Capital Adjustment

Page No 5.
103:
Question 76:
X and Y are partners sharing profits equally. Their Balance Sheet as on 31st March, 2021
is given below:
Amount Amount
Liabilities ` Assets `
Capital A/cs: Land and Building 1,50,000
Shiv 1,50,000 Plant and Machinery 1,00,000
Mohan 1,00,000 2,50,000 Furniture and Fittings 25,000
Current
A/cs: Stock 75,000
Shiv 40,000 Debtors 75,000
Mohan 30,000 70,000 Less: Provision for Doubtful Debts 5,000 70,000
Creditors 1,30,000 Bills Receivable 30,000
Bills Payable 50,000 Bank 50,000
5,00,000 5,00,000
Jea is admitted as a new partner for 1/4th share under the following terms:
(a) Z is to introduce ` 1,25,000 as capital.
(b) Goodwill of the firm was valued at nil.
(c) It is found that the creditors included a sum of ` 7,500 which was not to be paid. But
it was also found that there was a liability for Compensation to Workmen amounting
to ` 10,000.
(d) Provision for doubtful debts is to be created @ 10% on debtors.
(e) In regard to the Partners' Capital Accounts, present Fixed Capital Account Method is
to be converted into Fluctuating Capital Account Method.
(f) Bills of ` 20,000 accepted from creditors were not recorded in the books.
(g) Shiv provides ` 50,000 loan to the business carrying interest @ 10% p.a.
You are required to prepare Revaluation Account, Partners' Capital Accounts, Bank
Account and the Balance Sheet of the new firm.
Answer:
Revaluation Account
Dr. Cr.
Amount Amount
Particulars ` Particulars `
Reserve for D. Debts 2,500 Creditors 7,500
Liability for WCF 10,000 Loss transferred to
Shiv’s Current A/c 2,500
Mohan’s Current A/c 2,500
12,500 12,500
Partners’ Current Accounts
Dr. Cr.
Particulars Shiv Mohan Particulars Shiv Mohan
Revaluation A/c 2,500 2,500 Balance b/d 40,000 30,000
Balance c/d 37,500 27,500
40,000 30,000 40,000 30,000
Partners’ Capital Accounts

Dr. Cr.
Particulars Shiv Mohan Jea Particulars Shiv Mohan Jea
Balance b/d 1,50,000 1,00,000 -
Current A/c 37,500 27,500 -
Balance c/d 1,87,500 1,27,500 1,25,000 Bank 1,25,000
1,87,500 1,27,500 1,25,000 1,87,500 1,27,500 1,25,000
Balance Sheet
as on 1st April, 2021
Amount Amount
Creditors
(1,30,000 – 7,500 – 20,000) 1,02,500 Land and Building 1,50,000
Bills Payable (50,000 + 20,000) 70,000 Plant and Machinery 1,00,000
Capital A/cs: Fixture and Fittings 25,000
Shiv 1,87,500 Stock 75,000
Mohan 1,27,500 Bills Receivables 30,000
Jea 1,25,000 4,40,000 Bank (50,000 + 1,25,000 + 50,000) 2,25,000
Shiv's Loan 50,000 Debtors 75,000
Less: 10% Reserve for
Liability for WCF 10,000 D. Debts 7,500 67,500
6,72,500 6,72,500
Page No 5.104:
Question 77: Badal and Bijli were partners in a firm sharing profits in the ratio of 3 2.
Their Balance Sheet as at 31st March, 2019 was as follows:
BALANCE SHEET OF BADAL AND BIJLI as at 31st March, 2019
Liabilities `
Assets `
Capital A/cs: Building 1,50,000
Badal 1,50,000 Investments 73,000
Bijli 90,000 2,40,000 Stock 43,000
Badal's Current
A/c Investment 12,000 Debtors
Fluctuation Reserve 24,000 Cash 20,000
Bills Payable 8,000 Bijli's Current A/c 22,000
Creditors 26,000 2,000
3,10,000 3,10,000
Raina was admitted on the above date as a new partner for 1/6th share in the profits of the
firm. The terms of agreement were as follows:
(i) Raina will bring `40,000 as her capital and capitals of Badal and Bijli will be adjusted
on the basis of Raina's capital by opening Current Accounts.
(ii) Raina will bring her share of goodwill premium for `12,000 in cash.
(iii) The building was overvalued by 15,000 and stock by `3,000.
(iv) A provision of 10% was to be created on debtors for bad debts.
Prepare the Revaluation Account and Current and Capital Accounts of Badal, Bijli and
Raina. (CBSE 2020)
Answer:
Revaluation a/c
To Building a/c
To Stock 15,000 By Loss Transferred to:
To Prevision for doubtful 3,000 Badal’s Capital a/c - 12,000
Debts 2,000 Bijli’s Capital a/c - 8,000 20,000
20,000 20,000
Partners’ Capital a/c

Particulars Badal Bijli Raina Particulars Badal Bijli Raina
To Badal’s
Current a/c
To Bijli’s
Current a/c 30,000 - - By Balance 90,000
To Balance - 10,000 - B/d 1,50,000 - -
c/d 1,20,000 80,000 40,000 By Cash a/c - 40,000
1,50,000 90,000 40,000 1,50,000 90,000 40,000
Partners’ Current a/c

Particulars Badal Bijli Raina Particulars Badal Bijli Raina
To Balance 12,000 - -
B/d - By Balance 14,400 9,600 -
To - 2,000 - B/d 7,200 4,800 -
Revaluation 12,000 8,000 - By I. F . R 3,000 - -
a/c 51,600 14,400 By Premium - 10,000 -
To Balance By Badal’s
c/d Capital a/c
By Bijli’s
Capital a/c
1,05,600 62,400 - 1,05,600 62,400 -
Working Notes:
1. Calculation of Sacrificing Ratio

Sacrifice = Old Profit Share - New Profit Share
Old Ratio of Badal and Bijli = 3 :2
Share of Raina is 1/6
Calculation of new profit sharing ratio

Assuming whole profit sharing ratio is 1/1
Remaining profit sharing ratio is 1/1-1/6=5/6
Share share of Badal and Bijli in Remaining share
Badal= 5/6×3/5=15/30
Bijali= 5/6×2/5=10/30
Badal : Bijli : Raina
15/30 : 10/30 : 1/6
15/30 : 10/30 : 5/30
New ratio
= 3 : 2 : 1
Badal’s Sacrifice = 3
Bijli’s Sacrifice = 2;
Raina’s gaining = 1/6
2. Goodwill for 1/6th share of Raina = `12,000
Goodwill payable to Badal and Bijli

