Question

The balance sheet of Medha and Radha who share profit and loss in the ratio 3 : 1 is as follows:

Balance Sheet as of 31st March 2018

They decided to admit Krutika on 1st April 2018 on the following terms:

1. Krutika is taken as a partner on 1st April 2017. She will pay 40,000 as her capital for 1/5th share in future profits and ₹ 2,500 as goodwill.

2. 5% provision for bad and doubtful debt be created on debtors.

3. Furniture be depreciated by 20%.

4. Stocks be appreciated by 5% and plant & machinery by 20 %.

5. The Capital accounts of all partners be adjusted in their new profit sharing ratio by adjusting the amount through a loan.

6. The new profit sharing ratio will be 3/5 : 1/5 : 1/5 respectively.

You are required to prepare Profit and LossAdjustment A/c, Partners’ Capital A/c, Balance Sheet of the new firm.

Answer 1

Balance Sheet as of 1st April 2018

Working Notes:

1. Total capital of the firm = (Reciprocal of New Partner’s Profit Sharing ratio) × (Capital contributed by new partner)

= (Reciprocal of \(\frac{1}{5}\)) × 40,000

= 5 × 40,000

= ₹ 2,00,000

Medha’s closing capital, balance = \(\frac{3}{5}\) × 2,00,000 = ₹ 1,20,000

Radha’s closing capital balance = \(\frac{1}{5}\) × 2,00,000 = ₹ 40,000

2. General reserve is distributed among old partners in their old profit and loss ratio.

3. Cash Balance = 78,000 + 40,000 + 2,500 = ₹ 1,20,500 [Amount brought in by new partner.]