Question

Sai and Shankar are partners, sharing profits and losses in the ratio of 5 : 3. The firm’s balance sheet as on 31^st December, 2017, was as follows:

Liabilities	₹	₹	Assets	₹	₹
Capital accounts:			Building		34,000
Sai	48,000		Furniture		6,000
Shankar	40,000	88,000	Investment		20,000
Creditors		37,000	Debtors	40,000
Outstanding wages		8,000	Less: Provision for bad debts	3,000	37,000
			Bills receivable		12,000
			Stock		16,000
			Bank		8,000
		1,33,000			1,33,000

On 31^st December, 2017 Shanmugam was admitted into the partnership for 1/4 share of profit with ₹ 12,000 as capital subject to the following adjustments.

1. Furniture is to be revalued at ₹ 5,000 and building is to be revalued at ₹ 50,000.
2. Provision for doubtful debts is to be increased to ₹ 5,500
3. An unrecorded investment of ₹ 6,000 is to be brought into account
4. An unrecorded liability ₹ 2,500 has to be recorded now.

Pass journal entries and prepare the Revaluation Account and capital account of partners after admission.

Answer 1

Journal Entries

Date	Particulars	L.F.	Debit ₹	Credit ₹
	Revaluation A/c ..............Dr. To Furniture A/c To Provision for Bad and Doubtful To Unrecorded liabilities (Loss items entered in Revaluation)		6,000 - - -	- 1,000 2,500 2,500
	Building A/c ........Dr. Investment A/c ................Dr. To Revaluation A/c (Profit items entered in Revaluation)		16,000 6,000 -	- - 22,000
	Revaluation A/c ............Dr. To Sai's Capital A/c To Shankar's Capital A/c (Profit on revaluation tr to Cap A/c)		16,000 - -	- 10,000 6,000
	Bank A/c .........Dr. To Shanmugam's Capital A/c (Incoming partner brings the capital)		12,000 -	- 12,000

 

Dr.	Revaluation Account			Cr.
Particulars		₹	Particulars	₹
To Furniture A/c		1,000	By Building A/c	16,000
To Prov. for bad and doubtful		2,500	By Investment A/c	6,000
To Unrecorded liability		2,500
To Sai's Cap A/c	10,000
To Shankar's Cap A/c	6,000	16,000
		22,000		22,000

 

Dr.	Capital Account						Cr.
Particulars	Sai's	Shankar's	Shanmugam's	Particulars	Sai's	Shankar's	Shanmugam's
To Balance c/d	58,000	46,000	12,000	By Balance b/d	48,000	40,000	-
				By Bank	-	-	12,000
				By Revaluation	10,000	6,000	-
	58,000	46,000	12,000		58,000	46,000	12,000
				By Bal b/d	58,000	46,000	12,000