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Question
Sanjana and Alok were partners in firm sharing profits and losses in the ratio 3: 2. On 31st March 2018 their Balance Sheet was as follows:
Balance Sheet of Sanjana and Alok as on 31.3.2018
| Liabilities |
Amount (₹) |
Assets | Amount (₹) |
| Creditors | 60,000 | Cash | 1,66,000 |
| Work men's Compensation Fund | 60,000 | Debtors - 1,46,000 | |
| Less: Provision for doubtful debts - 2,000 | 1,44,000 | ||
| Capitals: | Stock | 1,50,000 | |
| Sanjana - 5,00,000 | Investments | 2,60,000 | |
| Alok - 4,00,000 | 9,00,000 | Furniture | 3,00,000 |
| 10,20,000 | 10,20,000 |
On 1st April 2018, they admitted Nidhi as a new partner for 1/4th share in the profits on the following terms:
(a) Goodwill of the firm was valued at ₹ 4,00,000 and Nidhi brought the necessary amount in cash for her share of goodwill premium, half of which was withdrawn by the old partners.
(b) Stock was to be increased by 20% and furniture was to be reduced to 90%.
(c) Investments were to be valued at ₹ 3,00,000. Alok took over investments at this value.
(d) Nidhi brought ₹ 3,00,000 as her capital and the capitals of Sanjana and Alok were adjusted in the new profit sharing ratio.
Prepare Revaluation Account, Partners Capital Accounts, and the Balance Sheet of the reconstituted firm on Nidhi's admission.
Solution
| Dr. | Revaluation Account | Cr. | |
| Particulars |
Amount(₹) |
Particulars | Amount(₹) |
| To Furniture (10% of 3,00,000) |
30,000 |
By Stock | 30,000 |
| To Profit on revaluation transferred to Old Partners’ | By Investments | 40,000 | |
| Capital Accounts | |||
| Sanjana - 24,000 | |||
| Alok - 16,000 |
40,000 |
||
|
70,000 |
70,000 | ||
| Dr. | Partners’ Capital Accounts | Cr. | |||||||
| Particulars | L.F. |
Sanjana (₹) |
Alok |
Nidhi |
Particulars | L.F. |
Sanjana (₹) |
Alok |
Nidhi |
| To Cash A/c |
30,000 |
20,000 |
|
By Balance b/d |
5,00,000 |
4,00,000 |
|
||
| To Investments A/c |
|
3,00,000 |
|
By Cash A/c |
|
|
3,00,000 |
||
| To Cash A/c |
1,40,000 |
- |
|
By WCF |
36,000 |
24,000 |
|
||
|
|
|
|
By Premium for Goodwill A/c |
60,000 |
40,000 |
|
|||
| To Balance c/d |
4,50,000 |
3,00,000 |
3,00,000 |
By Revaluation A/c |
24,000 |
16,000 |
|
||
|
|
|
|
By Cash A/c |
- |
1,40,000 |
|
|||
|
6,20,000 |
6,20,000 |
3,00,000 |
|
6,20,000 |
6,20,000 |
3,00,000 | |||
Balance Sheet as on 31st March 2018
| Liabilities |
Amount(₹) |
Assets | Amount(₹) |
| Creditors | 60,000 | Cash at Bank (1,66,000 + 3,00,000 + 1,00,000 – 50,000 + 1,40,000 – 1,40,000) | 5,16,000 |
| Partners’ Capital Accounts | Debtors - 1,46,000 | ||
| Sanjana - 4,50,000 | Less: Provision - (2000) | 1,44,000 | |
| Alok - 3,00,000 | Stock (1,50,000 + 30,000) | 1,80,000 | |
| Nidhi - 3,00,000 | 10,50,000 | Furniture (90% of 3,00,000) | 2,70,0000 |
| 11,10,000 | 11,10,000 |
Working Note:
Computation of the amount of goodwill to be brought in by Nidhi and adjusted to sacrificing partners
Revalued Goodwill of the firm = ₹ 4,00,000
Nidhi’s Share in Goodwill = `4,00,000 xx (1)/(4) = 1,00,000`
Sacrificing Ratio of old partners = Old Profit Sharing Ratio of old partners
Sanjan’s share in premium for goodwill = `1,00,000 xx (3)/(5) = 60,000`
Alok’s share premium for goodwill = `1,00,000 xx (2)/(5) = 40,000`
2) Computation of Partners’ adjusted Capital after Nidhi’ admission in the New Profit Sharing Ratio
New Profit Sharing Ratio of Sanjana = Remaining Profit Share after Nidhi’s Admission × Old Profit Sharing Ratio
New Profit Sharing Ratio of Sanjana = `(1-1/4) xx (3)/(5) = (3)/(4) xx (3)/(5) = (9)/(20);`
New Profit Sharing Ratio of Alok = `(1-1/4) xx (2)/(5) = (3)/(4) xx (2)/(5) = (6)/(20);`
Profit Sharing Ratio of Nidhi = `(1)/(4) = (5)/(20)`
