Ownclasses

On 31-3-2010 the Balance Sheet of W and R who shared profits in 3:2 ratio was as follows:

Liabilities

Amount( Rs)

Assets

Amount ( Rs)

Creditors

Profit and Loss Account

Capital account    W 40,000

                           R  30,000 

 

20,000

15,000

 

70,000

Cash

Sundry Debtors          20,000                Less:Provision      700                

                   

Stock                 

Plant and Machinery

Patent

5,000

 


19,300


25,000

35,000

20,700

 

1,05,000

 

1,05,000

On this date B was admitted as a partner on the following conditions:
(a) 'B' will get 4/15th share of profits.
(b) 'B' had to bring Rs. 30,000 as his capital to which amount other Partners capitals shall have to be adjusted.
(c) He would pay cash for his share of goodwill which would be based on 2½ years purchase of average profits of past 4 years.
(d) The assets would be revalued as under:
Sundry debtors at book value less 5% provision for bad debts. Stock at Rs. 20,000, Plant and Machinery at Rs. 40,000.
(e) The profits of the firm for the years 2007, 2008 and 2009 were Rs. 20,000; Rs. 14,000 and Rs. 17,000 respectively.
Prepare Revaluation Account, Partner's Capital Accounts and the Balance Sheet of the new firm.

 

Answer

 

Revaluation Account

Particulars

Rs

Particulars

Rs

To

Provision for bad debts a/c

To Stock a/c

 

300

5000

By

Plant and machinery a/c

By loss transferred to

W’s capital a/c   180

R’s capital a/c    120

 

5000

 

 

300

5300

5300

 

 

 

 

Partner’s Capital a/c

Particulars

W Rs

R Rs

B Rs

Particulars

W Rs

R Rs

B Rs

To Revaluation A/c

 

 To Cash (Bal Figure)

 

 To Balance c/d

 

180

 

 

5920

 

 

49500

 

120

 

 

7280

 

 

33000

 

 

 

 

 

 

 

30000

By

Balance

b/d

 

By Profit & Loss A/c

 

By Cash A/c

 

By Premium for goodwill A/c

 

40000

 

 

9000

 

 

 

 

6600

 

30000

 

 

6000

 

 

 

 

4400

 

 

 

 

 

 

 

30000

 

55600

40400

30000

 

55600

40400

30000

 

 

Balance Sheet of W, R & B as on 31st  Mar 2010

Liabilities

Rs

Assets

Rs

Creditors

 

Capital Accounts

 W                         49500

 R                          33000

 B                          30000

20000

 

 

 

 

112500

 

Cash

 

Sundry Debtors            20000

 

Less Provision for

Bad Debts                      1000

 

Stock

 

Plant & Machinery

 

Patents

 

32800

 

 

 

 

19000

 

20000

 

40000

 

20700

 

132500

 

132500

 

Working Note:

1. Average Profit = Total profit / No. of Years = Rs.66,000 / 4 = 16,500.
2. Calculation of Good Will = Average Profit x No. Of Year of Purchase = 16500 x 2 ½ = Rs. 41,250.
3. B’s Share in Goodwill = 41250 x 4 /15 = Rs. 11,000
4. New Profit Share is calculated as under:
                   Let Total Profit = 1
                   B’ share = 4 / 15th  share
                   Remaining Profit = 1 – 4/15 = 11 / 15
                   W’s Share = 11 / 15 x 3 / 5 = 33 / 75
                   R’s Share = 11 / 15 x 2 / 5 = 22 / 75

New Ratio of W :R :B = 33/75  :  22/75  : 4/15 or 33:22:20
5. Adjustment of Capital
For 4 / 15 share, B Brought Capital  = Rs. 30,000
Therefore Total Capital of the firm = Rs. 30,000 x 15 / 4 = 1,12,500
W’s Capital = 1,12,500 x 33 / 75 = Rs. 49,500
R’s Capital = 1,12,500 x 22 / 75 = Rs. 33,000
B’s Capital = 1,12,500 x 20 / 75 = Rs. 30,000