Question

Mr. Deep & Mr. Karan were in Partnership sharing Profits & Losses in the proportion of 3:1 respectively. Their Balance Sheet On 31st March 2018 Stood as follows.

Balance Sheet as on 31st March, 2018
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Sundry Creditors		40,000	Cash		40,000
Bill Payable		10,000	Sundry debtors		32,000
Bank Overdraft		11,000	Land & Building		16,000
Capital A/c:			Stock		20,000
Deep	60,000		Plant and machinery		30,000
Karan	20,000	80,000	Furniture		11,000
General Reserve		8,000
		1,49,000			1,49,000

They admit Shubham into Partnership on 1 April 2018 The term being that:

1. He shall have to bring in ₹ 20,000 as his capital for 1/5 Share in future profits & 10,000 as his share of Goodwill.
2. A Provision for 5% doubtful debts to be created on Sundry Debtors.
3. Furniture to be depreciated by 20%
4. Stock should be appreciated by 5% and Building be appreciated by 20%
5. Capital A/c of all partners be adjusted in their new profit sharing ratio through cash account.

Prepare Profit and Loss Adjustment A/c, Partner’s Capital A/c, Balance sheet of the new firm.

Answer 1

In the books of the firm ______

Dr.	Profit and Loss Adjustment Account					Cr.
Particulars			Amount (₹)	Particulars	Amount  (₹)
To R.D.D. (New) A/c			1,600	By Stock A/c	1,000
To Depreciation A/c – Furniture			2,200	By Building A/c	3,200
To Profit on Revaluation Transferred to Partners’ Capital A/cs
Deep		300
Karan		100	400
			4,200		4,200

 

Dr.	Partners’ Capital Accounts								Cr.
Particulars		Deep (₹)	Karan (₹)	Shubham (₹)	Particulars	Deep (₹)	Karan (₹)	Shubham (₹)
To Cash A/c		13,800	4,600	-	By Balance b/d	60,000	20,000	-
To Balance c/d		60,000	20,000	20,000	By Cash/ Bank A/c	-	-	20,000
					By Goodwill A/c	7,500	2,500	-
					By Revaluation on A/c (Profit)	300	100	-
					By General Reserve A/c	6,000	2,000	-
		73,800	24,600	20,000		73,800	24,600	20,000

                                                 

Balance Sheet as on 1st April 2018
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Capital A/cs:			Cash		51,600
Deep	60,000		Sundry Debtors	32,000
Karan	20,000		Less: R.D.D	1,600	30,400
Shubham	20,000	1,00,000	Land and Building	16,000
Sundry Creditors		40,000	Add: Appreciation	3,200	19,200
Bills Payable		10,000	Stock	20,000
Bank Overdraft		11,000	Add: Appreciation	1,000	21,000
			Furniture	11,000
			Less: Depreciation	2,200	8,800
			Plant and Machinery		30,000
		1,61,000			1,61,000

Working Note :

Calculation of new ratio: Balance of 1 = 1 – share of new partner

= 1 – ` 1/5`

=` 4/5` (Remaining share)

New ratio = Old ratio × balance 1 (Remaining share)

Deep’s new ratio = `3/4 xx 4/5 = 3/5`

Karan’s new ratio = `1/4 × 4/5 = 1/5`

Shubham’s new ratio =` 1/ 5 = 1/ 5`

∴ New profit and loss sharing ratio = 3: 1: 1

Capital amount to be adjusted in Partner’s new profit and loss ratio:

Total Capital of the firm = (Reciprocal of New partner’s share) × (New partner’s capital)

= 5 × 20,000
= ₹ 1,00,000

Deep’s capital balance = `3/5` × 1,00,000 = ₹ 60,000

Karan’s capital balance =` 1/5 `× 1,00,000 = ₹ 20,000                                

Dr.	Cash Account				Cr.
Particulars		Amount (₹)	Particulars	Amount (₹)
To Balance b/d		40,000	By Deep’s Capital A/c	13,800
To Shubham’s Capital A/c		20,000	By Karan’s Capital A/c	4,600
To Goodwill A/c		10,000	By Balance c/d	51,600
		70,000		70,000