Question

Pappu and Dhanraj were partners in a firm sharing profits in the ratio of 3 : 1. Their Balance Sheet as at 31-3-2023 was as follows:

Liabilities	Amount ₹	Amount ₹	Assets	Amount ₹	Amount ₹
Creditors		30,000	Debtors	50,000
Bills Payable		1,000	Less: Provision	(5,000)	45,000
reserve Fund		16,000	Stock		30,000
Outstanding Salary		3,000	Bills Receivable		10,000
Capital:			Patents		1,000
Pappu	60,000		Machinery		40,000
Dhanraj	20,000	80,000	Cash		4,000
		1,30,000			1,30,000

They admitted Leander as a new partner on 1st April, 2023. New profit-sharing ratio is agreed 3 : 2 : 3. Leander brings in proportionate capital after the following adjustments:

1. Leander brings ₹ 16,000 as his share of goodwill.
2. Provision for doubtful debts is to be reduced by ₹ 2,000.
3. There is an old typewriter valued at ₹ 2,400. It does not appear in the books of the firm. It is now to be recorded.
4. Patents are valueless.

Prepare Revaluation Account, Capital Accounts and the Opening Balance Sheet of Pappu, Dhanraj and Leander.

Hint: Pappu will be entitled to the full amount of goodwill brought in by Leander because only he sacrifices his profit share.

Answer 1

Revaluation Account
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)
To Patents (Valueless)		1,000	By Provision for Doubtful Debts	2,000
To Profit transferred to Capital A/cs:			By Unrecorded Typewriter	2,400
Pappu (`3,400 xx 3/4`)	2,550
Dhanraj (`3,400 xx 1/4`)	850	3,400
Total		4,400	Total	4,400

 

Partners' Capital Accounts
Particulars	Pappu (₹)	Dhanraj (₹)	Leander (₹)	Particulars	Pappu (₹)	Dhanraj (₹)	Leander (₹)
To Balance c/d	90,550	24,850	69,240	By Balance b/d	60,000	20,000	-
				By Balance b/d (3 : 1)	12,000	4,000	-
				By Premium for Goodwill	16,000	-	-
				By Revaluation A/c (Profit)	2,550	850	-
				By Cash A/c (Proportionate Capital)	-	-	69,240
Total	90,550	24,850	69,240	Total	90,550	24,850	69,240

 

Balance Sheet (as on 1st April, 2023)
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Creditors		30,000	Machinery		40,000
Bills Payable		1,000	Stock		30,000
Outstanding Salary		3,000	Bills Receivable		10,000
Capital Accounts:			Typewriter		2,400
Pappu	90,550		Debtors	50,000
Dhanraj	24,850		Less: Provision (5,000 − 2,000	(3,000)	47,000
Leander	69,240	1,84,640	Cash (4,000 + 16,000 + 69,000)		89,240
Total		2,18,640	Total		2,18,640

Working Note:

Combined Capital of Pappu & Dhanraj after adjustments = ₹ 90,550 + ₹ 24,850 = ₹ 1,15,400

Combined Profit Share of Pappu & Dhanraj = `1 - 3/8 = 5/8`

Total Capital of the New Firm = `1,15,400 xx 8/5 = 1,84,640`

Leander's Capital = `1,84,640 xx 3/8 = 69,240`