Question

Om, Ram and Shanti were partners in a firm sharing profits in the ratio of 3:2:1. On 1st April 2014 their Balance Sheet was as follows:

Balance Sheet
Liabilities	Amount Rs	Assets	Amount Rs
Capital Accounts       Om         3,58,000       Ram        3,00,000      Shanti      2,62,000 General Reserve Creditors Bills payable	9,20,000 48,000 1,60,000 90,000	Land and Building Plant and Machinery Furniture Bills Receivables Sundry Debtors Stock Bank	3,64,000 2,95,000 2,33,000 38,000 90,000 1,11,000 87,000
	12,18,000		12,18,000

On the above date Hanuman was admitted on the following terms:

1) He will bring Rs 1,00,000 for his capital and will get the 1/10th share in the profits.

2) He will bring necessary cash for his share of goodwill premium. The goodwill of the firm was valued at Rs 3,00,000

3) A liability of Rs 18,000 will be created against bills receivables discount

4) The value of stock and furniture will be reduced by 20%.

]5) The value of land and building will be increased by 10%.

6) Capital accounts of the partners will be adjusted on the basis of Hanuman's capital in their profit sharing ratio by opening current accounts.

Prepare Revaluation Account and Partner's Capital Accounts.

Answer 1

Revaluation Account
Dr.			Cr.
Particulars	Rs	Particulars	Rs
To Stock A/c To Furniture A/c B/R Discounted	22,200 46,600 18000	By Land and Building A/c By Loss transferred to A/c:           Om         25,200           Ram        16,800           Shanti      8,400	36,400       50,400
	86,800		86,800

 

Partner’s Capital Account
Dr.									Cr.
Particulars	Om	Ram	Shanti	Hanuman	Particulars	Om	Ram	Shanti	Hanuman
To Revaluation A/c (Loss)	25,200	16,800	8,400		By Balance b/d	3,58,000	3,00,000	2,62,000
To Ram’s Current A/c		9,200			By General Reserve A/c	24,000	16,000	8,000
To Shanti’s Current A/c			1,16,600		By Cash A/c				1,00,000
To Balance c/d	4,50,000	3,00,000	1,50,000	1,00,000	By Premium for Goodwill A/c	15,000	10,000	5,000
					By Om’s Current A/c	78,200
	4,75,200	3,26,000	2,75,000	1,00,000		4,75,000	3,26,000	2,75,000	1,00,000

Working Notes:

WN1: Calculation of New Profit Sharing Ratio

WN1: Calculation of New Profit Sharing Ratio
Old Ratio = 3:2:1
Let the total profit of the firm = 1

Remaining profit share of the firm = `1 - 1/10`

So,

Om's New Share = `3/6 xx 9/10 = 27/60`

Ram's New Share = `2/6 xx 9/10 = 18/60`

Shanti's New Share = `1/6 xx 9/10 xx 9/10`

Hanuman's Share = `6/6 xx 1/10 = 6/60`

WN2: Calculation of Sacrificing Ratio

Old Ratio = 3:2:1
New Ratio = 9:6:3:2

Sacrificing Ratio = Old Ratio – New Ratio

Om = `3/6 - 9/20 = (30 - 27)/60 = 3/60`

Ram = `2/6 - 6/20 = (20 -18)/60 = 2/60`

Shanti  = `1/6  - 3/20 = (10 - 9)/60 = 1/60`

WN3: Hanuman’s share of Goodwill

`300000 xx 1/10 = 30000`

This will be credited to Om, Ram and Shanti in sacrificing ratio

WN4: Distribution of Goodwill

Om will get =`30000 xx 3/6 = 15000` 

Ram will get = `30000 xx 2/6 = 10000`

Shanti will get = `30000 xx 1/6  = 5000`

WN5 Adjustment of Capital

Total Capital of the firm = Hanuman’s Capital x Reciprocal of her share

` = 100000xx 10/1 = 1000000`

New Profit Sharing Ratio = 9:6:3:2

Omi's New Capital = `1000000 xx  9/20 = 450000`

Ram's New Capital = `1000000 xx 6/20 =  300000`

Shanti's New Capital  = `1000000 xx 3/2 = 150000`

Hanuman's New Capital = `1000000 xx  2/20 = 100000`