Question

Jainam and Moksh are equal partners in the business. Their Balance Sheet as on 31st March, 2023 stood as under:

Balance Sheet as on 31st March, 2023
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Sundry Creditor		1,35,000	Cash in Bank		93,000
Capitals:			Debtors	46,500	45,000
Jain am	67,500	1,12,500	Less: R.D.D	1,500
Moksh	45,000		Building		82,500
General Reserve		27,000	Machinery		36,000
			Bills Receivable		18,000
		2,74,500			2,74,500

They decided to admit Prem on 1st April, 2023 on the following terms:

(1) The Machinery and Building be depreciated by 10%. Reserve for Doubtful debts to be increased by ₹ 7,500.

(2) Bills receivable are taken over by Jainam at the discount of 10%.

(3) Prem should bring ₹ 90,000 as capital for his I/4th share in future profits.

(4) The capital accounts of all the partners be adjusted in proportioning in the new profit sharing ratio by opening current accounts of the partners.

Prepare Profit and Loss Adjustment A/c, Partners' Capital A/c and Balance Sheet of new firm.

Answer 1

Dr.	In the books of the Partnership firm Profit and Loss Adjustment Account				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Machinery A/c		3,600	By Loss on Revaluation Transferred to Partner's Capital A/cs :
To Building A/c		8,250	Jainam	10,575	21,150
To R.D.D. A/c		7,500	Moksh	10,575
To Bills Receivable A/c (Discount)		1,800
		21,150			21,150

 

Dr.	Partner's Capital Accounts						Cr.
Particulars	Jainam (₹)	Moksh (₹)	Prem (₹)	Particulars	Jainam (₹)	Moksh (₹)	Prem (₹)
To Profit and Loss Adjustment A/c (Loss)	10,575	10,575	-	By Balance b/d	67,500	45,000	-
To Bills Receivable A/c	16,200	-	-	By Bank A/c	-	-	90,000
To Balance c/d	1,35,000	1,35,000	90,000	By General Reserve A/c	13,500	13,500	-
				By Partner’s Current A/cs	80,775	87,075
	1,61,775	1,45,575	90,000		1,61,775	1,45,575	90,000

 

Balance Sheet as on 1st April, 2023
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Capital A/cs:			Cash in Bank		1,83,000
Jainam	1,35,000	3,60,000	Debtors	46,500	37,500
Moksh	1,35,000		Less : R.D.D. (1500 + 7500)	9,000
Prem	90,000		Building	82,500	74,250
Sundry Creditors		1,35,000	Less: Depreciation (10 %)	8,250
			Machinery	36,000
			Less: Depreciation (10 %)	3,600	32,400
			Partners’ Current A/cs:
			Jainam	80,775	1,67,850
			Moksh	87,075
		4,95,000			4,95,000

Working Notes:

(1) R.D.D. to be increased by ₹ 7,500 means add ₹ 7,500 + 1,500 = 9,000 from Debtors.

(2) Bills receivable taken by Jainam at 10 % discount i.e. 18,000 – 1,800 = ₹ 16,200. Write this amount in debit side of partner’s Capital Account in Jainam’s column.

(3) Calculation of New ratio :

Balance of 1 = 1 – share of new partner

`= 1 - 1/4 = 3/4` (Remaining share)

New ratio = Old ratio × Balance of 1 (Remaining Share)

Jainam’s New ratio = `1/2 xx 3/4 = 3/8`

Moksh’s New ratio = `1/2 xx 3/4 = 3/8`

Prem’s ratio = `1/2 xx 2/2 = 2/8`

∴  Partners’ new profit and loss ratio = `3/8 : 3/8 : 2/8 = 3:3:2`

Now, capital amount to be adjusted in partners new profit and loss ratio.

Total capital of the firm = (Reciprocal of New Partner’s Share) × (New Partner’s Capital)

= `("Reciprocal of" 1/4) × 90,000 = 4 × 90,000 =  ₹3,60,000`

Jainam’s capital balance = `3/8 xx 3,60,000 =  ₹1,35,000`

Moksh’s capital balance = `3/8 xx 3,60,000 =  ₹ 1,35,000`

Deficit of these capital balance are to be adjusted through Current Account.

To keep balance of Jainam’s and Moksh’s capital  ₹ 1,35,000 each, deficit of ₹ 80,775 and ₹ 87,075 are incurred which is transferred to respective Partners’ Current A/cs and recorded on Assets side of Balance Sheet [As it is to be recovered from Partners].