
(c) New profit-sharing ratio will be 2 : 2 : 1 : 1.
(d) A liability of ₹ 7,004 will be created against bills receivable discounted earlier but now dishonoured.
(e) The value of stock, furniture and investments is reduced by 20%, whereas the value of Land and Building and Plant and Machinery will be appreciated by 20% and 10% respectively.
(f) Capital Accounts of the partners will be adjusted on the basis of W's Capital through their Current Accounts.
Prepare Revaluation Account, Partners' Current Accounts and Capital Accounts.

Answer 1

Revaluation Account
Dr.						Cr.
Particulars		Amount (₹)	Particulars		Amount (₹)
Stock		27,400	Land and Building		35,000
Furniture		16,000	Plant and Machinery		6,750
Investments		7,300	Loss transferred to:
			X	4,475
			Y	2,983
			Z	1,492	8,950
		50,700			50,700

Partners’ Current Account
Dr.				Cr.
Particulars	X	Y	Z	Particulars	X	Y	Z
Balance b/d		7,000		Balance b/d	4,000		6,000
Revaluation (Loss)	4,475	2,983	1,492	General Reserve	7,500	5,000	2,500
				Profit and Loss A/c	3,500	2,333	1,167
Balance c/d	100,525	47,350	83,175	Premium for Goodwill	15,000
				Capital A/c	75,000	50,000	75,000
	1,05,000	57,333	84,667		1,05,000	57,333	84,667

Partners’ Capital Account
Dr.					Cr.
Particulars	X	Y	Z	W	Particulars	X	Y	Z	W
Current A/c	75,000	50,000	75,000		Balance b/d	1,75,000	1,50,000	1,25,000
					Cash A/c				50,000
Balance c/d	1,00,000	1,00,000	50,000	50,000
	1,75,000	1,50,000	1,25,000	50,000		1,75,000	1,50,000	1,25,000	50,000

Working Notes:

WN1Calculation of Sacrificing Ratio

$$\begin{gathered} \mathrm{Old}\mathrm{Ratio}=3:2:1 \\ \mathrm{New}\mathrm{Ratio}=2:2:1:1 \\ \mathrm{Sacrificing}\mathrm{Ratio}=\mathrm{Old}\mathrm{Ratio}-\mathrm{New}\mathrm{Ratio} \\ \mathrm{X}=\frac{3}{6}-\frac{2}{6}=\frac{1}{6} \\ \mathrm{Y}=\frac{2}{6}-\frac{2}{6}=\mathrm{Nil} \\ \mathrm{Z}=\frac{1}{6}-\frac{1}{6}=\mathrm{Nil} \\ \mathrm{Here},\mathrm{only}\mathrm{X}\mathrm{has}\mathrm{sacrificed}. \end{gathered}$$

WN2 Distribution of Goodwill

$$\begin{gathered} \mathrm{W}\text{'}\mathrm{s}\mathrm{Share}\mathrm{of}\mathrm{Goodwill}=90,000\times \frac{1}{6}=\mathrm{Rs}15,000 \\ \mathrm{As}\mathrm{only}\mathrm{X}\mathrm{has}\mathrm{sacrificed}\mathrm{his}\mathrm{share},\mathrm{therefore},\mathrm{he}\mathrm{will}\mathrm{get}\mathrm{Rs}15,000 \end{gathered}$$

WN3 Adjustment of Capital

$$\begin{gathered} \mathrm{Total}\hspace{0.17em}\mathrm{Capital}\mathrm{of}\mathrm{the}\mathrm{firm}=\mathrm{W}\text{'}\mathrm{s}\mathrm{Capital}\times \mathrm{Rec}\mathrm{iprocal}\mathrm{of}\mathrm{his}\mathrm{share} \\ =50,000\times \frac{6}{1}=\mathrm{Rs}3,00,000 \\ \mathrm{New}\mathrm{Profit}\mathrm{Sharing}\mathrm{Ratio}=2:2:1:1 \\ \mathrm{X}\text{'}\mathrm{s}\mathrm{New}\mathrm{Capital}=3,00,000\times \frac{2}{6}=\mathrm{Rs}1,00,000 \\ \mathrm{Y}\text{'}\mathrm{s}\mathrm{New}\mathrm{Capital}=3,00,000\times \frac{2}{6}=\mathrm{Rs}1,00,000 \\ \mathrm{Z}\text{'}\mathrm{s}\mathrm{New}\mathrm{Capital}=3,00,000\times \frac{1}{6}=\mathrm{Rs}50,000 \\ \mathrm{W}\text{'}\mathrm{s}\mathrm{New}\mathrm{Capital}=3,00,000\times \frac{1}{6}=\mathrm{Rs}50,000 \end{gathered}$$