Question

M and N are partners in the firm in equal profit sharing ratio. On 31st March, 2017, their balance sheet was as follows :

They admit O in the partnership on the following terms :

1. Create provision for doubtful debts by 10% on debtors,
2. Furniture will be depreciated by 25%.
3. Increase the value of investment by Rs 5,000.
4. O shall bring Rs 25,000 as his capital and his share in profit and loss will be 1/3rd and he will bring Rs 5,000 as his share of goodwill,
5. A creditor for Rs 1,700 is dead. No liability shall arise in future on this account,
6. Patents are valueless,
7. Building will be appreciated by 25%. Stock is reduced to Rs 9,000.

Answer 1

[Note : Cash in Hand = 1,500 + (25,000 + 5,000) – (14,000 + 4,000) = Rs 13,500]