Question

David and Bimal are partners sharing profits and losses in the ratio of 3 : 2. Their Balance Sheet as at 31st March 2024, was as follows:

BALANCE SHEET as at 31st March, 2024
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Sundry Creditors		8,20,000	Cash		3,20,000
General Reserve		30,000	Stock		1,50,000
Capital A/cs:		3,00,000	Debtors	94,000	90,000
David	1,80,000		Less: Provision for Doubtful Debts	4,000
Bimal	1,20,000		Building		5,50,000
			Furniture		40,000
		11,50,000			11,50,000

They admitted Chander as a new partner on 1-4-2024 and the new profit-sharing ratio became 5 : 3 : 2. Chander introduced a capital of ₹ 1,60,000. Chander was unable to bring any cash for goodwill and so it was decided to value the goodwill on the basis of his share in the profits and the capital contributed by him. Adjustment for the same should be made through a current account opened in the name of Chander. The following reevaluations were made at the time of Chander’s admission:

1. Stock had been overvalued by ₹ 7,500 and furniture by ₹ 5,000.
2. Provision for doubtful debts to be increased by ₹ 1,000.
3. A creditor for ₹ 23,500 was paid off by Bimal privately for which no entry was passed in the books of the firm.

Prepare the Revaluation Account, Partner’s Capital Accounts and a Balance Sheet of the new firm on the date of Chander’s admission. Show your workings clearly.

Hint: Hidden Goodwill ₹ 3,00,000.

Answer 1

Dr.	Revaluation Account				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Stock A/c		7,500	By Loss on Revaluation transferred to:		13,500
To Furniture A/c		5,000	David’s Capital A/c	8,100
To Provision for Doubtful Debts A/c		1,000	Bimal’s Capital A/c	5,400
		13,500			13,500

 

Dr.	Partners’ Capital Accounts						Cr.
Particulars	David (₹)	Bimal (₹)	Chander (₹)	Particulars	David (₹)	Bimal (₹)	Chander (₹)
To Revaluation A/c	8,100	5,400		By Balance b/d	1,80,000	1,20,000
To Balance c/d	2,19,900	1,80,100	1,60,000	By Cash A/c (Capital)			1,60,000
				By General Reserve	18,000	12,000
				By Chander’s Current A/c	30,000	30,000
				By Bimal’s Capital A/c		23,500
	2,28,000	1,85,500	1,60,000		2,28,000	1,85,500	1,60,000

 

Balance Sheet of the New Firm as at April 1, 2024
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Sundry Creditors		7,96,500	Cash		4,80,000
Capital Accounts:		5,60,000	Stock		1,42,500
David	2,19,900		Debtors		89,000
Bimal	1,80,100		Building		5,50,000
Chander	1,60,000		Furniture		35,000
			Chander’s Current A/c		60,000
		13,56,500			13,56,500

Working Note:

Calculation of Sacrificing Ratio:

Sacrificing Share = Old Share − New Share

David’s Sacrifice = `3/5 - 5/10`

= `(3 xx 2)/(5 xx 2) - 5/10`

= `6/10 - 5/10`

= `1/10`

Bimal’s Sacrifice = `2/5 - 3/10`

= `(2 xx 2)/(5 xx 2) - 3/10`

= `4/10 - 3/10`

= `1/10`

Sacrificing Ratio of David and Bimal = 1 : 1

Hidden Goodwill Calculation:

As per the hint, the hidden goodwill is ₹ 3,00,000.

Chander’s share of goodwill = `3,00,000 xx 2/10`

= 60,000

This is distributed to the sacrificing partners David and Bimal, in their 1 : 1 ratio.

David’s share = `60,000 xx 1/2`

= 30,000

Bimal’s share = `60,000 xx 1/2`

= 30,000