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Question 28 of 28
Q.

Q. 3. Jayesh and Kamal are partners in a firm sharing profits and losses in the ratio 3 : 1. The following is their Balance Sheet as on 31st March, 2016:

Balance Sheet as on 31st March, 2016

LiabilitiesAmount (₹)AssetsAmount (₹)
Capital accounts:Building60,000
Jayesh60,000Stock40,000
Kamal50,000Sundry debtors31,000
Current accounts:Cash4,000
Jayesh3,000Profit and loss account5,000
Kamal2,000
Sundry creditors21,000
General reserve4,000
1,40,0001,40,000

They admitted Vimal as a partner on 1st April, 2016 in the firm on the following terms:

(1) She should bring ₹ 40,000 as her capital for 1/4th share in future profits and ₹ 20,000 as her share of goodwill.

(2) Building is found overvalued by 20% and stock is found undervalued by 20% in the books. These assets are to be adjusted at their proper values.

(3) ₹ 1,000 are to be maintained as reserve for doubtful debts.

Prepare:

  1. Revaluation account.
  2. Old partners' current accounts.
  3. Balance Sheet of the firm after Vimal's admission.
Maharashtra MsbshseMaharashtra HSC (MSBSHSE) Board 2020Subjective· 10mImportance★★★★★
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Building (overvalued 20%) falls by ₹ 10,000 and stock (undervalued 20%) rises by ₹ 10,000; with a new R.D.D. of ₹ 1,000 the Revaluation Account shows a loss of ₹ 1,000 (Jayesh 750, Kamal 250). Goodwill ₹ 20,000 (sacrificing ratio 3 : 1) and general reserve ₹ 4,000 are credited, and the P&L debit balance ₹ 5,000 is debited, to the old partners' current accounts, leaving Jayesh ₹ 16,500 and Kamal ₹ 6,500; the new Balance Sheet ties at ₹ 1,94,000.

Working notes:

  • Building is overvalued by 20%: true value = 60,000 / 1.20 = 50,000, so it is reduced by ₹ 10,000.
  • Stock is undervalued by 20%: true value = 40,000 / 0.80 = 50,000, so it is raised by ₹ 10,000.
  • R.D.D. of ₹ 1,000 is newly created on debtors (31,000 - 1,000 = 30,000 net).
  • New ratio: Vimal 1/4; Jayesh : Kamal share the balance 3/4 in old ratio 3 : 1, so Jayesh 9/16, Kamal 3/16, Vimal 4/16. Sacrifice: Jayesh 12/16 - 9/16 = 3/16, Kamal 4/16 - 3/16 = 1/16; sacrificing ratio 3 : 1, so goodwill ₹ 20,000 is credited 15,000 : 5,000.

(a) Revaluation Account:

ParticularsAmount (₹)ParticularsAmount (₹)
To R.D.D. A/c1,000By Stock A/c10,000
To Building A/c10,000By Loss transferred to Current A/c: Jayesh 750, Kamal 2501,000
11,00011,000

(b) Partners' Current Accounts:

ParticularsJayesh (₹)Kamal (₹)ParticularsJayesh (₹)Kamal (₹)
To Profit and Loss A/c (loss 5,000 in 3:1)3,7501,250By Balance b/d3,0002,000
To Revaluation A/c (loss)750250By General Reserve (4,000 in 3:1)3,0001,000
To Balance c/d16,5006,500By Goodwill A/c (20,000 in 3:1)15,0005,000
21,0008,00021,0008,000

(c) Balance Sheet of the new firm as on 1st April, 2016:

…

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