So, New Profit Sharing Ratio among Sanjana, Alok and Nidhi = 9 : 6: 5
Total Adjusted Capital of Sanjana and Alok = 5,90,000 + 1,60,000 = 7,50,000
New Capital of Sanjana = `7,50,000 xx (9)/(15) = 4,50,000;`
New Capital of Alok = `7,50,000 xx (6)/(15) = 3,00,000`
APPEARS IN
RELATED QUESTIONS
Following is the Balance Sheet of R.S. Ltd. as at 31st March, 2016 :
|
R.S. Ltd. Balance Sheet as at 31-3-2016 |
|||
|
Particulars |
NoteNo. |
31-03-2016 (Rs) |
31-03-2015 (Rs) |
|
I. Equity and Liabilities : (1) Shareholder's Funds |
|||
|
(a) Share Capital |
9,00,000 |
7,00,000 |
|
|
(b) Reserves and Surplus |
1 |
2,50,000 |
1,00,000 |
|
(2) Non-current Liabilities |
|||
|
Long-term borrowings |
2 |
4,50,000 |
3,50,000 |
|
(3) Current Liabilities |
|||
|
(a) Short-term borrowings |
3 |
1,50,000 |
75,000 |
|
(b) Short-term provisions |
4 |
2,00,000 |
1,25,000 |
|
Total |
19,50,000 |
13,50,000 |
|
|
II. Assets |
|||
|
(1) Non-current Assets |
|||
|
(a) Fixed Assets |
|||
|
(i) Tangible |
5 |
14,65,000 |
9,15,000 |
|
(ii) Intangible |
6 |
1,00,000 |
1,50,000 |
|
(b) Non-current Investments |
1,50,000 |
1,00,000 |
|
|
(2) Current Assets |
|||
|
(a) Current Investments |
|
40,000 |
70,000 |
|
(b) Inventories |
7 |
1,22,000 |
72,000 |
|
(c) Cash and Cash Equivalents |
73,000 |
43,000 |
|
|
Total |
19,50,000 |
13,50,000 |
|
|
Note No. |
Particulars |
31-03-2016 (Rs) |
31-03-2015 (Rs) |
|
(1) |
Reserves and Surplus |
|
|
|
|
(Surplus i.e. Balance in Statement of Profit and Loss) |
2,50,000 |
1,00,000 |
|
|
|
2,50,000 |
1,00,000 |
|
|
|
|
|
|
(2) |
Long-term borrowings |
|
|
|
|
12% Debentures |
4,50,000 |
3,50,000 |
|
|
|
4,50,000 |
3,50,000 |
|
|
|
|
|
|
(3) |
Short-term borrowings |
|
|
|
|
Bank overdraft |
1,50,000 |
75,000 |
|
|
|
1,50,000 |
75,000 |
|
|
|
|
|
|
(4) |
Short-term provisions |
|
|
|
|
Proposed Dividend |
2,00,000 |
1,25,000 |
|
|
|
2,00,000 |
1,25,000 |
|
|
|
|
|
|
(5) |
Tangible Assets |
|
|
|
|
Machinery |
16,75,000 |
10,55,000 |
|
|
Accumulated Depreciation |
(2,10,000) |
(1,40,000) |
|
|
|
14,65,000 |
9,15,000 |
|
|
|
|
|
|
(6) |
Intangible Assets |
|
|
|
|
Goodwill |
1,00,000 |
1,50,000 |
|
|
|
1,00,000 |
1,50,000 |
|
|
|
|
|
|
(7) |
Inventories |
|
|
|
|
Stock in trade |
1,22,000 |
72,000 |
|
|
|
1,22,000 |
72,000 |
|
|
|
Additional Information :
(1) Rs 1,00,000, 12% Debentures were issued on 31-3-2016.
(2) During the year a piece of machinery costing Rs 80,000 on which accumulated depreciation was Rs 40,000 was sold at a loss of Rs 10,000.
Prepare a Cash Flow Statement.
Why is 'Realisation Account' prepared?
Why is there need for the revaluation of assets and liabilities on the admission of a partner?
At the time of admission of a partner C, assets and liabilities of A and B were revalued as follows:
(a) A Provision for Doubtful Debts @10% was made on Sundry Debtors (Sundry Debtors ₹ 50,000).
(b) Creditors were written back by ₹ 5,000.
(c) Building was appreciated by 20% (Book Value of Building ₹ 2,00,000).
(d) Unrecorded Investments were valued at ₹ 15,000.
(e) A Provision of ₹ 2,000 was made for an Outstanding Bill for repairs.
(f) Unrecorded Liability towards suppliers was ₹ 3,000.
Pass necessary Journal entries.
Excess of the credit side over the debit side of the revaluation account.
A decrease in the value of liability will be recorded on the ____________ side of the revaluation account.
An increase in the value of liability will be recorded on the ____________ side of the revaluation account.
At the time of admission of a new partner, general reserve appearing in the old Balance Sheet is transferred to:
State the ‘true’ statement:
Assets and Liabilities are shown at their revalued values in:
Assertion (A): Revaluation A/c is prepared at the time of Admission of a partner.
