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P, Q and R Were Partners in a Firm Sharing Profits in the Ratio of 3:2:1. on 31-3-2015 Their Balance Sheet Was as Follows - Accountancy

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P, Q and R were partners in a firm sharing profits in the ratio of 3:2:1. On 31-3-2015 their Balance Sheet was as follows :

                                     Balance Sheet of P,Q and R as on 31-3-2015

Liabilities Amount(Rs.) Assets Amount(Rs.)

Creditors

General Reserve

Capitals

     P                                      1,80,000

     Q                                      1,20,000

     R                                        60,000

 

2,52,000

63,000

 

 

 

3,60,000

 

Bank

Debtors

Stock

Investments

Furniture

Machinery

 

51,000

69,000

3,30,000

90,000

30,000

1,05,000

 

  6,75,000   6,75,000

On the above date S was admitted as a new partner and it was decided that:

(i) The new profit sharing ratio between P, Q, R and S will be 2:2:1:1.

(ii) Goodwill of the firm was valued at Rs.2, 70,000 and S will bring his share of goodwill premium in cash.

(iii) The market value of investments was Rs.64,000.

(iv) Machinery will be reduced to Rs.87,000.

(v) A creditor of Rs.9,000 was not likely to claim the amount and hence to be written-off.

(vi) S will bring proportionate capital so as to give him 1/6th share in the profits of the firm.

Prepare Revaluation Account. Partners' Capital Accounts and the Balance Sheet of P, Q, R and S.

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Solution

                                                          Revaluation Account

Dr.                                                                                                                                          Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Investment

To Machinery

 

 

 

 

26,000

18,000

 

 

 

 

By Creditors

By Loss on Revaluation

       P’s Capital A/c      17,500

       Q’s Capital A/c      11,667

       R’s Capital A/c        5,833

 

9,000

 

 

 

35,000

 

  44,000   44,000

 

Partner’s Capital Account

Dr.                                                                                                                                                                                                             Cr.

Particulars P(Rs) Q(Rs) R(Rs) S(Rs) Particulars P(Rs) Q(Rs) R(Rs) S(Rs)

Reval. A/c

Balance c/d

 

 

 

17,500

2,39,000

 

 

 

11,667

1,29,333

 

 

 

5,833

64,667

 

 

 

 

86,600

 

 

 

Balance c/d

Gen. Reserve

Prem For G/w

Cash A/c

 

1,80,000

31,500

45,000

 

 

1,20,000

21,000

 

 

 

60,000

10,500

 

 

 

 

 

 

86,600

 

  2,56,500 1,41,000 70,500 86,600   2,56,500 1,41,000 70,500 86,600

 

                                                                       Balance Sheet

                                                                  as on March 31,2015

Liabilities Amount(Rs.) Assets Amount(Rs.)

Creditors

Capitals :

    P                               2,39,000

    Q                               1,29,333

    R                                   64,667

    S                                   86,600

 

2,43,000

 

 

 

 

5,19,600

 

Bank (51,000 + 86,600 + 45,000)

Debtors

Stock

Investments

Furniture

Machinery

 

1,82,600

69,000

3,30,000

64,000

30,000

87,000

 

  7,62,600   7,62,600

 

Working Notes :

WN 1 : Calculation of Sacrificing Ratio

Sacrificing Ratio = Old Ratio - New Ratio

P's = (3/6) - (2/6) = 1/6

Q's = (2/6) - (2/6) = Nil

R's = (1/6) - (1/6) = Nil

WN 2 : Adjustment of Goodwill

S's Share of Goodwill = 2,70,000 x (1/6) = 45,000

45,000 will be credited to P's Capital A/c, as he is the only sacrificing partner

WN 3 : Calculation of S’s Proportionate Capital

 Adjusted Old Capital of P = 1,80,000 + 31,500 + 45,000 – 17,500 = 2,39,000

Adjusted Old Capital of Q = 1,20,000+ 21,000 – 11,667 = 1,29,333

Adjusted Old Capital of R = 60,000 + 10,500 – 5,833 = 64,667

Total Adjusted Capital = 2,39,000 + 1,29,333 + 64,667 = 4,33,000

S’s Proportionate Capital = Total Adjusted Capital x S’s Profit Share x Reciprocal of Combined New Share of Old Partners

                                    = 4,33,000 x (1/6) x (6/5) = 86,600

Concept: Preparation of Revaluation Account and Balance Sheet
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