Question

Asha and Indra were partners in a firm sharing profits and losses in the ratio of 3 : 2. Their Balance Sheet on 31^st March, 2025 was as following:

Balance Sheet of Asha and Indra as at 31st March, 2025
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Capitals:			Plant and Machinery		4,05,000
Asha	4,00,000	7,00,000	Furniture		1,20,000
Indra	3,00,000		Debtors	80,000	76,000
General Reserve		50,000	Less: Provision for doubtful debts	4,000
Creditors		20,000	Stock		1,54,000
			Cash at bank		15,000
		7,70,000			7,70,000

On 1^st April, 2025, Suraj was admitted for 1/4^th share in the profits of the firm on the following terms:

1. Suraj will bring capital proportionate to his share in the profits of the firm.
2. Goodwill of the firm was valued at ₹ 1,00,000 and Suraj will bring his share of goodwill premium in cash.
3. Furniture was taken over by Asha at ₹ 1,00,000.
4. A liability of ₹ 5,000 included in creditors was not likely to arise.
5. Plant and Machinery was revalued at ₹ 4,35,000.

Prepare Revaluation Account and Partners’ capital accounts on Suraj’s admission. Show the calculation of proportionate capital clearly.

Answer 1

1: Prepare Revaluation Account

Plant and Machinery: Revalued at ₹ 4,35,000 (Book value ₹ 4,05,000). Increase = ₹ 30,000.

Furniture: Taken over at ₹ 1,00,000 (Book value ₹ 1,20,000). Decrease = ₹ 20,000.

Creditors: ₹ 5,000 not likely to arise. Decrease in liability = ₹ 5,000.

Dr.	Revaluation Account		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Furniture A/c	20,000	By Plant & Machinery A/c	30,000
To Profit transferred to:		By Creditors A/c	5,000
Asha’s Capital (15,000 × 3/5)	9,000
Indra’s Capital (15,000 × 2/5)	6,000
	35,000		35,000

2. Calculation of Suraj’s Proportionate Capital

We must first determine the former partners’ Adjusted Capital following all adjustments (Reserve, Revaluation, and Goodwill) in order to determine Suraj’s capital.

Asha’s Adjusted Capital:

4,00,000 (Balance) + 30,000 (General reserve) + 9,000 (Revaluation Profit) + 15,000 (Goodwill) − 1,00,000 (Furniture) = 3,54,000

Indra's Adjusted Capital:

3,00,000 (Balance) + 20,000 (General reserve) + 6,000 (Revaluation Profit) + 10,000 (Goodwill) = 3,54,000

Combined Capital of Asha and Indra:

3,54,000 + 3,36,000 = 6,90,000

Suraj's Capital:

Suraj’s share is 1/4, so the combined share of Asha and Indra is 3/4 (1 − 1/4)

Total Capital of the Firm = 6,90,000 × `4/3` = 9,20,000

Suraj’s Capital = 9,20,000 × `1/4` = 2,30,000

Dr.	Partners’ Capital Accounts						Cr.
Particulars	Asha (₹)	Indra (₹)	Suraj (₹)	Particulars	Asha (₹)	Indra (₹)	Suraj (₹)
To Furniture	1,00,000	-	-	By Balance b/d	4,00,000	3,00,000	-
				By General Reserve	30,000	20,000	-
				By Revaluation A/c	9,000	6,000	-
				By Premium for GW	15,000	10,000	-
To Balance c/d	3,54,000	3,36,000	2,30,000	By Bank A/c	-	-	2,30,000
	4,54,000	3,36,000	2,30,000		4,54,000	3,36,000	2,30,000

Working Note:

1. Goodwill: Suraj’s share = 1,00,000 × `1/4` = 25,000.
   This is distributed in the sacrificing ratio (3 : 2).
2. Furniture: The ₹ 20,000 drop is a loss on revaluation because Asha took it over for ₹ 1,00,000 (originally ₹ 1,20,000), and the ₹ 1,00,000 is deducted from her capital account.