Question

Akash and Aman are partners in firm sharing profits and losses in the ratio 3 : 2. Their Balance Sheet as of 31st March 2019 was as follows:

Balance Sheet as of 31st March 2019

They agreed to admit Raj in their partnership on 1st April 2019, on the following terms:

1. Raj should bring ₹ 2,250, as his share of goodwill in the firm and ₹ 3,000 as his capital.

2. Reserve for doubtful debts is to be provided @ 5% on debtors.

3. Land and building are to be depreciated at 10% p.a.

4. Plant and Machinery is to be depreciated @ 5% and stock is to be depreciated @ 10% p.a.

5. The new profit sharing, the ratio will be 2 : 1 : 1.

Prepare:

(a) Revaluation Account

(b) Partners’ Capital Accounts

(c) New Balance Sheet of the firm.

Answer 1

In the books of Partnership Firm

Revaluation Account

Partner's Current Accounts

Balance Sheet as of 1st April 2019

Working Notes:

1. Calculation of sacrifice ratio of old partners:

Old ratio: Akash = \(\frac{3}{5}\) and Aman = \(\frac{2}{5}\)

New ratio: Akash = \(\frac{2}{4}\) and Aman = \(\frac{1}{4}\)

Sacrifice ratio = Old ratio – New ratio

Akash’s sacrifice ratio = \(\frac{3}{5}-\frac{2}{4}=\frac{12-10}{20}=\frac{2}{20}\)

Aman’s sacrifice ratio = \(\frac{2}{5}-\frac{1}{4}=\frac{8-5}{20}=\frac{3}{20}\)

Sacrifice ratio of Akash and Aman = \(\frac{2}{20}:\frac{3}{30}\) i.e. 2 : 3.

Benefits of Goodwill of ₹ 2,250 distributed and transferred to Akash’s Capital A/c and Aman’s Capital A/c in their sacrifice ratio (which is 2 : 3).

Goodwill credited to Akash’s Capital = 2,250 × \(\frac{2}{3+2}\) = ₹ 900

and Aman’s Capital = 2,250 × \(\frac{3}{5}\) = ₹ 1,350.

2. Debit balance of Revaluation of ₹ 17,955 indicates Loss on revaluation.

Division of Revaluation Loss:

Akash = 17,955 × \(\frac{3}{3+2}\) = ₹ 10,773

and Aman = 17,955 × \(\frac{2}{5}\) = ₹ 7,182.

3. Balance in Cash A/c at the end = 13,800 + 3,000 + 2,250 = ₹ 19,050.

It is shown on the Assets side of the Balance sheet.

4. R.D.D. = 5 % on value of Debtors = \(\frac{5}{100}\) × 94,500 = ₹ 4,725.

Amount of R.D.D. is first debited to Revaluation A/c and then deducted from the value of Debtors on the Assets side of Balance Sheet.

5. Division of General Reserve:

Akash = \(\frac{3}{5}\) × 15,000 = ₹ 9,000

and Aman = \(\frac{2}{5}\) × 15,000 = ₹ 6,000.