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Charu and Harsha Were Partners in a Firm Sharing Profits in the Ratio of 3:2. on 1-4-2014 Their Balance Sheet Was as Follows : Prepare Revaluation Account and Partners' Capital Accounts - CBSE (Arts) Class 12 - Accountancy

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Question

Charu and Harsha were partners in a firm sharing profits in the ratio of 3:2. On 1-4-2014 their Balance Sheet was as follows :

Balance Sheet
Liabilities

Amount

Rs

Assets

Amount

Rs

Creditors

General Reserve

Workmen Compensation Fund

Investment Fluctuation Fund

Provision for bad debts

Capitals

   Charu    30,000

   Harsha   20,000

17,000

4,000

9,000

11,000

2,000

 

 

50,000

Cash

Debtors

Investments

Plant

Land and building

 

 

 

6,000

15,000

20,000

14,000

38,000

 

 

 

  93,000   93,000

On the above date, Vaishali was admitted for 1/4th share in the profits of the firm on the following terms:

(a) Vaishali will bring Rs 20,000 for her capital and Rs 4,000 for her share of goodwill premium.
(b) All debtors were considered good.
(c) The market value of investments was Rs 15,000.
(d) There was a liability of Rs 6,000 for workmen compensation.
(e) Capital accounts of Charu and Marsha are to be adjusted on the basis of Vaishali's capital by
opening current accounts.

Prepare Revaluation Account and Partners' Capital Accounts

Solution

Revaluation Account
Dr.   Cr.
Particulars Rs Particulars Rs

To Profit transferred to :

   Charu’s Capital A/c   1,200

   Harsha’s Capital A/c    800

 

 

2,000

By Provision for Bad debts A/c

 

 

2,000

 

 

  2,000   2,000

 

Partner’s Capital Account
Dr   Cr.
Particulars Charu Harsha Vaishali Particulars Charu Harsha Vaishali

To Current A/c

To Balance c/d

 

 

 

 

 

 

 

5,400

36,000

 

 

 

 

 

 

 

3,600

24,000

 

 

 

 

 

 

 

 

20,000

 

 

 

 

 

 

 

By Balance b/d

By General Reserve A/c

By Workmen Compensation Fund A/c

By Investment Fluctuation Fund A/c

By Revaluation A/c (Profit)

By Cash A/c

By Prem. for Goodwill A/c

 

 

30,000

2,400

1,800

3,600

1,200

 

2,400

 

 

20,000

1,600

1,200

2,400

800

 

1,600

 

 

 

 

 

 

 

20,000

 

 

 

  41,400 27,600 20,000   41,400 27,600 20,000

Working Notes :

WN 1: Calculation of New Profit Sharing Ratio

Old Ratio = 3:2

Let the total profit of the firm = 1

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

So,

Charu's New Share =`3/5 xx 3/4 = 9/20`

Harsha's New Share = `2/3 xx 3/4  = 6/20`

∴ New Profit Sharing Ratio = `9/20 : 6/20 : 1/4 = 9:6:5`

WN 2 Calculation of Sacrificing Ratio

Old Ratio = 3:2
New Ratio = 9:6:5

Sacrificing Ratio = Old Ratio – New Rati

Charu = `3/5 - 9/20 = 3/20`

Harsha = `2/5 - 6/20 = 2/20`

∴ Sacrificing Ratio = 3:2

WN 3 Distribution of Goodwill

Charu will get =`4000 xx 3/5 = 2400`

Harsha will get = `4000 xx 2/5 = 1600`

WN 4 Adjustment of Capital

Total Capital of the firm = Vaishali Capital x Reciprocal of her share

`= 20000 xx 4/1 = 80000`

New Profit Sharing Ratio = 9:6:5

Charu's New Capital = `80000 xx 9/20 = 36000`

Harsha's New Capital = `80000 xx 6/20 = 24000`

Vaishali's New Capital = `80000 xx 5/25 = 20000`

  Is there an error in this question or solution?
Solution Charu and Harsha Were Partners in a Firm Sharing Profits in the Ratio of 3:2. on 1-4-2014 Their Balance Sheet Was as Follows : Prepare Revaluation Account and Partners' Capital Accounts Concept: Preparation of Revaluation Account and Balance Sheet.
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