Question

Raj and Dev are partners sharing profits and losses 3:2 respectively. Their position on 31^st March, 2011

                  Balance Sheet as on 31^st March, 2011

Liabilities		Amount (Rs)	Assets		Amount (Rs)
Capital A/c’s			Buildings		100000
Raj	100000	175000	Furniture		10000
Dev	75000		Stock		31000
Creditors		10000	Debtors	50000	49000
Bills Payable		5000	(-) R.D.D	1000
General Reserve		15000	Bank Balance		15000
		205000			205000

On 1^st April, 2011 they admitted Manoj on following terms:

1) Manoj should bring in cash Rs 1,00,000 as a capital for 1/5^th share in future profit and Rs 25,000 as goodwill.

2) Building should be revalued for Rs 1,25,000.

3) Depreciate furniture at 12 ½ % p.a. and stock at 10% p.a.

4) R.D.D. should be maintained as it is.

5) The Capital accounts of partners should be adjusted in their new profit sharing ratio through bank account.

Prepare, Profit and Loss Adjustment Account, Capital Accounts, Balance Sheet of new firm and show how you have calculated new ratio and new capital.

Answer 1

                      Profit and Loss Adjustment Account
Dr.                                                                                         Cr.

Particulars		Amount (Rs)	Particulars	Amount (Rs)
Furniture		1250	Building	25000
Stock		3100
Profit transferred to:
Raj’s Capital	12390	20650
Dev’s Capital	8260
		25000		25000

 

                                   Partners’ Capital Accounts
Dr.                                                                                          Cr.

Particulars	Raj	Dev	Manoj	Particulars	Raj	Dev	Manoj
Balance c/d	136390	99260	100000	Balance b/d	100000	75000
				General Reserve	9000	6000
				Profit and Loss Adjustment (Profit)	12390	8260
				Cash			100000
				Premium for Goodwill	15000	10000
	136390	99260	100000		136390	99260	100000
Balance c/d	240000	160000	100000	Balance b/d	136390	99260	100000
				Bank	103610	60740
	240000	160000	100000		240000	160000	100000

          Balance Sheet

as on April 01, 2011 after Manoj’s admission

Liabilities		Amount (Rs)	Assets		Amount (Rs)
Creditors		10000	Building		125000
Bills Payable		5000	Furniture	10000	8750
Capital :			Less : Depreciation @ 12.5%	1250
Raj	240000	500000	Stock	31000	27900
Dev	160000		Less : Depreciation @ 10%	3100
Manoj	100000		Debtors	50000	49000
			Less : Reserve for Doubtful Debts	1000
			Cash (100000 - 25000)		125000
			Bank		179350
		515000			515000

Working Notes: 
Calculation of Profit Sharing Ratio:

Old Ratio = Raj : Dev = 3 : 2

Manoj's Share = `1/5`

Let the total share of firm = 1

Remaining share of the firm = `1-1/5 = 4/5`

Raj's New Share =`4/5 - 3/5 = 12/25`

Dev's New Share = `4/5 - 2/5 = 8/12`

New profit sharing ratio of Raj , Dev and Manoj =`12/25 : 8/25 : 1/5 = (12 : 8 : 5)/25`

Sacrificing Ratio = Old Ratio - New Ratio

Raj's Sacrifice =`3/5 - 12/25 = 3/25`

Dev's Sacrifice = `2/5 - 8/25 = 2/25`

Sacrificing Ratio of Raj and Dev = 3:2

WN 1: Adjustment of Capital

Total capital of the New firm
= Share of Capital brought in by Manoj × Reciprocal of Manoj's Share Manoj's Capital = Rs 100000

Total Capital of the New firm = `100000 xx 5/1 = "Rs" 500000`

Raj's Capital = `500000 xx 12/25 = "Rs" 240000`

Dev's Capital = `500000 xx 8/25 = "Rs" 160000`

Manoj's Capital = `500000 xx 5/25 = "RS" 100000`

WN 2: Distribution of General Reserve 

Raj will get =`15000 xx 3/5 = "Rs" 9000`

Dev will get = `15000 xx 2/5 = "Rs" 6000`

WN 3: Distribution of Manoj’s Share of Goodwill 

Raj will get =`25000 xx 3/5 = "Rs" 15000`

Dev will get = `25000 xx 2/5 = "Rs" 10000`

WN 4: Bank Account

                                      Bank Account
Dr.                                                                                         Cr.

Particulars		Amount (Rs)	Particulars	Amount (Rs)
Balance b/d		15000	Balance c/d	179350
Capital A/c:
Raj	103610	164350
Dev	60740
		179350		179350