Badal=12,000×3/5=7,200
Bijli=12,000×2/5=4,800
3. Capital of the Partners in the New firm on the basis of Raina's Capital:
Raina's Capital `40,0000
Raina 's Share of Profit 1/6 for that he brings 40,000
Total Capital of the New Firm = 40,000×6/1=2,40,000
Thus,
Badal's Capital = 2,40,000 × 3/6 = `1,20,000;
Bijli's Capital = 2,40,000 × 2/6 = `80,000;
Raina's Capital = 2,40,000 × 1/6 = `40,000;
Page No 5.104:
Question 78: Gautam and Yashica are partners in a firm, sharing profits and losses in 3:
1 respectively. The Balance Sheet of the firm as on 31st March, 2018 was as follows:
BALANCE SHEET as at 31st March, 2018
Sundry Creditors 50,000 Furniture 60,000
Bills Payable 30,000 Stock 1,40,000
Capitals: Debtors 80,000
Gautamn 4,00,000 Cash in Hand 90,000
Yashica 1,00,000 5,00,000 Machinery 2,10,000
5,80,000 5,80,000
Asma is admitted as a partner for 3/8th share in the profits with a capital of `2,10,000
and `50,000 for
her share of goodwill. It was decided that:
(i) New profit-sharing ratio will be 3:2:3.
(ii) Machinery will depreciated by 10% and Furniture by `5,000.
(iii) Stock was revalued at `2,10,000.
(iv) Provision for doubtful debts is to be created at 10% of debtors.
(v) The capitals of all the partners were to be in the new profit-sharing ratio on basis of
capital of new partner. Any adjustment to be done through Current Accounts.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of the
new firm.
(CBSE Sample Paper 2021)
Answer:
Revaluation Account
Cr.
To plant and machinery a/c 21,000 By Stock a/c 70,000
To Furniture a/c 5,000
To Provision for doubtful debts 8,000
36,000
To profit
Gautam’s capital a/c
36,000×3/4=27,000
Yashika’s Capital a/c
36,000×1/4=9,000
70,000 70,000
hjhjh
Partners’ Capital A/c
Particul Gauta Yashi Gauta Yashi
ars m ka Asma Particulars m ka Asma
By Balance
b/d
By Cash
By 4,00,0 1,00,0
Premium 00 00
To a/c
Balance 4,77,0 1,09,0 2,10,0 By Revaluat 50,000 2,10,0
C/d 00 00 00 ion a/c 27,000 9,000 00
4,77,0 1,09,0 2,10,0 4,77,0 1,09,0 2,10,0
00 00 00 00 00 00
To G’s
Current
a/c 2,67,0 By Balance
To 00 b/d 1,09,0
Balance 2,10,0 1,40,0 2,10,0 By Y’s 4,77,0 00 2,10,0
C/d 00 00 00 Current a/c 00 31,000 00
4,77,0 1,40,0 2,10,0 4,77,0 1,40,0 2,10,0
00 00 00 00 00 00
hjhjh
Balance sheet as at 1sh April 2021
Furniture
Sundry creditors 50,000 Stock 55,000
bills payable 30,000 Debtors 80,000 2,10,000
Capital a/c Less: Prov. For
Gautam =2,10,000 D.D. 8,000 72,000
Yashika =1,40,000 Cash 3,50,000
Ashma=2,10,000 5,60,000 Machinery 1,89,000
Gautam’s current a/c 2,67,000 Yashika’s Current a/c 31,000
9,07,000 9,07,000
Working notes;
WN-1
Calculation of old ratio and sacrificing ratio
Old ratio Gautam : Yashika = 3:1
New ratio Gautam : Yashika : Asma= 3:2:3
Sacrificing ratio= Old ratio – New Ratio
Gautam =3/4-3/8=6-3/8=3/8
Yashika=1/4-2/8=2-2/8=0/8
Therefore sacrificing ratio of Gautam : Yashika = 3:0
WN-2
Calculation of Capital
Total Capital of the new firm on the basis of new partner
Total capital new firm = 2,10,000×8/3=5,60,000
New capital of all partners
Gautam=5,60,000×3/8=2,10,000
Yashika=5,60,000×2/8=1,40,000
Asma=5,60,000×3/8=2,10,000
Page No 5.105:
Question 79:
X and Y are partners sharing profits in the ratio of 2 : 1. Their Balance Sheet as at 31st
March, 2021 was:
Sundry Creditors 25,000 Cash/Bank 5,000
General Reserve 18,000 Sundry Debtors 15,000
Capital A/cs: Stock 10,000
X 75,000 Investments 8,000
Y 62,000 1,37,000 Printer 5,000
Fixed Assets 1,37,000
1,80,000 1,80,000
They admit Z into partnership on the same date on the following terms:
(a) Z brings in ` 40,000 as his capital and he is given 1/4th share in profits.
(b) Z brings in ` 15,000 for goodwill, half of which is withdrawn by old partners.
(c) Investments are valued at ` 10,000. X takes over Investments at this value.
(d) Printer is to be reduced (depreciated) by 20% and Fixed Assets by 10%.
(e) An unrecorded stock of Stationery on 31st March, 2021 is ` 1,000.
(f) By bringing in or withdrawing cash, the Capitals of X and Y are to be made
proportionate to that of Z on their profit-sharing basis.
Pass Journal entries, prepare Revaluation Account, Capital Accounts and new Balance
Sheet of the firm.
Answer:
Journal
Date Particulars L.F. Debit Credit
Amount Amount
` `
2021
April 1 Revaluation A/c Dr. 14,700
To Typewriter A/c 1,000
To Fixed Assets A/c 13,700
(Decrease in value of typewriter and
fixed assets transferred to Revaluation
Account)
April 1 Stationery A/c Dr. 1,000

Investment A/c Dr. 2,000
To Revaluation A/c 3,000
(Increase in stationery and investment
transferred to Revaluation Account)
April 1 X’s Capital A/c Dr. 7,800

Y’s Capital A/c Dr. 3,900
To Revaluation A/c 11,700
(Revaluation loss transferred to X and
Y’s
Capital Account in their old ratio)
April 1 Reserve Fund A/c Dr. 18,000

