Question

Vaibhav and Vilas were partners sharing profit and losses in the ratio of 2: 3 respectively. Their Balance Sheet as on 31^st March 2012 was as follows.

               Balance Sheet as on 31^st March 2012

Liabilities	Amount(Rs)	Assets	Amount(Rs)
Capital A/c's		Land and Building	25000
Vaibhav	50000	Plant	30000
Vilas	50000	Furniture	2000
Creditors	70000	Stock	50000
		Debtors	58000
		Cash	5000
	170000		170000

They agreed to admit Vivek as a partner on 1^st April 2012 on the following terms:

1) Vivek will have 1/4^th share in future profits for which he shall bring Rs 25,000 as his capital and Rs 20,000 as his share of goodwill.

2) Land & Building are valued at Rs 30,000 and while stock is valued at Rs 55,000.

3) Plant is taken over by Vilas 10% discount.

4) Depreciate furniture by 10%.

5) Provision for bad and doubtful debts is to be maintained at 5% on debtors.

6) The capital account of all the partners to be adjusted in their new profit sharing ratio and excess amount to be transferred to their loan account.

Prepare Profit and Loss Adjustment Account, Partner's Capital Accounts and Balance Sheet of New Firm.

Answer 1

                   Profit and Loss Adjustment Account
Dr.                                                                                    Cr.

Particulars		Amount (Rs)	Particulars	Amount (Rs)
Plant		3000	Land & Building	5000
Furniture		200	Stock	5000
Provision for Bad and Doubtful Debts		2900
Profit transferred to:
Vaibhav	1560	3900
Vilas	2340
		10000		10000

         Partners’ Capital Account
Dr.                                                                                  Cr.

Particulars	Vaibhav	Vilas	Vivek	Particulars	Vaibhav	Vilas	Vivek
To Plant A/c	-	27000	-	By Balance b/d	50000	50000	-
To Partner's Loan A/c	29560	-	-	By Cash A/c	-	-	25000
To Balance C/d	30000	45000	25000	By Goodwill A/c	8000	12000	-
				By Profit & Loss Adjustment A/c	1560	7660
				By Partner's Loan A/c [Deficit Transferred]	-	7660	-
	59560	72000	25000		59560	72000	25000

Balance Sheet as on 1^st April, 2012

Liabilities	Amount	Amount	Assets	Amount	Amount
Partners' Capital A/c			Land & Building	25000
Vaibhav	30000		(+) Appreciation	5000	30000
Vilas	45000		Plant	30000
Vivek	25000	100000	(-) Discount @ 10%	-3000
Loan from Vaibhav		29560		27000
Creditors		70000	(-) Plant taken over by Vilas	27000	NIL
			Furniture	2000
			(-) Depreciation @ 10%	-200	1800
			Debtors	58000
			(-) Less Provision for bad and Doubtful debts @ 5%	-2900	55100
			Stock	50000
			(+) Increase in Value	5000	55000
			Cash		50000
			Loan to Vilas		7660
		199560			199560

Working Notes: 

Calculation of New Profit Sharing Ratio

Old Ratio = Vaibhav : Vilas = 2 : 3

Vivek's Share = `1/4`

Let the total share of firm = 1

Remaining share of the firm = `1-1/4 = 3/4`

Vaibhav's New Share =`3/4 - 2/5 = 6/20`

Vilas's New Share = `3/4 - 3/5 = 9/20`

New profit sharing ratio of  Vaibhav ,Vilas and Vivek =`6/20 : 9/20 : 1/4 = (6 : 9 : 5)/20`

Sacrificing Ratio = Old Ratio - New Ratio

Vaibhav's Sacrifice =`2/5 - 6/20 = 2/20`

Vilas's Sacrifice = `3/5 - 9/20 = 3/20`

Sacrificing Ratio of Raj and Dev = 2 : 3

WN 1: Distribution of Vivek’s Share of Goodwill 

Vaibhav will get =`20000 xx 2/5 = "Rs" 8000`

Vilas will get = `20000 xx 3/5 = "Rs" 12000`

WN 2: Calculation of Adjustment of Capital

New capital of the firm
= Capital brought in by Vivek × Reciprocal of  Share of Vivek  Capital of Vivek = Rs 25000

New Capital of the firm = `25000 xx 4/1 = "Rs" 100000`

Vaibhav's New Capital = `100000 xx 6/12 = "Rs" 30000`

Vilas's New Capital = `100000 xx 9/12 = "Rs" 45000`

Vivek's New Capital = `100000 xx 5/12 = "RS" 25000`