A, B and C are partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. Their Balance Sheet as at 31st March, 2018 is:
Z is admitted as a new partner on 1st April, 2018 on the following terms:
(a) Provision for doubtful debts is to be maintained at 5% on Debtors.
(b) Outstanding rent amounted to ₹ 15,000.
(c) An accrued income of ₹ 4,500 does not appear in the books of the firm. It is now to be recorded.
(d) X takes over the Investments at an agreed value of ₹ 18,000.
(e) New Profit-sharing Ratio of partners will be 4 : 3 : 2.
(f) Z will bring in ₹ 60,000 as his capital by cheque.
(g) Z is to pay an amount equal to his share in firm’s goodwill valued at twice the average profits of the last three years which were ₹ 90,000 ; ₹ 78,000 and ₹ 75,000 respectively.
(h) Half of the amount of the goodwill is to be withdrawn by X and Y.
You are required to pass journal entries, prepare Revaluation Account, Partners Capital and Current Accounts and the Balance Sheet of the new firm.
B retires on 1st April, 2018 on the following terms:
(a) Provision for Doubtful Debts be raised by ₹ 1,000.
(b) Stock to be depreciated by 10% and Furniture by 5%.
(c) Their is an outstanding claim of damages of ₹ 1,100 and it is to be provided for.
(d) Creditors will be written back by ₹ 6,000.
(e) Goodwill of the firm is valued at ₹ 22,000.
(f) Bills paid in full with the cash brought in by A and C in such a manner that their capitals are in proportion to their profit-sharing ratio and Cash in Hand remains at ₹ 10,000.
Prepare Revaluation Account, Partners Capital Accounts and the Balance Sheet of A and C.
Answers
This share of goodwill is to be distributed between A and C in their gaining ratio (i.e. 3 : 1).
Explanation:
Calculation of Profit Sharing Ratio
Old Ratio (A, B and C) = 3 : 2 : 1
B retires from the firm.
∴ New Ratio (A and C) = 3 : 1 and
Gaining Ratio = 3 : 1
Adjustment of Goodwill
Goodwill of the firm = Rs 22,000
B’s Share of Goodwill =
This share of goodwill is to be distributed between A and C in their gaining ratio (i.e. 3 : 1).
A's Share = 7,333× =Rs.5,500
C's Share = 7,333× =Rs.1,833
Adjustment of Partners’ Capital after B’s Retirement
Amount to be brought in by A and C
= Cash to be paid to B + Minimum Balance of Cash − Existing Balance of cash = 48,200 + 10,000 − 18,000 = Rs 40,200
Combined Capital of A and C after of all adjustments = 35,800 + 28,600 = Rs 64,400
∴ Total Capital of the Firm = Amount to be brought in by A and C + Combined Capital of A and C = 40,200 + 64,400 = 1,04,600
A's New capital = 1,04,600× =Rs.78,450
C's New capital = 1,04,600× =Rs.26,150
