Question

Manoj and Rahul are equal partners in a business. Their Balance sheet as on 31^st March, 2013 stood as under:

                 Balance Sheet as on 31^st March, 2013

Liabilities	Amount(Rs)	Asset		Amount(Rs)
Sundry Creditors	180000	Cash at Bank		120000
General Reserve	36000	Debtors	62000	60000
Capitals-		(-)R.D.D	2000
Manoj	90000	Bills receivable		24000
Rahul	60000	Building		114000
		Machinery		48000
	366000			366000

They decided to admit Amit on 1^st April, 2013 on the following terms:

1) The Machinery and Building be depreciated by 10%

2) Reserve for doubtful debts to be increased to Rs 5,000.

3) Bills receivable are taken over by Manoj at a discount of 5%.

4) The amount of creditors paid at a discount of 10%.

5) The Capital Accounts of all the partners be adjusted in current account of partners.

6) Amit should bring Rs 80,000 as capital for his 1/4^th in future profits and goodwill account be opened in the books of the firm at Rs 40,000.

Prepare Profit and Loss Adjustments A/c, Partner’s Capital A/c and Balance sheet of the firm at Rs 4,000/-

Answer 1

                      Profit and Loss Adjustment Account 
Dr.                                                                                         Cr.

Particulars	Amount(Rs)	Particulars	Amount(Rs)
Machinery	4800	Creditors	18000
Building	11,400	Loss transferred to:
Reserve for doubtful Debts	3000	Manoj's Capital	1200
Bills Receivable	1200	Rahul's Capital	1200
	20400		20400

                              Partners’ Capital Accounts
Dr.                                                                                        Cr.

Particulars	Manoj	Rahul	Amit	Particulars	Manoj	Rahul	Amit
Bills Receivable	22800			Balance b/d	90000	60000
Profit and Loss Adjustment (Loss)	1200	1200		General Reserve	18000	18000
Balance c/d	104000	96800	80000	Cash			80000
				Premium for  Goodwill	20000	20000
	128000	98000	80000		128000	98000	80000
Balance b/d	120000	120000	120000	Balance b/d	104000	96800	80000
				Current A/c	16000	23200
	120000	120000	80000		120000	120000	80000

 

Balance Sheet

as on April 01, 2013 after Amit’s admission

Liabilities		Amount(Rs)	Assets		Amount(Rs)
Capital A/c			Cash at Bank		78000
Manoj	120000	320000	Debtors	62000	57000
Rahul	120000		Less : Reserve for Doubtful Debts	5000
Amit	80000		Building	114000	102600
			Less : Depreciation @ 10%	11400
			Machinery	48000	43200
			Less : Depreciation @ 10%	4800
			Current A/c's
			Manoj	16000	39200
			Rahul	23200
		320000			320000

Working Notes:

Calculation of Profit Sharing Ratio

Old Ratio = Manoj : Rahul = 1 : 1

Amit's Share = `1/4`

Let the total share of firm = 1

Remaining share of the firm = `1-1/4 = 3/4`

Manoj's New Share =`1/2 xx 3/4 = 3/8`

Dev's New Share = `1/2 xx  3/4 = 3/8`

New profit sharing ratio of Manoj , Rahul and Amit =`3/8 : 3/8 : 1/4 = (3:3:2)/8`

Sacrificing Ratio = Old Ratio - New Ratio

Manoj's Sacrifice =`1/2 - 3/8 = 1/8`

Rahul's Sacrifice = `1/2 - 3/8 = 1/8`

Sacrificing Ratio of Raj and Dev = 1 : 1

WN 2: Distribution of General Reserve 

Manoj will get =`36000 xx 1/2 = "Rs" 18000`

Rahul  will get = `36000 xx 1/2 = "Rs" 18000`

WN 3: Distribution of Manoj’s Share of Goodwill 

Manoj will get =`40000 xx 1/2 = "Rs" 20000`

Rahul will get = `40000 xx 1/2 = "Rs" 20000`

WN 4:  Adjustment of Capital

Total capital of the New firm
= Share of Capital brought in by Amit × `4/1`Amit's Capital = Rs 80000

Total Capital of the firm = `80000 xx 4/1 = "Rs" 320000`

Manoj's New Capital = `320000 xx 3/8 = "Rs" 120000`

Rahul's New Capital = `320000 xx 3/8 = "Rs" 120000`

Amit's New  Capital = `320000 xx 2/8 = "RS" 80000`

WN 5 : Cash Account

                                    Cash Account
Dr.                                                                                   Cr.

Particulars	Amount (Rs)	Particulars	Amount (Rs)
Balance b/d	120000	Creditors	162000
Amit's Capital A/c	80000	Balance c/d	78000
Goodwill	40000
	240000		240000