Question

Hansa and Kavya share profits and losses in the ratio of 3: 2 respectively. Their Balance Sheet as on 31st March, 2023 was as under:

Balance Sheet as on 31st March, 2023
Liabilities	Amount (₹)	Assets	Amount (₹)
Bills Payable	90,000	Cash at Bank	1,500
Reserve fund	60,000	Sundry Debtors	1,33,500
Capital A/c:		Stock	51,000
Hansa	2,16,000	Furniture	72,000
Kavya	1,44,000	Plant	1,80,000
		Building	72,000
	5,10,000		5,10,000

They admit Munir into partnership on 1-4-2023. The terms being that:

(1) He shall have to bring in ₹ 1,20,000 as his Capital for 1/4th share in future profits.

(2) Value of Goodwill of the firm is to be fixed at the average profits for the last three years.

The Profits were:

2019-20	₹ 96,000
2020-21	₹ 1,62,000
2021-22	₹ 1,47,000

(3) Reserve for Doubtful debts is to be created at ₹ 3,000.

(4) Closing stock is valued at ₹ 45,000.

(5) Plant and Building is to be depreciated by 5%.

Prepare Profit and Loss Adjustment Alc, Capital Accounts of Partners and Balance Sheet of the new firm.

Answer 1

Dr.	In the books of the Partnership firm Profit and Loss Adjustment Account				Cr.
Particulars		Amount (₹)	Particulars		Amount (₹)
To R.D.D. (New) A/c	-	3,000	By Loss on Revaluation	-	-
To Stock A/c	-	6,000	Transferred to Partners’ Capital A/c:
To Depreciation A/c:			Hansa	12,960	21600
Plant	9,000	12,600	Kavya	8,640
Building	3,600
		21,600			21,600

 

Dr.	Partners’ Capital Accounts						Cr.
Particulars	Hansa (₹)	Kavya (₹)	Munir (₹)	Particulars	Hansa (₹)	Kavya (₹)	Munir (₹)
To Profit and Loss Adjustment A/c (Loss)	12,960	8,640	-	By Balance b/d	2,16,000	1,44,000	-
To Balance c/d	3,20,040	2,13,360	1,20,000	By Cash/Bank A/c	-	-	1,20,000
				By Goodwill A/c	81,000	54,000	-
				By Reserve fund A/c	36,000	24,000	-
	3,33,000	2,22,000	1,20,000		3,33,000	2,22,000	1,20,000

 

Balance Sheet as on 1st April, 2023
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Capital A/c:			Cash at Bank		1,21,500
Hansa	3,20,040	6,53,400	Sundry Debtors	1,33,500	1,30,500
Kavya	2,13,360		Less: R.D.D. (New)	3,000
Munir	1,20,000		Stock	51,000	45,000
Bills payable		90,000	Less : Depreciation	6,000
			Furniture		72,000
			Plant	1,80,000	1,71,000
			Less : Depreciation (5 %)	9,000
			Building	72,000	68,400
			Less : Depreciation (5 %)	3,600
			Goodwill		1,35,000
		7,43,400			7,43,400

Working Notes:

(1) Average Profit = `"Total Profit"/"No. of Years"`

= `(96,000 + 1,62,000 + 1,47,000)/3`

= ₹ 1,35,000

∴ Goodwill value = ₹ 1,35,000

Hansa’s share in Goodwill = `(1,35,000 × 3/5)` = ₹ 81,000 

Kavya’s share in Goodwill = `(1,35,000 × 2/5)` = ₹ 54,000

(2) Munir is not able to bring share in goodwill and it is decided to raise the goodwill in the book.

Therefore, Goodwill is recorded in the Asset side ₹ 1,35,000.