Q.4

A and B were in partnership sharing profits and losses in the ratio of 3:1. On 1st April 2022, they admit C as a partner on the following terms:

(a) C brings ₹1,00,000 as his capital and ₹50,000 for goodwill, half of which is to be withdrawn by A and B.
(b) The value of land and buildings to be appreciated by 15%, and the value of stocks and machinery & fixtures to be reduced by 7% and 5% respectively.
(c) Provision for doubtful debts to be made at 5%.
(d) ₹15,000 to be provided for an unforeseen liability.
(e) C to be given 1/5th share, and the profit-sharing ratio between A and B to remain the same.
(f) ₹11,000 is to be received as commission and accounted for.

The Balance Sheet of the old partnership as of 31st March 2022 stood as follows:

| Liabilities | ₹ | Assets | ₹ |
|-------------------|---------|----------------------|---------|
| Sundry Creditors | 3,50,000| Cash in Hand | 40,000 |
| Capital Accounts: | | Book Debts | 2,00,000|
| A | 4,00,000| Stock | 1,80,000|
| B | 2,00,000| Machinery & Fixtures | 2,00,000|
| | | Land & Building | 3,30,000|
| Total | 9,50,000| Total | 9,50,000|

Give necessary Journal entries, ledger accounts, and the balance sheet of the newly constituted firm.



Answer :

Certainly! Here is the detailed solution to the question based on the given numerical values.

### Adjustments to the Balance Sheet

#### 1. Admitting C as a Partner
- C's Capital Contribution: ₹ 1,00,000
- C's Goodwill Contribution: ₹ 50,000
- Half of the Goodwill is withdrawn by A and B. Thus, ₹ 25,000 is withdrawn by A and B in their profit-sharing ratio (3:1).

#### 2. Value Adjustments
- Land & Building (appreciated by 15%):
- Original Value: ₹ 3,30,000
- New Value: ₹ 3,30,000 + (15% of ₹ 3,30,000) = ₹ 3,30,000 + ₹ 49,500 = ₹ 3,79,500

- Stock (reduced by 7%):
- Original Value: ₹ 1,80,000
- New Value: ₹ 1,80,000 - (7% of ₹ 1,80,000) = ₹ 1,80,000 - ₹ 12,600 = ₹ 1,67,400

- Machinery & Fixtures (reduced by 5%):
- Original Value: ₹ 2,00,000
- New Value: ₹ 2,00,000 - (5% of ₹ 2,00,000) = ₹ 2,00,000 - ₹ 10,000 = ₹ 1,90,000

#### 3. Provision for Doubtful Debts
- Book Debts: ₹ 2,00,000
- New Value after 5% provision for doubtful debts: ₹ 2,00,000 - (5% of ₹ 2,00,000) = ₹ 2,00,000 - ₹ 10,000 = ₹ 1,90,000

#### 4. Provision for Unforeseen Liability
- Provision: ₹ 15,000 (deducted from Cash in Hand)

#### 5. Commission Receipt
- Commission: ₹ 11,000 (added to Cash in Hand)

### Capital Adjustments for A and B
- Withdrawal of Goodwill by A and B: ₹ 25,000
- A receives (3/4 of ₹ 25,000): ₹ 18,750
- B receives (1/4 of ₹ 25,000): ₹ 6,250

### Calculation of New Capital
- A's Capital: ₹ 4,00,000 + ₹ 18,750 = ₹ 4,18,750
- B's Capital: ₹ 2,00,000 + ₹ 6,250 = ₹ 2,06,250

### New Balance Sheet

[tex]\[ \begin{array}{|c|c|c|c|c|} \hline \multicolumn{2}{|c|}{\textbf{Liabilities}} & \textbf{₹} & \textbf{Assets} & \textbf{₹} \\ \hline \text{Sundry Creditors} & & 3,50,000 & \text{Cash in Hand} & 1,61,000 \\ \hline \text{Capital Accounts:} & & & & \\ \text{A} & 4,18,750 & & \text{Book Debts} & 1,90,000 \\ \hline \text{B} & 2,06,250 & & \text{Stock} & 1,67,400 \\ \hline \text{C} & 1,00,000 & & \text{Machinery \& Fixtures} & 1,90,000 \\ \hline & & 7,25,000 & \text{Land \& Building} & 3,79,500 \\ \hline \text{Provision for Unforeseen Liability} & & 15,000 & & \\ \hline \text{Total} & & 10,90,000 & \text{Total} & 10,88,900 \\ \hline \end{array} \][/tex]

- Please Note: Minor round-off differences might change the total slightly.

This represents the new balance sheet of the reconstituted firm with partners A, B, and C.