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Question
The Balance Sheet of Sahil and Nikhil who share profits in the ratio of 3: 2 as on 31st March 2017
| Balance Sheet as on 31st March 2017 | |||||
| Liabilities | Amt. (₹) | Amt. (₹) | Assets | Amt. (₹) | Amt. (₹) |
| Creditors | 60,000 | Furniture | 60,000 | ||
|
capitals: |
|
Building |
72,000 |
||
|
Sahil |
80,000 |
|
Debtors | 40,000 | |
|
Nikhil |
1,00,000 |
1,80,000 |
Closing Stock | 48,000 | |
| Cash in Hand | 20,000 | ||||
| 2,40,000 | 2,40,000 | ||||
Varad admitted on 1St April 2017 on the following terms :
1. Varad was to pay 1,00,000 for his share of capital.
2. He was also to pay 40,000 as his share of goodwill.
3. The new profit sharing ratio was 3:2:3
4. Old partners decided to revalue the assets as follows:
Building 1,00,000, Furniture- 48,000, Debtors - 38,000 (in view of likely bad debts)
5. It was found that there was a liability for 3,000 for goods in March 2017 but recorded on 2nd April 2017.
You are required to prepare:
a) Profit and Loss adjustment accounts
b) Capital accounts of the partners
c) Balance sheet after the admission of Varad
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Solution
| Dr. | Profit and Loss Adjustment Account |
Cr | ||||
| Particulars |
Amount (₹) | Particulars | Amount (₹) |
|||
| To Furniture A/c | 12,000 | By Building A/c | 28,000 | |||
| To Bad Debts A/c (likely) | 2,000 | |||||
| To Unrecorded Liability A/c | 3,000 | |||||
|
To Profit on Revaluation Transferred to Partners’ Capital A/cs: |
||||||
|
Sahil |
6,600 |
|||||
|
Nikhil |
4,400 |
11,000 | ||||
| 28,000 |
28,000 |
|||||
| Dr | Partners’ Capital Accounts |
Cr | |||||||
| Particulars | Sahil (₹) |
Nikhil |
Varad (₹) | Particulars | Sahil (₹) | Nikhil (₹) | Varad (₹) |
||
| By Balance b/d | 80,000 | 1,00,000 | |||||||
| By Bank A/c | - | - | 1,00,000 | ||||||
| By Goodwill A/c | 24,000 | 16,000 | |||||||
| To Balance c/d | 1,10,600 | 1,20,400 | 1,00,000 | By Revaluation A/c | 6,600 | 4,400 | |||
| 1,10,600 | 1,20,400 | 1,00,000 | 1,10,600 | 1,20,400 | 1,00,000 |
||||
| Balance Sheet as on 1st April 2017 | |||||
| Liabilities | Amount (₹) | Amount (₹) | Assets | Amount (₹) | Amount (₹) |
|
Capital A/cs: |
Furniture | 60,000 | |||
|
Sahil |
1,10,600 |
|
Less: Depreciation |
12,000 | 48,000 |
|
Nikhil |
1,20,400 |
|
Building |
72,000 | |
|
Varad |
1,00,000 |
3,31,000 |
Add: Appreciation |
28,000 | 1,00,000 |
| Creditors | 60,000 |
Debtors |
40,000 | ||
| Unrecorded Liability | 3,000 |
Less: Bad Debts (likely) |
2,000 | 38,000 | |
| Closing Stock | 48,000 | ||||
| Cash in Hand | 1,60,000 | ||||
| 3,94,000 | 3,94,000 | ||||
Working Notes:
(1) Cash in hand = Opening balance + Varad’s capital + Varad’s goodwill (amount brought in)
= 20,000 + 1,00,000 + 40,000
= ₹ 1,60,000
(2) Sacrifice ratio = Old ratio – New ratio
Sahil’s sacrifice = `3/5 – 3/8 = (24 – 15)/40 = 9/40`
Nikhil’s sacrifice = `2/5 – 2/8 = ( 16 – 10 )/40 = 6/40`
i.e. sacrifice ratio` 9/40: 6/40` = 9: 6 = 3: 2.
Goodwill is distributed among old partners in the sacrifice ratio.
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| Balance Sheet As On 31st March 2018 |
|||
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Balance Sheet as on 31st March, 2020
| Liabilities | Amount (₹) | Assets | Amount (₹) | ||
| Capitals: | 40,500 | Bank | 11,250 | ||
| Seeta | 22,500 | Bills Receivable | 5,700 | ||
| Geeta | 18,000 | Debtors | 31,200 | 30,000 | |
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| Biil Payable | 15,000 | Stock | 18,000 | ||
| Bank Loan | 24,000 | Furniture | 7,050 | ||
| General Reserve | 3,750 | Machinery | 7,500 | ||
| Building | 22,500 | ||||
| 1,02,000 | 1,02,000 |
On 1st April, 2020 they admitted Reeta on the following terms:
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- Furniture should be appreciated up to ₹ 8,025 and building be appreciated by 20%.
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- The stock is to be reduced by 10% and machinery depreciated by 5%.
- Half of amount of goodwill is withdrawn by old partners.
Pass the necessary Journal Entries in the books of the firm.
