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Question
Sai and Shankar are partners, sharing profits and losses in the ratio of 5 : 3. The firm’s balance sheet as on 31st December, 2017, was as follows:
| Liabilities | ₹ | ₹ | Assets | ₹ | ₹ |
| Capital accounts: | Building | 34,000 | |||
| Sai | 48,000 | Furniture | 6,000 | ||
| Shankar | 40,000 | 88,000 | Investment | 20,000 | |
| Creditors | 37,000 | Debtors | 40,000 | ||
| Outstanding wages | 8,000 | Less: Provision for bad debts | 3,000 | 37,000 | |
| Bills receivable | 12,000 | ||||
| Stock | 16,000 | ||||
| Bank | 8,000 | ||||
| 1,33,000 | 1,33,000 |
On 31st December, 2017 Shanmugam was admitted into the partnership for 1/4 share of profit with ₹ 12,000 as capital subject to the following adjustments.
- Furniture is to be revalued at ₹ 5,000 and building is to be revalued at ₹ 50,000.
- Provision for doubtful debts is to be increased to ₹ 5,500
- An unrecorded investment of ₹ 6,000 is to be brought into account
- An unrecorded liability ₹ 2,500 has to be recorded now.
Pass journal entries and prepare the Revaluation Account and capital account of partners after admission.
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Solution
Journal Entries
| Date | Particulars | L.F. | Debit ₹ |
Credit ₹ |
| Revaluation A/c ..............Dr. To Furniture A/c To Provision for Bad and Doubtful To Unrecorded liabilities (Loss items entered in Revaluation) |
6,000 - - - |
- 1,000 2,500 2,500 |
||
| Building A/c ........Dr. Investment A/c ................Dr. To Revaluation A/c (Profit items entered in Revaluation) |
16,000 6,000 - |
- - 22,000 |
||
| Revaluation A/c ............Dr. To Sai's Capital A/c To Shankar's Capital A/c (Profit on revaluation tr to Cap A/c) |
16,000 - - |
- 10,000 6,000 |
||
| Bank A/c .........Dr. To Shanmugam's Capital A/c (Incoming partner brings the capital) |
12,000 - |
- 12,000 |
| Dr. | Revaluation Account | Cr. | ||
| Particulars | ₹ | Particulars | ₹ | |
| To Furniture A/c | 1,000 | By Building A/c | 16,000 | |
| To Prov. for bad and doubtful | 2,500 | By Investment A/c | 6,000 | |
| To Unrecorded liability | 2,500 | |||
| To Sai's Cap A/c | 10,000 | |||
| To Shankar's Cap A/c | 6,000 | 16,000 | ||
| 22,000 | 22,000 | |||
| Dr. | Capital Account | Cr. | |||||
| Particulars | Sai's | Shankar's | Shanmugam's | Particulars | Sai's | Shankar's | Shanmugam's |
| To Balance c/d | 58,000 | 46,000 | 12,000 | By Balance b/d | 48,000 | 40,000 | - |
| By Bank | - | - | 12,000 | ||||
| By Revaluation | 10,000 | 6,000 | - | ||||
| 58,000 | 46,000 | 12,000 | 58,000 | 46,000 | 12,000 | ||
| By Bal b/d | 58,000 | 46,000 | 12,000 | ||||
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