Question

P, Q and R were partners in a firm sharing profits in the ratio of 3:2:1. On 31-3-2015 their Balance Sheet was as follows :

                                     Balance Sheet of P,Q and R as on 31-3-2015

Liabilities	Amount(Rs.)	Assets	Amount(Rs.)
Creditors General Reserve Capitals      P                                      1,80,000      Q                                      1,20,000      R                                        60,000	2,52,000 63,000       3,60,000	Bank Debtors Stock Investments Furniture Machinery	51,000 69,000 3,30,000 90,000 30,000 1,05,000
	6,75,000		6,75,000

On the above date S was admitted as a new partner and it was decided that:

(i) The new profit sharing ratio between P, Q, R and S will be 2:2:1:1.

(ii) Goodwill of the firm was valued at Rs.2, 70,000 and S will bring his share of goodwill premium in cash.

(iii) The market value of investments was Rs.64,000.

(iv) Machinery will be reduced to Rs.87,000.

(v) A creditor of Rs.9,000 was not likely to claim the amount and hence to be written-off.

(vi) S will bring proportionate capital so as to give him 1/6th share in the profits of the firm.

Prepare Revaluation Account. Partners' Capital Accounts and the Balance Sheet of P, Q, R and S.

Answer 1

                                                          Revaluation Account

Dr.                                                                                                                                          Cr.

Particulars	Amount(Rs.)	Particulars	Amount(Rs.)
To Investment To Machinery	26,000 18,000	By Creditors By Loss on Revaluation        P’s Capital A/c      17,500        Q’s Capital A/c      11,667        R’s Capital A/c        5,833	9,000       35,000
	44,000		44,000

 

Partner’s Capital Account

Dr.                                                                                                                                                                                                             Cr.

Particulars	P(Rs)	Q(Rs)	R(Rs)	S(Rs)	Particulars	P(Rs)	Q(Rs)	R(Rs)	S(Rs)
Reval. A/c Balance c/d	17,500 2,39,000	11,667 1,29,333	5,833 64,667	86,600	Balance c/d Gen. Reserve Prem For G/w Cash A/c	1,80,000 31,500 45,000	1,20,000 21,000	60,000 10,500	86,600
	2,56,500	1,41,000	70,500	86,600		2,56,500	1,41,000	70,500	86,600

 

                                                                       Balance Sheet

                                                                  as on March 31,2015

Liabilities	Amount(Rs.)	Assets	Amount(Rs.)
Creditors Capitals :     P                               2,39,000     Q                               1,29,333     R                                   64,667     S                                   86,600	2,43,000         5,19,600	Bank (51,000 + 86,600 + 45,000) Debtors Stock Investments Furniture Machinery	1,82,600 69,000 3,30,000 64,000 30,000 87,000
	7,62,600		7,62,600

 

Working Notes :

WN 1 : Calculation of Sacrificing Ratio

Sacrificing Ratio = Old Ratio - New Ratio

P's = (3/6) - (2/6) = 1/6

Q's = (2/6) - (2/6) = Nil

R's = (1/6) - (1/6) = Nil

WN 2 : Adjustment of Goodwill

S's Share of Goodwill = 2,70,000 x (1/6) = 45,000

45,000 will be credited to P's Capital A/c, as he is the only sacrificing partner

WN 3 : Calculation of S’s Proportionate Capital

 Adjusted Old Capital of P = 1,80,000 + 31,500 + 45,000 – 17,500 = 2,39,000

Adjusted Old Capital of Q = 1,20,000+ 21,000 – 11,667 = 1,29,333

Adjusted Old Capital of R = 60,000 + 10,500 – 5,833 = 64,667

Total Adjusted Capital = 2,39,000 + 1,29,333 + 64,667 = 4,33,000

S’s Proportionate Capital = Total Adjusted Capital x S’s Profit Share x Reciprocal of Combined New Share of Old Partners

                                    = 4,33,000 x (1/6) x (6/5) = 86,600