To X’s Capital A/c 12,000
To Y’s Capital A/c 6,000
(Reserve Fund distributed)
April 1 Cash A/c Dr. 55,000

To Z’s Capital A/c 40,000
To Premium for Goodwill A/c 15,000
(Z brought capital and share of goodwill)
April 1 Premium for Goodwill A/c Dr. 15,000

To Y’s Capital A/c 5,000
(Premium for Goodwill distributed
between X and Y in their sacrificing ratio
i.e 2:1)

Y’s Capital A/c Dr. 2,500
To Cash 7,500
(Half of the Premium for Goodwill
withdrawn by X and Y)
To Investments A/c 10,000
(X took over the Investment)
April 1 Cash A/c Dr. 4,800

(X’ brought cash to make up deficiency
in capital)
April 1 Y’s Capital A/c Dr. 26,600

To Cash A/c 26,600
(Y withdrew excess capital after all
adjustments)
Cash/Bank Account
Dr. Cr.
Amount Amount
Balance b/d 5,000 X’s Capital (Goodwill) 5,000
Z’s Capital 40,000 Y’s Capital (Goodwill) 2,500
Premium for Goodwill 15,000 Y’s Capital 26,600
X’s Capital 5,800 Balance c/d 31,700
65,800 65,800
Revaluation Account
Dr. Cr.
Amount Amount
Typewriter (5,000 × 20%) 1,000 Investment 2,000

Fixed Assets
(1,37,000 × 10%) 13,700 Stationery 1,000
Loss transferred to
X Capital 7,800
Y Capital 3,900
14,700 14,700
Dr. Cr.
Particulars X Y Z Particulars X Y Z
Revaluation 7,800 3,900 Balance b/d 75,000 62,000
Investment 10,000 Reserve Fund 12,000 6,000
Cash (withdraw of
goodwill) 5,000 2,500 Cash 40,000
Premium for
Balance c/d 74,200 66,600 40,000 Goodwill 10,000 5,000
97,000 73,000 40,000 97,000 73,000 40,000
Cash 26,600 Balance b/d 74,200 66,600 40,000

Balance c/d
adjusted 80,000 40,000 40,000 Cash 5,800
80,000 66,600 40,000 80,000 66,600 40,000
Balance Sheet
as on March 31, 2021 after Z’s admission
Amount Amount
Sundry Creditors 25,000 Cash 31,700
Capital A/cs: Sundry Debtors 15,000
X 80,000 Stock 10,000
Y 40,000 Typewriter (5,000 – 1,000) 4,000
Fixed Assets (1,37,000 –
Z 40,000 1,60,000 13,700) 1,23,300
Stationery 1,000
1,85,000 1,85,000
Working Notes:
WN1: Sacrificing Ratio

X Y
Old ratio 2 : 1
Sacrificing Ratio 2 : 1
WN2: Distribution of Revaluation Loss
revaluation loss transferred to X’s capital =11,700×2/3=7,800
revaluation loss transferred to X’s capital =11,700×1/3=3,900
WN3: Distribution of Premium for Goodwill
A will get =15,000×2/3=10,000
B will get =15,000×1/3=5,000
WN4: Adjustment of Capital

Total Capital of the firm on the basis of Z’s share =40,000×4/1=1,60,000
Total Capital of the firm = 1,60,000
Less: Z’s Capital = 40,000
Combined Capital of X and Y = 1,20,000
Page No 5.105:
Question 80:
A and B are in partnership sharing profits and losses in the proportion of 2/3rd and 1/3rd
respectively. Their Balance Sheet as at 31st March, 2021 was: Cash `
1,00,000; Sundry Debtors ` 15,00,000; Stock ` 22,00,000; Plant and
Machinery ` 4,00,000; Sundry Creditors ` 2,00,000; Bank Overdraft ` 15,00,000;
A's Capital ` 15,00,000; B's Capital ` 10,00,000.
On 1st April, 2021 they admitted C into partnership on the following terms:
(a) C to purchase one-quarter of the goodwill for ` 3,00,000 and provide ` 10,00,000
as capital. C brings in necessary cash for goodwill and capital.
(b) Profits and losses are to be shared in the proportion of one-half to A, one-quarter
to B and one quarter to C.
(c) Plant and Machinery is to be reduced by 10% and ` 50,000 are to be provided for
estimated Bad Debts. Stock is to be taken at a valuation of ` 24,94,000.
(d) By bringing in or withdrawing cash the capitals of A and B are to be made
proportionate to that of C on their profit-sharing basis.
Prepare necessary Ledger Accounts in the books of the firm relating to the above
arrangement and submit the opening Balance Sheet of the new firm.
Answer:
Revaluation Account
Dr. Cr.
Amount Amount
Plant and Machinery
(4,000 × 10%) 40,000 Stock (24,94,000– 22,00,000) 2,94,000
Provision for Bad Debts 50,000
Profit transferred to
A Capital 1,36,000
B Capital 68,000
2,94,000 2,94,000
Dr. Cr.
Particulars A B C Particulars A B C
Balance b/d 15,00,000 10,00,000
Cash 10,00,000
Premium
for
Goodwill 2,00,000 1,00,000
Balance c/d 18,36,000 11,68,000 10,00,000 Revaluation 1,36,000 68,000
18,36,000 11,68,000 10,00,000 18,36,000 11,68,000 10,00,000
Cash 1,68,000 Balance c/d 18,36,000 11,68,000 10,00,000
Balance c/d 20,00,000 10,00,000 10,00,000 Cash 1,64,000
(Adjusted)
20,00,000 11,68,000 10,00,000 20,00,000 11,68,000 10,00,000
Balance Sheet
as on April 01, 2021 after C’s admission
Amount Amount
Sundry Creditors 2,00,000 Cash 13,96,000
Bank Overdraft 15,00,000 Sundry Debtors 15,000
Less: Prov. for Bad
Capital A/cs: Debts 500 14,50,000
A 20,00,000 Stock 24,94,000
B 10,00,000 Plant and Machinery 3,60,000
C 10,00,000 40,00,000
57,00,000 57,00,000
Cash Account
Dr. Cr.
Amount Amount
Balance b/d 1,00,000 B’s Capital 1,68,000
C’s Capital 10,00,000
Premium for
Goodwill 3,00,000
A’s Capital 1,64,000 Balance c/d 13,96,000
15,64,000 15,64,000
Working Notes
WN1: Sacrificing Ratio

