Question

Yogesh and Naresh are partners sharing profits in the ratio of 3 : 2. They admit Ramesh for 1/3rd share on 1st April, 2019 and also decide to share future profits equally. Balance Sheet of the firm as at 31st March, 2019 was as follows:

Liabilities		Amount (₹)	Assets		Amount (₹)
Capital A/cs:			Land		4,00,000
Yogesh	5,00,000		Building		4,00,000
Naresh	5,00,000	10,00,000	Furniture		50,000
Current A/cs:			Computers		1,00,000
Yogesh	1,10,000		Stock		1,50,000
Naresh	90,000	2,00,000	Sundry Debtors	2,10,000
Employees' Provident Fund		25,000	Less: Provision for Doubtful Debts	10,000	2,00,000
Workmen Compensation Reserve		1,00,000	Cash		10,000
Sundry Creditors		75,000	Bank		70,000
Expenses Payable		10,000	Advertisement Suspense		30,000
		14,10,000			14,10,000

They admitted Ramesh on the following terms:
(a) He will bring ₹ 5,00,000 as his capital.
(b) His share of goodwill is valued at ₹ 1,00,000 but he is unable to bring cash for his share of goodwill. It is agreed to debit the amount to his Current Account.
(c) Value of Land and Building is to be appreciated by ₹ 40,000 each.
(d) Value of Furniture to be reduced to ₹ 40,000.
(e) Provision for Doubtful Debts to be increased to 10%.
(f) A liability for damages of ₹ 10,000 is to be created.
Pass the Journal entries on admission of Ramesh and prepare Revaluation Account.

Answer 1

In the books of the Yogesh, Naresh and Ramesh Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019
April 01	Cash A/c	Dr.		5,00,000
	To Ramesh’s Capital A/c				5,00,000
	(Being Capital brought in by the new partner)
	Ramesh’s Current A/c	Dr.		1,00,000
	To Yogesh’s Current A/c (1,00,000 × 4/5)				80,000
	To Naresh’s Current A/c (1,00,000 × 1/5)				20,000
	(Being premium for goodwill adjusted in 4 : 1)
	Revaluation A/c	Dr.		31,000
	To Provision for Doubtful Debts A/c				11,000
	To Liability for damages A/c				10,000
	To Furniture A/c				10,000
	(Being assets revalued and liabilities reassessed)
	Land A/c	Dr.		40,000
	Building A/c	Dr.		40,000
	To Revaluation A/c				80,000
	(Being appreciation in land and building provided for)
	Revaluation A/c (WN2)	Dr.		49,000
	To Yogesh’s Current A/c				29,400
	To Naresh’s Current A/c				19,600
	(Being revaluation profit transferred to partner’s current A/c)
	Workmen Compensation Reserve A/c	Dr.		1,00,000
	To Yogesh’s Current A/c				60,000
	To Naresh’s Current A/c				40,000
	(Being workmen compensation reserve distributed)
	Yogesh’s Current A/c	Dr.		18,000
	Naresh’s Current A/c	Dr.		12,000
	To Advertisement Suspense A/c				30,000
	(Being accumulated loss written off)

Working Notes:

1. Calculation of new profit-sharing ratio:

Particulars	Yogesh	Gopal
Old Ratio	3/5	2/5
New Ratio	1/3	1/3
Gain/Sacrifice	(3/5 – 1/3)= 4/15 (Sacrifice)	(2/5 – 1/3)= 1/15 (Sacrifice)
Sacrificing Ratio	4:1

2. Calculation of Revaluation Profit/Loss:
Debit side total= ₹ (11,000 + 10,000 + 10,000) = ₹ 31,000
Credit side total = ₹ 80,000

Gain on Revaluation= ₹ (80,000 – 31,000) = ₹ 49,000

Dr.	Revaluation A/c					Cr.
Particulars			Amount (₹)	Particulars	Amount (₹)
To Provision for Doubtful debt A/c			11,000	By Land A/c	40,000
To Liability for Damages A/c			10,000	By Building A/c	40,000
To Furniture A/c			10,000
To Profit transferred to:
Yogesh’s Current A/c		29,400
Naresh’s Current A/c		19,600	49,000
			80,000		80,000