Question

On 31st March 2023, the Balance Sheet of Zoya and Zara who were sharing profits and losses in the ratio of 3 : 2 was as follows:

Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Creditors		29,000	Cash at Bank		9,000
Bills Payable		6,000	Debtors	20,000
General Reserves		16,000	Less: Provision	1,000	19,000
Capitals:			Stock		15,000
Zoya	50,000		Land and Building		25,000
Zara	35,000	85,000	Plant and Machinery		30,000
			Goodwill		10,000
			Profit and Loss Account		28,000
Total		1,36,000	Total		1,36,000

They decided to admit Sara for 1/5th share on 1st April, 2023 in the firm on the following terms:

1. Goodwill of the firm is valued at ₹ 28,000.
2. Depreciate Plant and Machinery by 10%, appreciate Land and Building by 40%.
3. The provision for doubtful debts was to be increased by ₹ 800.
4. A liability of ₹ 1,000 included in the creditors is not likely to arise.
5. New profit sharing ratio between Zoya, Zara and Sara shall be 5 : 3 : 2 respectively.
6. Sara was to contribute capital equal to 1/5th of the total capital of Zoya and Zara after all adjustments.

You are required to prepare Revaluation Account and Partners' Capital Accounts.

Answer 1

Revaluation Account
Particulars	₹	₹	Particulars	₹
Plant and Machinery		3,000	Land and Building	10,000
Provision for Doubtful Debts		800	Creditors	1,000
Profit transferred to:
Zoya's Capital A/c	4,320
Zara's Capital A/c	2,880	7,200
Total		11,000	Total	11,000

 

Partners' Capital Accounts
Particulars	Zoya (₹)	Zara (₹)	Sara (₹)	Particulars	Zoya (₹)	Zara (₹)	Sara (₹)
To Goodwill (Existing Written off)	6,000	4,000	-	By Balance b/d	50,000	35,000	-
To Profit and Loss A/c (Accumulated Loss)	16,800	11,200	-	By General Reserves (3 : 2)	9,600	6,400	-
				By Premium for Goodwill	2,800	2,800	-
				By Revaluation A/c (Profit)	4,320	2,880	-
To Balance c/d	43,920	31,880	15,160	By Bank A/c (Capital Brought)	-	-	15,160
Total	66,720	47,080	15,160	Total	66,720	47,080	15,160

Working note:

A. Calculation of Sacrificing Ratio

Old Ratio (Zoya : Zara) = `3 :  2 = 6/10 : 4/10`

New Ratio (Zoya : Zara) = `5 : 3 : 2 = 5/10 : 3/10 : 2/10`

Sacrifice = Old Share − New Share

Zoya's Sacrifice = `6/10 - 5/10 = 1/10`

Zara's Sacrifice = `4/10 - 3/10 = 1/10`

Sacrificing Ratio = 1 : 1

B. Distribution of New Goodwill

Total valued goodwill of the firm = ₹ 28,000

Sara's share of goodwill = `28,000 xx 2/10 = 5,600`

Distributed equally between Zoya and Zara in their sacrificing ratio (1 : 1) = ₹ 2,800 each

C. Calculation of Sara's Capital Contribution

Zoya's Adjusted Capital = ₹ 43,920

Zara's Adjusted Capital = ₹ 43,920

Total Capital of Zoya and Zara after all adjustments = 43,920 + 31,880 = 75,800

Sara's Capital = `1/5 xx 75,800 = 15,160`