Dinesh and Ramesh are partners in a firm sharing profits and losses in the ratio of 3:2. They decided to admit Vasu as a partner with 1/5 share in the profits. Their Balance Sheet as on March 31, 2015 was as follows:
| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Sundry Creditors | 1,50,000 | Cash at Bank | 40,000 |
| General Reserve | 80,000 | Bills Receivables | 50,000 |
| Bank O.D. | 70,000 | Debtors | 60,000 |
| Partners' Capitals : | Stock | 1,20,000 | |
| Dinesh 1,00,000 | Fixed Assets | 2,80,000 | |
| Ramesh 1,50,000 | 2,50,000 | ||
| 5,50,000 | 5,50,000 |
It was also decide that :
(1) The fixed assets should be valued at ₹ 3,31,000.
(2) A provision of 5% on sundry debtors to be made for doubtful debts.
(3) The value of stock be reduced to ₹ 1,12,000.
(4) Vasu brings ₹ 75,000 as capital and ₹ 15,000 as Goodwill.
Prepare necessary accounts and the revised Balance Sheet of the firm after admission of the partner.
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Start your 14-day free trial to unlock the full solution →This is a standard AP Intermediate 2nd-year Accountancy admission-of-a-partner problem. We prepare the Revaluation Account, the Partners' Capital Accounts and the revised Balance Sheet. Revaluation gives a profit of Rs 40,000; the General Reserve of Rs 80,000 and the Rs 15,000 goodwill brought by Vasu are credited to the old partners 3:2. The revised Balance Sheet totals Rs 6,80,000.
Step 1 — Revaluation Account
Fixed Assets rise from Rs 2,80,000 to Rs 3,31,000 (gain Rs 51,000). Stock falls from Rs 1,20,000 to Rs 1,12,000 (loss Rs 8,000). A 5% provision on debtors of Rs 60,000 = Rs 3,000 (loss).
| Dr — Particulars | Amount (Rs) | Cr — Particulars | Amount (Rs) |
|---|---|---|---|
| To Stock (reduction) | 8,000 | By Fixed Assets (increase) | 51,000 |
| To Provision for Doubtful Debts | 3,000 | ||
| To Profit transferred: Dinesh 24,000; Ramesh 16,000 | 40,000 | ||
| 51,000 | 51,000 |
Profit on revaluation = 51,000 − 11,000 = Rs 40,000, shared 3:2 → Dinesh Rs 24,000, Ramesh Rs 16,000.
Step 2 — General Reserve and Goodwill
General Reserve Rs 80,000 belongs to the old partners and is distributed 3:2 → Dinesh Rs 48,000, Ramesh Rs 32,000. Vasu brings Rs 15,000 goodwill; as the old partners sacrifice in their old ratio 3:2, it is credited Dinesh Rs 9,000, Ramesh Rs 6,000.
Step 3 — Partners' Capital Accounts
| Particulars | Dinesh (Rs) | Ramesh (Rs) | Vasu (Rs) |
|---|---|---|---|
| Balance b/d | 1,00,000 | 1,50,000 | — |
| Cash (Capital introduced) | — | — | 75,000 |
| General Reserve | 48,000 | 32,000 | — |
| Revaluation Profit | 24,000 | 16,000 | — |
| Goodwill (from Vasu) | 9,000 | 6,000 | — |
| Balance c/d | 1,81,000 | 2,04,000 | 75,000 |
Step 4 — Bank (Cash at Bank)
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