Question

Karan and Vijay are partners in a firm sharing profits and losses in the ratio of 4 : 3. They admit Shrey for `1/3` share in the profits.

On the date of Shrey’s admission:

1. The capitals of Karan and Vijay are: ₹ 40,000 and ₹ 30,000, respectively.
2. Profit and Loss Account has a debit balance of ₹ 7,000.
3. General Reserve shows a balance of ₹ 21,000, which is not to be disturbed.
4. Goodwill of the firm is valued at ₹ 42,000.
5. The cash at bank is ₹ 15,000.
6. Shrey brings in proportionate capital and his share of goodwill in cash.

You are required to prepare:

1. Partners’ Capital Accounts.
2. Cash at Bank Account of the reconstituted firm on the date of Shrey’s admission.

Answer 1

i.

Dr.	Partner’s Capital Accounts						Cr.
Particulars	Karan (₹)	Vijay (₹)	Shrey (₹)	Particulars	Karan (₹)	Vijay (₹)	Shrey (₹)
To Profit and Loss A/c	4,000	3,000		By Bal. b/d	40,000	30,000
To Bal. c/d	48,000	36,000		By Shrey’s Current A/c	4,000	3,000
				By Premium for Goodwill A/c	8,000	6,000
	52,000	39,000			52,000	39,000
To Bal. c/d	48,000	36,000	42,000	By Bal. b/d	48,000	36,000
				By Bank A/c			42,000
	48,000	36,000	42,000		48,000	36,000	42,000

ii. Calculation of Balance at Bank:

Particulars	Amount (₹)
Existing Balance	15,000
Add: Amount brought in by Shrey as goodwill	14,000
Add: Amount brought in by Shrey as Capital	42,000
	71,000

Working Note:

1. The new profit-sharing ratio is not provided; the old profit-sharing ratio will be treated as the sacrificing ratio.

Adjustment Entry for General Reserve:

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	Shrey’s Current A/c `(21,000 xx 1/3)`   ...Dr.		7,000
	To Karan’s Capital A/c `(7,000 xx 4/7)`			4,000
	To Vijay’s Capital A/c `(7,000 xx 4/7)`			3,000

2. Total Capital of Karan and Vijay (after all adjustments) = 48,000 + 36,000

= 84,000

Thus, for `2/3` share of profits, capital is ₹ 84,000.

Total Capital of the Firm = `84,000 xx 3/2`

= 1,26,000

Therefore, Shrey’s Capital for `1/3` share = `1,26,000 xx 1/3`

= 42,000