Question

Ravi and Prakash are partners sharing profits and losses in the ratio of 3 : 7. The Balance Sheet of Ravi and Prakash as at 31st March, 2025, is given below:

Balance Sheet of Ravi and Prakash As at 31st March 2025
Liabilities	(₹)	Assets	(₹)
Ravi’s Capital	65,000	Goodwill	10,000
Prakash’s Capital	35,000	Land & Building	60,000
Workmen Compensation Reserve	20,000	Office Equipment	50,000
Bills Payable	15,000	Debtors	24,000
Bank Overdraft	25,000	Bills Receivable	16,000
	1,60,000		1,60,000

On 1st April, 2025, they admit Nasir for 1/4th share of profits on the following terms:

1. Nasir is to bring ₹ 50,000 as his capital and the necessary amount as his share of goodwill.
2. Firm’s Goodwill to be valued at ₹ 1,20,000.
3. Liability for Workmen Compensation to be recorded as ₹ 15,000.
4. Capital Accounts of Ravi and Prakash are to be adjusted based on Nasir’s capital and his share of profit. Any deficit or surplus in their capital is to be adjusted by opening a Current Account.

You are required to:

1. Prepare Partners’ Capital Account.
2. Calculate the balance of Cash at the bank on the date of Nasir’s admission.

Answer 1

Dr.	Partners’ Capital Account						Cr.
Particulars	Ravi (₹)	Prakash (₹)	Nasir (₹)	Particulars	Ravi (₹)	Prakash (₹)	Nasir (₹)
To Goodwill	3,000	7,000		By Balance b/d	65,000	35,000
To Balance c/d	72,500	52,500	50,000	By W.C.R (Surplus)	1,500	3,500
				By Bank A/c			50,000
				By Premium for Goodwill	9,000	21,000
	75,500	59,500	50,000		75,500	59,500	50,000
To Ravi’s Current A/c (Surplus)	27,500			By Bal b/d	72,500	52,500	50,000
To Balance c/d	45,000	1,05,000	50,000	By Prakash’s Current A/c (Deficit)		52,500
	72,500	1,05,000	50,000		72,500	1,05,000	50,000

Calculation of Bank Balance:

Particulars	Amount (₹)
Nasir’s Capital brought in cash	50,000
Nasir’s share of Premium for Goodwill brought in cash	30,000
Total Cash Inflow	80,000
Less: Bank Overdraft (Old)	(25,000)
Closing Balance of Cash at Bank	55,000

Working Note:

1. New Profit Sharing Ratio and Sacrificing Ratio:

Old Ratio = 3 : 7

Nasir’s Share = `1/4`

Remaining Share = `1 – 1/4`

= `3/4`

Ravi’s New Share = `3/4 × 3/10`

= `9/40`

Prakash’s New Share = `3/4 × 7/10`

= `21/40`

Nasir’s New Share = `10/40`

New Profit Sharing Ratio = 9 : 21 : 10

2. Goodwill Adjustments:

Existing Goodwill: ₹ 10,000 (written off in the old ratio 3 : 7)

Ravi: ₹ 3,000, Prakash: ₹ 7,000

New Firm’s Goodwill: ₹ 1,20,000

Nasir’s share of Premium for Goodwill:

`1,20,000 xx 1/4`

= 30,000

Credited to Ravi and Prakash in Sacrificing Ratio (3 : 7):

Ravi: ₹ 9,000, Prakash: ₹ 21,000

3. Workmen’s Compensation Reserve (WCR):

Total Reserve: ₹ 20,000, New Liability: ₹ 15,000

Surplus Reserve: ₹ 5,000 (distributed in 3 : 7)

Ravi: ₹ 1,500. Prakash: ₹ 3,500.

4. Capital Adjustment:

Total Capital based on Nasir = `50,000 xx 4/1`

= 2,00,000

Ravi’s New Capital = `2,00,000 xx 9/40`

= 45,000

Prakash’s New Capital = `2,00,000 xx 21/40`

= 1,05,000