Question

A and B are partners in a firm sharing profits and losses in the ratio 3 : 1. They admit C for 1/4th share on 31st March, 2014 when their Balance Sheet was as follows:
The following adjustments were agreed upon:
(a) C brings ₹ 16,000 as goodwill and proportionate capital.
(b) Bad Debts amounted to ₹ 3,000.
(c) Market value of Investments is ₹ 4,500.
(d) Liability on account of workmen compensation reserve amounted to ₹ 2,000.
Prepare Revaluation Account and Partners Capital Accounts.

Answer 1

Explanation:

Working Notes:

Working Notes 1:

Calculation of C's Capital

C's Capital = Total Adjusted Capital of A and B × Reciprocal of Combined Profit Share × C's Profit Share

A's Adjusted Capital  

$=54,000+12,000+3,000+1,200-750-30,000=\mathrm{Rs} 39,450$

B's Adjusted Capital

$=35,000+4,000+1,000+400-250-10,000=\mathrm{Rs} 30,150$

C's Capital

$=(39,450+30,150) \times \frac{4}{3} \times \frac{1}{4}=\text { Rs } 23,200$

Notes:

1. Premium for Goodwill $\text { Rs } 16,000$ will be distributed between A and B in Sacrificing Ratio i.e. $3: 1$
2. Excess WCF of $Rs 4,000$ will be shared in old ratio among old partners.
3. Excess IFF of $\mathrm{Rs} 1,600$ will be shared in old ratio among old partners.