The Balance Sheet of a Partnership Firm M/s Dutch and Associates consisted of two partners P and Q who were sharing Profits and Losses in the ratio…

CA Foundation · Accounting · MTP · January 2025
The Balance Sheet of a Partnership Firm M/s Dutch and Associates consisted of two partners P and Q who were sharing Profits and Losses in the ratio of 5 :3 respectively. The position as on 31st March, 2024 was as follows: Liabilities ₹ Assets ₹ P's Capital 4,10,000 Land & Building 3,80,000 Q's Capital 3,30,000 Plant & Machinery 1,70,000 Profit & Loss A/c 1,12,000 Furniture 1,09,480 Trade Creditors 54,800 Stock 1,45,260 Sundry debtors 60,000 Cash at Bank 42,060 9,06,800 9,06,800 On the above date, R was admitted as a partner on the following terms: (a) R should get - 1/5 th of share of profits. (b) R brought - 2,40,000 as his capital and - 32,000 for his share of Goodwill. (c) Plant and Machinery would be depreciated by 15% and Land & Buildings would be appreciated by 40%. (d) A provision for doubtful debts to be created at 5% on sundry debtors. (e) An unrecorded liability of 6,000 for repairs to Buildings would be recorded in the books of accounts. (f) Immediately after R’s admission, Goodwill brought by him would be adjusted among old partners. Thereafter, the capital accounts of old partners would be adjusted through the current accounts of partners in such a manner that the capital accounts of all the partners would be in their profit sharing ratio. Prepare revaluation A/c, capital Accounts of the partners, new profit sharing ratio and Balance Sheet of the firm after the admission of R.

Suggested Answer and Working Notes:

Revaluation A/c Particulars ₹ ₹ To Plant & Machinery (₹ 1,70,000 x 15%) 25,500 By Land & Building A/c 1,52,000 To Provision for Bad & Doubtful Debts (₹ 60,000 x 5%) 3,000 To Outstanding Repairs to Building 6,000 To P’s Capital A/c (5/8) 73,438 To Q’s Capital A/c (3/8) 44,062 1,52,000 1,52,000 Partners Capital A/c P Q R P Q R To P’s Capital A/c - - 20,000 By Balance b/d 4,10,000 3,30,000 - To Q’s Capital A/c - - 12,000 By Revaluation A/c 73,438 44,062 - To Q’s Current A/c - 68,062 - By Profit & Loss A/c 70,000 42,000 - To Balance c/d 6,00,000 3,60,000 2,40,000 By Bank - - 2,72,000 By R’s Capital A/c 20,000 12,000 - By P’s Current A/c 26,562 - - 6,00,000 4,28,062 2,72,000 6,00,000 4,28,062 2,72,000 Calculation of New Profit Sharing Ratio and gaining ratio: R’s Share of Profit = 1/5 = 2/10 Remaining Share = 1 - 1/5 = 4/5 P’s Share = 5/8 x 4/5 = 20/40 = 5/10 Q’s Share = 3/8 x 4/5 = 12/40 = 3/10 New Profit sharing Ratio = 5:3:2 Gaining ratio = 5:3 (same as old profit sharing ratio among old partners) Balance sheet of M/s Dutch and Associates as on 31.3.2024 Liabilities ₹ Assets ₹ Capital Accounts: Land & Buildings 3,80,000 Add: Appreciation 1,52,000 5,32,000 P 6,00,000 Plant & Machinery 1,70,000 Q 3,60,000 Less: Depreciation 25,500 R 2,40,000 12,00,000 1,44,500 Q’s Current A/c 68,062 Furniture 1,09,480 Trade Creditors 54,800 Stock 1,45,260 Outstanding Repairs to Building 6,000 Sundry Debtors 60,000 Less: Provision 3,000 57,000 Cash at Bank 3,14,060 P’s current A/c 26,562 13,28,862 13,28,862 Working Note: Required Balance of Capital Accounts R’s Capital after writing off Goodwill = 2,72,000 - 32,000 = 2,40,000 R’s Share of Profit = 1/5 Thus Capital of the firm shall be = 2,40,000 x 5 = 12,00,000 P’s Capital = 12,00,000 x 5/10 = 6,00,000 and Q’s Capital = 12,00,000 x 3/10 = 3,60,000

Topics: Admission of a New Partner

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