Ram and Shyam are partners sharing profits and losses in the ratio 3:2. Their Balance Sheet as on 31st March 2025 was as follows:
Balance Sheet of Ram and Shyam as on 31st March 2025
| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Capital A/cs: Ram 1,20,000; Shyam 80,000 | 2,00,000 | Building | 1,00,000 |
| General Reserve | 20,000 | Machinery | 80,000 |
| Creditors | 60,000 | Stock | 40,000 |
| Debtors 30,000 less Provision for Doubtful Debts 2,000 | 28,000 | ||
| Cash at Bank | 32,000 | ||
| Total | 2,80,000 | Total | 2,80,000 |
On 1st April 2025, they admit Ghanshyam into partnership on the following terms:
(1) Ghanshyam should bring ₹60,000 as capital for a 1/4th share of future profits, and ₹20,000 as his share of goodwill in cash.
(2) The new profit-sharing ratio of Ram, Shyam and Ghanshyam is agreed to be 2:1:1.
(3) Building be appreciated by ₹20,000 and Machinery be depreciated by ₹10,000.
(4) Provision for Doubtful Debts be increased to ₹3,000.
(5) Stock be revalued at ₹36,000.
(6) General Reserve be distributed among the old partners in their old profit-sharing ratio.
Prepare (a) the Revaluation Account, (b) Partners' Capital Accounts, and (c) the Balance Sheet of the new firm.
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Start your 14-day free trial to unlock the full solution →Step 1 — New ratio and sacrificing ratio. New ratio (given) is Ram : Shyam : Ghanshyam = 2:1:1, i.e. Ram = 1/2, Shyam = 1/4, Ghanshyam = 1/4 (matching the stated 1/4th share). Old ratio was Ram : Shyam = 3:2, i.e. Ram = 3/5, Shyam = 2/5.
Ram's sacrifice = 3/5 − 1/2 = 6/10 − 5/10 = 1/10. Shyam's sacrifice = 2/5 − 1/4 = 8/20 − 5/20 = 3/20 = 1.5/10. Converting to twentieths: Ram = 2/20, Shyam = 3/20. Sacrificing ratio Ram : Shyam = 2 : 3 (check: 2/20 + 3/20 = 5/20 = 1/4 = Ghanshyam's share exactly, confirming the sacrifice accounts for all of Ghanshyam's new share).
Step 2 — Revaluation Account. Building appreciated ₹20,000 (gain). Machinery depreciated ₹10,000 (loss). Provision for Doubtful Debts increased from ₹2,000 to ₹3,000, i.e. by ₹1,000 (loss). Stock revalued from ₹40,000 to ₹36,000, i.e. down ₹4,000 (loss).
| Dr. | Amount (₹) | Cr. | Amount (₹) |
|---|---|---|---|
| To Machinery A/c (depreciation) | 10,000 | By Building A/c (appreciation) | 20,000 |
| To Provision for Doubtful Debts A/c (increase) | 1,000 | ||
| To Stock A/c (decrease) | 4,000 | ||
| To Profit transferred to Ram's Capital A/c (3/5) | 3,000 | ||
| To Profit transferred to Shyam's Capital A/c (2/5) | 2,000 | ||
| Total | 20,000 | Total | 20,000 |
Losses = ₹10,000 + ₹1,000 + ₹4,000 = ₹15,000. Profit on revaluation = ₹20,000 − ₹15,000 = ₹5,000, shared in the OLD ratio 3:2: Ram ₹3,000, Shyam ₹2,000.
Step 3 — Goodwill. Ghanshyam's ₹20,000 premium for goodwill is credited to Ram and Shyam in the SACRIFICING ratio 2:3: Ram = ₹20,000 × 2/5 = ₹8,000; Shyam = ₹20,000 × 3/5 = ₹12,000.
Step 4 — General Reserve. Distributed in the OLD ratio 3:2: Ram = ₹20,000 × 3/5 = ₹12,000; Shyam = ₹20,000 × 2/5 = ₹8,000.
Step 5 — Partners' Capital Accounts.
| Particulars | Ram (₹) | Shyam (₹) | Ghanshyam (₹) |
|---|---|---|---|
| Balance b/d | 1,20,000 | 80,000 | — |
| General Reserve A/c | 12,000 | 8,000 | — |
| Revaluation A/c (Profit) | 3,000 | 2,000 | — |
| Premium for Goodwill A/c | 8,000 | 12,000 | — |
| Cash/Bank A/c (Capital brought in) | — | — | 60,000 |
| Balance c/d | 1,43,000 | 1,02,000 | 60,000 |
(Ram: 1,20,000 + 12,000 + 3,000 + 8,000 = 1,43,000. Shyam: 80,000 + 8,000 + 2,000 + 12,000 = 1,02,000. Ghanshyam: 60,000 capital only — his ₹20,000 goodwill cash is NOT credited to his own capital, it passes through to Ram and Shyam.) …
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