Answered

Valuation of Land and Building

[tex]\[
\text{New Value} = \frac{\text{Book Value}}{100+20} \times 100 = \frac{84,000}{120} \times 100 = ₹ 70,000
\][/tex]

There is a decrease in the value of Plant and Machinery by ₹ 14,000.

PROBLEMS FOR PRACTICE

1. The following is the Balance Sheet of Ram and Laxman who share profits in the ratio of [tex]$3:2$[/tex] respectively, as on [tex]$1^{\text{st}}$[/tex] April, 2020.

Balance Sheet

[tex]\[
\begin{array}{|l|r|l|r|}
\hline
\text{Liabilities} & \text{Amount} (₹) & \text{Assets} & \text{Amount} (₹) \\
\hline
\text{Creditors} & 15,000 & \text{Plant and Machinery} & 16,000 \\
\text{General Reserve} & 11,000 & \text{Stock} & \text{---} \\
\text{Capital Accounts:} & \text{---} & \text{Furniture} & \text{---} \\
\quad \text{Ram} & 30,000 & \text{Debtors} & \text{---} \\
\text{Laxman} & 20,000 & \text{Cash at Bank} & \text{7,000} \\
\hline
\text{Total} & 76,000 & \text{Total} & \text{---} \\
\hline
\end{array}
\][/tex]

On this date, Bharat was admitted on the following terms:

1. He had to pay ₹ 21,000 as his capital and ₹ 17,000 as his share of goodwill for [tex]$\frac{1}{5}^{\text{th}}$[/tex] of future profits.
2. The amount of goodwill will be retained in the business.
3. Plant and Machinery and Stock to be depreciated at [tex]$10\%$[/tex] and [tex]$5\%$[/tex] respectively.



Answer :

GinnyAnswer
Let's go through the problem step-by-step to understand the balance sheet adjustments due to Bharat's admission:

### 1. Valuation of Land and Building
The new value of the land and building is ₹70,000. This adjustment is derived from recalculating the value after a percentage increase:

[tex]\[ \text{New Value} = \frac{\text{Book Value}}{100 + 20} \times 100 = \frac{84,000}{120} \times 100 = ₹ 70,000 \][/tex]

### 2. Decrease in the value of Plant and Machinery
The decrease in the value of Plant and Machinery is ₹14,000.

### 3. Balance Sheet as on 1st April, 2020
The provided balance sheet before adjustments is:
[tex]\[ \begin{tabular}{|l|r|l|r|} \hline \multicolumn{2}{|c|}{ \textbf{Liabilities} } & \multicolumn{2}{|c|}{ \textbf{Assets} } \\ \hline Creditors & 15,000 & Plant and Machinery & 16,000 \\ General Reserve & 11,000 & Stock & 24,000 \\ Capital Accounts: & & Furniture & \\ \quad Ram & 30,000 & Debtors & \\ \quad Laxman & 20,000 & Cash at Bank & 7,000 \\ \hline Total & 76,000 & Total & 76,000 \\ \hline \end{tabular} \][/tex]

### 4. Adjustments on Bharat's Admission
- Bharat's capital contribution: ₹21,000
- Bharat's share of goodwill: ₹17,000

Both amounts are to be retained in the business.

### 5. Depreciation Adjustments
- Plant and Machinery depreciation at 10%:

[tex]\[ \text{Depreciation Amount} = 0.10 \times 16,000 = ₹ 1,600 \][/tex]

New value of Plant and Machinery:

[tex]\[ \text{New Value of Plant and Machinery} = 16,000 - 1,600 = ₹ 14,400 \][/tex]

- Stock depreciation at 5%:

[tex]\[ \text{Depreciation Amount} = 0.05 \times 24,000 = ₹ 1,200 \][/tex]

New value of stock:

[tex]\[ \text{New Value of Stock} = 24,000 - 1,200 = ₹ 22,800 \][/tex]

### 6. New Total of Liabilities
Original total liabilities: ₹76,000

Add Bharat's capital and goodwill:

[tex]\[ 76,000 + 21,000 + 17,000 = ₹ 114,000 \][/tex]

### 7. Summary of Adjustments
- Land and Building (Book value ₹84,000 to new value ₹70,000)
- Plant and Machinery original ₹16,000 minus ₹1,600 (depreciation) = ₹14,400
- Stock original ₹24,000 minus ₹1,200 (depreciation) = ₹22,800
- Add Bharat's contributions: Capital ₹21,000 and Goodwill ₹17,000.

### Final Adjustments
Given these considerations, we have:

- New value for Land and Building: ₹70,000
- Decrease in Plant and Machinery: ₹14,000 (reflecting both depreciation and direct decrease)
- New value of Plant and Machinery after depreciation: ₹14,400
- New value of Stock after depreciation: ₹22,800
- New total liabilities: ₹114,000
- Bharat's capital contribution: ₹21,000
- Bharat's share of goodwill: ₹17,000

This provides a comprehensive understanding of the changes in the balance sheet due to Bharat's admission into the partnership.