Question

A and B sharing profits in the ratio of 3 : 2 have capitals of ₹ 1,00,000 and ₹ 45,000 respectively. They admit a new partner C with 2/9th share of profits. C is required to bring ₹ 40,000 as capital. The loss on revaluation of assets and liabilities is ₹ 10,000. It is agreed that capitals of partners should be in the new profit sharing ratio. Any excess or deficit amount should be transferred to their current accounts. Pass a suitable adjusting entry or entries.

Answer 1

Journal Entries
Date	Particualrs	L.F.	Debit (₹)	Credit (₹)
1.	A's Capital A/c   ...Dr.		10,000
	To A's Current A/c			10,000
	(Being excess capital transferred to Current Account)
2.	B's Current A/c   ...Dr.		15,000
	To B's Capital A/c			15,000
	(Being deficit capital covered through Current Account)

Working note:

A. Distribution of Revaluation Loss

The revaluation loss of ₹ 10,000 is distributed between old partners (A) and (B) in their old profit-sharing ratio (3 : 2):

A's share of loss: `10,000 xx 3/5 = 60,000`

B's share of loss: `10,000 xx 2/5 = 4,000`

B. Calculation of Adjusted Old Capitals

A's Adjusted Capital = 1,00,000 − 6,000 = 94,000

B's Adjusted Capital = 45,000 − 4,000 = 41,000

C. New Profit-Sharing Ratio

C's share = `2/9`

Remaining profit share = `1 - 2/9 = 7/9`

A's new share = `3/5 xx 7/9 = 21/45`

B's new share = `2/5 xx 7/9 = 14/45 `

C's new share with common base of `45 = 2/9 xx 5/5 = 10/45`

New Profit-Sharing Ratio = 21 : 14 : 10

D. Determination of Required New Capital (Taking C's Capital as Base)

Total Capital of the New Firm = `40,000 xx 9/2 = 1,80,000`

A's New Required Capital: `1,80,000 xx 21/45 = 84,000`

B's New Required Capital: `1,80,000 xx 14/45 = 56,000`

E. Calculation of Excess/Deficit

Partner A: Adjusted Capital (₹ 94,000) - Required Capital (₹ 84,000) = ₹ 10,000 (Excess) - Transfer to Current A/c

Partner B: Adjusted Capital (₹ 41,000) - Required Capital (₹ 15,000) = ₹ 15,000 (Excess) - Transfer to Current A/c