A B
Old ratio= 2 : 1
A B C
New ratio =
1/2 : 1/4 : ¼ =2:1:1
Sacrificing Ratio = old ratio– new ratio
A=2/3-2/4=8-6/12=2/12
B=1/3-1/4=4-3/12=1/12
Sacrificing Ratio of A and B 2;1
WN2: Distribution of Premium for Goodwill
A will get =3,00,000×2/3=2,00,000
B will get =3,00,000×1/3=1,00,000
WN3: Distribution of Revaluation Profit

A’s share =2,04,000×2/3=1,36,000
B’s share =2,04,000×1/3=68,000
WN4: Adjustment of Capitals (in new ratio)

total capital of the firm=10,00,000×4/1=40,00,000
A’s share of capital =40,00,000×2/4=20,00,000
B’s and C’s share of capital =40,00,000×1/4=10,00,000
age No 5.106:
Question 81:
Kalpana and Kanika were partners in a firm sharing profits in 3 : 1 ratio. They
admitted Karuna as a partner for 1/4th share in the future profits. Karuna was to
bring ` 60,000 for his capital. The Balance Sheet of Kalpana and Kanika as at 1st April,
2021, the date on which Karuna was admitted, was:
Capital A/cs: Land and Building 40,000
Kalpana 50,000 Plant ad Machinery 70,000
Kanika 80,000 1,30,000 Stock 30,000
General Reserve 10,000 Debtors 35,000
Less: Provision for
Creditors 70,000 Doubtful Debts 1,000 34,000
Investments 26,000
Cash 10,000
2,10,000 2,10,000
The other terms agreed upon were:
(a) Goodwill of the firm was valued at ` 24,000.
(b) Land and Building were valued at ` 65,000 and Plant and Machinery at ` 60,000.
(c) Provision for Doubtful Debts was found in excess by ` 400.
(d) A liability of ` 1,200 included in Sundry Creditors was not likely to arise.
(e) The capitals of the partners be adjusted on the basis of C's contribution of capital to
the firm.
(f) Excess of shortfall, if any, be transferred to Current Accounts.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the new
firm.
Answer:
Revaluation Account
Dr. Cr.
Amount Amount
Plant and Machinery Land and Building
(70,000 – 60,000) 10,000 (65,000 – 40,000) 25,000
Provision for Doubtful
Profit transferred to Debts 400
Kalpana’s Capital 12,450 Creditors 1,200
Kanika’s Capital 4,150
26,600 26,600

Dr. Cr.
Particulars Kalpana Kanika Karuna Particulars Kalpana Kanika Karuna
Balance b/d 50,000 80,000
General Reserve 7,500 2,500
Revaluation
(Profit) 12,450 4,150
Cash 60,000
Karuna 's
Balance c/d 74,450 88,150 60,000 Current A/c 4,500 1,500
74,450 88,150 60,000 74,450 88,150 60,000
Kanika’s Current
A/c 43,150 Balance b/d 74,450 88,150 60,000
Balance c/d Kalpna’s Current
(Adjusted) 1,35,000 45,000 60,000 A/c 60,550
1,35,000 88,150 60,000 1,35,000 88,150 60,000
Balance Sheet
as on April 01, 2021 after Karuna’s admission
Amount Amount
Creditors (70,000 – 1,200) 68,800 Land and Building 65,000
Capital A/cs: Plant and Machinery 60,000
Kalpana 1,35,000 Stock 30,000
Kanika 45,000 Debtors 35,000
Less: Prov. for Doubtful
Karuna 60,000 2,40,000 Debts 600 34,400
Kanika’s Current A/c 43,150 Investments 26,000
Cash 70,000
Kalpana’s Current A/c 60,550
Karuna 's Current A/c 6,000
3,51,950 3,51,950
Working Notes:
WN1
Kalpana Kanika
OLD RATION 3 : 1
SACRIFICING RATIO 3 : 1
WN2
Karuna ‘s of goodwill=24,000×1/4=6,000
Kalpana will get =6,000×3/4=4,500
Kanika will get =6,000×1/4=1,500
As Karuna has not brought his share of goodwill in cash, hence, his share shall be
debited to his current account.
WN3 Distribution of Revaluation Profit

Kalpana will get =16,600×3/4=12,450
Kanika will get =16,600×1/4=4,150
WN4 Adjustment of Capital
Total Capital of the firm

after Karuna’s admission = 60,000 × 4 = 2,40,000
Less: Karuna’s Capital = 60,000
Combined Capital
of Kalpana and Kanika = 1, 80,000
Kalpana’s proportion of capital=1,80,000×3/4=1,35,000
Kanika’s proportion of capital =1,80,000×1/4=45,000
WN5
Cash Account
Dr. Cr.
Amount Amount
Balance b/d 10,000 Balance c/d 70,000
Karuna’s Capital 60,000 (Balancing Figure)
70,000 70,000
Page No 5.106:
Question 82:
Shikhar and Rohit were partners in a firm sharing profits in the ratio of 7 : 3. On 1st
April, 2013, they admitted Kavi as a new partner for 1/4th share in profits of the
firm. Kavi brought ` 4,30,000 as his capital and ` 25,000 for his share of goodwill
premium. The Balance Sheet of Shikhar and Rohit as on 1st April, 2013 was as follows:
BALANCE SHEET OF SHIKHAR AND ROHIT as at 1st April, 2013
8,00,0
Shikhar 00 Machinery 4,50,000
3,50,0 11,50, 2,20,
Rohit 00 000 Debtors 000
1,00,0 20,00
General Reserve 00 Less: Provision 0 2,00,000
Workmen's Compensation 1,00,0
Fund 00 Stock 3,50,000
1,50,0
Creditors 00 Cash 1,50,000
15,00,
000 15,00,000
It was agreed that:

(a) the value of Land and Building will be appreciated by 20%.
(b) the value of Machinery will be depreciated by 10%.
(c) the liabilities of Workmen's Compensation Fund were determined at ` 50,000.
(d) capitals of Shikhar and Rohit will be adjusted on the basis of Kavi's capital and actual
cash to be brought in or to be paid off as the case may be.
firm.
Answer:
Revaluation Account
Dr. Cr.
Amount Amount
Machinery 45,000 Land and Building 70,000
Profit transferred to:
Shikhar’s Capital
A/c 17,500
Rohit’s Capital
A/c 7,500 25,000
70,000 70,000

