Question

Shikhar and Rohit were partners in a firm sharing profit in the ratio 7:3. On 1st April 2013, they admitted Kavi as a new partner for a ¼ share in the profit of the firm. Kavi brought Rs 4,30,000 as his capital and Rs 25,000 for his share of goodwill premium. The Balance Sheet of Shikhar and Rohit as on 1st April 2013 was as follows:

Balance Sheet of Shikhar and Rohit as on 1st April 2013
Liabilities	Rs	Assets	Rs
Capital:    Shikhar          8,00,000    Rohit             3,50,000 General Reserve Workman’s Compensation Fund Creditors	11,50,000 1,00,000 1,00,000 1,50,000	Land and Building Machinery Debtors                2,20,000 Less: Provision        20,000 Stock Cash	3,50,000 4,50,000   2,00,000 3,50,000 1,50,000
	15,00,000		15,00,000

It was agreed that:

1. The value of Land and Building will be appreciated by 20%.
2. The value of Machinery will be depreciated by 10%.
3. The liabilities of Workmen's Compensation Fund was determined at Rs 50,000.
4. Capitals of Shikhar and Rohit will be adjusted on the basis of Kavi's capital and actual cash to be brought in or to be paid off as the case may be.

Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of the new firm.

Answer 1

Revaluation Account
Particulars	Rs	Particulars	Rs
To Machinery A/c To Profit transferred to: Shikhar’s Capital A/c    17,500 Rohit’s Capital A/c       7,500	45,000     25,000	By Land and Building A/c	70,000
	70,000		70,000

 

Partners’ Capital Account
Particulars	Shikhar	Rohit	Kavi	Particulars	Shikhar	Rohit	Kavi
To Balance c/d	9,40,000	4,10,000	4,30,000	By Balance b/d	8,00,000	3,50,000
				By General Res. A/c	70,000	30,000
				By Workman Compensation Fund A/c	35,000	15,000
				By Cash A/c			4,30,000
				By Premium for Goodwill A/c	17,500	7,500
				By Revaluation A/c (profit)	17,500	7,500
	9,40,000	4,10,000	4,30,000		9,40,000	4,10,000	4,30,000
To Cash A/c	37,000	23,000		By Balance b/d	9,40,000	4,10,000	4,30,000
To Balance c/d	9,03,000	3,87,000	4,30,000
	9,40,000	4,10,000	4,30,000		9,40,000	4,10,000	4,30,000

 

Balance Sheet As on April 01, 2013 after Kavi’s admission
Liabilities	Rs	Assets	Rs
Liabilities for Workmen’s Compensation Creditors Capital:     Shikhar    9,03,000     Rohit       3,87,000     Kavi        4,30,000	50,000 1,50,000       17,20,000	Land and Building Machinery                         4,50,000 Less: Depreciation @10%     45,000 Debtors                            2,20,000 Less: Provision                    20,000 Stock Cash	4,20,000   4,05,000   2,00,000 3,50,000 5,45,000
	19,20,000		19,20,000

Working Note:

Calculation of Profit of sharing Ratio

Shikhar: Rohit

Old Ratio = 3 : 2

Kavi's Share = `1/4`

Let the total share of the firm =1

Remaining share of the firm = `1 - 1/4 = 3/4`

Shikhar's New Share  = `7/10 xx 3/4 = 21/40`

Rohit 's New Share = `3/10 xx 3/4 = 9/40`

New Profit Shareing ratio  = `21/40:9/40 :1/4`

`(21:9:10)/40`

Sacrificing Ratio = Old Ratio - New Ratio

Shikhar's Sacrifice = `7/10 - 21/40 = 7/40`

Rohit's Sacrifice = `3/10 - 9/4 = 3/40`

Sacrificing Ratio = 7: 3

WN1: Distribution of Goodwill brought in by Kavi

Shikhar will get = `25000 xx 7/10  = 17500`

Rohit will get = `25000 xx 3/10 = 7500`

WN2: Distribution of Workmen's Compensation Fund

Shikhar will get = `50000 xx 7/10 = 35000`

Rohit will get = `50000 xx 3/10 = 15000`

WN3: Distribution of General Reserve :

Shikhar will get = `100000 xx 7/10 = 70000`

Rohit will get = `100000 xx 3/10 = 30000`

WN4 : Adjustment of Capital

Total Capital of the firm = Capital brought in by Kavi × Reciprocal of her share

Capital Brought in by Kavi = 4,30,000

Total Capital of the Firm = `430000 xx 4/1 = 1720000`

Shikahr's New Capital = `1720000 xx 21/40 = 903000`

Rohit's New Capital = `1720000 xx 9/40 = 387000`