Question

A and B are partners in a firm sharing profits in the ratio of 2:1 ‘C’ is admitted into the firm with 1/4 share in Profits. He will bring in Rs. 30,000 as capital and capital of A and B are to be adjusted in the profit sharing ratio. The balance sheet of A and B as on 31/03/2017 (before c’s admission) was as under. Balance sheet of A and B as on 31/03/2017

The terms of agreement are as follows:

1. ‘C’ will bring in Rs. 12,000ashisshareofgoodwill. 

2. Building was valued at Rs. 45,000 and Machinery at Rs. 23,000 

3. A provision for bad debts is to be created @ 6% on debtors 

4. The capital accounts of A and B are to be adjusted by opening current accounts. 

Prepare necessary ledger accounts and new balance of the firm

Answer 1

Revaluation A/c

Capital A/c

Balance Sheet

Working Note: 

1. New Profit Sharing ratio C’s share of Profit = 1/4

Remaining share = 1 - \(\frac{1}{4} = \frac{3}{4}\)

A's new share = \(\frac{3}{4} \times \frac{2}{3} = \frac{6}{12}\)

B's new share  = \(\frac{3}{4} \times\frac{1}{3} = \frac{3}{12}\)

C's share = \(\frac{1}{4} i.e \frac{3}{12}\)

New ratio = 6 : 3 : 3 = 2 : 1 : 1

2. New capital of A and B on the basis of c’s capital Total capital of the new firm = 30,000 × \(\frac{4}{1}\) = 1,20,000 As new capital = 1,20,000 × \(\frac{2}{4}\) = 60,000 

The Existing capital of A = 63,680 Excess (A) = 3,680 B’s new capital = 1,20,000 × \(\frac{1}{4}\) = 30,000 

The existing capital of B = 38,840 Excess (B) – 8,840 

The current accounts can be opened and the amount to be withdrawn by A and B will be transferred to their respective current accounts.