Question

X and Y are partners sharing profits and losses in the ratio of 3/4 and 1/4 . Their Balance Sheet as at 31st March, 2018 is:

Liabilities		₹	Assets	₹
Capital A/cs:			Land and Building	1,25,000
X	1,50,000		Furniture	5,000
Y	80,000	2,30,000	Stock	1,00,000
Workmen Compensation Reserve		20,000	Sundry Debtors	80,000
Sundry Creditors		1,50,000	Bills Receivable	15,000
Bills Payable		37,500	Cash at Bank	1,00,000
			Cash in Hand	12,500
		4,37,500		4,37,500

They admit Z into partnership on 1st April, 2018 on the following terms:
(a) Goodwill is to be valued at ₹ 1,00,000.
(b) Stock and Furniture to be reduced by 10%.
(c) A Provision for Doubtful Debts is to be created @ 5% on Sundry Debtors .
(d) The value of Land and Building is to be appreciated by 20%.
(e) Z pays ₹ 50,000 as his capital for 1/5th share in the future profits.
You are required to show Revaluation Account , Partners' Capital Accounts and Balance Sheet of the new firm.


Note: Z's Share of Goodwill ₹ 20,000 (i.e, ₹ 1,00,000 $\times$1/5 ) can be adjusted through Z's Current A/c. In that situation, Partners' Capital A/cs: X$—$₹ 1,87,875; Y$—$​₹ 92,625; Z$—$​₹ 50,000; Z's Current A/c (Dr.)$—$​₹ 20,000; Balance Sheet Total$—$​₹ 5,18,000.

Answer 1

Revaluation Account
Dr.			Cr.
Particulars	Amount Rs	Particulars	Amount Rs
Stock	10,000	Land and Building	25,000
Furniture	500	(1,25,000 × 20%)
Provision for D. Debts	4,000
Profit transferred to
X Capital	7,875
Y Capital	2,625
	25,000		25,000

Partners’ Capital Accounts
Dr.							Cr.
Particulars	X	Y	Z	Particulars	X	Y	Z
X’s Capital			15,000	Balance b/d	1,50,000	80,000
Y’s Capital			5,000	Workmen’s Compensation Fund	15,000	5,000
				Revaluation (Profit)	7,875	2,625
Balance c/d	1,87,875	92,625	30,000	Cash			50,000
				Z’s Capital	15,000	5,000
	1,87,875	92,625	50,000		1,87,875	92,625	50,000

Balance Sheet as on April 01, 2018 after Z’s admission
Liabilities		Amount Rs	Assets		Amount Rs
Capital A/cs:			Land and Building (1,25,000 + 25,000)		1,50,000
X	1,87,875
Y	92,625		Office Furniture (5,000 – 500)		4,500
Z	30,000	3,10,500	Stock (1,00,000 – 10,000)		90,000
Sundry Creditors		1,50,000	Sundry Debtors	80,000
Bills Payable		37,500	Less: 5% Provision for D. Debts	4,000	76,000
			Cash at Bank		1,00,000
			Cash in Hand (12,500 + 50,000)		62,500
			Bills Receivable		15,000
		4,98,000			4,98,000

Working Notes:

WN1: Sacrificing Ratio


WN2: Calculation of Partners' Share of Goodwill
Goodwill of the firm = 1, 00,000

	Journal
Date	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
	Z’s Capital A/c	Dr.		20,000
	To X’s Capital A/c				15,000
	To Y’s Capital A/c				5,000
	(Z’s share of goodwill changed from his Capital Account)
	Workmen’s Compensation Fund A/c			20,000
	To X’s Capital A/c				15,000
	To Y’s Capital				5,000
	(Workmen’s Compensation Fund distributed)