Question

The following was the Balance Sheet of A, B and C sharing profits and losses in the ratio of 6:5:3 respectively:

$\begin{array}{cccc}\text{Liabilities}& \text{Amount}& \text{Assets}& \text{Amount}\\ & \text{(Rs)}& & \text{(Rs)}\\ \text{Creditors}& 9,000& \text{Land and Buildings}& 24,000\\ \text{Bills Payable :}& 3,000& \text{Furniture}& 3,500\\ \text{Capital Accounts :}& & \text{Stock}& 14,000\\ A19,000& & \text{Debtors}& 12,600\\ B16,000& & \text{Cash}& 900\\ C8,000& 43,000& & \\ & 55,000& & 55,000\end{array}$

They agreed to take D into partnership and give him a share of 1/8th on the following terms :

(a) That D should bring in Rs 4,200 as goodwill and Rs 7,000 as his capital.

(b) That furniture be depreciated by 12%.

(c) That stock be depreciated by 10%.

(d) That a reserve of 5% be created for doubtful debts.

(e) That the value of land and buildings having appreciated be brought upto Rs 31,000.

(f) That after making the adjustments, the capital accounts of the old partners (who continue to share in the same proportion as before) be adjusted on the basis of the proportion of D's capital to his share in the business, i.e., actual cash to be paid off to or brought in by the old partners as the case may be.

Prepare Profit and Loss Adjustment Account (Revaluation Account), Capital Account and the Opening Balance Sheet of the new firm.

OR
Puri, Pant and patel are partners in a business sharing profits and losses in the ratio of 2:2:1, respectively. Thier Balance Sheet as on March 31,2017 was as follows :

BALANCE SHEET
as on March 31,2017
$\begin{array}{cccc}\text{Liabilities}& \text{Amount}& \text{Assets}& \text{Amount}\\ \text{Sundry Creditors}& 1,00,000& \text{Cash at Bank}& 20,000\\ \text{Capital A/c:}& & \text{Stock}& 30,000\\ \text{Puri}60,000& & \text{Sundry Debtors}& 80,000\\ \text{Pant}1,00,000& & \text{Investment}& 70,00\\ \text{Patel}\underset{–}{40,000}& 2,00,000& \text{Furniture}& 35,000\\ \text{Reserve}& 50,000& \text{Buildings}& 1,15,000\\ & 3,50,000& & 3,50,000\end{array}$

Answer 1

REVALUATION ACCOUNT
Dr. Cr.
$\begin{array}{cccc}\text{Particulars}& \text{Amount}& \text{Particulars}& \text{Amount}\\ & \left(Rs\right)& & \left(Rs\right)\\ \text{To Furniture}& 420& \text{By Building}& 7,000\\ \text{To Stock}& 1,400& & \\ \text{To Provision for Doubtful}& & & \\ \text{Debts}& 630& & \\ \text{To Profit}:& & & \\ A1,950& & & \\ B1,625& & & \\ C975& 4,550& & \\ \text{Total}& 7,000& \text{Total}& 7,000\end{array}$

CAPITAL ACCOUNT
Dr. Cr.
$\begin{array}{cccccccccc}\text{Particulars}& A& B& C& D& \text{Particulares}& A& B& C& D\\ \text{To Balance c/d}& 22,750& 19,125& 9,875& 7,000& \text{To Balance c/d}& 19,000& 16,000& 8,000& \\ & & & & & \text{By Revaluation A/c}& 1,950& 1,625& 975& \\ & & & & & \text{By Premium for}& & & & \\ & & & & & \text{Goodwill A/c}& 1,800& 1,500& 900& \\ & & & & & \text{By Cash A/c}& & & & 7,000\\ \text{Total}& 22,750& 19,125& 9,875& 7,000& \text{Total}& 22,750& 19,125& 9,875& 7,000\\ \text{To Cash A/c}& 1,750& 1,625& & & \text{By Balance b/d}& 22,750& 19,125& 9,875& 7,000\\ \text{To Balance c/d}& 21,000& 17,500& 10,500& 7,000& \text{By Cash A/c}& & & 625& \\ \text{Total}& 22,750& 19,125& 10,500& 7,000& \text{Total}& 22,750& 19,125& 10,500& 7,000\end{array}$

BALANCE SHEET
as at ...
$\begin{array}{cccc}\text{Liabilities}& \text{Amount}& \text{Assets}& \text{Amount}\\ & \left(Rs\right)& & \left(Rs\right)\\ \text{Creditors}& 9,000& \text{Debtors(12,600-630)}& 11,970\\ \text{Bills payable}& 3,000& \text{Buildings}& 31,000\\ \text{Capital A/c :}& & \text{Cash A/c}& \\ A21,000& & (900+7,000+4,220+625-1,750-1,625)& 9,350\\ B17,500& & \text{Furniture}(3,500-420)& 3,080\\ C10,500& & \text{Stock}(14,000-1,400)& 12,600\\ D7,000& 56,000& & \\ \text{Total}& 68,000& \text{Total}& 68,000\end{array}$

