60. (Adjustment of Capital on basis of New Partner’s Share) A, B and C trading in partnership and sharing profits and losses in the proportion of 1/2, 1/3 and 1/6 respectively desire to keep up a working partner when their Balance Sheet stood as follows:
Liabilities
Rs.
Assets
Rs.
Creditors
50,000
Cash in hand
8,000
Capital A/c
Debtors
2,52,000
A
5,70,000
Stock
2,90,000
B
3,20,000
Machinery
70,000
C
1,60,000
10,50,000
Land & Building
4,80,000
11,00,000
11,00,000
They agreed to admit D into partnership and give him a share of 10 paise in the following terms (a) That D should bring in Rs. 30,000 as goodwill and Rs. 1,28,000 as his capital. (b) That machinery is depreciated by 12%. (c) That stock is depreciated by 10%. (d) That a reserve of 5% be created for doubtful debts. (That the value of land and building be brought up to Rs. 6,00,000. (e) That after making the above adjustments the capital accounts (who continue to share in the same proportions as before) be adjusted on the of the old partners’ basis of the proportion of D’s capital to his share in the business, (i.e. actual cash to be paid off or to be brought in by old partners, as the case may be.) (g) Prepaid salaries is Rs. 20,000. Pass journal entries to give effect to the above and prepare the balance sheet of the firm as newly constituted. Show your work regarding the determination of the new profit sharing ratio of the partners.
The solution of Question 60 Chapter 5 of +2 Part-1: –
Revaluation account
Particulars
Amount
Particulars
Amount
To machinery
8,400
By Land & Building
1,20,000
To Stock
29,000
By Prepaid salaries
20,000
To provisional for doubtful debts
12,600
To Profit on revaluation transferred to Capital accounts
A
45,000
B
30,000
C
15,000
90,000
1,40,000
1,40,000
A’s capital account
Particulars
Amount
Particulars
Amount
To Bank Account
8,400
By Balance b/d
5,70,000
To Balance c/d
29,000
By Revaluation Account
45,000
By Premium Account
15,000
1,40,000
1,40,000
A’s capital account
Particulars
Amount
Particulars
Amount
To Bank Account
54,000
By Balance b/d
5,70,000
To Balance c/d
5,76,000
By Revaluation Account
45,000
By Premium Account
15,000
6,30,000
6,30,000
B’s capital account
Particulars
Amount
Particulars
Amount
To Balance c/d
3,84,000
By Balance b/d
3,20,000
By Revaluation Account
30,000
By Premium Account
6,000
By Bank Account
24,000
3,84,000
3,84,000
C’s capital account
Particulars
Amount
Particulars
Amount
To Balance c/d
1,92,000
By Balance b/d
1,60,000
By Revaluation Account
5,000
By Premium Account
15,000
By Bank Account
12,000
1,92,000
1,92,000
C’s capital account
Particulars
Amount
Particulars
Amount
To Balance c/d
1,28,000
By Bank Account
1,28,000
Balance Sheet
Liabilities
Amount
Assets
Amount
Creditors
50,000
Cash in hand
8,000
Capital Accounts
Debtors
2,52,000
A
5,76,000
Less reserve for doubtful debts
12,600
2,39,000
B
3,84,000
Cash at bank
1,40,000
C
1,92,000
12,50,000
Prepaid salaries
20,000
D
Stock
2,61,000
Machinery
61,000
Land & Building
6,00,000
13,00,000
13,00,000
WORKING NOTES :
1. Calculation of New profit sharing Ratio
D’s share
=
1
10
Balance profit
=
1
–
1
10
=
9
10
A‘s share
=
9
x
3
10
6
=
9
20
B‘s share
=
9
x
2
10
6
=
3
20
B‘s share
=
9
x
1
10
6
=
3
20
New profit sharing ratio = 9 : 6 : 3 : 2 2. The Total Capital on the basis of D’s Capital = Rs.1,28,000X 10 = Rs. 12,80,000 2. SACRIFICING RATIO
A’s capital
=
12,80,000
x
9
20
=
5,76,000
B’s capital
=
12,80,000
x
6
20
=
3,84,000
C’s capital
=
12,80,000
x
3
20
=
1,92,000
3. Calculation of cash at bank
C’s capital account
Particulars
Amount
Particulars
Amount
To D’s capital A/c
1,28,000
By A’s capital Account
54,000
To Premium Account
30,000
By Balance c/d
1,40,000
To B’s capital A/c
24,000
To C’s capital A/c
12,000
1,94,000
1,94,000
Comment if you have any questions.
Also, Check out the solved question of previous Chapters: –