Reason (R): It is required to adjust the values of assets and liabilities at the time of admission of a partner, so that the true financial position of the firm is reflected.
Pick the odd one out:
Ajay, Vijay and Sanjay were partners sharing profits and losses in the ratio of 3 : 3 : 2. Their Balance Sheet as on 31st March 2020 is as follows:
| Balance Sheet as on 31st March, 2020 | |||
| Liabilities | Amount (₹) | Assets | Amount (₹) |
| Creditors | 32,700 | Bank | 19,800 |
| Reserve Fund | 12,000 | Stock | 19,800 |
| Capital Accounts: | Debtors | 15,000 | |
| Ajay | 33,000 | Livestock | 30,000 |
| Vijay | 45,000 | Plant and Machinery | 62,100 |
| Sonjay | 24,000 | ||
| 1,46,700 | 1,46,700 | ||
On 1st April 2020 Sanjay retired from the firm on the following terms:
- R.D.D. is to be maintained at 10% on debtors.
- ₹ 300 to be written off from creditors.
- Goodwill of the firm is to be valued at ₹ 12,000. however only Sanjay's share in it is to be raised in the books and written off immediately.
- Assets to be revalued as: Stock ₹ 18,900, Plant and machinery ₹ 60,000, Live Stock ₹ 30,600.
- The amount payable to Sanjay is to be transferred to his Loan account after retirement:
Prepare:
- Revaluation Account
- Partners' Capitol Account
- Balance Sheet of the New firm.
Following is the Balance Sheet of the firm of Nana, Nani and Sona who share Profits and Losses in the ratio of their Capital.
| Balance Sheet as on 31st March, 2019 |
||||
| Liabilities | Amount (₹) | Assets | Amount (₹) | |
| Capital A/c: | Machinery | 20,000 | ||
| Nana | 50,000 | Building | 55,000 | |
| Nani | 20,000 | Stock | 12,000 | |
| Sona | 30,000 | Debtors | 12,000 | 11,000 |
| Creditors | 10,000 | Less: RDD | 1,000 | |
| Bills Payable | 5,000 | Cash | 17,000 | |
| 1,15,000 | 1,15,000 | |||
Sona retires from the business on 1st April 2019 and the following Adjustment were agreed.
- Stock is to be valued at 92% of its Book Value.
- RDD is to be maintained at 10% on debtors.
- The value of Building is to be appreciated by 20%.
- The Goodwill of the firm be fixed at ₹ 12000. Sona’s share in the same be adjusted in the accounts of continuing partners in gaining Ratio.
- The entire Capital of the new firm be fixed at ₹ 1,60,000 between Nana and Nani in their New Profit sharing ratio which is fixed at 3:1 making adjustment in Cash.
- Amount payable to Sona paid in cash.
Prepare: Revaluation Account, Partnership Capital Account and Balance Sheet of the reconstituted firm.
On admission of a new partner, the old partners share the gain or loss on revaluation of assets and reassessment of liabilities in which of the following ratio :
On reconstitution of a firm, the value of machinery was depreciated by ₹1,00,000 and investments increased to ₹70,000 from ₹20,000. Gain or loss on revaluation will be ______.
Rajinder and Vijay were partners in a firm sharing profits in the ratio 3:2. On 31st March 2023 their balance sheet was as follows:
| Liabilities | Amount (₹) | Assets | Amount (₹) | ||
| Capital A/cs: | Fixed Assets (Tangible) |
3,60,000 | |||
| Rajinder | 3,00,000 | 4,50,000 | Goodwill | 50,000 | |
| Vijay | 1,50,000 | Investments | 40,000 | ||
| Current A/cs: | Stock | 74,000 | |||
| Rajinder | 50,000 | 60,000 | Debtors | 1,00,000 | 96,000 |
| Vijay | 10,000 | Less: Provision for Doubtful Debts |
4,000 | ||
| Creditors | 75,000 | Bank | 25,000 | ||
| General Reserve | |||||
| 6,45,000 | 6,45,000 |
With an aim to expand business it is decided to admit Ranvijay as a partner on 1st April 2023 on the following terms:
- Provision for doubtful debts is to be increased to 6% of debtors.
- An outstanding bill for repairs ₹ 50,000 to be accounted in the books.
- An unaccounted interest accrued of ₹ 7500 be provided for.
- Investment were sold at book value.
- Half of stock was taken by Rajinder at ₹ 42,000 and remaining stock was also to be revalued at the same rate.
- New profit-sharing ratio of partners will be 5:3:2.
- Ranvijay will bring ₹ 1,00,000 as capital and his share of goodwill which was valued at twice the average profit of the last three years ended 31st March 2023, 2022 and 2021 were ₹ 1,50,000, ₹ 1,30,000 and ₹ 1,70,000 respectively.
Pass necessary journal entries.
Decrease in the value of assets should be ______ to Profit and Loss Adjustment Account.
