Question

Vrushali and Leena are equal partners in the business. Their Balance sheet as on 31 March 2018 stood as under.

Balance Sheet as on 31 March 2018
Liabilities	Amt. (₹)	Amt. (₹)	Assets	Amt. (₹)	Amt. (₹)
Sundry Creditors	90,000	90,000	Cash in Bank		62,000
Capitals:			Debtors	31,000
Vrushali	45,000	75,000	Less: R.D.D	1,000	30,000
Leena	30,000		Building		55,000
General Reserves		18,000	Machinery		24,000
			Bills Receivable		12,000
		1,83,000			1,83,000

They decided to admit Aparna on 1st April 2018 on the following terms:

1. The Machinery and Building be depreciated by 10%. Reserve for Doubtful Debts to be increased by ₹ 5,000

2. Bills Receivable are taken over by Vrushali at the discount of 10%

3. Aparna should bring Rs. 60,000 as capital for her 1/4th share in future profits.

4. The capital accounts of all the partners be adjusted in proportion to the new profit-sharing ratio by opening the current accounts of the partners.

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

Answer 1

Dr.	Profit and Loss Adjustment Account					Cr.
Particulars		Amount (₹)	Particulars		Amount (₹)
To Machinery A/c		2,400	By Loss on Revaluation
To Building A/c		5,500	Transferred to Partners’ Capital A/cs :
To R.D.D. A/c		5,000	Vrushali	7,050
			Leena	7,050	14,100
To Bills Receivable A/c (Discount)		1,200
		14,100			14,100

 

Dr.	Partners’ Capital Accounts								Cr.
Particulars		Vrushali (₹)	Leena (₹)	Aparna (₹)	Particulars	Vrushali (₹)	Leena (₹)	Aparna (₹)
To Revaluation A/c (Loss)		7,050	7,050		By Balance b/d	45,000	30,000
To Bills Receivable A/c		10,800			By Bank A/c			60,000
To Balance c/d		90,000	90,000	60,000	By General Reserve A/c	9,000	9,000
					By Partner’s Current A/c	53,850	58,050
		1,07,850	97,050	60,000		1,07,850	97,050	60,000

 

Balance Sheet as on 1st April 2018
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Capital A/cs :			Cash in Bank		1,22,000
Vrushali	90,000		Debtors	31,000
Leena	90,000		Less : R.D.D. (1000 + 5000)	6,000	25,000
Aparna	60,000	2,40,000	Building	55,000
Sundry Creditors		90,000	Less: Depreciation	5,500	49,500
			Machinery	24,000
			Less: Depreciation	2,400	21,600
			Partners’ Current A/cs :
			Vrushali	53,850
			Leena	58,050	1,11,900
		3,30,000			3,30,000

Working Notes :

(1) R.D.D. to be increased by ₹ 5,000 means subtract 5,000 from Debtors.

(2) Bills receivable taken by Vrushali at 10 % discount i.e. 12,000 – 1,200 = ₹ 10,800. Write this amount in the debit side of partners Capital Account in Vrushali’s column.

(3) Calculation of new ratio = 1 – share of new partner

= `1  –  1/ 4`

= `3 /4` Remaining share

New ratio = Old ratio × Balance 1 (Remaining Share)

Vrushali’s new ratio = `1/2 xx3/4 = 3/8`

Leena’s new ratio = `1/2 xx3/ 4 = 3/8`

Aparna’s ratio = `1/4`

 Partner’s new profit and loss ratio =` 3/8: 3/8: 1/4`

= 3: 3: 2

Now, capital amount to be adjusted in partners new profit and loss ratio.

Total capital of the firm = (Reciprocal of New Partner’s Share) × (New Partner’s Capital)

= (Reciprocal of `1/4` ) × 60,000 = 4 × 60,000 = ₹ 2,40,000

Vrushali’s capital balance =` 3/8 xx2,40,000 = ₹ 90,000`

Leela’s capital balance = `3/8xx2,40,000 = ₹ 90,000`

Deficit of these capital balance are to be adjusted through Current account.

To keep balance of Vrushali’s and Leena’s capital ₹ 90,000 each, deficit of ₹ 53,850 and ₹ 58,050 are incurred which is transferred to respective Partner’s Current A/cs and recorded on Asset side of Balance Sheet [As it is to be recovered from Partners].