Question

Quick and Slow are partners in a firm sharing Profit and Losses in the ratio of 3 : 2. On 1st April, 2024 Smooth comes in for a one-third share, paying a ₹ 5,000 premium and proportionate capital. Capitals of Quick and Slow are also to be adjusted in the profit-sharing ratio. The Balance Sheet of Quick and Slow before Smooth comes in stands as below:

Liabilities	₹	₹	Assets	₹	₹
Capital Account:		68,000	Machinery		32,000
Quick	29,000		Furniture		2,000
Slow	39,000		Stock		15,000
Reserve		10,000	Debtors		40,000
Creditors		12,000	Cash		6,000
Outstanding Expenses		5,000
		95,000			95,000

Machinery is valued at ₹ 30,000, and stock at ₹ 23,000. Debtors are considered worth ₹ 38,000. One trade creditor for ₹ 1,000 is due for many years and he is not traceable. On the other hand, one contingent liability for expenses of ₹ 500 had matured and it is not recorded in the books. Reserve Account is not to be shown in Accounts.

Prepare Profit and Loss Adjustment Account and Balance Sheet after the admission of Smooth.

Hint: Total capital of Quick and Slow after all adjustments = 40,700 + 46,800 = 87,500. Since their combined share in profits is `10/15` total capital of the firm, it must be `87,500 xx 15/10` = ₹ 1,31,250.

∴ Quick’s adjusted Capital = `1,31,250 xx 6/15`

= 52,500

Slow’s adjusted Capital = `1,31,250 xx 4/15`

= 35,000

Amount brought in by Quick = 52,500 − 40,700

= 11,800

Amount withdrawn by Slow = 46,800 − 35,000

= 11,800

Answer 1

Dr.	Profit and Loss Adjustment Account				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Machinery A/c		2,000	By Stock A/c		8,000
To Debtors A/c		2,000	By Sundry Creditors A/c		1,000
To Unrecorded Liability		500
To Profit transferred to:		4,500
Quick’s Capital A/c	2,700
Slow’s Capital A/c	1,800
		9,000			9,000

 

Dr.	Partners’ Capital Accounts						Cr.
Particulars	Quick (₹)	Slow (₹)	Smooth (₹)	Particulars	Quick (₹)	Slow (₹)	Smooth (₹)
To Bank A/c		11,800		By Balance b/d	29,000	39,000
To Balance c/d	52,500	35,000	43,750	By Reserve A/c	6,000	4,000
				By P&L Adj. A/c (Profit)	2,700	1,800
				By Bank A/c	11,800
				By Premium for Goodwill	3,000	2,000
				By Bank A/c (Smooth’s Capital)			43,750
	52,500	46,800	43,750		52,500	46,800	43,750

 

Balance Sheet as at April 1, 2024
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Sundry Creditors		11,000	Machinery (revalued)		30,000
Outstanding Expenses		5,500	Furniture		2,000
Capitals:		1,31,250	Stock (revalued)		23,000
Quick	52,500		Debtors (revalued)		38,000
Slow	35,000		Cash		54,750
Smooth	43,750
		1,47,750			1,47,750