Question

Rajat and Ravi are partners in a firm sharing profits and losses in the ratio of 7 : 3. Their Balance Sheet as at 31st March, 2024 is as follows:

Liabilities	₹	₹	Assets	₹
Creditors		60,000	Cash in Hand	36,000
Reserve		10,000	Cash at Bank	90,000
Capital Accounts:			Debtors	44,000
Rajat	1,00,000		Furniture	30,000
Ravi	80,000	1,80,000	Stock	50,000
Total		2,50,000	Total	2,50,000

On 1st April, 2024, they admit Rohan on the following terms:

1. Goodwill is valued at ₹ 40,000 and Rohan is to bring in the necessary amount in cash as premium for goodwill and ₹ 60,000 as Capital for 1/4 share in profits.
2. Stock is to be reduced by 40% and furniture is to be reduced to 40%.
3. Capitals of the partners shall be proportionate to their Profit-Sharing Ratio taking Rohan's Capital as base. Adjustment of Capitals to be made by cash.

Requirements: Prepare Revaluation Account, Partners' Capital Accounts and Cash Account.

Answer 1

Revaluation Account
Particulars	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Stock (40% of 50,000)	20,000	By Loss transferred to Capital A/cs:
To Furniture (by 60% → 30,000 − 12,000)	18,000	- Rajat (38,000 × 7/10)	26,600
		- Ravi (38,000 × 3/10)	11,400	38,000
Total	38,000	Total		38,000

 

Partners' Capital Accounts
Particulars	Rajat (₹)	Ravi (₹)	Rohan (₹)	Particulars	Rajat (₹)	Ravi (₹)	Rohan (₹)
To Revaluation (Loss)	26,600	11,400	-	By Balance b/d	1,00,000	80,000	-
To Cash A/c (Surplus paid)	-	20,600	-	By Reserve (7 : 3)	7,000	3,000	-
				By Premium for Goodwill	7,000	3,000	-
				By Cash A/c (Rohan's Capital)	-	-	60,000
				By Cash A/c (Deficit brought)	38,600	-	-
To Balance c/d (New Target)	1,26,000	54,000	60,000
Total	1,52,600	86,000	60,000	Total	1,52,600	86,000	60,000

 

Cash Account
Particulars	Amount (₹)	Particulars	Amount (₹)
To Balance b/d (Cash in Hand)	36,000	By Partner's Capital A/c (Ravi - Paid)	20,600
To Rohan's Capital A/c	60,000	By Balance c/d (Closing Cash Balance)	1,24,000
To Premium for Goodwill A/c	10,000
To Partner's Capital A/c (Rajat - Brought)	38,600
Total	1,44,600	Total	1,44,600

Working note:

A. New Profit Sharing Ratio

Rohan's share = `1/4`

Remaining share = `1 - 1/4 = 3/4`

Rajat's new share = `7/10 xx 3/4 = 21/40`

Ravi's new share = `3/10 xx 3/4 = 9/40`

Rohan's share with base `40 = 1/4 xx 10/10 = 10/40`

New Ratio = 21 : 9 : 10

B. Capital Adjustments (Rohan's Capital as Base)

Total New Capital of Firm = `60,000 xx 4/1 = 2,40,000`

Rajat's New Capital Target: `2,40,000 xx 21/40 = 1,26,000`

Ravi's New Capital Target: `2,40,000 xx 9/40 = 54,000`

Rajat's Cash Brought: ₹ 1,26,000 − (₹ 1,00,000 + ₹ 7,000 + ₹ 7,000 − ₹ 26,600) = ₹ 38,600)

Ravi's Cash Returned: (₹ 80,000 + ₹ 3,000 + ₹ 3,000 − ₹ 11,400) − ₹ 54,000 = ₹ 20,600)