Question

Atal and Madan were partners in a firm sharing profits in the ratio of 5 : 3. On 31.3.2011 they admitted Mehra as a new partner fro 1/5^th share in the profits. The new profit sharing ratio was 5 : 3 : 2. On Mehra’s admission the Balance Sheet to the firm was as follows: 

Liabilities		Amount Rs	Assets	Amount Rs
Capitals:			Land and Building	1,50,000
Atal:	1,50,000		Machinery	40,000
Madan:	90,000	2,40,000	Patents	5,000
Provision for bad debts		1,200	Stock	27,000
Creditors		20,000	Debtors	47,000
Workmen compensation Fund		32,000	Cash	4,200
			Profit and Loss Account	20,000
		2,93,200		2,93,200

On Mehra’s admission it was agreed that

(i) Mehra will bring Rs 40,000 as his capital and Rs 16,000 for his share of goodwill premium, half of which was with draw by Atal and Madan;

(ii) A provision of `2 1/2%` for bad and doubtful debts was to be created;

(iii) Included in the sundry creditors was an item of Rs 2,500 which was not to be paid;

(iv) A provision was to be made for an outstanding bill for electricity Rs 3,000;

(v) A claim of Rs 325 for damage against the firm was likely to be admitted. Provision for the same was to be made.

After the above adjustment, the capitals of Atal and Madan were to be adjusted on the basis of

Mehra’s capital. Actual cash was to be brought in or to be paid off to Atal and Madan as the case may be.

Prepare Revaluation Account, Capital Accounts of the partners and the Balance Sheet of the new firm.

Answer 1

Revaluation Account
						Cr.
Particulars	Amount Rs	Particulars			Amount Rs
Provision for outstanding bill	3,000	Old provision for Bad Debts	1,200
Claim for damages	325	Less: New Provision	(1,175)		25
		Sundry creditors			2,500
		Loss transferred to
		Atal:		500
		Madan:		300	800
	3,325				3,325

Partners’ Capital Account
Dr.				Cr.
Particulars	Atal	Madan	Mehra		Particulars	Atal	Madan	Mehra
Profit and Loss A/c	12,500	7,500	–		Balance b/d	1,50,000	40,000	–
Cash A/c	5,000	3,000	–		Cash A/c	–	–	40,000
Revaluation A/c (Loss)	500	300			Premium for Goodwill A/c	10,000	6,000	–
Cash A/c (WN2)	62,000	37,200	–		Workmen Compensation fund	20,000	12,000	–
	1,80,000	1,08,000	40,000			1,80,000	1,08,000	40,000

Balance Sheet
Liabilities		Amount Rs	Assets		Amount Rs
Capital:			Land and Building		1,50,000
Atal	1,00,00		Machinery		40,000
Madan	60,000		Patents		5,000
Mehra	40,000	2,00,000	Debtors	47,000
Bank overdraft (WN3)		47,000	Less: Provision for Doubtful Debts	(1,175)	45,825
Sundry creditors (20,000 – 2,500)		17,500	Stock		27,000
Claim for damages		325
Provision for outstanding bill		3,000
		2,67,825			2,67,825