P and Q have been carrying on the business in the name of Bharat Springs in partnership sharing profit and losses in the ratio of 2:3. Their Balance…

CA Foundation · Accounting · PYQS · September 2025
P and Q have been carrying on the business in the name of Bharat Springs in partnership sharing profit and losses in the ratio of 2:3. Their Balance Sheet as on 31 st March, 2024 has been as follows: Liabilities (₹) Assets (₹) Capital Accounts: Building 85,000 P 80,000 Plant 55,000 Q 1,60,000 Furniture 26,700 General Reserve 50,000 Debtors 48,000 Creditors 57,800 Bills Receivable 11,600 Bills Payable 16,500 Stock 54,800 Bank 83,200 3,64,300 3,64,300 On 1 st April, 2024, they have decided to admit R into the partnership giving him a - 1/5 th share in future profits on the following terms: (i) R will bring - 80,000 as his share of capital but is unable to bring in cash for his share of goodwill. It was decided to calculate goodwill of the firm based on R's share in the profits and the capital contribution made by him to the firm. (ii) Partners will not withdraw their share of goodwill nor will the goodwill appear in the books of account. (iii) General Reserve will be transferred to the Partners' Capital Accounts. (iv) Provision for doubtful debts is to be made on debtors @2%. (v) A liability of creditors of 1,440 is to be written back as no longer payable. (vi) Stock shall be written down by 10%. (vii) Building is to be revalued at 1,00,000/-, Plant at 60,000/- and Furniture at 24,000/-. (viii) Partners agreed that the values of the assets and liabilities will remain the same and, as such, there should not be any change in their book value because of above-mentioned adjustments. They also agreed that for the purpose of goodwill computation, any effect of revaluation shall be ignored. You are required to make : (1) Memorandum Revaluation Account (2) Capital Accounts of the partners (3) Balance Sheet of the New Firm

Suggested Answer and Working Notes:

Memorandum Revaluation Account Particulars ₹ Particulars ₹ To Provision for Bad Debts A/c 960 By Liability of Creditors A/c 1,440 To Stock A/c 5,480 By Building A/c 15,000 To Furniture A/c 2,700 By Plant A/c 5,000 To Profit on Revaluation A/c P’s Capital -2/5 4,920 Q’s Capital -3/5 7,380 12,300 21,440 21,440 To Liability of Creditors A/c 1,440 By Provision for Bad Debts A/c 960 To Building A/c 15,000 By Stock A/c 5,480 To Plant A/c 5,000 By Furniture A/c 2,700 By Loss on Revaluation A/c P’s Capital -8/25 3,936 Q’s Capital -12/25 5,904 R’s Capital -5/25 2,460 12,300 21,440 21,440 Partners’ Capital Accounts Particulars P (₹) Q (₹) R (₹) Particulars P (₹) Q (₹) R (₹) To P’s Capital A/c (see WN) 2,400 By Balance b/d 80,000 1,60,000 - To Q’s Capital A/c 3,600 By Bank A/c 80,000 To Memorandum revaluation A/c 3,936 5,904 2,460 By General Reserve 20,000 30,000 To Balance c/d 1,03,384 1,95,076 71,540 By R’s Capital A/c (see WN) 2,400 3,600 - By Memorandum revaluation A/c 4,920 7,380 - 1,07,320 2,00,980 80,000 1,07,320 2,00,980 80,000 Balance Sheet of Bharat Springs as at April, 1,2025 Liabilities ₹ Assets ₹ Capital A/c: Building 85,000 P 1,03,384 Plant 55,000 Q 1,95,076 Furniture 26,700 R 71,540 Debtors 48,000 3,70,000 Bills Receivable 11,600 Bills Payable 16,500 Stock 54,800 Creditors 57,800 Bank (₹ 83,200+80,000) 1,63,200 4,44,300 4,44,300 Working Notes: 1. Calculation of New Profit-Sharing Ratio R’s Share = 1/5 P’s Share= 4/5* 2/5= 8/25 Q’s Share= 4/5 * 3/5 = 12/25 R’s New Share = 5/25 New Profit Sharing Ratio between P:Q:R = 8:12:5 2. Calculation of goodwill: R’s contribution of 80,000 consists of only - 1/5th of capital. Therefore, total capital of firm should be - 80,000 x 5 = 4,00,000 But combined capital of P, Q and R amounts including general reserve - 80,000 +1,60,000 +80,000+50,000 = 3,70,000 Thus, the hidden goodwill of the firm is 30,000 (₹ 4,00,000 -3,70,000). R's share - 1/5th = 6,000 3. Goodwill will be shared by P & Q in their sacrificing ratio2:3

Topics: Admission of a New Partner

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