Question

The Balance Sheet of X, Y and Z who share profits and losses in the ratio of 3 : 2 : 1, as o 1st April, 2018 is as follows:
On the above date, W is admitted as a partner on the following terms:
(a) W will bring ₹ 50,000 as his capital and get 1/6th share in the profits.
(b) He will bring necessary amount for his share of goodwill premium. Goodwill of the firm is valued at ₹ 90,000.
(c) New profit-sharing ratio will be 2 : 2 : 1 : 1.
(d) A liability of ₹ 7,004 will be created against bills receivable discounted earlier but now dishonored.
(e) The value of stock, furniture and investments is reduced by 20%, whereas the value of Land and Building and Plant and Machinery will be appreciated by 20% and 10% respectively.
(f) Capital Accounts of the partners will be adjusted on the basis of W’s Capital through their Current Accounts.
Prepare Revaluation Account, Partners Current Accounts and Capitals Accounts.

Answer 1

The Revaluation Account, Partners Current Accounts and Capitals Accounts are prepared below:

Explanation:

Given,

The Balance Sheet of X, Y and Z who share profits and losses in the ratio of 3 : 2 : 1

Sacrificing Ratio:

Old Ratio $(X, Y \text { and } Z)=3: 2: 1$

New Ratio $(\mathrm{X}, \mathrm{Y}, \mathrm{Z}, \text { and } \mathrm{W})=2: 2: 1: 1$

Sacrificing Ratio = Old Ratio - New Ratio

$X^{\prime} s=\frac{3}{6}-\frac{2}{6}=\frac{1}{6}(\text { Sacrificing })$

$Y's=\frac{2}{6}-\frac{2}{6}=0$

$Z^{\prime} s=\frac{1}{6}-\frac{1}{6}=0$

Distribution of Goodwill

W's share of Goodwill

$=90,000 \times \frac{1}{6}=15,000$

X's will get $=15,000$

Adjustment of Capital

Total Capital of the firm = W's Capital $\times$ Reciprocal of his share

$=50,000 \times \frac{6}{1}=3,00,000$

New profit sharing Ratio

$(\mathrm{X}, \mathrm{Y}, \mathrm{Z} \text { and } \mathrm{W})=2: 2: 1: 1$

$\mathrm{X}^{\prime} \mathrm{s}=3,00,000 \times \frac{2}{6}=1,00,000$

$Y's=3,00,000 \times \frac{2}{6}=1,00,000$

$Z^{\prime} s=3,00,000 \times \frac{1}{6}=50,000$

$\mathrm{W's}=3,00,000 \times \frac{1}{6}=50,000$