Question

A and B are partners sharing profits in the ratio of 3 : 2. They admit C as a new partner from 1st April, 2018. They have decided to share future profits in the ratio of 4 : 3 : 3. The Balance Sheet as at 31st March, 2018 is given below:
Terms of C’s admission are as follows:
(i) C contributes proportionate capital and 60% of his share of goodwill in cash.
(ii) Goodwill is to be valued at 2 years purchase of super profit of last three completed years. Profits for the years ended 31st March were: 2016 – ₹ 4,80,000; 2017 – ₹ 9,30,000; 2018 – ​₹ 13,80,000. The normal profit is ​₹ 5, 30,000 with same amount of capital invested in similar industry.
(iii) Land and Building was found undervalued by ​₹ 1,00,000.
(iv) Stock was found undervalued by ​₹ 31,000.
(v) Provision for Doubtful Debts is to be made equal to 5% of the debtors.
(vi) Claim on account of Workmen Compensation is ​₹ 11,000. Prepare Revaluation Account, Partners Capital Accounts and Balance Sheet.

Answer 1

Answer:

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Answer 2

Explanation:

Working Notes :

Working Notes 1:

Calculation of Sacrifice or Gain

$A: B=3: 2$ (Old Ratio)

$\mathrm{A}: \mathrm{B}: \mathrm{C}=4: 3: 3$ (New Ratio)

Sacrificing (or Gaining) Ratio = Old Ratio - New Ratio

A's Share  $=\frac{3}{5}-\frac{4}{10}=\frac{6-4}{10}=\frac{2}{10}$

B's Share $=\frac{2}{5}-\frac{3}{10}=\frac{4-3}{10}=\frac{1}{10}$

$\mathrm{A}: \mathrm{B}=2: 1$

Working Notes 2:

Calculation of Goodwill

$Goodwill = Super Profit \times No. of Years' Purchase$

$=4,00,000 \times 2=\mathrm{Rs} 8,00,000$

C's share of Goodwill $=8,00,000 \times \frac{3}{10}$ $=\mathbf{R} \mathbf{s} 2,40,000$

Goodwill brought in Cash $=2,40,000 \times \frac{60}{100}$ $=\mathbf{R} \mathbf{s} 1,44,000$

$Average Profit =$ $\frac{\text { Total Profits of past years given }}{\text { Number of Years }}$

$=\frac{27,90,000}{3}$

$=\mathrm{Rs} 9,30,000$

$Normal Profit = Capital Employed \times \frac{\text { Normal Rate of Return }}{100}$

$=\mathbf{R s} 5,30,000$

$Super Profit = Average Profit - Normal Profit$

$=9,30,000-5,30,000$

$=\mathbf{R} \mathbf{s} 4,00,000$

Working Notes 3:

Calculation of C's Capital

Combined Capital A's and B's Capital for $\frac{7}{10} \mathrm{th}=3,62,400+3,51,600=\mathrm{Rs} 7,14,000$

So, C's Capital $=7,14,000 \times \frac{10}{7} \times \frac{3}{10}$

$=\mathbf{R s} 3,06,000$