Dr. Cr.
Particulars Shikhar Rohit Kavi Particulars Shikhar Rohit Kavi
Balance b/d 8,00,000 3,50,000
Balance c/d 9,40,000 4,10,000 4,30,000 General Reserve 70,000 30,000
Workmen’s Compensation
Fund 35,000 15,000
Cash A/c 4,30,000
Premium for Goodwill 17,500 7,500
Revaluation A/c (Profit) 17,500 7,500
9,40,000 4,10,000 4,30,000 9,40,000 4,10,000 4,30,000

Cash A/c 37,000 23,000 Balance b/d 9,40,000 4,10,000 4,30,000
Balance c/d 9,03,000 3,87,000 4,30,000
9,40,000 4,10,000 4,30,000 9,40,000 4,10,000 4,30,000
Balance Sheet
as on April 01, 2013 after Kavi’s admission
Amount Amount
Liability for Workmen’s
Compensation 50,000 Land and Building 4,20,000
Creditors 1,50,000 Machinery 4,50,000
Less:
Depreciation
Capitals: @10% 45,000 4,05,000
Shikhar 9,03,000 Debtors 2,20,000
Less:
Rohit 3,87,000 Provision 20,000 2,00,000
Kavi 4,30,000 17,20,000 Stock 3,50,000
Cash 5,45,000
19,20,000 19,20,000
Calculation of Profit Sharing Ratio:

A B
OLD RATION 3 : 1
Kavi’s share=1/4
Let total capital =1
Remaining share of the firm=1-1/4=3/4
Shikhar’s new share= 7/10×3/4=21/40
Rohit’s new share=3/10× 3/4=9/40
=21/40:9/40:1/4
New profit sharing ratio =21:9:10
Sacrificing Ratio =Old ratio- new ratio
Shikhar = 7/10-21/40=7/40
Rohit =3/10- 9/40=3/40
Sacrificing Ratio =7:3
WN1: Distribution of Goodwill brought in by Kavi:

Shikhar will get =25,000×7/10=17,500
Rohit will get =25,000×3/10=7,500
WN2: Distribution of Workmen’s Compensation Fund

Shikhar will get =50,000×7/10=35,000
Rohit will get =50,000×3/10=15,000
WN3: Distribution of General Reserve:

Shikhar will get =1,00,000×7/10=70,000
Rohit will get =1,00,000×3/10=30,000
WN4: Adjustment of Capital:

Total capital of the firm= capital brough by new partner × reciprocal of share
capital brough by kavi =4,30,000
Total capital of the firm= 4,3000 × 4/1=17,40,000
Shikhar’s new of capital=17,40,000×21/40=9,03,000

Rohit’s new of capital =17,40,000×9/40=3,87,000
Page No 5.107:
Question 83:
The Balance Sheet of X, Y and Z who share profits and losses in the ratio of 3 : 2 : 1, as
on 1st April, 2021 is as follows:
Capital A/cs: Y's Current Account 7,000
X 1,75,000 Land and Building 1,75,000
Y 1,50,000 Plant and Machinery 67,500
Z 1,25,000 4,50,000 Furniture 80,000
Current A/cs: Investments 36,500
X 4,000 Bills Receivable 17,000
Z 6,000 10,000 Sundry Debtors 43,500
General Reserve 15,000 Stock 1,37,000

Profit and Loss A/c 7,000 Bank 43,500
Creditors 80,000
Bills Payable 45,000
6,07,000 6,07,000
On the above date, W is admitted as a partner on the following terms:

(a) W will bring ` 50,000 as his capital and get 1/6th share in the profits.
(b) He will bring necessary amount for his share of goodwill premium. Goodwill of the
firm is valued at ` 90,000.
(c) New profit-sharing ratio will be 2 : 2 : 1 : 1.
(d) A liability of ` 7,004 will be created against bills receivable discounted earlier but
now dishonored.
(e) The value of stock, furniture and investments is reduced by 20%, whereas the value of
Land and Building and Plant and Machinery will be appreciated by 20% and 10%
respectively.
(f) Capital Accounts of the partners will be adjusted on the basis of W's Capital through
their Current Accounts.
Prepare Revaluation Account, Partners' Current Accounts and Capital Accounts.
Answer:
Revaluation Account
Dr. Cr.
Amount Amount
Stock 27,400 Land and Building 35,000
Furniture 16,000 Plant and Machinery 6,750
Investments 7,300 Loss transferred to:
X 4,475
Y 2,983
Z 1,492 8,950
50,700 50,700
Partners’ Current Account

Dr. Cr.
Particulars X Y Z Particulars X Y Z
Balance b/d 7,000 Balance b/d 4,000 6,000
Revaluation
(Loss) 4,475 2,983 1,492 General Reserve 7,500 5,000 2,500
Profit and Loss
A/c 3,500 2,333 1,167
Premium for
Balance c/d 100,525 47,350 83,175 Goodwill 15,000
Capital A/c 75,000 50,000 75,000
1,05,000 57,333 84,667 1,05,000 57,333 84,667
Partners’ Capital Account

Dr. Cr.
Particu Particu
lars X Y Z W lars X Y Z W
Current 75,00 50,00 75,00 Balance 1,75,0 1,50,0 1,25,0
A/c 0 0 0 b/d 00 00 00
Cash 50,0
A/c 00
Balance 1,00,0 1,00,0 50,00 50,0
c/d 00 00 0 00
1,75,0 1,50,0 1,25,0 50,0 1,75,0 1,50,0 1,25,0 50,0
00 00 00 00 00 00 00 00
Working Notes:
WN1Calculation of Sacrificing Ratio
Old Ratio=3 : 2 : 1
New Ratio=2 : 2 : 1 : 1
Sacrificing Ratio=Old Ratio-New Ratio
X=3/6-2/6=1/6
Y=2/6-2/6=Nil
Z=1/6-1/6=Nil
Here, only X has sacrificed.
WN2 Distribution of Goodwill
W's Share of Goodwill=90,000×16= ` 15,000

As only X has sacrificed his share, therefore, he will get ` 15,000
WN3 Adjustment of Capital
Total Capital of the firm=W's Capital×Reciprocal of his share

