On 1st April, 2020 the Balance Sheet of A and B is following. They share profits and losses in the ratio 3:2.
Balance Sheet as on 1st April, 2020
| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Sundry creditors | 15,000 | Building | 18,000 |
| Capital A/cs: A 20,000, B 25,000 | 45,000 | Plant & Machinery | 15,000 |
| Stock | 12,000 | ||
| Debtors | 10,000 | ||
| Cash | 5,000 | ||
| Total | 60,000 | Total | 60,000 |
C was admitted in the partnership on that date under following circumstances:
- He will give ₹25,000 as capital and will bring ₹10,000 as goodwill for 1/5 share of profit.
- Assets are evaluated as follows: Building ₹25,000; Plant & Machinery ₹12,000; Stock ₹12,000; Debtors ₹9500 (due to doubtful debts).
- It is known that there is a liability for goods received for ₹1,500, which is not written in the books. Prepare necessary ledger accounts & also give Balance sheet after the admission of C.
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Start your 14-day free trial to unlock the full solution →After C's admission, Capitals stand at A ₹27,200, B ₹29,800, C ₹25,000, and the new Balance Sheet totals ₹98,500 on each side.
Step 1 — Revaluation Account (to record the agreed revised values of assets and the unrecorded liability):
| Dr. | Amount (₹) | Cr. | Amount (₹) |
|---|---|---|---|
| To Plant & Machinery A/c (15,000 − 12,000) | 3,000 | By Building A/c (25,000 − 18,000) | 7,000 |
| To Provision for Doubtful Debts A/c (10,000 − 9,500) | 500 | ||
| To Sundry Creditors A/c (unrecorded liability) | 1,500 | ||
| To Profit transferred to Capital A/cs: A 1,200; B 800 | 2,000 | ||
| Total | 7,000 | Total | 7,000 |
Profit on revaluation = ₹7,000 (gain on Building) − ₹5,000 (losses: P&M 3,000 + Doubtful Debts 500 + unrecorded liability 1,500) = ₹2,000, shared by A and B in their old ratio 3:2 → A = ₹1,200, B = ₹800.
Step 2 — Goodwill brought by C: C brings ₹10,000 as premium for goodwill for his 1/5 share, which is credited to A and B in their old ratio 3:2 (since there is no indication that A and B's mutual ratio has itself changed, the sacrificing ratio between them equals their old ratio): A = ₹6,000; B = ₹4,000.
Step 3 — Partners' Capital Accounts:
| Particulars | A (₹) | B (₹) | C (₹) |
|---|---|---|---|
| Balance b/d | 20,000 | 25,000 | — |
| Bank (Capital brought in) | — | — | 25,000 |
| Premium for Goodwill (credited) | 6,000 | 4,000 | — |
| Revaluation Profit | 1,200 | 800 | — |
| Balance c/d | 27,200 | 29,800 | 25,000 |
Step 4 — Cash/Bank Account: Opening cash ₹5,000 + C's capital ₹25,000 + C's goodwill premium ₹10,000 = ₹40,000.
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