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Achla and Bobby Were Partners in a Firm Sharing Profits and Losses in the Ratio of 3:1. on 31st March, 2019, Their Balance Sheet Was as Follows: - Accountancy

Ledger

Achla and Bobby were partners in a firm sharing profits and losses in the ratio of 3: 1. On 31st March 2019, their balance sheet was as follows:

Balance Sheet of Achla and Bobby as on 31st March 2019

Liabilities 

Amount(₹)

Assets

Amount(₹)

Creditors

1,10,000

Cash at bank

60,000

General Reserve

40,000

Debtors

40,000

Workmen's compensation reserve

50,000

Stock

45,000

Capitals :

 

Furniture

1,55,000

Achla - 4,00,000

 

Land & Building  

5,00,000

Bobby - 2,00,000

6,00,000

 

 

 

8,00,000

 

8,00,000

On 1st April 2019, they admitted Vihaan as a new partner for 1/5th share in the profits of the firm on the following terms:
(a) Vihaan brought ₹ 1,00,000 as his capital and the capitals of Achla and Bobby were to be adjusted on the basis of Vihaan's capital; any surplus or deficiency was to be adjusted by opening current accounts.
(b) Goodwill of the firm was valued at ₹ 4,00,000. Vihaan brought the necessary amount in cash for his share of goodwill premium, half of which was withdrawn by the old partners.
(c) Liability on account of workmen's compensation amounted to ₹ 80,000.
(d) Achla took overstock at ₹ 35,000.
(e) Land and building was to be appreciated by 20%.

Prepare Revaluation Account, Partner's Capital Accounts, and the Balance Sheet of the reconstituted firm on Vihaan's admission.

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Solution

In the books of Achla, Bobby and Vihaan  

Dr. Revaluation A/c Cr.
Particulars

Amount(₹)

Particulars

Amount(₹)

To Liability on workmen compensation

30,000

By Land & Building

1,00,000

To Stock A/c

10,000

 

 

To Profit on revaluation trsnf. to:

 

 

 

Achla’s Capital A/c - 45,000

 

 

 

Bobby’s Capital A/c - 15,000

60,000

 

 

 

1,00,000

 

1,00,000

 

Dr. Partner’s Capital A/c Cr.
Particulars

Achla(₹)

Bobby(₹)

Vihaan(₹)

Particulars

Achla(₹)

Bobby(₹)

Vihaan(₹)

To Bank A/c (withdrawn)

30,000

10,000

 

By balance b/d

4,00,000

2,00,000

 

To Stock A/c

35,000

 

 

By Bank A/c

 

 

1,00,000

To Current A/c

1,70,000

1,35,000

 

By Premium for Goodwill A/c

60,000

20,000

 

To balance c/d

3,00,000

1,00,000

1,00,000

By General Reserve A/c

30,000

10,000

 

 

 

 

 

By Revaluation A/c

45,000

15,000

 

 

5.35,000

2,45,000

1,00,000

 

5,35,000

2,45,000

1,00,000

Working Notes:

1) Calculation of New Profit-Sharing Ratio

Old Profit-sharing ratio = 3 : 1
Vihaan’s Share = 1/5
Remaining Profits of the firm = (1 – 1/5) = 4/5
Achla’s New Share = (4/5 × 3/4) = 3/5
Bobby’s New share = (4/5 × ¼) = 1/5
New Profit-sharing ratio = 3 : 1 : 1
Sacrificing ratio is same as old ratio = 3 : 1

2) Calculation of Vihan’s Share of Goodwill

Vihaan’s Share of Goodwill  = ₹ (4,00,000 × 1/5) = ₹ 80,000

3) Adjustment of Capital:

Vihaan’s Capital for 1/5th share = ₹ 1,00,000
For 1 whole share, capital of the firm = ₹ (1,00,000 × 5) = ₹ 5,00,000
New Capital of Achla = ₹ (5,00,000 × 3/5) = ₹ 3,00,000
New Capital of Bobby = ₹ (5,00,000 × 1/5) = ₹ 1,00,000
Existing Capital of Achla and Bobby is ₹ 4,70,000 and ₹ 2,35,000  
Amount to be credited to Achla’s Current A/c = Old Capital – New Capital
  = ₹ (4,70,000 – 3,00,000) = ₹ 1,70,000
Amount to be credited to Bobby’s Current A/c = Old Capital – New Capital
  = ₹ (2,35,000 – 1,00,000) = ₹ 1,35,000

Balance Sheet as at 31st March 2019 

Liabilities

Amount(₹)

Assets

Amount(₹)

Creditors

1,10,000

Land and Building

6,00,000

Liability for workmen compensation

80,000

Debtors

40,000

Capitals:

 

Furniture

1,55,000

Achla -    3,00,000

 

Cash at Bank

2,00,000

Bobby -  1,00,000

 

(60,000 + 1,00,000 + 80,000 − 40,000)

 

 Vihaan - 1,00,000

5,00,000

 

 

Current A/cs:

 

 

 

Achla  -   1,70,000

 

 

 

Bobby  -   1,35,000

3,05,000

 

 

 

9,95,000

 

9,95,000

Concept: Preparation of Revaluation Account and Balance Sheet
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