=50,000×6/1= ` 3,00,000
New Profit Sharing Ratio=2 : 2 : 1 : 1
X's New Capital=3,00,000×2/6= ` 1,00,000
Y's New Capital=3,00,000×2/6= ` 1,00,000
Z's New Capital=3,00,000×1/6= ` 50,000
W's New Capital=3,00,000×1/6= ` 50,000
Page No 5.107:
Question 84:
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
Creditors 86,000 Cash in Hand 77,000
Employees' Provident Fund 10,000 Debtors 42,000
Less: Provision for
Investments Fluctuation Reserve 4,000 Doubtful Debts 7,000 35,000
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.
firm.
Answer:
Revaluation Account
Dr. Cr.
Amou
nt Amount
Profit on
Revaluation
transferred to- Building 19,600
Raghu’s 22,4 Provision for Doubtful
Capital A/c 40 Debts (Old) 7,000
Rishu’s Ca 14,9 37,40
pital A/c 60 0 Liability for Creditors 10,800
37,40
0 37,400

Dr. Cr.
Risha Particular Ragh Risha
Particulars Raghu Rishu bh s u Rishu bh
Balance 1,19,0 1,12,0
b/d 00 00
Cash A/c 84,86 50,00
(Bal. Fig.) 48,040 0 Cash A/c 0
Investment
50,00 50,00 Fluctuation
Balance c/d 1,00,000 0 0 Fund 2,400 1,600
Premium
for
Goodwill 4,200 6,300
Revaluatio
n A/c 22,44 14,96
(Profit) 0 0
1,34,8 50,00 1,48,0 1,34,8 50,00

1,48,040 60 0 40 60 0
Balance Sheet
as on March 31, 2021
Amount Amount
Creditors 86,000 Cash (WN4) 4,600
Less:
Liability (10,800) 75,200 Debtors 42,000
Employees Provident
Fund 10,000 Investments 21,000
Buildings (98,000 +
Capital A/cs: 19,600) 1,17,600
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.
Amount Amount
Raghu’s
Balance b/d 77,000 Capital 48,040
Rishabh’s Capital 50,000 Rishu’s Capital 84,860
Premium for
Goodwill 10,500 Balance c/d 4,600
1,37,500 1,37,500
Page No 5.108:
Question 85: A and B were partners sharing profits and losses in the ratio of 3:2. Their Balance
Sheet as at 31st March, 2018, was as follows:
BALANCE SHEET OF A AND B as at 31st March, 2018
8,000
Capitals: Cash
A 1,04,000 Sundry Debtors 37,600
B 52,000 1,56,000 Less: Provision for Doubtful Debts 1,600 36,000
Stock 60,000
Creditors 1,54,000 Prepaid Insurance 6,000
Employees' Provident Fund 16,000 Plant and Machinery 76,000
Workmen Compensation Fund 10,000 Building 1,40,000
Contingency Reserve 10,000 Furniture 20,000
3,46,000 3,46,000
C was admitted as a new partner and brought 64,000 as capital and 15,000 for his share of
goodwill premium.
The new profit-sharing ratio was 5 : 3 :2. On C's admission the following was agreed upon:
(i) Stock was to be depreciated by 5%.
(ii) Provision for doubtful debts was to be made at `2,000.
(iii) Furniture was to be depreciated by 10%.
(iv) Building was valued at `1,60,000.
(v) Capitals of A and B were to be adjusted on the basis of C's capital by bringing or paying of
cash as the case may be.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of reconstituted
firm. (CBSE 2021)
Answer:
Revaluation Account
Dr. Cr.
Amount Amount
To Stock
To Provision for D.D. 3,000
To Furniture 400
To Profit transferred to 2,000 By Building 20,000
A=14,600×3/5= 8,760
B=14,600×2/5= 5,840 14,600
20,000 20,000
Dr.
Particulars A B C Particulars A B Cr.
Balance
c/d 1,32,260 73,340 64,000 Balance b/d 1,04,000 52,000 C
Cash A/c
64,000
Premium for
Goodwill 7,500 7,500
Revaluation A/c
(Profit) 8,760 5,840
Workers’
compensation
reserve
Contingency 6000 4000
reserve 6000 4000
1,32,260 73,340 64,000 1,32,260 73,340
Balance Balance b/d 1,32,260 73,340
c/d 1,60,000 96,000 64,000 Cash A/c 27,740 22,660 64,000
1,60,000 96,000 64,000 1,60,000 96,000 64,000
64,000
Balance Sheet
Amount Amount
Cash
1,54,000 (8,000+64,000+15,000+50,000) 1,87,400
Debtors 37,600
Creditors Less; Prov. For D.D. 2,000 35,000
Stock 57,000
Prepaid Insurance 6,000
Employees Provident Plant and Machinery 76,000
Fund 16,000 Building 1,60,000
Capital A/cs: Furniture 18,000
Raghu 1,60,000
Rishu 96,000
Rishabh 64,000 3,20,000
4,90,000 4,90,000
Working notes;
WN-1 Calculation of old and sacrificing ratio;

Old ratio of A and B =3:2
New ratio of A:B:C =5:3:2
A=3/5-5/10=6-5/10=1/10
B=2/5-3/10=4-3/10=1/10
Sacrificing ratio of A and B is 1:1
WN-2 Calculation of new firm’s capital;

Total capital of new firm on the basis of C’s Capital
C’s capital =64,000
New firm’s total capital=64,000×10/2=`3,20,000
New capital of A,B and C
A= 3,20,000×5/10 = `1,60,000
B= 3,20,000×3/10 =`96,000
C= 3,20,000×2/10 = `64,000
age No 5.108:
Question 86:
Following is the Balance Sheet of Abha and Binay as at 31st March, 2014:
Creditors 13,000 Bank 15,000
Employees Provident Fund 8,000 Debtors 22,000
Workmen Compensation Less : Provision for
Fund 15,000 Doubtful Debts 1,000 21,000
Capital A/cs: Stock 10,000
Abha 55,000 Plant and Machinery 60,000
Binay 30,000 85,000 Goodwill 10,000
Profit and Loss 5,000
1,21,000 1,21,000
Chitra was admitted as a partner for 1/4th share in the profits of the firm. It was decided
that:
(a) Bad Debts amounted to ` 1,500 will be written off.
(b) Stock worth ` 8,000 was taken over by Abha and Binay at Book Value in their
profit-sharing ratio. The remaining stock was valued at ` 2,500.
(c) Plant and Machinery and Goodwill were valued at ` 32,000 and ` 20,000
respectively.
(d) Chitra brought her share of goodwill in cash.
(e) Chitra will bring proportionate capital and the capitals of Abha and Binay will be
adjusted in their profit-sharing ratio by bringing in or paying off cash as the case may be.
Prepare Revaluation Account and Partners' Capital Accounts.
Answer:
Revaluation Account
Dr. Cr.
Amou
Amount nt
Bad debts 500 Stock 500
Plant and Machinery 28,000 Loss on Revaluation
14,00
Abha’s Capital A/c 0
14,00
Binay’s Capital A/c 0 28,000
28,500 28,500

