Question

Ram and Shyam were in partnership sharing profits and Losses in the proportion of 3 : 1 respectively. Their Balance sheet as on 31st March, 2020 stood as follows:

Balance Sheet as on 31st March, 2020
Liabilities		Amount (₹)	Assets	Amount (₹)
Sundry Creditors		80,000	Cash	80,000
Bills Payable		42,000	Sundry Debtors	64,000
Capital Accounts:			Land and Building	32,000
Ram	1,20,000	1,60,000	Stock	40,000
Shyam	40,000		Plant and Machinery	60,000
General Reserve		16,000	Furniture	22,000
		2,98,000		2,98,000

They admit Bharat into partnership on 1^st April 2020. The term is that

1. He shall have to bring in cash ₹ 40,000 as his Capital for 1/5^th share in future profit and ₹ 20,000 as his share of Goodwill.
2. A provision for 5% doubtful debts to be created on sundry debtors.
3. Stock should be appreciated by 5% and Land and Building be appreciated by 20%.
4. Furniture to be depreciated by 20%.
5. Capital Accounts of all partners be adjusted in their new profit-sharing ratio through Cash Account.

Prepare:

1. Profit and Loss Adjustment Account
2. Partners' Capital Account
3. Balance Sheet of the new firm.

Answer 1

Dr.	In the books of the firm Profit and Loss Adjustment Account			Cr.
Particulars		Amount (₹)	Particulars	Amount (₹)
To R.D.D. A/c		3,200	By Stock A/c	2,000
To Furniture A/c		4,400	By Land and Building A/c	6,400
To Revaluation Profit -
Ram Capital A/c	600	800
Shyam Capital A/c	200
		8,400		8,400

 

Dr.	Partners' Capital Accounts						Cr.
Particulars	Ram (₹)	Shyam (₹)	Bharat (₹)	Particulars	Ram (₹)	Shyam (₹)	Bharat (₹)
To cash A/c (Balance figure)	27,600	9,200	-	By Balance b/d	1,20,000	40,000	-
To Balance c/d [NR = 3 : 1 : 1]	1,20,000	40,000	40,000	By General Reserve A/c	12,000	4,000	-
				By Cash A/c	-	-	40,000
				By Goodwill A/c (in 3 : 1)	15,000	5,000	-
				By P/L Adj. A/c	600	200	-
	1,47,600	49,200	40,000		1,47,600	49,200	40,000

 

M/s. Ram, Shyam and Bharat New Balance Sheet as on 1st April, 2020
Liabilities		Amount (₹)	Assets		Amount (₹)
Capitals:			Sundry Debtors	64,000	60,800
Ram	1,20,000	2,00,000	Less: R.D.D.	(3,200)
Shyam	40,000		Land and Building	32,000	38,400
Bharat	40,000		Add: Appreciation	6,400
Sundry Creditors		80,000	Stock	40,000	42,000
Bills Payable		42,000	Add: Appreciation	2,000
			Plant and Machinery		60,000
			Furniture	22,000	17,600
			Less: Depreciation	(4,400)
			Cash		1,03,200
		3,22,000			3,22,000

Working Note:

(1) Calculation of New Profit Sharing ratio -

Formula = 1 − Share of New Partner = `1 - 1/5`

`= 4/5` = Remaining Profit

New Ratio = Old Ratio × balance of 1

Ram's New Ratio = `3/4 xx 4/5 = 3/5`

Shyam's New Ratio = `1/4 xx 4/5 = 1/5`

Bharat's New Ratio = `1/5`

∴ New Profit sharing Ratio will be = 3 : 1 : 1.

(2) Calculation of Sacrificing/Gain Ratio

Sacrificing Ratio = Old Ratio − New Ratio

Ram's Share = `3/4 - 3/5 = 3/20`  (Sacrifice)

Shyam's Share = `1/4 - 1/5 = 1/20` (Sacrifice)

Bharat's Share = `0 - 1/5 = - (- 1)/5  "or"  (-4)/20` (Gain)

(3) Calculation of Cash Balance:

Old balance =	80,000
	(27,600)
	(9,200)
	+ 60,000
	1,03,200