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Question
On 31-3-2010 the Balance Sheet of W and R who shared profits in 3 : 2 ratio was as follows:
|
Liabilities |
Amount Rs |
Assets |
Amount Rs |
||
|
Creditors |
20,000 |
Cash |
5,000 |
||
|
Profit and Loss Account |
15,000 |
Sundry Debtors |
20,000 |
|
|
|
Capital Accounts: |
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Less: Provision |
(700) |
19,300 |
|
|
W |
40,000 |
|
Stock |
25,000 |
|
|
R |
30,000 |
70,000 |
Plant and Machinery |
35,000 |
|
|
|
|
Plants |
20,700 |
||
|
|
1,05,000 |
|
1,05,000 |
||
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On this date B was admitted as a partner on the following conditions:
(a) ‘B’ will get 4/15th share profits.
(b) ‘B’ had to bring Rs 30,000 as his capital to which amount other Partners capital shall have to be adjusted.
(c) He would pay cash for his share of goodwill which would be based on 2½ years purchase of average profits of past 4 years.
(d) The assets would be revalued as under:
Sundry debtors at the book value less 5% provision for bad debts. Stock at Rs 20,000, Plant and Machinery at Rs 40,000.
(e) The profits of the firm for the years 2007, 2008 and 2009 were Rs 20,000; Rs 14,000 and Rs 17,000 respectively.
Prepare Revaluation Account, Partners’ Capital Accounts and the Balance Sheet of the new firm.
Solution
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Revaluation Account |
||||
|
Dr. |
|
|
Cr. |
|
|
Particulars |
Amount Rs |
Particulars |
Amount Rs |
|
|
Provision for Bad Debts A/c (1,000 - 700) |
300 |
Plant & Machinery |
5,000 |
|
|
Stock |
5,000 |
Loss transferred to: |
|
|
|
|
|
W’s Capital A/c |
180 |
|
|
|
|
R’s Capital A/c |
120 |
300 |
|
|
5,300 |
|
5,300 |
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|
|
|
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|
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Partners’ Capital Accounts |
|||||||
|
Dr. |
|
|
|
|
|
|
Cr. |
|
Particulars |
W |
R |
B |
Particulars |
W |
R |
B |
|
Revaluation A/c (Loss) |
180 |
120 |
– |
Balance b/d |
40,000 |
30,000 |
– |
|
Cash A/c (Bal. Fig) |
5,920 |
7,280 |
– |
Profit and Loss A/c |
9,000 |
6,000 |
– |
|
Balance c/d |
49,500 |
33,000 |
30,000 |
Cash A/c |
– |
– |
30,000 |
|
|
|
|
|
Premium for Goodwill |
6,600 |
4,400 |
– |
|
|
55,600 |
40,400 |
30,00 |
|
55,600 |
40,400 |
30,000 |
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Balance Sheet as on March 31, 2010 |
|||||
|
Liabilities |
Amount Rs |
Assets |
Amount Rs |
||
|
Creditors |
20,000 |
Cash |
32,800 |
||
|
Capital Accounts: |
|
Sundry Debtors |
20,000 |
|
|
|
W |
49,500 |
|
Less: Provision for Bad Debts |
(1,000) |
19,000 |
|
R |
33,000 |
|
Stock |
20,000 |
|
|
B |
30,000 |
1,12,500 |
Plant and Machinery |
40,000 |
|
|
|
|
Plants |
20,700 |
||
|
|
1,32,500 |
|
1,32,500 |
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Notes
Working Notes:
Calculation of Goodwill
Goodwill = Average Profit × No. of Years Purchases
`"Average Profit" = "Total Profit For last 4 years"/"No.of year"=20,000+14,000+17,000+15,000/4`
= `Rs 16,500`
B’s Share in Goodwill = `41,250xx4/15= "Rs" 11,000`
Calculation of New Profit Sharing ratio
Old ratio (W and R) = 3 : 2
B is admitted for 4/15the share of profit
Let total profit be Re 1
∴Remaining profit = ` 1-4/15=11/15`
W's New Share=`11/15xx3/5=33/75`
R's New Share =`11/15xx2/5=22/75`
B's Share=`4/15 or 20/75`
∴New Ratio (W, R and B) = 33 : 22 : 20
Adjustment of Capital
Total Capital of New Firm = B’s Capital × Reciprocal of B’s Share
Capital of B = Rs 30,000
Total Capital Of new Firm = `30,000xx15/4= "Rs" 1,12,500`
W's New Capital = `1,12,500xx33/75= "Rs " 49,500`
R's New Capital = `1,12,500xx22/75= Rs 33,000`
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| Liabilities | ₹ | Assets | ₹ |
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Brijesh retired on March 31, 2007, on the following terms:
- Goodwill of the firm was valued at Rs. 70,000 and was not to appear in the books.
- Bad debts amounting to Rs. 2,000 were to be written off.
- Patents were considered as valueless.
Prepare Revaluation Account, Partners’ Capital Accounts and the Balance Sheet of Digvijay and Parakaram after Brijesh’s retirement.
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The following was agreed upon between the partners on Naman’s retirement:
- Building to be appreciated by 20%.
- Plant and Machinery to be depreciated by 10%.
- A provision of 5% on debtors to be created for bad and doubtful debts.
- Stock was to be valued at Rs. 18,000 and Investment at Rs. 35,000.
Record the necessary journal entries to the above effect and prepare the revaluation account.
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| Liabilities | Amount (Rs.) | Assets | Amount (Rs.) |
| Creditors | 49,000 | Cash | 8,000 |
| Reserves | 18,500 | Debtors | 19,000 |
| Digvijay’s Capital | 82,000 | Stock | 42,000 |
| Brijesh’s Capital | 60,000 | Buildings | 2,07,000 |
| Parakaram’s Capital | 75,500 | Patents | 9,000 |
| 2,85,000 | 2,85,000 |
Brijesh retired on March 31, 2017 on the following terms:
- Goodwill of the firm was valued at Rs. 70,000 and was not to appear in the books.
- Bad debts amounting to Rs. 2,000 were to be written off.
- Patents were considered as valueless.
Prepare Revaluation Account, Partners Capital Accounts and the Balance Sheet of Digvijay and Parakaram after Brijesh’s retirement.
