Question

Smita and Punita are partners in a firm sharing profits and losses in the ratio of 3 : 2. Their Balance Sheet as at 31st March, 2019, is as follows:

Balance Sheet of Smita and Punita as at 31st March, 2019
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Sundry Creditors		14,000	Cash in Hand		30,000
Bank Loan		6,000	Sundry Debtors	22,000	20,000
General Reserve		10,000	Less: Provision for Doubtful Debts	2,000
Capital Accounts:		70,000	Furniture		10,000
Smita	30,000		Stock		40,000
Punita	40,000
		1,00,000			1,00,000

On 1^st April, 2019, Mita is admitted as a new partner on the following terms:

1. The new profit-sharing ratio of Smita, Punita and Mita to be 5 : 3 : 2.
2. Provision for doubtful debts to be raised to 10% of the debtors.
3. Punita to take over the firm’s investments (not recorded in the books) at ₹ 3,000.
4. Goodwill of the firm is to be valued at ₹ 50,000. Mita is to bring in cash for her share of goodwill.
5. 50% of the goodwill is to be withdrawn by the old partners.
6. Mita is to pay off the Bank Loan on behalf of the firm. The amount due to her by the firm is to be considered as part of her capital contribution.
7. Mita is to bring in the balance of her capital in cash so as to make her capital equal to `1/5`th of the total capital of the firm.

You are required to:

1. Pass journal entries at the time of Mita’s admission.
2. Prepare the balance sheet of the reconstituted firm.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	General Reserve A/c   ...Dr.		10,000	-
	To Smita’s Capital A/c		-	6,000
	To Punita’s Capital A/c		-	4,000
	(General reserve distributed)
	Revaluation A/c   ...Dr.		200	-
	To Provision for Doubtful Debts A/c		-	200
	(Provision for doubtful debts raised to 10%)
	Punita’s Capital A/c   ...Dr.		3,000	-
	To Revaluation A/c		-	3,000
	(Unrecorded investments taken over by Punita)
	Revaluation A/c   ...Dr.		2,800	-
	To Smita’s Capital A/c		-	1,680
	To Punita’s Capital A/c		-	1,120
	(Profit on revaluation distributed)
	Cash A/c   ...Dr.		10,000	-
	To Premium for Goodwill A/c		-	10,000
	(Mita’s share of goodwill brought in cash.)
	Premium for Goodwill A/c   ...Dr.		10,000	-
	To Smita’s Capital A/c		-	5,000
	To Punita’s Capital A/c		-	5,000
	(Goodwill distributed in sacrificing ratio 1 : 1)
	Smita’s Capital A/c   ...Dr.		2,500	-
	Punita’s Capital A/c   ...Dr.		2,500	-
	To Cash A/c		-	5,000
	(50% of goodwill withdrawn by partners)
	Bank Loan A/c   ...Dr.		6,000	-
	To Mita’s Capital A/c		-	6,000
	(Bank loan paid off by Mita, amount treated as capital.)
	Cash A/c   ...Dr.		15,200	-
	To Mita’s Capital A/c		-	15,200
	(Balance capital brought in by Mita)

 

Dr.	Revaluation Account				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Provision for Doubtful Debts A/c	-	200	By Investments A/c	-	3,000
To Profit transferred to:		2,800
Smita’s Capital A/c	1,680
Punita’s Capital A/c	1,120
		3,000			3,000

 

Dr.	Partners’ Capital Accounts						Cr.
Particulars	Smita (₹)	Punita (₹)	Mita (₹)	Particulars	Smita (₹)	Punita (₹)	Mita (₹)
To Cash A/c (Goodwill W/D)	2,500	2,500	-	By Balance b/d	30,000	40,000	-
To Investments A/c	-	3,000	-	By General Reserve A/c	6,000	4,000	-
To Balance c/d	40,180	44,620	21,200	By Revaluation Profit A/c	1,680	1,120	-
				By Premium for Goodwill	5,000	5,000	-
				By Bank Loan A/c	-	-	6,000
				By Cash A/c	-	-	15,200
	42,680	50,120	21,200		42,680	50,120	21,200

 

Balance Sheet as at 1st April, 2019
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Sundry Creditors		14,000	Cash in Hand		50,200
Capital Accounts:		1,06,000	Sundry Debtors	22,000	19,800
Smita	40,180		Less: Provision for Doubtful Debts	2,200
Punita	44,620		Furniture		10,000
Mita	21,200		Stock		40,000
		1,20,000			1,20,000

Working Note:

Calculation of Sacrificing Ratio:

Old Ratio = 3 : 2

New Ratio = 5 : 3 : 2

Sacrificing Ratio = Old Share − New Share

Smita = `3/5 - 5/10`

= `(3 xx 2)/(5 xx 2) - 5/10`

= `6/10 - 5/10`

= `1/10`

Punita = `2/5 - 3/10`

= `(2 xx 2)/(5 xx 2) - 3/10`

= `4/10 - 3/10`

= `1/10`

Sacrificing Ratio is 1 : 1.

Calculation of Mita’s Capital:

Final capital of firm = 40,180 + 44,620

= 84,800

Mita’s share `1/5 = 1 - 1/5`

= `4/5`

= `84,800 xx 5/4`

= 1,06,000

Total capital of new firm = `1,06,000 xx 1/5`

= 21,200