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Question
Sachin and Santosh were in partnership, sharing profit 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 (₹) |
| Capital A/cs: | Debtors | 1,60,000 | |
| Sachin | 3,00,000 | Land and building | 80,000 |
| Santosh | 1,00,000 | Stock | 1,00,000 |
| General Reserve | 40,000 | Furniture | 55,000 |
| Creditors | 2,00,000 | Machinery | 1,50,000 |
| Bills payable | 50,000 | Cash | 2,00,000 |
| Bank overdraft | 55,000 | ||
| 7,45,000 | 7,45,000 | ||
They admitted Kishor into the partnership on 1st April, 2020 the terms being that:
- He shall have to bring in ₹ 1,00,000 as his capital for 1/5th share in future profit and ₹ 50,000 as his share of goodwill.
- Stock should be appreciated by 5% and building be appreciated by 20%.
- Furniture to be depreciated by 20%.
- A provision for 5% doubtful debts to be created on debtors.
- Capital account of all partners be adjusted in their new profit sharing ratio through cash account.
Prepare:
- Profit and Loss adjustment account
- Partners Capital account
- Balance sheet of new firm
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Solution
| Dr. | In the books of Sachin and Santosh Profit and Loss Adjustment Account |
Cr. | |||
| Particulars | Amount (₹) | Amount (₹) | Particulars | Amount (₹) | Amount (₹) |
| To Furniture A/c | 11,000 | By Stock A/c | 5,000 | ||
| To R.D.D. A/c | 8,000 | By Land and Building A/c | 16,000 | ||
| To Loss on Revaluation transferred to Partners’ Capital A/cs: |
2,000 | ||||
| Sachin | 1500 | ||||
| Santosh | 500 | ||||
| 21,000 | 21,000 | ||||
| Dr. | Partners’ Capital Accounts | Cr. | |||||
| Particulars | Sachin (₹) | Santosh (₹) | Kishore (₹) | Particulars | Sachin (₹) | Santosh (₹) | Kishore (₹) |
| To Cash A/c | 69,000 | 23,000 | - | By Balance b/d | 3,00,000 | 1,00,000 | - |
| To Balance c/d | 3,00,000 | 1,00,000 | 1,00,000 | By General Reserve A/c | 30,000 | 10,000 | - |
| By Cash A/c | - | - | 1,00,000 | ||||
| By Goodwill A/c | 37,500 | 12,500 | - | ||||
| By Profit and Loss Adjustment A/c | 1500 | 500 | - | ||||
| 3,69,000 | 1,23,000 | 1,00,000 | 3,69,000 | 1,23,000 | 1,00,000 | ||
| Balance Sheet as on 31st March, 2020 | |||||
| Liabilities | Amount (₹) | Amount (₹) | Assets | Amount (₹) | Amount (₹) |
| Capital A/cs: | 5,00,000 | Debtors | 1,60,000 | 1,52,000 | |
| Sachin | 3,00,000 | Less: R.D.D. | 8,000 | ||
| Santosh | 1,00,000 | Land and Building | 80,000 | 96,000 | |
| Kishore | 1,00,000 | Add: Appreciation | 16,000 | ||
| Creditors | 2,00,000 | Stock | 1,00,000 | 1,05,000 | |
| Bills Payable | 50,000 | Add: Appreciation | 5,000 | ||
| Bank Overdraft | 55,000 | Furniture | 55,000 | 44,000 | |
| Less: Depreciation | 11,000 | ||||
| Machinery | 1,50,000 | ||||
| Cash | 2,58,000 | ||||
| 8,05,000 | 8,05,000 | ||||
Working Notes:
(1) Calculation of New Ratio:
Balance of 1 = 1 − Share of new partner
= `1 - 1/5` (Share of new partner - Kishore)
= `4/5` (Remaining share)
New ratio = Old ratio × Balance of 1
Sachin’s new ratio = `4/5 xx 3/4 = 3/5`
Santosh’s new ratio = `4/5 xx 1/4 = 1/5`
∴ New Profit sharing ratio = `3/5 : 1/5 : 1/5 = 3 : 1 : 1`
∴ New adjusted Capital = 3,00,000 : 1,00,000 : 1,00,000
(As Capital amount brought by new partner = ₹ 1,00,000)
(2) Closing Cash balance = Opening balance + Amount brought by new partner + Amount brought by partners’ to adjust with new capital amounts.
= 2,00,000 + 1,00,000 + 50,000 − (69,000 + 23,000)
= 2,58,000
