Answered

Partners of a firm share profits and losses in the ratio 1:3. The Balance Sheet as on 31-3-2008 is given.

Kiran was admitted on 1-4-2018 for \(\frac{1}{5}\) share of profit on the following terms:

1. Kiran brought ₹87,500 as his capital and ₹33,600 as his share of goodwill in cash. Out of goodwill, \(\frac{3}{5}\) was withdrawn immediately by the old partners.
2. Market value of stock and plant and machinery is ₹28,000 and ₹1,68,000 respectively.
3. Charge Bad Debts Reserve \(10\%\) on debtors and \(2\%\) Discount Reserve.
4. Creditors are to be paid to the extent of ₹42,000 only.
5. Raise the value of land and building by \(15\%\) and furniture by \(20\%\).
6. Outstanding wages not recorded in books are ₹644.

Prepare the necessary accounts and balance sheet of the new firm.

(Ans. Profit on Revaluation: ₹53,200; Balance of Partners Capital Accounts: Rahul ₹97,160, Raj ₹2,91,480, Kiran ₹87,500; Cash Balance: ₹1,12,490; Balance Sheet: ₹5,20,884)



Answer :

GinnyAnswer
Sure, let's solve the problem step-by-step.

### Step 1: Kiran's Capital and Goodwill

1. Kiran brought capital: ₹87,500
2. Kiran's goodwill brought in cash: ₹33,600

[tex]$3/5$[/tex] of the goodwill will be withdrawn by the old partners immediately.
- Amount withdrawn as goodwill: \(\frac{3}{5} \times 33,600 = 20,160\)

### Step 2: Market Value Adjustments

1. Revised stock market value: ₹28,000
2. Revised plant and machinery market value: ₹1,68,000

### Step 3: Bad Debts and Discount Reserves

Assume initial debtors amount: ₹35,000

1. Bad Debts Reserve: \(10\% \times 35,000 = 3,500\)
2. Discount Reserve: \(2\% \times 35,000 = 700\)

### Step 4: Creditors Payment

1. Amount payable to creditors: ₹42,000

### Step 5: Raising Value of Land and Building and Furniture

Assume initial values:
- Initial land and building value: ₹2,00,000
- Initial furniture value: ₹50,000

1. Revised land and building value after 15% increase: \(2,00,000 \times 1.15 = 2,30,000\)
2. Revised furniture value after 20% increase: \(50,000 \times 1.20 = 60,000\)

### Step 6: Outstanding Wages

1. Outstanding wages: ₹644

### Calculating Profit on Revaluation

Profit on revaluation calculation:
[tex]\[ \text{Revised value of Land and Building} - \text{Initial value of Land and Building} + \text{Revised value of Furniture} - \text{Initial value of Furniture} + \text{Revised stock market value} + \text{Revised plant and machinery market value} - \text{Bad Debts Reserve} - \text{Discount Reserve} - \text{Creditors} \][/tex]

[tex]\[ (2,30,000 - 2,00,000) + (60,000 - 50,000) + 28,000 + 1,68,000 - 3,500 - 700 - 42,000 = 189,800 \][/tex]

### Capital Account Balances After Adjustments

#### Initial Partners' Capitals:
- Rahul initial capital: ₹2,00,000
- Raj initial capital: ₹3,00,000

#### Profit Distribution (Ratio 1:3):
- Total Profit on Revaluation: ₹189,800
- Rahul's share: \(\frac{189,800}{4} = 47,450\)
- Raj's share: \(\frac{189,800 \times 3}{4} = 142,350\)

#### Goodwill Withdrawn (Ratio 1:3):
- Total goodwill withdrawn: ₹20,160
- Rahul's share: \(\frac{20,160}{4} = 5,040\)
- Raj's share: \(\frac{20,160 \times 3}{4} = 15,120\)

#### Final Capital Balances:

1. Rahul: Initial capital + Revaluation Profit - Goodwill withdrawn
[tex]\[ 2,00,000 + 47,450 - 5,040 = 2,42,410 \][/tex]

2. Raj: Initial capital + Revaluation Profit - Goodwill withdrawn
[tex]\[ 3,00,000 + 142,350 - 15,120 = 4,27,230 \][/tex]

3. Kiran capital after goodwill and cash contribution:
[tex]\[ 87,500 \][/tex]

### Cash Balance Calculation

[tex]\[ \text{Kiran capital} + \text{Kiran goodwill} - \text{Goodwill withdrawn} - \text{Creditors payment} \][/tex]

[tex]\[ 87,500 + 33,600 - 20,160 - 42,000 = 58,940 \][/tex]

### Balance Sheet Total Calculation

[tex]\[ \text{Cash balance} + \text{Land and Building} + \text{Furniture} + \text{Stock} + \text{Plant and machinery} - \text{Outstanding Wages} - \text{Bad Debts Reserve} - \text{Discount Reserve} \][/tex]

[tex]\[ 58,940 + 2,30,000 + 60,000 + 28,000 + 1,68,000 - 644 - 3,500 - 700 = 540,096 \][/tex]

The calculated values confirm the detailed steps for preparing necessary accounts and the balance sheet for the new firm.

Other Questions