Page No 5.110:

Question 96:

A and B are partners sharing profits in the ratio of 3 : 2. They admit C as a new partner from 1st April, 2019. They have decided to share future profits in the ratio of 4 : 3 : 3. The Balance Sheet as at 31st March, 2019 is given below:


Liabilities		`	Assets		`
A's Capital	1,76,000		Goodwill		34,000
B's Capital	2,54,000	4,30,000	Land and Building		60,000
Workmen Compensation Reserve		20,000	Investment (Market value ` 45,000)			50,000
Investments Fluctuation Reserve		10,000	Debtors	1,00,000
Employee's Provident Fund		34,000	Less: Provision for Doubtful Debts	10,000	90,000
C's Loan		3,00,000	Stock		3,00,000
			Bank Balance		2,50,000
			Advertising Suspense A/c		10,000



		7,94,000			7,94,000

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:
2017 −   ` 4,80,000; 2018 − ‹ ` 9,30,000; 2019 −   ` 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 overvalued 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:

Revaluation Account
Dr.					Cr.
Particulars		Amount `	Particulars	Amount `

Stock		31,000	Land & Building	1,00,000
Profit transferred to:			Provision for Doubtful Debts	5,000
A’s Capital A/c	44,400
B’s Capital A/c	29,600	74,000

		1,05,000		1,05,000

Partners’ Capital Accounts
Dr.																Cr.
Particulars		A		B		C		Particulars		A			B		C
Goodwill		20,400		13,600				Balance b/d		1,76,000			2,54,000
Advertisement Suspense A/c		6,000		4,000				Bank A/c							3,06,000
Balance c/d		3,62,400		3,51,600		3,06,000		Premium for Goodwill A/c		96,000			48,000
								C’s Current A/c		64,000			32,000
								Revaluation A/c		44,400			29,600
								IFR		3,000			2,000
								WCR		5,400			3,600

		3,88,800		3,69,200		3,06,000				3,88,800			3,69,200		3,06,000


	Bank Account
	Dr.													Cr.
	Particulars						Amount `		Particulars			Amount `
	Balance b/d						2,50,000		Balance c/d			7,00,000
	C’s Capital						3,06,000
	Premium for Goodwill						1,44,000
							7,00,000					7,00,000


	Balance Sheet as on 1^st April, 2019 after C’s admission
	Liabilities				Amount `				Assets				Amount `
	Workmen Compensation Reserve				11,000				Land & Building				1,60,000
	Employees Provident Fund				34,000				Bank A/c				7,00,000
	C ‘s Loan				3,00,000				Investment				45,000
	Capital								Stock				2,69,000
	A		3,62,400						C ‘s Current A/c				96,000
	B		3,51,600						Debtors		1,00,000
	C		3,06,000		10,20,000				Less : Provision for Doubtful Debts		5,000		95,000

					13,65,000								13,65,000

Working Notes:

WN1: Calculation of Sacrifice or Gain

A :B=3:2 (Old Ratio)

A :B :C=4:3 :3 (New Ratio)S

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

A's share=35−410=6−410=210

B's share=25−310=4−310=110

A:B=2:1

WN:2 Calculation of Goodwill

Goodwill=Super Profit×No. of Years' Purchase

=4,00,000×2= ` 8,00,000

C's share of Goodwill=8,00,000×310= ` 2,40,000

Goodwill brought in cash = 2,40,000×60100= ` 1,44,000

Average Profit=Total Profits of past years givenNumber of Years =27,90,000/3= ` 9,30,000

Normal Profit=Capital Employed×Normal Rate of Return/100

= ` 5,30,000

Super Profit = Average Profit-Normal Profit

=9,30,000-5,30,000= ` 4,00,000

WN:3 Calculation of C’s Capital
Combined Capital A and B's Capital for 7/10th=3,62,400 + 3,51,600 = ` 7,14,000

So, C's Capital = 7,14,000×107×310= ` 3,06,000

Page No 5.110:

Question 97:

Answer:

	Revaluation Account
	Dr.
	Particulars						Amount `		Particulars					Amount `

	To Worker compensation liabilities						12,500		By Bad debts Recovered					5,000
	To Stock (82,500×10/110)						7,500		By Machinery					5,000
									By Loss transferred to-
									Ram=10,000×3/5=6,000
									Shyam=10,000×2/5=4,000 (In old Ratio: 3:2)					10,000
							20,000							20,000


Partners’ Capital Accounts
Dr.																Cr.
Particulars		Ram		Shyam		Mahesh		Particulars			Ram		Shyam		Mahesh
To Revaluation A/c		6,000		4,000				By Balance b/d			1,50,000		1,00,000
To Balance c/d		1,59,000		1,31,000				By Premium A/c					25,000
								By General Reserve			15,000		10,000
		1,65,000		1,35,000							1,65,000		1,35,000
To Balance c/d		1,59,000		1,31,000		58,000		Balance b/d			1,59,000		1,31,000
								Bank a/c							58,000
		1,59,000		1,31,000		58,000					1,59,000		1,31,000		58,000
	Balance Sheet as on 1^st April, 2019
	Liabilities				Amount `		Assets					Amount `
	Workmen Compensation Reserve				12,500		Bank A/c					1,13,000
	Employees Provident Fund				5,500		(25,000+25,000+58,000+5,000)
	Creditors				70,000		machinery					1,47,500
	Capital						Stock					75,000
	Ram		1,59,000
	Shyam		1,31,000				Debtors			1,62,500
	Mahesh		58,000		3,48,000		Less : Provision for Doubtful Debts			12,500		1,50,000

					4,85,500							4,85,500