Question

Raghu and Rishu are partners sharing profits in the ratio 3 : 2. Their Balance Sheet as at 31st March, 2009 was as follows:
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(h) Half of the amount of the goodwill is to be withdrawn by X and Y.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.
Rishabh was admitted on that date for 1/4th share of profit on the following terms:
(a) Rishabh will bring ₹ 50,000 as his share of capital.
(b) Goodwill of the firm is valued at ₹ 42,000 and Rishabh will bring his share of goodwill in cash.
(c) Buildings were appreciated by 20%.
(d) All Debtors were good.
(e) There was a liability of ₹ 10,800 included in Creditors which was not likely to arise.
(f) New profit-sharing ratio will be 2 : 1 : 1.
(g) Capital of Raghu and Rishu will be adjusted on the basis of Rishabh’s share of capital and any excess or deficiency will be made by withdrawing or bringing in cash by the concerned partners as the case may be.
Prepare Revaluation Account, Partners Capital Accounts and Balance Sheet of the new firm.

Answer 1

The Revaluation Account, Partners Capital Accounts and Balance Sheet of the new firm are prepared below:

Explanation:

Calculation of sacrificing Ratio

Old Ratio (Raghu's and Rishi's) $=3: 2$

New Ratio (Raghu's, Rishi's and Rishabh's) $=2: 1: 1$

Sacrificing Ratio = Old Ratio - New Ratio

Raghu's Share

$=\frac{3}{5}-\frac{2}{4}=\frac{12}{20}-\frac{10}{20}=\frac{2}{20}$

Rishi's Share

$=\frac{2}{5}-\frac{1}{4}=\frac{8}{20}-\frac{5}{20}=\frac{3}{20}$

Sacrificing Ratio (Raghu's and Rishi's) $=2: 3$

Rishabh's Share of Goodwill

Value of firm's Goodwill $=42,000$

Rishabh's Goodwill

$=42,000 \times \frac{1}{4}=10,500$

Adjustment of Capital

Total Capital of New Firm = Rishabh's Capital $\times$ Reciprocal of Rishabh's Share capital of Rishabh $=50,000$

Total Capital of New Firm

$=50,000 \times \frac{4}{1}=2,00,000$

Raghu's New Share Capital

$=2,00,000 \times \frac{2}{4}=1,00,000$

Rishu's New share Capital

$=2,00,000 \times \frac{1}{4}=50,000$