Anil and Sunil were partners sharing profits and losses in the ratio of 2:1 respectively. Their Balance Sheet was as follows: [10]

Admission of a Partner: Accounting Problem & Solution

Anil and Sunil were partners sharing profits and losses in the ratio of 2:1 respectively. Their Balance Sheet was as follows:

Problem Statement: Initial Balance Sheet

Balance Sheet as on 31^st March, 2010

Liabilities	Amount (Rs.)	Assets	Amount (Rs.)
Capital A/cs:		Cash at Bank	4,000
Anil	24,000	Debtors	15,000
Sunil	16,000	Stock	23,500
Trade Creditors	26,000	Furniture	5,000
Anil’s Loan A/c	6,500	Building	25,000
Total	72,500	Total	72,500

On 1^st April, 2010, Ram is admitted into the partnership on the following terms:

1. Ram should bring in cash of Rs. 12,000 as capital for 1/5^th share in future profit.
2. Goodwill A/c is raised in the books of the firm for Rs. 4,500.
3. Building is revalued at Rs. 28,000 and the value of stock to be reduced by Rs. 1,500.
4. Reserve for doubtful debts to be provided at 5% on debtors.

Prepare:

• (a) Profit and Loss Adjustment Account.
• (b) Capital Accounts of partners.
• (c) Balance Sheet of the new firm.

Solution: In the books of the Partnership Firm

(a) Profit & Loss Adjustment Account (Revaluation A/c)

Dr. (Debit)	Amount (Rs.)	Cr. (Credit)	Amount (Rs.)
To Stock A/c (Reduction)	1,500	By Building A/c (Appreciation)	3,000
To R.D.D. A/c (5% on 15,000)	750
To Partners’ Capital (Profit):
Anil (2/3)	500
Sunil (1/3)	250
Total	3,000	Total	3,000

(b) Partners’ Capital Accounts

Dr.	Anil	Sunil	Ram	Cr.	Anil	Sunil	Ram
To Balance c/d	27,500	17,750	12,000	By Balance b/d	24,000	16,000	-
				By Bank A/c (Capital)	-	-	12,000
				By Goodwill A/c (2:1)	3,000	1,500	-
				By P&L Adj. A/c (Profit)	500	250	-
Total	27,500	17,750	12,000	Total	27,500	17,750	12,000

(c) Balance Sheet of the New Firm as on 1st April, 2010

Liabilities	Amount (Rs.)	Assets	Amount (Rs.)
Trade Creditors	26,000	Goodwill	4,500
Anil’s Loan	6,500	Building	28,000
Capital Accounts:		Furniture	5,000
Anil	27,500	Stock	22,000
Sunil	17,750	Debtors    15,000 Less: R.D.D.    (750)	14,250
Ram	12,000	Cash at Bank	16,000
Total Capital & Liabilities	89,750	Total Assets	89,750

Working Notes for Clarity

1. Calculation of Profit/Loss on Revaluation

   Gain from Appreciation of Building: Rs. 28,000 (New) - Rs. 25,000 (Old) = +Rs. 3,000

   Loss from Reduction of Stock = -Rs. 1,500

   Loss from R.D.D. Creation (5% of 15,000) = -Rs. 750

   Net Profit on Revaluation: 3,000 - 1,500 - 750 = Rs. 750

2. Distribution of Revaluation Profit (Old Ratio 2:1)

   The net profit of Rs. 750 is distributed among the old partners.

   Anil's Share = (2/3) × 750 = Rs. 500

   Sunil's Share = (1/3) × 750 = Rs. 250

3. Distribution of Goodwill (Old Ratio 2:1)

   Goodwill of Rs. 4,500 is credited to the old partners' capital accounts.

   Anil's Share = (2/3) × 4,500 = Rs. 3,000

   Sunil's Share = (1/3) × 4,500 = Rs. 1,500

4. Calculation of Final Balances for Balance Sheet

   Cash at Bank: Opening Balance (Rs. 4,000) + Ram's Capital (Rs. 12,000) = Rs. 16,000

   Debtors (Net): Gross Debtors (Rs. 15,000) - R.D.D. (Rs. 750) = Rs. 14,250