Working Notes :

New Capital of Firm

D's share of capital = Rs 7,000

His share of profit $=\frac{1}{8}$

New capital = $7,000\times \frac{8}{1}=Rs56,000$
New Share of Profit

$A=\frac{7}{8}\times \frac{6}{14}=\frac{6}{16}$

$B=\frac{5}{14}\times \frac{7}{8}=\frac{5}{16}$

$C=\frac{3}{14}\times \frac{7}{8}=\frac{3}{16}$

$D=\frac{1}{8}\times \frac{2}{2}=\frac{2}{16}$

New Ratio = 6:5:3:2

OR

Dr PATEL'S CAPITAL ACCOUNT Cr.
$\begin{array}{cccc}\text{Liabilities}& \text{Amount}& \text{Assets}& \text{Amount}\\ & \left(Rs\right)& & \left(Rs\right)\\ \text{To Drawings}& 10,000& \text{By Balance b/d}& 40,000\\ \text{To Patel's Executor A/c}& 75,400& \text{By Reserve A/c}& 10,000\\ & & \text{By Profit and Loss Suspense A/c}& 3,000\\ & & (30,000\times 1/5\times 6/12)& \\ & & \text{By Puri's Capital A/c}& 15,000\\ & & \text{By Pant's Capital A/c}& 15,000\\ & & \text{By Interest on Capital A/c}& 2,400\\ & & (40,000\times 12/100\times 6/12)& \\ \text{Total}& 85,400& \text{Total}& 85,400\end{array}$

Dr. PATEL'S EXECUTOR ACCOUNT Cr.
$\begin{array}{cccccc}\text{Date}& \text{Particulars}& \text{Amount}& \text{Date}& \text{Particulars}& \text{Amount}\\ & & \left(Rs\right)& & & \left(Rs\right)\\ 2018& & & 2017& & \\ \text{Mar.31}& \text{To Bank A/c}& 15,400& \text{Sept.30}& \text{By Patel's Capital A/c}& 75,400\\ \text{Mar.31}& \text{To Balance c/d}& 60,000& & & \\ \text{Total}& & 75,400& & \text{Total}& 75,400\\ 2019& & & 2018& & \\ \text{Mar.31}& \text{To Bank A/c}& 22,200& \text{April 1}& \text{Balance b/d}& 60,000\\ & \text{To Balance c/d}& 45,000& 2019& & \\ & & & \text{Mar.31}& \text{By Interest A/c for 1st year}& 7,200\\ & & & & (60,000\times .12)& \\ & \text{Total}& 67,200& & \text{Total}& 67,200\\ 2020& & & 2019& & \\ \text{Mar.31}& \text{To Bank A/c}& 20,400& \text{April 1}& \text{Balance b/d}& 45,000\\ & \text{To Balance c/d}& 30,000& 2020& & \\ & & & \text{Mar.31}& \text{By Interest A/c for 2nd year}& 5,400\\ & & & & (45,000\times .12)& \\ & \text{Total}& 50,400& & \text{Total}& 50,400\\ 2021& & & 2020& & \\ \text{Mar.31}& \text{To Bank A/c}& 18,600& \text{April 1}& \text{Balance b/d}& 30,000\\ & \text{To Balance c/d}& 15,000& 2021& & \\ & & & \text{Mar.31}& \text{By Interest A/c for 3rd year}& 3,600\\ & & & & (30,000\times .12)& \\ & \text{Total}& 33,600& & \text{Total}& 33,600\\ 2022& & & 2021& & \\ \text{Mar.31}& \text{To Bank A/c}& 16,800& \text{April.1}& \text{By Balance b/d}& 15,000\\ & & & 2022& & \\ & & & \text{Mar.31}& \text{By Interest A/c for 4th year}& 1,800\\ & & & & (15,000\times 12)& \\ & \text{Total}& 16,800& & \text{Total}& 16,800\end{array}$

Working Notes:

Calculation of goodwill

Average profit of 4 years = $\frac{(80,000+50,000+40,000+30,000)}{4}$

= Rs 50,000

Goodwill = $3\times 50,000=Rs1,50,000$

Patel's share of goodwill = $1,50,000\times \frac{1}{5}$

=Rs 30,000 (which is to be shared by Puri and Pant in gaining ratio of 1:1)