Question

Dhruv and Ansh are partners in a firm sharing profits and losses: Dhruv 75% and Ansh 25%. Their Balance Sheet as at 31st March, 2021 is given below: Balance Sheet of Dhruv and Ansh As at 31st March, 2021 Liabilities Amount (₹) Amount (₹) Assets Amount (₹) Amount (₹) Sundry Creditors   49,000 Cash   62,000 Workmen Comp. Reserve   5,000 Sundry Debtors 18,500 17,000 Capital A/c:   50,000 Less: Prov. for Doubtful Debts (1,500) Dhruv 30,000 Land and Building   25,000 Ansh 20,000           1,04,000     1,04,000 On 1st April 2021, Kavi is admitted as a new partner on the following terms: Land and building is found to be valued at 25% above cost. It is decided to bring it to its cost. Bad debts amounting to ₹ 1,800 are to be written off. The remaining debtors are good. Creditors include an amount of ₹ 5,000 received as commission from Amar. The necessary adjustment is required to be made. The liability on the Workmen’s Compensation Reserve is determined at ₹ 3,000. Kavi is to pay ₹ 15,000 to the existing partners as a premium for Goodwill for 20% of the future profits of the firm. He is also to bring in ₹ 25,000 as capital.

The value of Land and Building in the Balance Sheet of the reconstituted firm will be:

Options

• ₹ 20,000

• ₹ 31,250

• ₹ 5,000

• ₹ 6,250

Answer 1

₹ 20,000

Explanation:

The current value is 25% above the original cost. Therefore, if the original cost is considered 100%, the current value represents 100% + 25% = 125% of the original cost.

the current value of ₹ 25,000 and its percentage equivalent (125%). We need to find the original cost, which corresponds to 100%.

Original Cost  = `"Current Book Value"/"100% + Percentage Above Cost"`

= `(25,000)/(100 + 25)`

= `(25,000)/125`

To perform the division, convert the percentage to a decimal:

= `(25,000)/1.25`

= ₹ 20,000