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Question
Mr. Amit and Baban 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 | 1,40,000 | Cash | 110,000 |
| Capital: | Land and Building | 50,000 | |
| Amit | 100,000 | Plant | 60,000 |
| Baban | 100,000 | Furniture | 4,000 |
| Stock | 100,000 | ||
| Debtors | 16,000 | ||
| 3,40,000 | 3,40,000 | ||
They agreed decided to admit Kamal on 1st April 2018 on the following terms:
1. Kamal shall have 1/4th share in future profits.
2. They agreed to admit Kamal as a partner on 1st April 2018 on the following terms:
3. She shall bring 50,000 as her capital and 40,000 as her share of goodwill.
4. Land and building to be valued at 60,000 and furniture to be depreciated by 10%
5. Provision for bad and doubtful debts is to be maintained at 5% on the sundry debtors.
6. Stocks to be valued 1,10,000 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 A/c, Capital A/cs, and New Balance Sheet.
Solution
| Dr. | Profit and Loss Adjustment Account | Cr. | ||||
| Particulars | Amount (₹) | Particulars | Amount (₹) | |||
| To Depreciation A/c – Furniture | 400 | By Land and Building A/c | 10,000 | |||
| To R.D.D. A/c | 800 | By Stock A/c | 10,000 | |||
|
To Profit on Revaluation Transferred to Partners’ Capital A/cs: |
||||||
|
Amit |
7,520 |
|||||
|
Baban |
11,280 |
18,800 | ||||
| 20,000 | 20,000 | |||||
| Dr. | Partners’ Capital Accounts | Cr. | |||||||
Particulars |
Amit (₹) |
Baban (₹) | Kamal (₹) | Particulars | Amit (₹) | Baban (₹) | Kamal (₹) | ||
| To Partners’ Loan A/c | 63,520 | 45,280 | By Balance b /d | 1,00,000 | 1,00,000 | ||||
| To Balance c/d | 60,000 | 90,000 | 50,000 | By Bank A/c | 50,000 | ||||
| By Goodwill A/c | 16,000 | 24,000 | |||||||
| By Revaluation A/c (Profit) | 7,520 | 11,280 | |||||||
| 1,23,520 | 1,35,280 | 50,000 | 1,23,520 | 1,35,280 | 50,000 | ||||
| Balance Sheet as on 1st April 2018 | |||||
| Liabilities | Amount (₹) | Amount (₹) | Assets | Amount (₹) | Amount (₹) |
|
Capital A/cs: |
|
Cash | 2,00,000 | ||
|
Amit |
60,000 |
|
Land and Building |
50,000 | |
|
Baban |
90,000 |
|
Add: Appreciation |
10,000 | 60,000 |
|
Kamal |
50,000 |
2,00,000 |
Plant | 60,000 | |
| Creditors | 1,40,000 |
Furniture |
4,000 |
||
| Partners’ Loan : |
Less: Depreciation |
400 |
3,600 | ||
| Amit | 63,520 |
Stock |
1,00,000 | ||
| Baban | 45,280 | 1,08,800 |
Add: Appreciation |
10,000 | 1,10,000 |
|
Debtors |
16,000 | ||||
|
Less: R.D.D. |
800 | 15,200 | |||
| 4,48,800 |
4,48,800 |
||||
Working Notes :
(1) Cash balance = Opening balance + Amount brought in by Kamal
= 1,10,000 + 50,000 + 40,000
= Rs. 2,00,000
(2) For the calculation of new profit and loss ratio:
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)
Amit’s new ratio =`2/5xx 3/4 = 6/20`
Baban’s new ratio = `3/5xx 3/4 = 9/20`.
Kamal’s ratio = `1/4 =1/4xx5/5 =5/20`
∴New profit sharing ratio = 6 : 9 : 5.
(3) New profit and loss ratio = 6: 9: 5
Capital amount adjusted in their new profit and loss ratio by taking new partner Kamal’s capital (₹ 50,000) as a base.
∴ For part 5 capital = ₹ 50,000 (Kamal’s capital)
∴ For part 6 capital = ₹ 60,000 (Amit’s capital)
∴ For part 9 capital = ₹ 90,000 (Baban’s capital)
(4) After keeping these capital balances difference of the amount of Amit’s capital ₹ 63,520 and of Baban’s capital ₹ 45,280 are taken as the partner’s loan to the firm and as a liability of the firm it is recorded in the Liabilities side of the Balance Sheet.
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RELATED QUESTIONS
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| Balance Sheet as on 31st March 2013 | |||
| Liabilities | Amount Rs. | Assets | Amount Rs. |
|
Capital A/c's Snehal 80,000 Meenal 45,000 Creditors General reserve
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1,25,000 46,000 20,000
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Premises Investments Equipments Bills Receivable Debtors 1,10,000 ( - ) R.D.D. 11,000 Bank Balance |
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|
Balance Sheet of Kalpana and Kanika as on 1st April, 2013 |
|||||
|
Liabilities |
Amount Rs |
Assets |
Amount Rs |
||
|
Capitals |
|
Land and Building |
2,10,000 |
||
|
Kalpana |
4,80,000 |
|
Plant |
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|
Kanika |
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General Reserve |
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9,40,000 |
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9,40,000 |
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Reason (R): The General reserve, Reserve Fund or the Balance of Profit and Loss Account are the result of the past profits when the new partner was not admitted.
