Kumar and Suresh are partners sharing profit and losses in the ratio of 3:2 respectively.
Their Balance Sheet as on March 31, 2015 was as under :
| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Creditors | 28,000 | Cash in hand | 3,000 |
| Capitals : | Cash at Bank | 23,000 | |
| Kumar – 70,000 | Debtors | 19,000 | |
| Suresh – 70,000 | 1,40,000 | Buildings | 65,000 |
| Furniture | 15,000 | ||
| Machinery | 13,000 | ||
| Stock | 30,000 | ||
| 1,68,000 | 1,68,000 |
On that date, they admit Deepak into partnership for 1/3 share in future profit on the following terms :
(1) Furniture and stock are to be depreciated by 10%.
(2) Building is appreciated by ₹ 20,000.
(3) 5% provision is to be created on Debtors for doubtful debts.
(4) Deepak is to bring in ₹ 50,000 as his capital and ₹ 30,000 as goodwill.
Make necessary Ledger Account and Balance Sheet of the new firm.
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Start your 14-day free trial to unlock the full solution →Revalue the assets/liabilities (profit Rs. 14,550, shared 3:2), credit Deepak's goodwill Rs. 30,000 to the old partners in their sacrificing ratio 3:2, add Deepak's capital Rs. 50,000, and draw up the new Balance Sheet which totals Rs. 2,62,550.
Step 1 — Revaluation adjustments
- Furniture depreciated 10% of Rs. 15,000 = Rs. 1,500 (loss)
- Stock depreciated 10% of Rs. 30,000 = Rs. 3,000 (loss)
- Provision for doubtful debts = 5% of Rs. 19,000 = Rs. 950 (loss)
- Building appreciated by Rs. 20,000 (gain)
Revaluation Account
| Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
|---|---|---|---|
| To Furniture A/c (depreciation) | 1,500 | By Building A/c (appreciation) | 20,000 |
| To Stock A/c (depreciation) | 3,000 | ||
| To Provision for Doubtful Debts A/c | 950 | ||
| To Profit transferred to: | |||
| Kumar's Capital (3/5) | 8,730 | ||
| Suresh's Capital (2/5) | 5,820 | ||
| Total | 20,000 | Total | 20,000 |
Profit on revaluation = 20,000 - 5,450 = Rs. 14,550; Kumar = 14,550 x 3/5 = Rs. 8,730, Suresh = 14,550 x 2/5 = Rs. 5,820.
Step 2 — Goodwill: Deepak brings Rs. 30,000 as goodwill (premium), credited to the sacrificing partners. Nothing else being stated, the old partners sacrifice in their old ratio 3:2, so Kumar gets 30,000 x 3/5 = Rs. 18,000 and Suresh gets 30,000 x 2/5 = Rs. 12,000.
Partners' Capital Accounts
| Particulars | Kumar | Suresh | Deepak | Particulars | Kumar | Suresh | Deepak |
|---|---|---|---|---|---|---|---|
| To Balance c/d | 96,730 | 87,820 | 50,000 | By Balance b/d | 70,000 | 70,000 | — |
| By Cash/Bank (capital) | — | — | 50,000 | ||||
| By Premium for Goodwill | 18,000 | 12,000 | — | ||||
| By Revaluation A/c (profit) | 8,730 | 5,820 | — | ||||
| Total | 96,730 | 87,820 | 50,000 | Total | 96,730 | 87,820 | 50,000 |
Step 3 — Bank Account (Deepak brings Rs. 50,000 + Rs. 30,000 = Rs. 80,000 into the bank)
| Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
|---|---|---|---|
| To Balance b/d | 23,000 | By Balance c/d | 1,03,000 |
| To Deepak's Capital A/c | 50,000 |
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