The following was the Balance Sheet of Arun, Bablu and Chetan sharing profits and losses in the ratio of respectively.
Liabilites | Amount (Rs) | Assets | Amount (Rs) | ||
Creditors |
| 9,000 | Land and Buildings | 24,000 | |
Bills Payable |
| 3,000 | Furniture | 3,500 | |
Capital Accounts |
|
| Stock | 14,000 | |
| Arun | 19,000 |
| Debtors | 12,600 |
| Bablu | 16,000 |
| Cash | 900 |
| Chetan | 8,000 | 43,000 |
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| 55,000 |
| 55,000 | |
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They agreed to take Deepak into partnership and give him a share of 1/8 on the following terms:
(a) that Deepak should bring in Rs 4,200 as goodwill and Rs 7,000 as his Capital;
(b) that furniture be depreciated by 12%;
(c) that stock be depreciated by 10% ;
(d) that a Reserve of 5% be created for doubtful debts;
(e) that the value of land and buildings having appreciated be brought upto Rs 31,000;
(f) that after making the adjustments the capital accounts of the old partners (who continue to share in the same proportion as before) be adjusted on the basis of the proportion of Deepak’s Capital to his share in the business, i.e., actual cash to be paid off to, or brought in by the old partners as the case may be.
Prepare Cash Account, Profit and Loss Adjustment Account (Revaluation Account) and the Opening Balance Sheet of the new firm.
Books of Arun, Bablu, Chetan and Deepak Profit and Loss Adjustment Account (Revaluation Account) | ||||||
Dr. | Cr. | |||||
Particulars | Amount Rs | Particulars | Amount Rs | |||
Furniture | 420 | Land and Buildings | 7,000 | |||
Stock | 1,400 |
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Reserve for Doubtful Debts | 630 |
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Profit on revaluation |
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Profit transferred to |
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| Arun’s Capital | 1,950 |
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| Bablu’s Capital | 1,625 |
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| Chetan’s Capital | 975 | 4,550 |
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| |
| 7,000 |
| 7,000 | |||
| | | | |||
Cash Account | ||||
Dr. | Cr. | |||
Particulars | Amount Rs | Particulars | Amount Rs | |
Balance b/d | 900 | Arun’s Capital | 1,750 | |
Chetan’s Capital | 625 | Bablu’s Capital | 1,625 | |
Deepak’s Capital | 7,000 | Balance c/d | 9,350 | |
Premium for Goodwill | 4,200 |
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| |
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| 12,725 |
| 12,725 | |
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Balance Sheet | ||||||
Liabilities | Amount (Rs) | Assets | Amount (Rs) | |||
Creditors | 9,000 | Land and Buildings | 31,000 | |||
Bills Payable | 3,000 | Furniture | 3,080 | |||
Capital Account |
| Stock | 12,600 | |||
| Arun | 21,000 |
| Debtor | 12,600 |
|
| Bablu | 17,500 |
| Less: Reserve for Doubtful Debt | 630 | 11,970 |
| Chetan | 10,500 |
| Cash |
| 9,350 |
| Deepak | 7,000 | 56,000 |
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| 68,000 |
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| 68,000 | ||
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Working Note:
1)
Partner’s Capital Account | |||||||||
Dr. | Cr. | ||||||||
Particulars | Arun | Bablu | Chetan | Deepak | Particulars | Arun | Bablu | Chetan | Deepak |
Bank | 1,750 | 1,625 |
|
| Balance b/d | 19,000 | 16,000 | 8,000 |
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Balance c/d | 21,000 | 17,500 | 10,500 | 7,000 | Cash A/c |
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| 7,000 |
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| Premium for goodwill | 1,800 | 1,500 | 900 |
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| Revaluation | 1,950 | 1,625 | 975 |
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| Bank |
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| 625 |
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| 22,750 | 19,125 | 10,500 | 7,000 |
| 22,750 | 19,125 | 10,500 | 7,000 |
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2)
Calculation of New Profit Sharing Ratio
New Profit sharing ratio of Arun, Bablu, Chetan and Deepak
= 42:35:21:14 or 6:5:3:2
3) Calculation of capital of Arun, Bablu, and Chetan in the new firm
Deepak bring Rs 7,000 for th share of profit.
Hence total capital of the new firm =