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Numerical Questions · Q33
Q.

The following was the Balance Sheet of Arun, Bablu and Chetan sharing profits and losses in the ratio of 6/14 : 5/14 : 3/14 respectively. Balance Sheet:

LiabilitiesAmount (₹)AssetsAmount (₹)
Capital Accounts:Land and Buildings24,000
Arun19,000Furniture3,500
Bablu16,000Stock14,000
Chetan8,000Debtors12,600
Creditors9,000Cash900
Bills Payable3,000
Total55,000Total55,000

They agreed to take Deepak into partnership and give him a share of 1/8 on the following terms:

  1. that Deepak should bring in ₹4,200 as goodwill and ₹7,000 as his Capital;
  2. that furniture be depreciated by 12%;
  3. that stock be depreciated by 10%;
  4. that a Reserve of 5% be created for doubtful debts;
  5. that the value of land and buildings having appreciated be brought up to ₹31,000;
  6. that after making the adjustments the capital accounts of the old partners (who continue to share in the same proportion as before) be adjusted on the basis of the proportion of Deepak's Capital to his share in the business, i.e., actual cash to be paid off to, or brought in by the old partners as the case may be. Prepare Cash Account, Profit and Loss Adjustment Account (Revaluation Account) and the Opening Balance Sheet of the new firm.
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Revaluation gives a profit of ₹4,550 (shared 6:5:3). Deepak's ₹7,000 for a 1/8 share fixes total capital at ₹56,000, so the old partners' capitals become Arun ₹21,000, Bablu ₹17,500 and Chetan ₹10,500. Against their adjusted balances, Arun withdraws ₹1,750, Bablu withdraws ₹1,625 and Chetan brings in ₹625. The opening Balance Sheet totals ₹68,000.

Revaluation (Profit & Loss Adjustment) Account

ParticularsRs.ParticularsRs.
To Furniture (12% of 3,500)420By Land & Buildings (31,000 - 24,000)7,000
To Stock (10% of 14,000)1,400
To Provision for Doubtful Debts (5% of 12,600)630
To Profit t/f - Arun 1,950; Bablu 1,625; Chetan 9754,550
7,0007,000

Net revaluation profit = 7,000-(420+1,400+630) = ₹4,550, shared 6:5:3 -> Arun ₹1,950, Bablu ₹1,625, Chetan ₹975.

Goodwill

Deepak brings ₹4,200 premium, credited to the old partners in their sacrificing ratio (same as the old ratio 6:5:3): Arun ₹1,800, Bablu ₹1,500, Chetan ₹900.

Capital adjustment

Adjusted capital = opening + revaluation profit + goodwill:

PartnerOpeningRevaluationGoodwillAdjusted
Arun19,0001,9501,80022,750
Bablu16,0001,6251,50019,125
Chetan8,0009759009,875

Deepak's ₹7,000 = 1/8 share, so total capital =7,000×8= ₹56,000; the old partners' share (7/8) = ₹49,000, split 6:5:3:

PartnerRequiredAdjustedCash
Arun21,00022,750Withdraw 1,750
Bablu17,50019,125Withdraw 1,625
Chetan10,5009,875Bring in 625

Cash Account

ParticularsRs.ParticularsRs.
To Balance b/d900By Arun's Capital A/c1,750
To Deepak's Capital A/c7,000By Bablu's Capital A/c1,625

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