Raj and Dev are partners sharing profits and losses 3:2 respectively. Their position on 31 st March, 2011 is as follows:

Their Balance Sheet is as follows:

Balance Sheet as on 31^st March, 2011

Liabilities	Amount Rs.	Amount Rs.	Assets	Amount Rs.	Amount Rs.
Capital A/c			Buildings		100000
Raj		100000	Furniture		10000
Dev		75000	Stock		31000
Creditors		10000	Debtors	50000
Bills Payable		5000	(-) R.D.D.	-1000	49000
General Reserve		15000	Bank Balance		15000
		205000			205000

 

1. On 1^st April, 2011 they admitted Manoj on following terms:

2. Building should be revalued for Rs. 1,25,000.

3. Depreciate furniture at 12 ½ % p.a. and stock at 10% p.a.

4. R.D.D. should be maintained as it is.

5. The Capital Accounts of partners should be adjusted in their new 

profit sharing ratio through bank account.

Prepare, Profit & Loss Adjustment A/c, Capital Accounts of partners and Balance Sheet of the new firm and show how you have calculated new ratio  and new capital.

Solution:

In the books of Partnership firm.

Profit and Loss Adjustment Account

Particulars	Rs.	Rs.	Particulars	Rs.	Rs.
To Furniture A/c		1250	By Buildings A/c		25000
To Stock A/c		3100
To Partners' Capital A/c [Profit]
Raj	12390
Dev	8260	20650
		25000			25000

Partner's Capital Accounts

Particulars	Raj	Dev	Manoj	Particulars	Raj	Dev	Manoj
To Balance c/d	240000	160000	100000	By Balance b/d	100000	75000	-
				By General Reserve	9000	6000	-
				By Bank A/c	-	-	100000
				By Goodwill A/c	15000	10000	-
				By Profit & Loss Adjustment A/c	12390	8260	-
				By Bank A/c (Additional capital )	103610	60740	-
	240000	160000	100000		240000	160000	100000

Balance Sheet as on 1^st April, 2011

Liabilities	Amount	Amount	Assets	Amount	Amount
Partners' Capital A/c			Buildings	100000
Raj	240000		(+) Appreciation	25000	125000
Dev	160000		Furniture	10000
Manoj	100000	500000	(-) Depreciation @ 12 ½ %	-1250	8750
Creditors		10000	Stock	31000
Bills Payable		5000	(-) Depreciation @ 10%	-3100	27900
			Debtors	50000
			(-) R.D.D.	-1000	49000
			Bank Balance		304350
		515000			515000

Calculation of New Ratio:

Old Ratio of Raj and Dev is 3:2

Share given to New partner Manoj is 1/5.

We know that,

New Ratio = (Balance Ratio of 1) × Old Ratio.

∴ Raj's New Ratio = (1 – 1/5 )× 3/5 = 12/25

∴ Dev's New Ratio = (1 – 1/5) × 2/5 = 8/25

And Manoj's New Ratio = (1/5 ) × (5/5) {To Make Base 25}

∴ Manoj's New Ratio = 5/25

∴ New ratio of Raj, Dev and Manoj is (12/25) :(8/25): (5/25)

i.e. 12:8:5.

Now, Capital balance of all partners will be adjusted in their new profit sharing ratio through bank account as follows:

Total Capital of the Firm = New partner's Capital × Reciprocal of new partner's profit sharing ratio.

∴ Total Capital of the Firm = 1,00,000 × (5/1) = Rs. 5,00,000

Now, Raj's New Capital = 5,00,000 × (12/25)  = Rs. 2,40,000

Dev's New Capital = 5,00,000 × (8/25) = Rs. 1,60,000

We Know the New Capital of Manoj  and that is Rs. 1,00,000.

∴ New capital of Raj, Dev and Manoj are Rs. 2,40,000, Rs. 1,.60,000 and Rs. 1,00,000 respectively.