Dr. Cr.
Particula Abh Bina Chitr Bina Chitr
rs a y a Particulars Abha y a
Revaluati 14,00 14,00 55,00 30,00
on 0 0 Balance b/d 0 0
18,00
Goodwill 5,000 5,000 Bank 0
Profit and Premium for
Loss 2,500 2,500 Goodwill 2,500 2,500
Stock 4,000 4,000 WCF 7,500 7,500
Balance 39,50 14,50 18,00
c/d 0 0 0
65,00 40,00 18,00 65,00 40,00 18,00
0 0 0 0 0 0
12,50 39,50 14,50 18,00
Bank 0 Balance c/d 0 0 0
Balance
c/d
(adjusted 27,00 27,00 18,00 12,50
) 0 0 0 Bank 0
39,50 27,00 18,00 39,50 27,00 18,00
0 0 0 0 0 0
Working Notes:
WN1 Calculation of Chitra's Capital
Chitra's Capital=Total Adjusted Capital of Abha and Binay×Reciprocal of Combined Pro

fit Share×Chitra's Profit Share
Abha's Adjusted Capital =55,000+2,500+7,500-14,000-5,000-2,500-4,000= ` 39,500
Binay's Adjusted Capital=30,000+2,500+7,500-14,000-5,000-2,500-4,000= ` 14,500
Chitra's Capital=(39,500+14,500)×4/3×1/4= ` 18,000
WN2 Calculation of New Capital
New Capital=Total Adjusted Capital×Respective Partner's Profit Share

Abha's New Capital=(39,500+14,500)×1/2= ` 27,000
Binay's New Capital=(39,500+14,500)×1/2= ` 27,000
WN3 Calculation of Chitra's Share of Goodwill
Chitra's Share=Firm's Goodwill×Chitra's Profit Share

=20,000×1/4= ` 5,000
` 5,000 will be shared between Abha and Binay in sacrificing ratio 1:1
Page No 5.109:
Question 87: Raman and Rohit were partners in a firm sharing profits and losses in the
ratio of 2: 1. On 31st March, 2018, their Balance Sheet was as follows:
BALANCE SHEET OF RAMAN AND ROHIT as at 31st March, 2018

Liabilities
` Assets `
Capitals: Plant and Machinery

Raman 1,40,000 Furniture and Fixtures 1,75,000
Rohit 1,00,000 Stock 65,000
240,000 47,000
40,000 Debtors 1,10,000
Workmen Compensation Fund 1,60,000 Less: Provision for Doubtful 7,000
Creditors Debts 1,03,000
Bank Balance 50,000
4,40,000 4,40,000
On the above date, Saloni was admitted in the partnership firm. Raman surrendered 2/5th
of his share
and Rohit surrendered 1/5th of his share in favour of Saloni. It was agreed that:
(i) Plant and machinery will be reduced by `35,000 and furniture and fixtures will be
reduced to `58,500.
(ii) Provision for bad and doubtful debts will be increased by `3,000.
(iii) A claim for `16,000 for workmen's compensation was admitted.
(iv) A liability of `2,500 included in creditors is not likely to arise.
(v) Saloni will bring `42,000 as her share of goodwill premium and proportionate capital.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the
reconstituted firm. (CBSE 2019)
Answer;
Revaluation Account
Dr. Cr.
Amou
Amount nt
Plant and
Machinery 35,000 Creditors 2,500
Furniture and fixtures 6,500 Loss transferred to;
Provision of doubtful Raman’s Capital 28,00
debts 3,000 A/c(42,000×2/3) 0
Rohit’s Capital 14,00
A/c(42,000×1/3) 0 42,000
44,500 44,500

Dr. Cr.
Abh Chitr Chitr
Particulars a Binay a Particulars Abha Binay a
28,0 140,0 1,00,0
To Revaluation 00 14,000 By Balance b/d 00 00
1,61, 1,02,4
To Balance c/d 600 00
33,60
By Premium 0 8,400
16,00
By W.C.F. 0 8,000
1,89, 1,16,4 1,89,6 1,16,4

600 00 00 00
1,61, 1,02,4 1,32,0 39,50 14,50
To Balance c/d 600 00 00 Balance c/d 0 0
12,50 1,32,
Bank A/c 0 000
1,61, 1,02,4 1,32,0 1,61,6 1,02,4 1,32,
600 00 00 00 00 000
Balance Sheet
as on April 31, 2019
Amou
Amount nt
1,40,0
1,57,500 Plant and Machiner 00
Firniture and fixture 58,500
Creditors Stock 47,000
Debtors 1,
worker 10,000
compensation Less; Prov. For 1,00,0
liabilities 16,000 D.D. 10,000 00
2,24,0
Capital A/cs: Cash at Bank 00
1,61,6 (50,000+1,32,000+42,0
Raman 00 00)
1,02,4
Rohit 00
1,32,0
Saloni 00 3,96,000
5,69,5
5,69,500 00
Working note;
WN-1
Calculation of old and sacrificing ratio
Old ratio Raman: Rohit=2:1
Raman surrenders to Saloni=2/3×2/5=4/15
Rohit surrenders to Saloni=1/3×1/5=1/15
New share of -
Raman=2/3-4/15=10-4/15=6/15
Rohit=1/3-1/15=5-1/15=4/15
Saloni=4/15+1/15+5/15
Therefore new ratio of Raman, Rohit and Saloni =6:4:5

