Keshav and Madhav were partners sharing profits and losses in the ratio of 2:3.

 Their Balance Sheet is as follows:

Liabilities
Amount
Rs.
Amount
Rs.
Assets
Amount
Rs.
Amount
Rs.
Capital A/c


Livestock

20000
Keshav

250000
Building

138000
Madhav

260000
Investments

45000
Creditors

8500
Loose Tools

38000



Debtors
90000




(-) R.D.D.
-18000
72000



Profit & Loss A/c

15000



Closing Stock

104500



Cash in Hand

86,000


518500


518500
 
On 1st April, 2011 they admitted Uddhav on the following terms:

1. The new profit sharing ratio is equal.

2. Uddhav brings Rs. 2,00,000 as his capital and Rs. 80,000 as share of goodwill in cash.

3. Prepaid insurance of Rs. 7500 was not recorded in the books.

4. Loose Tools were found undervalued by 5% and Buildings was found overvalued by 15% in the books.

5. All debtors are considered as good and out of creditors Rs. 500 is longer payable.

6. The market value of investment is 50% more than its book value.

Prepare, Profit & Loss Adjustment A/c, Capital Accounts of partners and Balance Sheet of the new firm.

Solution:

In the books of Partnership firm.

Profit and Loss Adjustment Account

Particulars
Rs.
Rs.
Particulars
Rs.
Rs.
To Building A/c

18000
By Prepaid Insurance

7500
To Partners' Capital A/c
(Profit)


By Loose Tool

2000
Keshav
13000

By R.D.D. A/c

18000
Madhav
19500
32500
By Creditors A/c

500



By Investment A/c

22500








50500


50500


Partner's Capital Accounts


Particulars
Keshav
Madhav
Uddhav
Particulars
Keshav
Madhav
Uddhav
To Profit & Loss A/c
6000
9000
-
By Balance b/d
250000
260000
-
To Balance C/d
273000
334500
200000
By Cash A/c
-
-
200000




By Goodwill A/c
16000
64000
-




By Profit and Loss Adjustment A/c
13000
19500
-

279000
343500
200000

279000
343500
200000


Balance Sheet as on 1st April, 2011



Liabilities
Amount
Amount
Assets
Amount
Amount
Partners' Capital A/c


Building
138000

Keshav
273000

(-) Overvaluation by 15%
-18000
120000
Madhav
334500

Loose Tools
38000

Uddhav
200000
807500
(+) Undervaluation by 5%
+2000
40000
Creditors
8500

Livestock

20000
(-) Claims Waived
-500
8000
Investment
45000




(+) Increase in Market value by 50%
22500
67500



Debtors

90000



Closing Stock

104500



Prepaid Insurance

7500



Cash in Hand

366000


815500


815500