31. M and N are partners in a firm sharing profits and losses in the ratio of 5 : 3. On 31st March, 2018, their
Balance Sheet was:
BALANCE SHEET OF M AND N
Liabilities ` Assets `
Sundry Creditors 4,000 Stock 8,000
Bills Payable 2,000 Sundry Debtors 7,200
Capital A/cs: Cash at Bank 500
M 12,000 Cash in Hand 300
N 10,000 22,000 Machinery 12,000
28,000 28,000
On 1st April, 2018, the partners decide to admit R as a partner on the following terms:
(a) New profit-sharing ratio of M, N and R will be 7 : 5 : 4 respectively.
(b) R shall bring in ` 8,000 as his capital and ` 4,000 for his share of goodwill.
(c) M and N will draw half of the goodwill in cash.
(d) Machinery is to be valued at ` 15,000; Stock at ` 10,000 and a Provision for Doubtful Debts of
` 1,000 is to be created.
(e) There is a liability of ` 2,000, being the outstanding salary payable to employees of the firm. This
liability is not included in the creditors. Partners decide to show this liability in the books of account
of the new firm.
Prepare Revaluation Account, Partners’ Capital Accounts and Balance Sheet of M, N and R.
[Ans.: Revaluation Gain (Profit)—` 2,000; Partners’ Capital A/cs: M—` 14,750;
N—` 11,250; R—` 8,000; Balance Sheet Total—` 42,000.]
Answers
Answer:
(i) JOURNAL
1. Cash a/c... Dr. 160000
To C's Capital a/c 100000
To Premium for Goodwill a/c 60000
(Being capital and premium for goodwill brought in by C)
2. Premium for Goodwill a/c... Dr. 60000
To A's Capital a/c 40000
To B's Capital a/c 20000
(Being premium for goodwill distributed among the partners in the ratio of 2:1)
3. Revaluation a/c.... Dr. 8000
To Stock a/c 4000
To Provision for doubtful debts a/c 3000
To Creditors a/c 1000
(Being decrease in assets and increase in liabilities transferred to revaluation account)
4. Plant a/c.... Dr. 20000
Building a/c... Dr. 15000
To Revaluation a/c 35000
(Being increase in assets transferred to revaluation account)
5. Revaluation a/c... Dr. 27000
To A's Capital a/c 18000
To B's Capital a/c 9000
(Being profit on revaluation transferred to the partner's capital account)
(ii) REVALUATION A/C
Dr. Cr.
Particulars Amount
(in Rs.) Particulars Amount
(in Rs.)
To Stock a/c 4000 By Plant a/c 20000
To Provision for
doubtful debts a/c 3000 By Building a/c 15000
To Creditors a/c 1000
To Profit on Revaluation
- A's Capital a/c
- B's Capital a/c
18000
9000
TOTAL 35000 TOTAL 35000
(iii) PARTNER'S CAPITAL A/C
Dr. Cr.
Particulars A B C Particulars A B C
By Balance b/d 180000 150000
By Cash a/c 100000
By Premium for Goodwill a/c 40000 20000
To Balance c/d 238000 179000 100000 By Profit on revaluation a/c 18000 9000
TOTAL 238000 179000 100000 TOTAL 238000 179000 100000
(iv) BALANCE SHEET
(After admission of C)
Liabilities Amount
(in Rs.) Assets Amount
(in Rs.)
Bills Payable 10000 Cash in Hand (10000+160000) 170000
Creditors (58000+1000) 59000 Cash at Bank 40000
Outstanding Expenses 2000 Sundry Debtors (60000-3000) 57000
Capital
- A
- B
- C
238000
179000
100000 Stock (40000-4000) 36000
Plant (100000+20000) 120000
Building (150000+15000) 165000
TOTAL 588000 TOTAL 588000
Concept
Revaluation account is a nominal account which is prepared for the distribution and transfer of profits and losses arising due to increase and decrease in assets and liabilities.
To do
Make revaluation account, partners' capital account, balance sheet.
Explanation
Sacrificing ratio
M=5/8-7/16=3/16
N=3/8-5/16=1/16
sacrificing ratio=3:1
Goodwill brought in by R will be shared by M and N in this ratio.
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