P and Q share profits in the ratio 3:2. Their Balance Sheet as on 31 March 2025 shows Capitals: P ₹1,20,000, Q ₹80,000; Creditors ₹40,000; and Assets: Building ₹1,00,000, Stock ₹60,000, Debtors ₹50,000, Cash ₹30,000. They admit R for 1/4 share on these terms: (a) R brings ₹60,000

Question

P and Q share profits in the ratio 3:2. Their Balance Sheet as on 31 March 2025 shows Capitals: P ₹1,20,000, Q ₹80,000; Creditors ₹40,000; and Assets: Building ₹1,00,000, Stock ₹60,000, Debtors ₹50,000, Cash ₹30,000. They admit R for 1/4 share on these terms: (a) R brings ₹60,000 as capital and ₹16,000 as premium for goodwill in cash (sacrificing ratio taken as the old ratio, 3:2, in the absence of any other agreement); (b) Building is appreciated by ₹20,000; (c) Stock is reduced by ₹10,000; (d) a Provision for Doubtful Debts of ₹5,000 is created on Debtors. Prepare the Revaluation Account, the Partners' Capital Accounts, and the new Balance Sheet.

Accepted Answer

Step 1 — Revaluation Account:

| Dr | Particulars | Amount (₹) | Cr | Particulars | Amount (₹) |
|---|---|---|---|---|---|
| | To Stock A/c | 10,000 | | By Building A/c | 20,000 |
| | To Provision for Doubtful Debts A/c | 5,000 | | | |
| | To Profit transferred to: | | | | |
| | P's Capital A/c | 3,000 | | | |
| | Q's Capital A/c | 2,000 | | | |
| | Total | 20,000 | | Total | 20,000 |

Net revaluation profit = 20,000 (Building gain) − 10,000 (Stock loss) − 5,000 (Provision) = ₹5,000, shared in the old ratio 3:2 → P: 5,000 × 3/5 = 3,000; Q: 5,000 × 2/5 = 2,000.

Step 2 — Premium for Goodwill: R brings ₹16,000 premium, distributed in the sacrificing ratio (taken as the old ratio 3:2): P: 16,000 × 3/5 = 9,600; Q: 16,000 × 2/5 = 6,400.

Step 3 — Partners' Capital Accounts:

| Particulars | P (₹) | Q (₹) | R (₹) |
|---|---|---|---|
| By Balance b/d | 1,20,000 | 80,000 | — |
| By Revaluation A/c (profit) | 3,000 | 2,000 | — |
| By Premium for Goodwill A/c | 9,600 | 6,400 | — |
| By Bank A/c (capital brought in) | — | — | 60,000 |
| To Balance c/d | 1,32,600 | 88,400 | 60,000 |

P's closing capital = 1,20,000 + 3,000 + 9,600 = ₹1,32,600. Q's closing capital = 80,000 + 2,000 + 6,400 = ₹88,400. R's capital = ₹60,000 (his premium of ₹16,000 goes to P and Q, not into his own capital account).

Step 4 — New Balance Sheet as on the date of R's admission:

| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Creditors | 40,000 | Building (1,00,000 + 20,000) | 1,20,000 | …

Q.P and Q share profits in the ratio 3:2. Their Balance Sheet as on 31 March 2025 shows Capitals: P ₹1,20,000, Q ₹80,000; Creditors ₹40,000; and Assets: Building ₹1,00,000, Stock ₹60,000, Debtors ₹50,000, Cash ₹30,000. They admit R for 1/4 share on these terms:

Concept understanding — Revaluation of Assets and Liabilities

Particulars	Amount (₹)	Particulars	Amount (₹)
To Stock A/c	10,000	By Building A/c	20,000
To Provision for Doubtful Debts A/c	5,000
To Profit transferred to:
P's Capital A/c	3,000
Q's Capital A/c	2,000
Total	20,000	Total	20,000

Particulars	P (₹)	Q (₹)	R (₹)
By Balance b/d	1,20,000	80,000	—
By Revaluation A/c (profit)	3,000	2,000	—
By Premium for Goodwill A/c	9,600	6,400	—
By Bank A/c (capital brought in)	—	—	60,000
To Balance c/d	1,32,600	88,400	60,000

Q.P and Q share profits in the ratio 3:2. Their Balance Sheet as on 31 March 2025 shows Capitals: P ₹1,20,000, Q ₹80,000; Creditors ₹40,000; and Assets: Building ₹1,00,000, Stock ₹60,000, Debtors ₹50,000, Cash ₹30,000. They admit R for 1/4 share on these terms:

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