Question

Sahaj and Nimish are partners in a firm. They share profits and losses in the ratio of 2: 1. Since both of them are specially abled, sometimes they find it difficult to run the business on their own. Gauri, a common friend decides to help them. Therefore, they admitted her into a partnership for a 1/3rd share. She brought her share of goodwill in cash and proportionate capital. At the time of Gauri's admission, the Balance sheet of Sahaj and Nimish was as under:

Liabilities	Rs	Assets	Rs
Capital Accounts: Sahaj             1,20,000 Nimish              80,000 General Reserve Creditors Employee's Provident Fund	2,00,000 30,000 30,000 40,000	Machinery Furniture Stock Sundry Debtors Cash	1,20,000 80,000 50,000 30,000 20,000
	3,00,000		3,00,000

It was decided to:

a. Reduce the value of a stock by `5,000.

b. Depreciate furniture by 10% and appreciate machinery by 5%.

c. Rs 3,000 of the debtors proved bad. A provision of 5% was to be created on Sundry Debtors for doubtful debts.

d. Goodwill of the firm was valued at Rs 45,000.

Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the reconstituted firm. Identify the value being conveyed in the question.

Answer 1

Revaluation Account
Dr.			Cr.
Particulars	Rs	Particulars	Rs
To Stock A/c To Depreciation on Furniture A/c To Bad Debts A/c To Provision for Doubtful Debts A/c	5,000 8,000 3,000 1,350	By Machinery A/c By Loss on Revaluation transferred to: Sahaj A/c          7,567 Nimish A/c         3,783	6,000     11,350
	17,350		17,350

 

Partners’ Capital Account
Particulars	Sahaj	Nimish	Gauri	Particulars	Sahaj	Nimish	Gauri
To Revaluation A/c (Loss)	7,567	3,783		By Balance b/d	1,20,000	80,000	`
				By Cash A/c			1,16,825
				By Premium for Goodwill A/c	10,000	5,000
To Balance c/d	1,42,433	91,217	1,16,825	By General Reserve A/c	20,000	10,000
	1,50,000	95,000	1,16,825		1,50,000	95,000	1,16,825

 

Balance Sheet After Gauri's Admission
Liabilities	Rs	Assets	Rs
Capital A/c   Sahaj   Nimish   Gauri Creditors Employees' Provident Fund	1,42,433 91,217 1,16,825 30,000 40,000	Machinery (1,20,000+6,000) Furniture (80,000 – 8,000) Stock (50,000 – 5,000) Sundry Debtors                                30,000 Less: Bad Debts                               (3,000) Less: Provision for Doubtful Debts     (1,350) Cash (20,000 + 15,000+ 1,16,825)	1,26,000 72,000 45,000     25,650 1,51,825
	4,20,475		4,20,475

Working Note

WN1 Calculation of Gauri's Share of Goodwill

Value of Firm's Goodwill = 45,000

Gauri 's Profit Share = 1/3 rd

Gauri 's Share of Goodwill = 45000 xx 1/3 = 15000

WN2 Calculation of Capital brought in by Gauri

Old Ratio = 2:1

Gauri is admitted for 1/3rd share

Let Total Profit be 1

∴ Remaining Profit = ${\displaystyle 1-\frac{1}{3}=\frac{2}{3}}$

Sahaj's New Profit Share =${\displaystyle \frac{2}{3}\times \frac{2}{3}=\frac{4}{9}}$

Nimish's New Profit Share = ${\displaystyle \frac{1}{3}\times \frac{2}{3} =\frac{2}{9}}$

Gauri's Profit Share = ${\displaystyle \frac{1}{3}}$ or ${\displaystyle \frac{3}{9}}$

∴New Ratio Share = 4:2:3

Adjust Old Capital of Sahaj = 150000 - 7567 = 142433

Adjust Old Capital of Nimish = 95000 - 3783 = 91217

Total Adjusted capital Sahaj and Nimish = ${\displaystyle 142433+91217=233650}$

Combined Share of Sahaj and Nimish = 4/9 + 2/9 = 6/9 or 2/3

Total Capital of the New Firm = Total Adjusted Capital of Sahaj and Nimish x Reciprocal of Total Combined Share of Sahaj and Nimish

= ${\displaystyle 233650\times \frac{3}{2}=350475}$

Gauri's Capital = ${\displaystyle 350475\times \frac{1}{3}=116825}$

The following are the values involved in the scenario depicted in the question.

• Valuing friendship and helping friends
• Sympathy and sensitivity towards differently abled individuals.