Anu and Manu are carrying on business in partnership and sharing profits & losses in the ratio of 5:3. The firm’s Balance Sheet as on 31 st…

CA Foundation · Accounting · PYQS · June 2024
Anu and Manu are carrying on business in partnership and sharing profits & losses in the ratio of 5:3. The firm’s Balance Sheet as on 31 st March, 2024 was as follows: Balance Sheet as on 31 st March, 2024 Liabilities Amount (₹) Assets Amount (₹) Capital Accounts: Building 3,80,000 Anu 2,80,000 Machinery 1,43,000 Manu 2,50,000 Furniture 85,000 Long Term Loan 2,00,000 Trade Receivables 1,64,000 Trade Payables 1,19,500 Inventories 48,400 Outstanding liabilities 16,200 Investments 15,200 Cash & Bank 30,100 8,65,700 8,65,700 They decided to admit Ranu as a partner with effect from 1 st April, 2024 on the following terms: (i) Ranu will be paid - 1/5 share in the future profits and new profit sharing ratio would be5:3:2. (ii) Ranu will bring - 1,00,000 as his capital. (iii) Goodwill of firms is to be valued at 2 years’ purchase of average profit of past 3 years and Ranu will bring his share of goodwill in cash. The profits of past 3 years ending on 31 st March were as under: 31 st March, 202287,000 31 st March, 20231,06,000 31 st March, 20241,22,000 (iv) It was also agreed that the partners will not withdraw their share of goodwill nor will the goodwill appear in the books of account. (v) It was also decided to value the assets: Building is to be appreciated by - 50,000 and Machinery is to be depreciated by 10%. Furniture is revalued at 80,000. Investments at 16,000 and Inventories at 47,500.Provision for doubtful debts is to be created on debtors @5%. You are required to prepare Revaluation Account, Partners’ Capital Accounts and Balance Sheet of the reconstituted firm as on 1 st April, 2024.

Suggested Answer and Working Notes:

Revaluation Account ₹ ₹ ₹ ₹ To Machinery A/c 14,300 By Building A/c 50,000 To Furniture A/c 5,000 By Investments 800 To Provision for Doubtful Debts 8,200 To Inventories 900 To Partner’s capital A/c: (Profit on revaluation) Anu (5/8) 14,000 Manu (3/8) 8,400 22,400 50,800 50,800 Partner’s Capital Accounts ₹ Anu (₹) Manu (₹) Ranu (₹) ₹ Anu (₹) Manu (₹) Ranu (₹) To Bal c/d. 3,20,250 2,74,150 1,00,000 By Bal. b/d 2,80,000 2,50,000 By Profit on revaluation 14,000 8,400 By Bank (Capital) - - 1,00,000 By Bank (Goodwill) 26,250 15,750 - 3,20,250 2,74,150 1,00,000 3,20,250 2,74,150 1,00,000 Balance Sheet (after admission of Ranu) as on 1 st April, 2024 Liabilities ₹ ₹ Assets ₹ Capital accounts: Building 4,30,000 Anu 3,20,250 Machinery 1,28,700 Manu 2,74,150 Furniture 80,000 Ranu 1,00,000 6,94,400 Trade Receivable 1,55,800 Long term loan 2,00,000 Inventories 47,500 Trade Payable 1,19,500 Investments 16,000 Outstanding liabilities 16,200 Cash and Bank 1,72,100 10,30,100 10,30,100 Working Notes: 1. Calculation of Goodwill: Average profit = (₹ 87,000+1,06,000+1,22,000) /3 = 1,05,000 Two years’ purchase of average profits= 1,05,000 x 2= 2,10,000 Goodwill to be brought in by Ranu= 2,10,000 x 2/10= 42,000 2. Calculation of Sacrificing Ratio = Old - New Ratio Anu = 5/8 -5/10 = 5/40 Manu = 3/8 -3/10 = 3/40 Goodwill brought in by Ranu shared (at the profit sacrificing ratio) by: Anu (₹ 42,000 x 5/8) ₹ 26,250 Manu (₹ 42,000 x 3/8) ₹ 15,750 42,000 3. Bank balance after admission of Ranu: Bank Account ₹ ₹ ₹ ₹ To bal b/d 30,100 By Balance c/d 1,72,100 To Anu’s Capital A/c 26,250 To Manu’s Capital A/c 15,750 To Ranu’s capital A/c 1,00,000 1,72,100 1,72,100 Alternatively, goodwill can also be calculated on the basis of weighted average profit, since the profit of the firm is on increasing trend.

Topics: Admission of a New Partner

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