Question

Vikram and Pradnya share profits and losses in the ratio 2:3 respectively. Their balance sheet as on 31st March 2018 was as under.

Balance Sheet as on 31st March 2018

Liabilities	Amount (₹)	Assets	Amount (₹)
Creditors	1,05,000	Cash	7,500
Capitals:		Land & Building	37,500
Vikram	75,000	Plant	45,000
Pradnya	75,000	Furniture	3,000
		Stock	75,000
		Debtors	87,000
	2,55,000		2,55,000

They agreed to admit Avani as a partner on 1st April 2018 on the following terms:

1. Avani shall have 1/4th share in future profits.
2. He shall bring ₹ 37,500 as his capital and ₹ 30,000 as his share of goodwill.
3. Land and building to be valued at ₹ 45,000 and furniture to be depreciated by 10%.
4. Provision for bad and doubtful debts is to be maintained at 5% on the Sundry Debtors.
5. Stocks to be valued ₹ 82,500.

The capital A/c of all partners to be adjusted in their new profit and loss ratio and excess amount be transferred to their loan accounts.

Prepare Profit and Loss Adjustment Account, Capital Accounts, and New Balance Sheet.

Answer 1

In the books of Partnership Firm

Dr.	Profit and Loss Adjustment Account				Cr.
Particulars	Amt (₹)	Amt (₹)	Particulars	Amt (₹)	Amt (₹)
To R.D.D. A/c		4,350	By Land & Building A/c		7,500
To Furniture A/c (Depreciation)		300	By Stock A/c		7,500
To Profit on Revaluation
Vikram	4,140
Pradnya	6,210	10,350
		15,000			15,000

 

Dr.	Partners’ Capital Accounts								Cr.
Particulars		Vikram (₹)	Pradnya (₹)	Avani (₹)	Particulars	Vikram (₹)	Pradnya (₹)	Avani (₹)
To Partners’ Loan A/c		46,140	31,710	-	By Balance b/d	75,000	75,000	-
To Balance c /d		45,000	67,500	37,500	By Bank A/c	-	-	37,500
					By Revaluation A/c (Profit)	4,140	6,210	-
					By Goodwill A/c	12,000	18,000	-
		91,140	99,210	37,500		91,140	99,210	37,500

 

Dr.	Balance Sheet as on 1st April 2018						Cr.
Liabilities		Amt (₹)	Amt (₹)	Assets	Amt (₹)	Amt (₹)
Capital Accounts:				Cash		75,000
Vikram		45,000		Land & Building	37,500
Pradnya		67,500		Add: Appreciation	7,500	45,000
Avani		37,500	1,50,000	Furniture	3,000
Creditors			1,05,000	Less: Depreciation	300	2,700
Partners’ Loan A/c:				Plant		45,000
Vikram		46,140		Stock	75,000
Pradnya		31,710	77,850	Add: Appreciation	7,500	82,500
				Debtors	87,000
				Less : R.D.D. (5%)	4,350	82,650
			3,32,850			3,32,850

 

Dr.	Cash A/c		Cr.
Particulars	Amt (₹)	Particulars	Amt (₹)
To Balance b/d	7,500	By Balance c/d	75,000
To Avani	37,500
To Goodwill	30,000
	75,000		75,000

Journal Entries:

1.	Cash A/c ...Dr	37,500
	To Avani Capital A/c		37,500
2.	Cash A/c ...Dr	30,000
	To Goodwill A/c		30,000
3.	Goodwill A/c ...Dr.	30,000
	To Vikram Capital A/c [30,000 x `2/5`]		12,000
	To Pradnya Capital A/c [30,000 x `3/5`]		18,000

Working Notes :

(1) Calculation of new profit ratio = 1 – share of new partner

= 1 – `1/4`

=`3/4` Remaining share

New ratio = old ratio × balance 1 (Remaining share)

Vikram’s new ratio =`2/5 × 3/4 = 6/20`

Pradnya’s new ratio = `3/5 × 3/4 = 9/20`.

Avani’s ratio = `1/4 =1/4 × 5/5 =5/20`

∴ New profit sharing ratio = 6 : 9 : 5.

Capital amount adjusted in their new profit and loss ratio:

Total Capital of the Partnership Firm = (Reciprocal of New Partner’s Share) × (Capital of New Partner)

= `("Reciprocal of"  1/4)` × 37,500 = 4 × 37,500 = ₹ 1,50,000

Vikram’s Capital balance = (Vikram’s New Ratio) × (Total Capital of the firm)

=`6/20` × 1,50,000 = ₹ 45,000

Pradnya’s Capital balance =`9/20` × 1,50,000 = ₹ 67,500.