Question

Mr. Kishor & Mr. Lal were in partnership sharing profits & losses in the proportion of 3/4 and 1/4 respectively.

Balance Sheet as on 31 March 2018
Liabilities	Amt (₹)	Amt (₹)	Assets	Amt (₹)	Amt (₹)
Creditors		1,20,000	Land and Building		75,000
General Reserve		12,000	Furniture		6,000
Capital A/c:			Stock		60,000
Kishor	90,000		Debtors		60,000
Lal	48,000	1,38,000	Bills Receivable		39,000
			Cash at Bank		30,000
		2,70,000			2,70,000

They decided to admit Ram on 1 April 2018 on following terms:

1. He should be given 1/5th share in profit and for that he brought in ₹ 60,000 as capital through RTGS.
2. Goodwill should be raised at ₹ 60,000.
3. Appreciate Land and Building by 20%.
4. Furniture and Stock are to be depreciated by 10%.
5. The Capitals of all partners should be adjusted in their new profit sharing ratio through Bank A/c.

Pass necessary Journal Entries in the books of the Partnership firm and a Balance sheet of the new firm.

Answer 1

In the books of the firm

Journal entries
Date	Particulars		L.F	Debit (₹)	Credit (₹)
2018 April 1	General Reserve A/c	Dr.		12,000
	To Mr. Kishor’s Capital A/c				9,000
	To Mr. Lal’s Capital A/c				3,000
	(Being general reserve distributed among old partners)
1	Profit and Loss Adjustment A/c	Dr.		6,600
	To Furniture A/c				600
	To Stock A/c				6,000
	(Being decrease in the value of assets)
1	Land and Building A/c	Dr.		15,000
	To Profit and Loss Adjustment A/c				15,000
	(Being appreciation in the value of assets)
1	Profit and Loss Adjustment A/c	Dr.		8,400
	To Mr. Kishor’s Capital A/c				6,300
	To Mr. Lal’s Capital A/c				2,100
	(Being profit on revaluation distributed in profit sharing ratio)
1	Bank A/c	Dr.		60,000
	To Ram’s Capital A/c				60,000
	(Being capital amount brought in through RTGS)
1	Goodwill A/c	Dr.		60,000
	To Kishor’s Capital A/c				45,000
	To Lal’s Capital A/c				15,000
	(Being the goodwill raised and transferred to capital A/cs in their old ratio)
1	Bank A/c	Dr.		29,700
	To Kishor’s Capital A/c				29,700
	(Being deficit in capital account settled in cash by Kishor)
1	Lal’s Capital A/c	Dr.		8,100
	To Bank A/c				8,100
	(Being surplus capital amount paid to Lal)
				1,99,800	1,99,800

 

Balance Sheet as on 1st April, 2018
Liabilities		Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Capital Accounts:				Land and Building	75,000
Mr. Kishor		1,80,000		(+) Appreciation	15,000	90,000
Mr. Lal		60,000		Furniture	6,000
Ram		60,000	3,00,000	(-) Depreciation	600	5,400
Creditors			1,20,000	Stock	60,000
				(-) Depreciation	6,000	54,000
				Debtors		60,000
				Goodwill		60,000
				Bills Receivable		39,000
				Cash at Bank		1,11,600
			4,20,000			4,20,000

Working Notes :

(1)     

Dr.	Profit and Loss Adjusment A/c				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Furniture		600	To land and Building A/c		15,000
To Stock		6000
To Profit on Revolution		8,400
Kishor's Capital A/c (8400 × `3/4`)	6,300
Lal's Capital A/c (8400 × `1/4`)	2100
		15000			15000

                                                                                                            

Dr.	Partners’ Capital Accounts								Cr.
Particulars		Kishor (₹)	Lal (₹)	Ram (₹)	Particulars	Kishor (₹)	Lal (₹)	Ram (₹)
To Bank A/c		−	8,100	−	By Balance b/d	90,000	48,000	−
To Balance c/d		1,80,000	60,000	60,000	By Bank A/c	−	−	60,000
					By Goodwill A/c	45,000	15,000	−
					By General Reserve A/c	9,000	3,000	−
					By Revaluation A/c (Profit)	6,300	2,100	−
					By Bank A/c	29,700	−	−
		1,80,000	68,100	60,000		1,80,000	68,100	60,000

 

Dr.	Bank Account		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Balance b/d	30,000	By Lal’s Capital A/c	8,100
To Ram’s Capital A/c	60,000	By Balance c/d	1,11,600
To Kishor’s Capital A/c	29,700
	1,19,700		1,19,700

(2) Calculation of new profit sharing ratio:

New Ratio = (Balance of 1) × (old ratio)

Kishor’s New ratio = `(1 – 1/5) × 3/4 = 4/5 × 3/4 = 3/5`

Lal’s New ratio = `( 1 – 1/5) × 1/4 = 4/5 × 1/4 = 1/5`

Ram’s ratio = `1/5`

(3) Total capital of the firm = (Reciprocal of Ram’s ratio) × (His capital contribution)

= `5/1 × 60,000` = ₹ 3,00,000

Kishor’s new closing capital balance = `3,00,000 × 3/5` = ₹ 1,80,000

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

Ram’s new closing capital balance = ₹ 60,000