Question

Mr. Deepak and Mr. Abhishek were in partnership sharing profits and losses in the proportion of 3 : 1 respectively. Their Balance Sheet as on 31st March 2019 stood as follows:

Balance Sheet as on 31st March 2019
Liabilities	Amount (₹)	Assets	Amount (₹)
Capital Account:		Land and Building	32,000
Mr. Deepak	1,20,000	Plant and Machinery	60,000
Mr. Abhishek	40,000	Furniture	22,000
General Reserve	16,000	Stock	40,000
Sundry Creditors	80,000	Sundry Debtors	64,000
Bank Overdraft	42,000	Cash	80,000
	2,98,000		2,98,000

They admitted Adinath into partnership on 1st April 2019 on the terms being that-

1. He shall have to bring in ₹ 40,000 as his capital for 1/5 share in future profits and ₹ 20,000 as his share of goodwill.
2. Furniture to be depreciated by 20%.
3. Stock should be appreciated by 10%.
4. Building should be appreciated by 5%.
5. A provision for 5% R.D.D. to be created on sundry debtors.
6. Capital account of all partners be adjusted in their new profit sharing ratio through cash account.

Prepare:

1. Revaluation Account
2. Partners' Capital Account
3. New Balance Sheet of the firm.

Answer 1

Dr.	Revaluation Account		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Depreciation on Furniture (20%)	4,400	By Increase in Stock (10%)	4,000
To Provision for R.D.D. (5%)	3,200	By Increase in Building (5%)	1,600
To Profit Transferred to:
Deepak’s Capital A/c (3/4)	3,900
Abhishek’s Capital A/c (1/4)	1,300
	12,800		12,800

 

Dr.	Partners' Capital Account						Cr.
Particulars	Deepak (₹)	Abhishek (₹)	Adinath (₹)	Particulars	Deepak (₹)	Abhishek (₹)	Adinath (₹)
To Adjusted Capital	1,26,500	41,500	40,000	By Balance b/d	1,20,000	40,000	-
By Goodwill (From Adinath)	12,000	4,000	-	By General Reserve A/c	12,000	4,000	-
By Revaluation Profit	3,900	1,300	-
By Cash (Adjusted Capital)	-	2,000	-
	1,35,900	47,300	40,000		1,35,900	47,300	40,000

 

Balance Sheet as on 1st April 2019
Liabilities	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Capital Account:		Land and Building	32,000	33,600
Deepak	1,26,500	Add: Appreciation	1,600
Abhishek	41,500	Plant and Machinery		60,000
Adinath	40,000	Furniture	22,000	17,600
General Reserve	16,000	Less: Depreciation	4,400
Sundry Creditors	80,000	Stock	40,000	44,000
Bank Overdraft	42,000	Add: Appreciation	4,000
		Sundry Debtors	64,000	60,800
		Less: R.D.D.	(3,200)
		Cash (Including Adinath’s Capital & Goodwill)		82,000
	3,46,000			3,46,000

Working Note:

(1) Revaluation Adjustments:

Furniture depreciated by 20% = `₹ 22,000 × 20/100` = ₹ 4,400

Stock appreciated by 10% = `₹ 40,000 × 10/100` = ₹ 4,000 

Building appreciated by 5% = `₹ 32,000 × 5/100` = ₹ 1,600

Provision for Doubtful Debts (5%) on Debtors = `₹ 64,000 × 5/100` = ₹ 3,200

(2) Goodwill Adjustment:

Adinath’s share of goodwill is ₹ 20,000, divided between Deepak and Abhishek in 3 : 1 ratio.

Deepak gets ₹ 12,000 and Abhishek gets ₹ 4,000.

(3) Capital Adjustment:

The new profit-sharing ratio is 4 : 1 (since Adinath gets 1/5 share).

Capital is adjusted through the cash account.