Preparation of Revaluation Account, Capital Account and Balance Sheet

Illustration 1:

Amit and Sumit were partners sharing profit equally. A new partner, Ravi is admitted from 1st April 2022 for a   of the share in the profit. Following is the Balance Sheet of Amit and Sumit as on 31st March 2022:

Additional Information:

1. Ravi brought ₹40,000 as his Capital and ₹10,000 as his Share of Goodwill.
2. Goodwill brought in by Ravi is withdrawn by the old partners.
3. Machinery is depreciated by ₹4,000 and Furniture by ₹2,500.
4. Provision for doubtful Debts shall be up to 5% on Debtors.
5. Land and Building be appreciated by 20%.
6. Stock is valued at ₹46,000.
7. There is an unrecorded investment of ₹4,000.
8. The electricity Bill of ₹10,000 was omitted from being recorded.
9. Insurance Premium of ₹10,000 shall be carried forward as unexpired insurance.

Prepare the Revaluation Account, Partner’s Capital Account (Fluctuating method), and Balance Sheet of the new firm.    

Solution:

Working Notes:

1. It is assumed that Ravi has acquired his share from Amit and Sumit in their old Profit-sharing ratio i.e.,1:1, since only the share of Ravi (new partner) is given in the question.

2. Provision for doubtful debts given = ₹ 1,000

Provision for doubtful debts to be created = 

Amount to be Adjusted in Revaluation Account = 2,000 – 1,000 = ₹1,000

3.

Illustration 2:

Following is the Balance Sheet of the Partners named, Ram and Shyam sharing profits and losses in a ratio of 3: 2, respectively.

A new partner Krishna has been admitted on 1st April, 2022 on the followings terms:

1. New Profit-Sharing Ratio shall be 4: 3: 2.
2. Krishna brings ₹2,00,000 as his Capital.
3. Krishna has to pay an amount equal to his share in the firm’s Goodwill, which is valued at twice the average profit of the last three years, which were ₹3,00,000, ₹2,60,000, and ₹2,50,000, respectively.
4. Half of the amount of Goodwill is to be withdrawn by Ram and Shyam.
5. Provision for Doubtful Debts is to be maintained at 5% on Debtors.
6. There is an outstanding expense of ₹50,000.
7. Unrecorded Accrued Income of ₹15,000.
8. Ram takes over the Investments at the value of ₹60,000.
9. Ram paid expenses on the Revaluation of ₹10,000.
10. Stock is revalued at ₹1,58,000.

Prepare the Revaluation Account, Partner’s Capital and Current Accounts, and the Balance Sheet of the new firm. 

Solution:

Working Notes:

1. Provision for doubtful debts given = ₹ 8,000

Provision for doubtful debts to be created =  

Amount to be Adjusted in Revaluation Account = 10,000 – 8,000 = ₹2,000.

2. General Reserve distributed among the old partners in their old ratio.

Ram = 

Shyam = 

3. Existing value of Goodwill written off among the old partners in their old ratio:

Ram = 

Shyam = 

4. Calculation of Sacrificing Ratio:

Ram = 

Shyam =  

Sacrificing Ratio of Ram and Shyam = 7:3

5. Calculation of value of the Firm’s Goodwill:

Value of The Firm’s Goodwill = 

6. Krishna’s Share of goodwill (Premium for Goodwill) =  

Ram and Shyam share in Premium for Goodwill (In sacrificing Ratio)

Ram = 

Shyam = 

7.