Ram and Shyam were partners in a firm. Their Balance sheet as on 31st December 2016 stood as follows :
Balance Sheet
| Capital and Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Outstanding Liabilities | 10,000 | Cash | 4,000 |
| Sundry Creditors | 30,000 | Bank | 56,000 |
| Bank Overdraft | 20,000 | Debtors | 30,000 |
| Bills Payable | 30,000 | Furniture | 12,000 |
| Reserve | 18,000 | Machinery | 24,000 |
| Capital Accounts: Ram 45,000, Shyam 30,000 | 75,000 | Building | 57,000 |
| Total | ₹ 1,83,000 | Total | ₹ 1,83,000 |
They decided to admit Mohan in partnership on the following terms :
- Mohan brings ₹ 45,000 as capital and he will receive 1/4 share in future profits.
- A Goodwill Account for ₹30,000 to be opened in the books of the firm and Goodwill Account should not remain in the books.
- The machinery, building and furniture to be depreciated by 5%.
- A provision @ 5% to be created for doubtful debts. Prepare Revaluation Account, Capital Accounts of all partners and the Balance sheet of the new firm.
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Start your 14-day free trial to unlock the full solution →After charging a ₹6,150 revaluation loss and distributing the ₹18,000 Reserve to Ram and Shyam (assumed equal, as no ratio is stated), and raising then writing off ₹30,000 goodwill as directed, the new firm's Balance Sheet (Ram, Shyam, Mohan) totals ₹2,21,850.
Note on profit-sharing ratio: the question does not state Ram and Shyam's profit-sharing ratio; following standard practice when a ratio is not given, they are assumed to share profits equally (1:1).
Step 1 — Revaluation Account (assets depreciated by 5%; provision for doubtful debts created @5% on Debtors):
- Depreciation on Machinery: 5% of 24,000 = 1,200
- Depreciation on Building: 5% of 57,000 = 2,850
- Depreciation on Furniture: 5% of 12,000 = 600
- Provision for Doubtful Debts: 5% of 30,000 = 1,500 Total loss on revaluation = 1,200 + 2,850 + 600 + 1,500 = ₹6,150, borne by Ram and Shyam equally = ₹3,075 each.
| Dr. Revaluation Account | Amount (₹) | Cr. | Amount (₹) |
|---|---|---|---|
| To Machinery A/c | 1,200 | By Loss transferred to: | |
| To Building A/c | 2,850 | Ram's Capital A/c | 3,075 |
| To Furniture A/c | 600 | Shyam's Capital A/c | 3,075 |
| To Provision for Doubtful Debts A/c | 1,500 | ||
| Total | 6,150 | Total | 6,150 |
Step 2 — Reserve of ₹18,000 is distributed to the old partners in their old ratio (1:1) before admission: Ram ₹9,000, Shyam ₹9,000.
Step 3 — Goodwill (raised at ₹30,000 and then written off, as directed):
- Raised, credited to old partners in old ratio 1:1: Ram ₹15,000, Shyam ₹15,000.
- Written off, debited to ALL partners (including Mohan) in the new ratio. New ratio: Mohan = 1/4; remaining 3/4 shared equally by Ram and Shyam = 3/8 each ⇒ New ratio Ram : Shyam : Mohan = 3 : 3 : 2 (out of 8). Written off: Ram 30,000 × 3/8 = 11,250; Shyam 30,000 × 3/8 = 11,250; Mohan 30,000 × 2/8 = 7,500.
Step 4 — Partners' Capital Accounts:
| Dr. | Ram (₹) | Shyam (₹) | Mohan (₹) | Cr. | Ram (₹) | Shyam (₹) | Mohan (₹) |
|---|---|---|---|---|---|---|---|
| To Revaluation A/c (loss) | 3,075 | 3,075 | — | By Balance b/d | 45,000 | 30,000 | — |
| To Goodwill A/c (written off) | 11,250 | 11,250 | 7,500 | By Reserve A/c | 9,000 | 9,000 | — |
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