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`
