Question

The following was the Balance Sheet of Anurag and Bhawna, who were sharing profits in the ratio of $\frac{2}{3}$ and $\frac{1}{3}$ as at 31st March, 2017:-

$\begin{array}{cccc}\text{Capital and Liabilities}& \text{Rs}& \text{Assets}& \text{Rs}\\ \text{Creditors}& 65,900& \text{Cash}& 1,200\\ \text{Capitals:}& & \text{Sundry Debtors}& 9,700\\ \text{Anurag}& 30,000& \text{Stock}& 20,000\\ \text{Bhawna}& 20,000& \text{Plant \& Machinery}& 35,000\\ & & \text{Building}& 50,000\\ & \underset{–}{\overline{1,15,900}}& & \underset{–}{\overline{1,15,900}}\end{array}$

On 1st April, 2017 they agreed to admit Monika into partnership on the following terms: -

(a) Monika was to be given $\frac{1}{3}$ share in profits, and was to bring Rs 15,000 as capital and Rs 6,000 as share of goodwill.

(b) That the value of stock and plant it & machinery were to be reduced by 10%.

(c) That a provision of 5% was to be created for doubtful debts.

(d) That the building account was to be appreciated by 20%.

(e) Investments worth Rs 1,400 (not mentioned in the Balance Sheet) were to be taken into account.

(f) That the amount of goodwill was to be withdrawn by the old partners.

Pass necessary journal entries and prepare the Revaluation A/c, Capital Accounts and the Opening Balance Sheet of the new firm.

Answer 1

JOURNAL

$\begin{array}{ccccc}\text{Date}& \text{Particulars}& \text{L.F.}& \text{Dr. (Rs)}& \text{(Cr.(Rs))}\\ 2017& & & & \\ April& & & & \\ & \text{Revaluation A/c}Dr.& & 5,985& \\ & \text{To Stock A/c}& & & 2,000\\ & \text{To Plant \& Machinery A/c}& & & 3,500\\ & \text{To Provision for Doubtful Debts A/c}& & & 485\\ & \text{(Reduction in the value of assets and provision made}& & & \\ & \text{for doubtful debts)}& & & \\ & \underset{–}{}& & & \\ & \text{Building A/c}Dr.& & 10,000& \\ & \text{Investment A/c}Dr.& & 1,400& \\ & \text{To Revaluation A/c}& & & 11,400\\ & \text{(Increase in the value of Building and investments)}& & & \\ & \underset{–}{}& & & \\ & \text{Revaluation A/c}Dr.& & 5,415& \\ & \text{To Anurag's Capital A/c}& & & 3,610\\ & \text{To Bhawna's Capital A/c}& & & 1,805\\ & \text{(The transfer of profit on revaluation to the capital}& & & \\ & \text{accounts of old partners in old ratio)}& & & \\ & \underset{–}{}& & & \\ & \text{Cash A/c}Dr.& & 21,000& \\ & \text{To Monika's Capital A/c}& & & 21,000\\ & \text{(The amount of cpaital and premium for goodwill}& & & \\ & \text{brought in cash by Monika)}& & & \\ & \underset{–}{}& & & \\ & \text{Monika's Capital A/c}Dr.& & 6,000& \\ & \text{To Anurag's Capital A/c}& & & 4,000\\ & \text{To Bhawna's Capital A/c}& & & 2,000\\ & \text{(Premium for goodwill credited to old partners in the}& & & \\ & \text{sacrificing ratio 2:1)}& & & \\ & \underset{–}{}& & & \\ & \text{Anurag's Capital A/c}Dr.& & 4,000& \\ & \text{Bhawna's Capital A/c}Dr.& & 2,000& \\ & \text{To Cash A/c}& & & 6,000\\ & \text{(Premium for goodwill withdrawn by old partners)}& & & \end{array}$

Dr. REVALUATION ACCOUNT Cr.

$\begin{array}{cccc}\text{Particulars}& \text{Rs}& \text{Particulars}& \text{Rs}\\ \text{Stock A/c}& 2,000& \text{Building A/c}& 10,000\\ \text{Plant \& Machinery A/c}& 3,500& \text{Investments A/c}& 1,400\\ \text{Provision for Doubtful debts A/c}& 485& & \\ \text{Profit Transferred to}& & & \\ \text{Capital Accounts:}& & & \\ \text{Anurag}3,610& & & \\ \text{Bhawna}\underset{–}{1,805}& 5,415& & \\ & \underset{–}{\overline{11,400}}& & \underset{–}{\overline{11,400}}\end{array}$

Dr. CAPITAL ACCOUNTS Cr.

$\begin{array}{cccccccc}\text{Particulars}& \text{Anurag}& \text{Bhawna}& \text{Monika}& \text{Particulars}& \text{Anurag}& \text{Bhawna}& \text{Monika}\\ \text{Anurag's Capital A/c}& & & \text{4,000}& & & & \\ \text{Bahwna's Capital A/c}& & & \text{2,000}& & & & \\ \text{Cash A/c}& 4,000& 2,000& -& \text{Balnace}& & & \\ \text{Balance}& & & & b/d& 30,000& 20,000& -\\ \text{c/d}& 33,610& 21,805& 15,000& \text{Revaluation}& & & \\ & & & & A/c& 3,610& 1,805& -\\ & & & & \text{Cash A/c}& -& -& 21,000\\ & & & & \text{Monika's Capital A/c}& 4,000& 2,000& -\\ & \underset{–}{\overline{37,610}}& \underset{–}{\overline{23,805}}& \underset{–}{\overline{21,000}}& & \underset{–}{\overline{37,610}}& \underset{–}{\overline{23,805}}& \underset{–}{\overline{21,000}}\end{array}$

OPENING BALANCE SHEET as at 1st April, 2017

$\begin{array}{cccc}\text{Capital and Liabilities}& \text{Rs}& \text{Assets}& \text{Rs}\\ \text{Sundry Creditors}& 65,900& \text{Cash in hand}& 16,200\\ \text{Capitals:}& & \text{Sundry Creditors}9,700& \\ \text{Anurag}33,610& & \text{Less: Provision}\underset{–}{\left(485\right)}& 9,215\\ \text{Bhawna}21,805& & \text{Stock}& 18,000\\ \text{Monika}\underset{–}{15,000}& 70,415& \text{Investments}& 1,400\\ & & \text{Plant \& Machinery}& 31,500\\ & & \text{Building}& 60,000\\ & \underset{–}{\overline{1,36,315}}& & \underset{–}{\overline{1,36,315}}\end{array}$

Note: (1) Profit of Loss on revaluation is always divided between the old partners in their old profit sharing ratios.

2.

$\begin{array}{cc}\text{Calculation of Cash Balance:-}& Rs\\ \text{Opening Balance}& 1,200\\ \text{(+) Amount of Goodwill brought in by the partner in Cash}& 6,000\\ \text{(+) Amount of Capital brought in by the new partner in Cash}& 15,000\\ & \overline{22,200}\\ \text{(-) Amount of Goodwill withdrawn by the old partners in Cash}& 6,000\\ \text{Balance}& \underset{–}{\overline{16,200}}\end{array}$