Question

John, Bull and Wool were in partnership, sharing profits and losses in the ratio of 2 : 2 : 1. Their Balance Sheet as at 31st March 2024, is given below:

Liabilities	₹	₹	Assets	₹	₹
Sundry Creditors		25,700	Land & Buildings		50,000
Outstanding Liabilities		3,000	Furniture		13,000
General Reserve		13,000	Stock of Goods		23,500
Capital Accounts:		58,000	Sundry Debtors		11,000
John	24,000		Cash		2,200
Bull	24,000
Wool	10,000
		99,700			99,700

The partners have agreed to take Tuna as a partner with effect from 1st April 2024, on the following terms:

1. Tuna shall bring ₹ 10,000 towards his capital.
2. The value of goodwill shall be fixed at ₹ 21,500.
3. General Reserve is not to be distributed and the effect of admission is to be recorded by passing an adjustment entry. However, Tuna’s capital is not to be affected.
4. The value of the stock should be increased by ₹ 5,000. The furniture should be depreciated by 10%. The value of Land & Buildings should be enhanced by 20%.
5. Provision for Doubtful Debts should be made at 10% of the debtors.
6. The outstanding liabilities include ₹ 1,000 due to Mr. Grip, which has been paid by John privately. Necessary entry to reimburse Mr. John, as per his request, before admitting the new partner, has to be passed.
7. The new profit-sharing ratio will be 5 : 5 : 3 : 2.

Prepare a Revaluation Account and the Capital Accounts of all the four partners. Also prepare a Balance Sheet of the new firm.

Answer 1

Dr.	Revaluation Account				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Furniture A/c		1,300	By Stock A/c		5,000
To Provision for Doubtful Debts		1,100	By Land and Buildings A/c		10,000
To Gain transferred to:		12,600
John’s Capital A/c	5,040
Bull’s Capital A/c	5,040
Wool’s Capital A/c	2,520
		15,000			15,000

 

Dr.	Capital Accounts								Cr.
Particulars	John (₹)	Bull (₹)	Wool (₹)	Tuna (₹)	Particulars	John (₹)	Bull (₹)	Wool (₹)	Tuna (₹)
To Bal. c/d	32,340	31,340	12,520	10,000	By Bal. b/d	24,000	24,000	10,000
					By Cash A/c				10,000
					By Tuna’s Current A/c (In sacrificing Ratio i.e. 1 : 1)	2,300	2,300
					By Outstanding Liabilities A/c	1,000
					By Revaluation (Profit)	5,040	5,040	2,520
	32,340	31,340	12,520	10,000		32,340	31,340	12,520	10,000

 

Balance Sheet as at 1st April 2024
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Sundry Creditors		25,700	Land & Buildings		60,000
Outstanding Liabilities		2,000	Furniture		11,700
General Reserve		13,000	Stock of Goods		28,500
Capital Accounts:		86,200	Sundry Debtors	11,000	9,900
John	32,340		Less: Provision for Doubtful Debts	1,100
Bull	31,340		Cash		12,200
Wool	12,520		Tuna’s Current A/c		4,600
Tuna	10,000
		1,26,900			1,26,900

Working Note:

Adjustment to be made for:	₹
Goodwill	21,500
General Reserve	13,000
	34,500

Tuna’s Current Account will be debited by ₹ `2/15` of 34,500 and John and Bull Capital A/cs will be credited in sacrificing ratio of 1 : 1.