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| Balance Sheet as on 31st March, 2020 | ||||
| Liabilities | Amount (₹) | Assets | Amount (₹) | |
| Sundry Creditors | 80,000 | Cash | 80,000 | |
| Bills Payable | 42,000 | Sundry Debtors | 64,000 | |
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| General Reserve | 16,000 | Furniture | 22,000 | |
| 2,98,000 | 2,98,000 | |||
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| Shreya’s Current A/c Dr. | 24,000 | |||
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| To Radhey’s Capital A/c | 16,000 | |||
| (Being entry for goodwill treatment passed) |
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| Balance Sheet as on 31st March, 2020 | ||||
| Liabilities | Amount (₹) | Assets | Amount (₹) | |
| Capital A/cs: | Premises | 2,80,000 | ||
| Radhika | 2,00,000 | 3,20,000 | Furniture and Fixture | 22,800 |
| Vijay | 1,20,000 | Stock | 54,000 | |
| Current A/cs: | Debtors | 18,200 | ||
| Radhika | 2,400 | 5,200 | Cash at bank | 2,200 |
| Vijay | 2,800 | |||
| Loan from Omkar Balu | 40,000 | |||
| Creditors | 12,000 | |||
| 3,77,200 | 3,77,200 | |||
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- Omkar Should bring in ₹ 80,000 as Capital and ₹ 20,000 as his share of goodwill and it was retained in the business and he should be given one-fourth share in the future profits.
- The Loan from Omkar Balu was repaid through NEFT.
Prepare Revaluation Account, Partners Current Accounts and Balance sheet of the New firm.
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| Liabilities | Amount (₹) | Assets | Amount (₹) |
| Investment Fluctuation Reserve |
80,000 | Investment (Market Value ₹ 80,000) |
90,000 |
Which of the following is the correct accounting treatment of 'investment fluctuation reserve' at the time of Subhash's admission?
A, B and C who were sharing profits and losses in the ratio of 4:3:2 decided to share the future profits and losses in the ratio to 2:3:4 with effect from 1st April 2023. An extract of their Balance Sheet as at 31st March 2023 is:
| Liabilities | Amount (₹) | Assets | Amount (₹) |
| Workmen Compensation Reserve | 65,000 |
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X and Y are partners in a firm with capital of ₹ 18,000 and ₹ 20,000. Z brings ₹ 10,000 for his share of goodwill and he is required to bring proportionate capital for 1/3rd share in profits. The capital contribution of Z will be ______.
The following is the Balance Sheet of Vivaan and Vihaan sharing Profits and Losses in the ratio of 3 : 2 as on 31 March, 2023.
| Balance Sheet as on 31st March, 2023 | ||||
| Liabilities | Amount (₹) | Assets | Amount (₹) | Amount (₹) |
| Capital Accounts: | Building | 1,08,000 | ||
| Vivaan | 1,20,000 | Plant and Machinery | 90,000 | |
| Vihaan | 1,50,000 | Stock | 72,000 | |
| Sundry Creditors | 90,000 | Debtors | 63,000 | 60,000 |
| Bank Overdraft | 15,000 | Less: R.D .D. | 3,000 | |
| Bank | 30,000 | |||
| Investments | 15,000 | |||
| 3,75,000 | 3,75,000 | |||
On 1-4-2023, Prihaan is admitted on the following terms:
(1) He is to pay ₹ 1,50,000 as his capital and ₹ 60,000 as his share of Goodwill.
(2) The new profit sharing ratio is to be 5 : 3 : 2.
(3) The assets are to be revalued as under:
Building ₹ 1,50,000, Plant and Machinery ₹ 72,000.
(4) R.D.D. to be increased up to ₹ 6,000
(5) The old partners decided to keep half of the amount of goodwill in the business.
(6) Sundry creditors are to be revalued at ₹ 99,000.
Prepare Revaluation Account, Capital Accounts of Partners and Balance Sheet of new [um.
Seeta and Geeta share profits and losses in the ratio of 3:2 in Partnership Firm. Their Balance Sheet as on 31st March, 2020 was as under:
Balance Sheet as on 31st March, 2020
| Liabilities | Amount (₹) | Assets | Amount (₹) | ||
| Capitals: | 40,500 | Bank | 11,250 | ||
| Seeta | 22,500 | Bills Receivable | 5,700 | ||
| Geeta | 18,000 | Debtors | 31,200 | 30,000 | |
| Creditors | 18,750 | (-) R.D.D. | 1,200 | ||
| Biil Payable | 15,000 | Stock | 18,000 | ||
| Bank Loan | 24,000 | Furniture | 7,050 | ||
| General Reserve | 3,750 | Machinery | 7,500 | ||
| Building | 22,500 | ||||
| 1,02,000 | 1,02,000 |
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- For half (1/2) share in future profit Reeta should bring ₹ 15,000 as capital and ₹ 7,500 for goodwill in cash.
- Furniture should be appreciated up to ₹ 8,025 and building be appreciated by 20%.
- R.D.D. is to be maintained at ₹ 1,500.
- The stock is to be reduced by 10% and machinery depreciated by 5%.
- Half of amount of goodwill is withdrawn by old partners.
Pass the necessary Journal Entries in the books of the firm.
