Question

A and B are partners in a firm. Their Balance Sheet as at 31st March, 2024 was as follows:

Liabilities	₹	Assets	₹
Capital:		Cash	10,000
A	50,000	Sundry Debtors	80,000
B	60,000	Stock	20,000
Creditors	15,000	Fixed Assets	38,600
Outstanding Expenses	3,000	P & L A/c	4,000
Insurance Fund	7,000
Provident Fund	1,000
Employees Saving Fund	5,000
Workmen Profit Sharing Fund	2,000
Workmen Compensation Reserve	5,600
Provision for Doubtful Debts	4,000
	1,52,600		1,52,600

C was taken into partnership as of 1st April, 2024 on the following terms for a `1/6` share:

1. C will bring ₹ 40,000 as his capital.
2. Goodwill is valued at ₹ 12,000 and the admitting partner is unable to bring his share of goodwill in cash.
3. Claim on account of Workmen’s Compensation is ₹ 3,000.
4. Creditors are to be paid ₹ 2,000 more.
5. A 2% Provision for Discount on Debtors is required.
6. The share of A in the new firm will be `1 1/2` times that of B.

Prepare the Revaluation A/c, Capital Accounts and Balance Sheet.

Answer 1

Dr.	Revaluation Accounts				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Creditors		2,000	By Loss transferred to:
To Provision for Discount		1,520	A’s Capital A/c	1,760
			B’s Capital A/c	1,760	3,520
		3,520			3,520

 

Dr.	Partners’ Capital Accounts						Cr.
Particulars	A (₹)	B (₹)	C (₹)	Particulars	A (₹)	B (₹)	C (₹)
To P & L A/c	2,000	2,000		By Bal. b/d	50,000	60,000
To Revaluation A/c	1,760	1,760		By Insurance Fund	3,500	3,500
To Balance c/d	51,040	63,040	40,000	By Workmen Compensation Reserve	1,300	1,300
				By C’s Current A/c `(1/6 "of"  12,000)`		2,000
				By Cash			40,000
	54,800	66,800	40,000		54,800	66,800	40,000

 

Balance Sheet as at 1st April, 2024
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Capitals:		1,54,080	Cash		50,000
A	51,040		Sundry Debtors		80,000
B	63,040		Stock		20,000
C	40,000		Fixed Assets		38,600
Creditors		17,000	C’s Current A/c		2,000
Outstanding Exp.		3,000
Provident Fund		1,000
Employee’s Saving Fund		5,000
Workmen Profit Sharing Fund		2,000
Provision for Workmen Compensation Claim		3,000
Provision for Doubtful Debts		4,000
Provision for Discount on Debtors		1,520
		1,90,600			1,90,600

Working Note:

1. Provision for Discount will be 2% on (₹ 80,000 − Provision for Doubtful Debts ₹ 4,000)

2. New Profit Sharing Ratio:

C is admitted for `1/6`th share. Balance `5/6`th will be shared by A and B in the ratio of `1 1/2 : 1` or 3 : 2

Hence, A’s share = `5/6 xx 3/5`

= `15/30`

= `3/6`

B’s share = `5/6 xx 2/5`

= `10/30`

= `2/6`

C’s share = `1/6`

3. Sacrificing Ratio:

A = `1/2 - 3/6`

= `(1 xx 3)/(2 xx 3) - 3/6`

= `3/6 - 3/6`

= 0

B = `1/2 - 2/6`

= `(1 xx 3)/(2 xx 3) - 2/6`

= `3/6 - 2/6`

= `1/6`

Hence, only B has sacrificed.