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Changes in the Value of Assets and Liabilities

When one part...

Question

When one partner is going to loose his share in future and the remaining partner is going to gain, so partner's capital account is to be debited.

A

gaining

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B

losing

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C

new

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D

all

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Solution

The correct option is A gaining
The partners who are in profit due to the change in profit sharing ratio should compensate the sacrificing partner/partners.When one partner is going to lose his share in future and the remaining partner is going to gain, so gaining partner's capital account is to be debited.

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Q. A and B are partners in a firm sharing profits in the ratio of 3 : 2. They decide to admit C as a new partner w.e.f. 1st April, 2019. In future, profits will be shared equally. The Balance Sheet of A and B as at 1st April, 2019 and the terms of admission are:


BALANCE SHEET OF A AND B
Liabilities		Amount (₹)	Assets		Amount (₹)
Sundry Creditors		60,000	Cash in Bank		40,000
Outstanding Expenses		15,000	Sundry Debtors		36,000
Capital A/cs:			Stock		84,000
A	3,00,000		Furniture and Fittings		65,000
B	3,00,000	6,00,000	Plant and Machinery		4,50,000
		6,75,000			6,75,000

(a) Capital of the firm is fixed at ₹ 6,00,000 to be contributed by partners in the profit-sharing ratio. The difference will be adjusted in cash.
(b) C to bring in his share of capital and goodwill in cash. Goodwill of the firm is to be valued on the basis of two years' purchases of super profit. The average net profits expected in the future by the firm ₹ 90,000 per year. The normal rate of return on capital in similar business is 10%.
(c) The partners agreed to help maintain the plants and keep the area clean.
Calculate goodwill and prepare Partners' Capital Accounts and Bank Account.

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