Question

A and B are partners sharing profits in 3 : 1. Their Balance Sheet as at 31st March, 2024 stood as follows:

Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Creditors		2,60,000	Land and Buildings		19,80,000
Workmen Compensation Reserve		40,000	Stock		8,00,000
Capital Accounts:			Sundry Debtors	4,00,000	3,88,000
A	20,00,000		Less: Provision	12,000
B	10,00,000	30,00,000	Cash at Bank		1,32,000
		33,00,000			33,00,000

On 1st April, 2024 they admit C as a new partner on the following terms:

1. The new profit-sharing ratio of A, B and C will be 3 : 2 : 1.
2. Land and Buildings are undervalued by 10%.
3. All debtors are good.
4. C to bring in ₹ 5,00,000 as Capital and his share of goodwill amounting to ₹ 60,000 in cash.

You are required to prepare Partner’s Capital Accounts.

Answer 1

Dr.	Revaluation Account				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Partner’s Capital A/c (Gain on Revaluation)		2,10,000	By Land and Buildings A/c		1,98,000
A	1,57,500		By Provision A/c		12,000
B	52,500
		2,10,000			2,10,000

 

Dr.	Partner’s Capital Accounts						Cr.
Particulars	A (₹)	B (₹)	C (₹)	Particulars	A (₹)	B (₹)	C (₹)
ToA’s Capital A/c		30,000		By Balance b/d	20,00,000	10,00,000
				By Bank A/c			5,00,000
To Balance c/d	22,77,500	10,32,500	5,00,000	By Revaluation A/c	1,57,500	52,500
				By Workmen Comp. Reserve A/c	30,000	10,000
				By B's Capital A/c	30,000
				By Premium for Goodwill	60,000
	22,77,500	10,62,500	5,00,000		22,77,500	10,62,500	5,00,000

Working Note:

Sacrificing Ratio = Old Ratio – New Ratio

A  Sacrifice  = `3/4 - 3/6`

= `(3 xx 3)/(4 xx 3) - (3 xx 2)/(6 xx 2)`

= `9/12 - 6/12`

= `(9 - 6)/12`

= `3/12` (Sacrifice)

A  Sacrifice = `1/4 -2/6`

= `(1 xx 3)/(4 xx 3) - (2 xx 2)/(6 xx 2)`

= `3/12 - 4/12`

= `(3 - 4)/12`

= `(-1)/12` (Gain)

C brings in 60,000 for goodwill for his `1/6` share of profit.

Total Goodwill of the firm based on C’s share = `60,000 xx 6/1`

= 3,60,000

Hence, Goodwill compensated by B for `1/12` gain = `3,60,000 xx 1/12`

= 30,000