Project 4
Raghu and Rishu are partners sharing profits in the ratio 3 : 2. Their Balance Sheet as at 31st
March, 2021 was as follows:
BALANCE SHEET OF RAGHU AND RISHU
as at 31st March, 2021
Liabilities ` Assets `
Creditors 86,000 Cash in Hand 77,000
Employees' Provident Fund 10,000 Debtors 42,000
Investments Fluctuation Reserve 4,000 Less: Provision for 7,000 35,000
Doubtful Debts
Capital A/cs: Investments 21,000
Raghu 1,19,000 Buildings 98,000
Rishu 1,12,000 2,31,000 Plant and Machinery 1,00,000
3,31,000 3,31,000
Rishabh was admitted on that date for 1/4th share of profit on the following terms:
(a) Rishabh will bring ` 50,000 as his share of capital.
(b) Goodwill of the firm is valued at ` 42,000 and Rishabh will bring his share of goodwill in
cash.
(c) Buildings were appreciated by 20%.
(d) All Debtors were good.
(e) There was a liability of ` 10,800 included in Creditors which was not likely to arise.
(f) New profit-sharing ratio will be 2 : 1 : 1.
(g) Capital of Raghu and Rishu will be adjusted on the basis of Rishabh's share of capital and
any excess or deficiency will be made by withdrawing or bringing in cash by the concerned
partners as the case may be.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the new firm.
Answer:
Revaluation Account
Dr. Cr.
Particulars Amo Particulars Amount
unt `
`
Profit on Revaluation Building 19,600
transferred to-
Raghu’s 22,4 Provision for Doubtful Debts 7,000
Capital A/c 40 (Old)
Rishu’s Capit 14,9 37,40 Liability for Creditors 10,800
al A/c 60 0
37,40 37,400
0
Partners’ Capital Account
Dr. Cr.
Particulars Raghu Rishu Risha Particulars Ragh Rishu Risha
bh u bh
Balance b/d 1,19,0 1,12,0
00 00
Cash A/c (Bal. 48,040 84,86 Cash A/c 50,00
Fig.) 0 0
Balance c/d 1,00,000 50,00 50,00 Investment 2,400 1,600
0 0 Fluctuation
Fund
Premium for 4,200 6,300
Goodwill
Revaluation A/c 22,44 14,96
(Profit) 0 0
1,48,040 1,34,8 50,00 1,48,0 1,34,8 50,00
60 0 40 60 0
Balance Sheet
as on March 31, 2021
Liabilities Amount Assets Amount
` `
Creditors 86,000 Cash (WN4) 4,600
Less: (10,800) 75,200 Debtors 42,000
Liability
Employees Provident 10,000 Investments 21,000
Fund
Capital A/cs: Buildings (98,000 + 1,17,600
19,600)
Raghu 1,00,000 Plant and Machinery 1,00,000
Rishu 50,000
Rishabh 50,000 2,00,000
2,85,200 2,85,200
Working Notes:
WN 1Calculation of Sacrificing Ratio
Old Ratio = 3 : 2
New Ratio = 2 : 1 : 1
Sacrificing Ratio = Old ratio – New Ratio
Raghu = 3/5-2/4=10-12/20=2/20
Rishu =2/5-1/4=8-5/20=3/20
Sacrificing Ratio =2:3
WN 2Share of Rishabh’s Share of Goodwill
Value of Firm’s Goodwill = 42,000
Rishabh‘s share of goodwill=42,000×1/4=10,500
WN 3Adjustment of Capital
Total Capital of New Firm = Rishabh’s Capital × Reciprocal of Rishabh’s Share
Capital of Rishabh = ` 50,000
Total capital of the firm= capital brough by new partner × reciprocal of share
Total capital of the firm= 50,000 × 4/1=2,00,000
Raghu‘s new capital= 2,00,000× 2/4=1,00,000
Rishu‘s new capital= 2,00,000× 1/4 =50,000
WN 4 Cash Account
Cash Account
Dr. Cr.
Particulars Amount Particulars Amount
` `
Balance b/d 77,000 Raghu’s 48,040
Capital
Rishabh’s Capital 50,000 Rishu’s Capital 84,860
Premium for 10,500 Balance c/d 4,600
Goodwill
1,37,500 1,37,500
