P and Q are partners, sharing profits and losses in the ratio of 3:1. As at 31st March, 2024, following is the Balance Sheet of P and Q. Balance…
CA Foundation · Accounting · RTP · September 2024
P and Q are partners, sharing profits and losses in the ratio of 3:1. As at 31st March, 2024, following is the Balance Sheet of P and Q. Balance Sheet as at 31 st March, 2024 Liabilities (₹) Assets (₹) Capital accounts Cash in hand 1,15,000 P 2,85,000 Cash at bank 1,10,000 Q 1,55,000 4,40,000 Sundry Debtors 1,60,000 Creditors 3,75,000 Stock 2,00,000 General reserve 60,000 Bills receivable 30,000 Land and building 2,50,000 Office furniture 10,000 Total 8,75,000 Total 8,75,000 They agreed to take R into Partnership on 1 st April, 2024 on the following terms: (i) Goodwill is to be valued at 2,00,000. R is unable to bring cash for his share of goodwill. So, it was decided that due credit for goodwill be given to P and Q for their sacrifice in favour of R through R’s current account. (ii) R pays - 1,40,000 as his capital for 1/5th share in the future profits. (iii) Stock and Furniture to be reduced by 10%. (iv) A provision @5% for doubtful debts to be created on debtors. (v) Land and building to be appreciated by 20%. (vi) Capital Accounts of the partners be readjusted on the basis of their profit sharing arrangement and any excess or deficiency is to be transferred to their Current Accounts. Prepare Revaluation Account and Partners Capital Accounts.
Suggested Answer and Working Notes:
Revaluation Account Particulars Amount ₹ Particulars Amount ₹ To Furniture 1,000 By Land and Building 50,000 To Stock 20,000 To Provision for doubtful debts 8,000 To Revaluation Profit P (₹ 21,000 x 3/4) 15,750 Q (₹ 21,000 x 1/4) 5,250 21,000 50,000 50,000 Partners’ Capital Accounts P ₹ Q ₹ R ₹ P ₹ Q ₹ R ₹ To ‘Q’s Current A/c (bal fig) - 45,250 - By Balance b/d 2,85,000 1,55,000 – To Balance c/d 4,20,000 1,40,000 1,40,000 By General reserve 45,000 15,000 - By Revaluation Profit 15,750 5,250 By Bank A/c - - 1,40,000 By R’s Current A/c (Goodwill) 30,000 10,000 - By P’s Current A/c (bal fig) 44,250 - - 4,20,000 1,85,250 1,40,000 4,20,000 1,85,250 1,40,000 Working Notes: 1. Calculation of total capital R’s capital contribution of 1,40,000 consists of1/5th of capital. Therefore, total capital of firm should be - 1,40,000 x 5 = 7,00,000 Hence,5,60,000 (₹ 7,00,000 -1,40,000) will be shared by P and Q in the ratio of3:1 i.e., P’s capital - 4,20,000 and Q’s capital - 1,40,000 2. Calculation of New Profit Sharing ratio P = 3/4 x 4/5 = 12/20 = 3/5 Q = 1/4 X 4/5 = 4/20 = 1/5 R = 1/5= 4/20 = 1/5 or - 3 :1 :1 OR Calculation of sacrificing ratio Partners New share Old share Sacrifice Gain P - Q - R - - 3. Goodwill R’s share in Goodwill = 40,000 (₹ 2,00,000x 1/5) is adjusted through R’s Current Account because capitals of old partners are also adjusted on the basis of R’s Capital. Therefore, Journal entry for goodwill will be Dr. Cr. R’s Current A/c Dr. 40,000 To P’s Capital A/c 30,000 To Q’s Capital A/c 10,000
Topics: Admission of a New Partner
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