Sahaj and Nimish are partners in a firm. They share profits and losses in the ratio of 2: 1. Since both of them are specially abled, sometimes they find it difficult to run the business on their own. Gauri, a common friend decides to help them. Therefore, they admitted her into a partnership for a 1/3rd share. She brought her share of goodwill in cash and proportionate capital. At the time of Gauri's admission, the Balance sheet of Sahaj and Nimish was as under:
Employee's Provident Fund
It was decided to:
a. Reduce the value of a stock by `5,000.
b. Depreciate furniture by 10% and appreciate machinery by 5%.
c. Rs 3,000 of the debtors proved bad. A provision of 5% was to be created on Sundry Debtors for doubtful debts.
d. Goodwill of the firm was valued at Rs 45,000.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the reconstituted firm. Identify the value being conveyed in the question.
To Stock A/c
To Depreciation on Furniture A/c
To Bad Debts A/c
To Provision for Doubtful Debts A/c
By Machinery A/c
By Loss on Revaluation transferred to:
Sahaj A/c 7,567
Nimish A/c 3,783
|Partners’ Capital Account|
|To Revaluation A/c (Loss)||7,567||3,783||By Balance b/d||1,20,000||80,000||`|
|By Cash A/c||1,16,825|
|By Premium for Goodwill A/c||10,000||5,000|
|To Balance c/d||1,42,433||91,217||1,16,825||By General Reserve A/c||20,000||10,000|
After Gauri's Admission
Employees' Provident Fund
Furniture (80,000 – 8,000)
Stock (50,000 – 5,000)
Sundry Debtors 30,000
Less: Bad Debts (3,000)
Less: Provision for Doubtful Debts (1,350)
Cash (20,000 + 15,000+ 1,16,825)
WN1 Calculation of Gauri's Share of Goodwill
Value of Firm's Goodwill = 45,000
Gauri 's Profit Share = 1/3 rd
Gauri 's Share of Goodwill = 45000 xx 1/3 = 15000
WN2 Calculation of Capital brought in by Gauri
Old Ratio = 2:1
Gauri is admitted for 1/3rd share
Let Total Profit be 1
∴ Remaining Profit = `1 - 1/3 = 2/3`
Sahaj's New Profit Share =`2/3 xx 2/3 = 4/9`
Nimish's New Profit Share = `1/3 xx 2/3 = 2/9`
Gauri's Profit Share = `1/3` or `3/9`
∴New Ratio Share = 4:2:3
Adjust Old Capital of Sahaj = 150000 - 7567 = 142433
Adjust Old Capital of Nimish = 95000 - 3783 = 91217
Total Adjusted capital Sahaj and Nimish = `142433 + 91217 = 233650`
Combined Share of Sahaj and Nimish = 4/9 + 2/9 = 6/9 or 2/3
Total Capital of the New Firm = Total Adjusted Capital of Sahaj and Nimish x Reciprocal of Total Combined Share of Sahaj and Nimish
= `233650 xx 3/2 = 350475`
Gauri's Capital = `350475 xx 1/3 = 116825`
The following are the values involved in the scenario depicted in the question.
- Valuing friendship and helping friends
- Sympathy and sensitivity towards differently abled individuals.