Question

Ram, Mohan, Sohan and Hari were partners in a firm sharing profits in the ratio of 4 : 3 : 2 : 1. On 1st April, 2016, their Balance Sheet was as follows:

BALANCE SHEET OF RAM, MOHAN, SOHAN AND HARI

as on 1st April, 2016

Liabilities		₹	Assets	₹
Capital A/cs:			Fixed Assets	9,00,000
Ram	4,00,000		Current Assets	5,20,000
Mohan	4,50,000
Sohan	2,50,000
Hari	2,00,000	13,00,000
Workmen Compensation Reserve		1,20,000
		14,20,000		14,20,000

From the above date, the partners decided to share the future profits in the ratio of 1 : 2 : 3 : 4. For this purpose the goodwill of the firm was valued at ₹ 1,80,000. The partners also agreed for the following:(a) The Claim for workmen compensation has been estimated at ₹ 1,50,000.
(b) Adjust the capitals of the partners according to the new profit-sharing ratio by opening Partners' Current Accounts.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of the reconstituted firm.

Answer 1

Revaluation Account

Dr.		Cr.
Particulars	Amount (₹)	Particulars		Amount (₹)
Provision for Workmen Compensation Claim	30,000	Revaluation Loss
		Ram’s Capital A/c	12,000
		Mohan’s Capital A/c	9,000
		Sohan’s Capital A/c	6,000
		Hari’s Capital A/c	3,000	30,000
	30,000			30,000

 

Partners’ Capital Account

Dr.				Cr.
Particulars	Ram	Mohan	Sohan	Hari	Particulars	Ram	Mohan	Sohan	Hari
Revaluation A/c	12,000	9,000	6,000	3,000	Balance b/d	4,00,000	4,50,000	2,50,000	2,00,000
Ram’s Capital A/c			13,500	40,500	Sohan’s Capital A/c	13,500	4,500
Mohan’s Capital A/c			4,500	13,500	Hari’s Capital A/c	40,500	13,500
Current A/c’s	3,15,000	2,05,000			Current A/c’s			1,55,000	3,65,000
Balance c/d	1,27,000	2,54,000	3,81,000	5,08,000
	4,54,000	4,68,000	4,05,000	5,65,000		4,54,000	4,68,000	4,05,000	5,65,000

 

Balance Sheet

Liabilities		Amount (₹)	Assets		Amount (₹)
Capital A/c			Fixed Assets		9,00,000
Ram	1,27,000		Current Assets		5,20,000
Mohan	2,54,000		Current A/c
Sohan	3,81,000		Ram	3,15,000
Hari	5,08,000	12,70,000	Mohan	2,05,000	5,20,000
Current A/c
Sohan	1,55,000
Hari	3,65,000	5,20,000
Claim against WCF		1,50,000
		19,40,000			19,40,000

Working Notes

WN1: Calculation of Gaining/Sacrificing Ratio

Old Ratio   New Ratio

4:3:2:1        1:2:3:4

Sacrificing Ratio=Old Ratio−New Ratio

Sacrificing Ratio of Ram=`4/10−1/10=3/10` (sacrificing)

Sacrificing Ratio of Mohan=`3/10−2/10=1/10` (sacrificing)

Sacrificing Ratio of Sohan=`2/10−3/10=−1/10` (gaining)

Sacrificing Ratio of Hari=`1/10−4/10=−3/10`(gaining)

(a) Sohan will compensate Ram and Mohan in the ratio 3 : 1

(b) Hari will compensate Ram and Mohan in the ratio of 3 : 1

Adjustment for Goodwill

Sohan’s Capital A/c	Dr.		18,000
Hari’s Capital A/c	Dr.		54,000
To Ram’s Capital A/c				54,000
To Mohan’s Capital A/c				18,000
(Sohan and Hari will compensate Ram and Mohan in their gaining ratio)

 

WN2: Calculation of Adjusted Capital

Ram = 4,54,000 – 12,000 = Rs 4,42,000

Mohan = 4,68,000 – 9,000 = Rs 4,59,000

Sohan = 2,50,000 – 24,000 = Rs 2,26,000

Hari = 2,00,000 – 57,000 = Rs 1,43,000

Total Combined Capital = 12,70,000

WN3: Calculation of New Capital

Ram=`12,70,000×1/10` = 1,27,000

Mohan=`12,70,000×2/10` = 2,54,000

Sohan=`12,70,000×3/10` = 3,81,000

Hari=`12,70,000×4/10` = 5,08,000