Question

Anwesha and Bhumika are partners sharing profits in 5 : 4. Their balance sheet as at 31.3.2022 was as follows: BALANCE SHEET as at 31.3.2022 Liabilities Amount (₹) Amount (₹) Assets Amount (₹) Amount (₹) Capital A/c’s (Fixed)   1,30,000 Bank   28,000 Anwesha 80,000 Debtors 42,000 40,000 Bhumika 50,000 (−) Provision for 20,000 Doubtful Debts 2,000 Creditors   20,000 Machinery   38,000       Stock   44,000     1,50,000     1,50,000 They admitted Krish as a partner. Anwesha surrendered `1/5`th of her share in favour of Krish. Bhumika surrendered `1/9`th from her share in favour of Krish. He brought ₹ 50,000 as his capital, but could not bring anything for his share of the premium for goodwill. Goodwill of the firm was valued at ₹ 1,80,000 Machinery was undervalued by 5% Stock was overvalued by 10% A customer who owed us ₹ 2,000 was declared bankrupt, and nothing could be recovered from his official receiver. Maintain a provision for doubtful debts of @ 10% on debtors. There was a contingent liability for a claim for damages ₹ 3,000 that has now become a normal liability and is to be taken into account. The partners decide to adjust their capital based on Krish.

1. What is the sacrificing ratio of Anwesha and Bhumika?
   1. 9 : 4
   2. 5 : 4
   3. 4 : 5
   4. 1 : 1
2. Which of the following is correct related to the treatment of Goodwill?
   1. Krish’s capital A/c is debited by ₹ 1,80,000
   2. Krish’s current A/c is debited by ₹ 1,80,000
   3. Krish’s capital A/c is debited by ₹ 40,000
   4. Krish’s current A/c is debited by ₹ 40,000
3. The change in the value of Machine is ₹ ______ and will be ______ in ‘Revaluation A/c’.
   1. ₹ 2,000 Debited
   2. ₹ 2,000 Credited
   3. ₹ 1,900 Debited
   4. ₹ 1,900 Credited
4. The change in the value of Stock is ₹ ______ and will be ______ in ‘Revaluation A/c’.
   1. ₹ 4,400 Debited
   2. ₹ 4,400 Credited
   3. ₹ 4,000 Debited
   4. ₹ 4,000 Credited
5. The ‘Revaluation A/c’ shows a loss of ₹ ______ and will be borne by Anwesha and Bhumika in ______.
   1. ₹ 9,000, 5 : 4
   2. ₹ 9,000, 1 : 1
   3. ₹ 11,300, 5 : 4
   4. ₹ 11,300, 1 : 1

Answer 1

1. 1 : 1
2. Krish’s current A/c is debited by ₹ 40,000
3. The change in the value of the Machine is ₹ 2,000 and will be credited in the ‘Revaluation A/c’.
4. The change in the value of the Stock is ₹ 4,000 and will be debited in the ‘Revaluation A/c’.
5. The ‘Revaluation A/c’ shows a loss of ₹ 9,000 and will be borne by Anwesha and Bhumika in 5 : 4.

Explanation:

1.

Anwesha and Bhumika share profits in the ratio 5 : 4.

Anwesha surrendered = `1/5`

Bhumika surrendered = `1/9`

Calculate Sacrifice Ratio:

Anwesha’s Sacrifice = `5/9 xx 1/5`

= `5/45`

= `1/9`

Bhumika surrendered `1/9`th from her share `(4/9)` in favour of Krish. “From” implies this is the exact amount given up.

Bhumika’s Sacrifice = `1/9`

The sacrificing ratio of Anwesha and Bhumika = `1/9 : 1/9` or 1 : 1

2.

Krish’s total share = (Anwesha’s sacrifice) + (Bhumika’s sacrifice)

= `1/9 + 1/9`

= `2/9`

Krish’s Share of Goodwill = Total Goodwill × Krish’s Share

= `1,80,000 × 2/9`

= 40,000

The partners’ capitals are fixed (indicated in the balance sheet structure). Therefore, adjustments for goodwill should be made through the partners’ Current Accounts, not their Capital Accounts.

3.

Calculate the Actual Value of the Machine:

The machinery’s book value is ₹ 38,000, and it is stated as being undervalued by 5%.

Actual value of  Machinery = `38,000 xx 100/95`

= 40,000

Increase in Value = 40,000 − 38,000

= 2,000

4.

Calculate the Actual Value of the Stock:

The stock's book value is ₹ 44,000, and it is stated as being overvalued by 10%.

Actual value of  Machinery = `44,000 xx 100/110`

= 40,000

Decrease in Value = 44,000 − 40,000

= 4,000

5.

Dr.	Revaluation Account				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Stock A/c		4,000	By Machine A/c		2,000
To Bad Debts		2,000	By Loss transferred to Partners’ Capital A/cs:		9,000
To Provision for Doubtful Debts		2,000	Anwesha’s Capital A/c	5,000
To Contingent Liability		3,000	Bhumika’s Capital A/c	4,000
		11,000			11,000