Sacrificing ratio= old – new
Raman=2/3-6/15=10-6/15=4/15
Rahit=1/3-4/15=5-4/15=1/15
WN-1
Calculation of Capital of Raman and Rohit=1,61,600+1,02,400=2,64,000
Share of Raman and Rohit=6/15+4/15=6+4/15=10/15
Therefore, Capital of Raman , Rohit and Saloni=2,64,000×15/10=3,96,000
Saloni’s capital=3,96,000×5/15=1,32,000
Page No 5.109:
Question 88: A and B are partners in a firm sharing profits and losses in the ratio 3: 1. They admit C for
1/4th share on 31st March, 2014 when their Balance Sheet was as follows:
Employees' Provident Fund 17,000 Cash 6,100
Workmen Compensation 6,000 15,000
Reserve Stock
Debtors
Investment Fluctuation 4,100 Less: Provision for 50,000
Reserve Doubtful Debts 2,000 48,000
A’s Capital a/c 54,000 Investments 7,000
B’s Capital a/c 35,000 89,000 Goodwill 40,000
1,16,100 1,16,100
The following adjustments were agreed upon:

(a) C brings in `16,000 as goodwill and proportionate capital.
(b) Bad debts amounted to `3,000.
(c) Market value of investment is `4,500.
(d) Liability on account of Workmen Compensation Reserve amounted to `2,000.
Prepare Revaluation Account and Partners' Capital Accounts. (CBSE Sample Paper
2015)
Answer:
Revaluation A/c
To Bad debts 1,000 By Loss transferred
to: (WN1) 750
A’s Capital a/c 250
B’s Capital a/c
1,000 1,000
Capital A/c
By Balance b/d
By Investment
Fluctuation Fund
(WN2) 54,000 -
To revaluation By Worker 1,200 35,000 -
a/c compensation Reserve 3,000 400 -
To Goodwill 750 250 - a/c - 1,000 23,200
a/c 30,000 10,000 - By Cash a/c (WN5) 12,000 - -
To Balance c/d 39,450 30,150 23,200 By Premium a/c (WN4) 4,000
2,12,200 1,74,800 1,00,000 2,12,200 1,74,800 1,00,000
Working Notes;
WN1 Distribution of Revaluation Loss in 3: 1
A=1,000×3/4=750
B=1,000×1/4=250
WN2 Investment fluctuation Reserve in 3:1

Decreased value of investment=7,000-4,500=2,500
Balance of Investment fluctuation reserve = 4,100-2,500=1,600
A = 1,600×3/4 = 1,200
B = 1,600×1/4 = 400
WN3 Workers compensation Reserve in 3:1

Balance of Workers compensation reserve = reserve- Claim amount
=6,000-2,000=4,000
A = 4,000×3/4 = 3,000
B = 4,000×1/4 = 1,000
WN4 Distribution of Premium in Sacrificing Ratio 3:2

A = 16,000×3/4 = 12,000
B = 16,000×1/4 = 4,000
WN5 Capital brought by new partner

Total Adjusted Capital of A and B =39,450 + 30,150=69,600
Total profit sharing ratio of A and B = 1/1-1/4=3/4
Proportionate Capital Brought by C = 69,600×1/4=23,200
Page No 5.110:
Question 89:
L, M and N were partners in a firm sharing profits in the ratio of 3 : 2 : 1. Their Balance
Sheet on 31st March, 2015 was as follows:
1,68,00
Creditors 0 Bank 34,000
General Reserve 42,000 Debtors 46,000
1,20,00 2,20,00
Capital's A/cs: L 0 Stock 0
M 80,000 Investments 60,000
2,40,00
N 40,000 0 Furniture 20,000
Machinery 70,000
4,50,00 4,50,00
0 0
On the above date, O was admitted as a new partner and it was decided that:
(i) The new profit-sharing ratio between L, M, N and O will be 2 : 2 : 1 : 1.
(ii) Goodwill of the firm was valued at ` 1,80,000 and O brought his share of goodwill
premium in cash.
(iii) The market value of investments was ` 36,000.
(iv) Machinery will be reduced to ` 58,000.
(v) A creditor of ` 6,000 was not likely to claim the amount and hence was to be written
off.
(vi) O will bring proportionate capital so as to give him 1/6th share in the profits of the
firm.
new firm.
(Al 2016)
Answer:
Revaluation Account
Dr. Cr.
Amount Amount
Investments 24,000 Creditors 6,000
Machinery 12,000 Loss on Revaluation
L’s Capital A/c 15,000
M’s Capital A/c 10,000
N’s Capital A/c 5,000 30,000
36,000 36,000

Dr. Cr.
Particulars L M N O Particulars L M N O
Reval. A/c 15,000 10,000 5,000 Balance b/d 1,20,000 80,000 40,000
Balance c/d 1,56,000 84,000 42,000 56,400 Gen. Reserve 21,000 14,000 7,000
Premium for
G/w 30,000
Cash A/c 56,400
1,71,000 94,000 47,000 56,400 1,71,000 94,000 47,000 56,400
Balance Sheet
Amount
Liabilities ` Assets Amount `
Creditors 1,62,000 Bank (34,000+56,400+30,000) 1,20,400
Capitals: Debtors 46,000
L 1,56,000 Stock 2,20,000
M 84,000 Investments 36,000
N 42,000 Furniture 20,000
O 56,400 3,38,400 Machinery 58,000
5,00,400 5,00,400
Working Notes:
WN1: Calculation of Sacrificing Ratio

L= 3/6-2/6=1/6
M=2/6-2/6=Nil
N=1/6-1/6=- Nil
WN2: Adjustment of Goodwill
O‘s of goodwill=1,80,000×1/6=30,000
30,000 will be credited to L’s capital because he is only sacrifice.
WN3 Calculation of O’s Proportionate Capital
Adjusted old capital of L =

Adjusted old capital of M =
Adjusted old capital of N =
O’s proportion capital=Total adjusted capital×O’s profit share × reciprocal combined
new share of old partners
=2,82,000×1/6×6/5=56,400
Page No 5.110:
Question 90: Leena and Rohit are partners in a firm sharing profits in the ratio of 3: 2.
On 31st March, 2018, their
Balance Sheet was as follows:
BALANCE SHEET OF LEENA AND ROHIT as at 31st March, 2018
Sundry Creditors Cash 42,000
Bills Payable 80,000 Debtors
General Reserve 38,000 Less: Provision for 1,32,000
Capitals: 50,000 Doubtful Debts 2,000 1,30,000
Leena 1,60,000 Stock 1,46,000
Rohit 1,40,000 3,00,000 Plant and Machinery 1,50,000
4,68,000 4,68,000
On the above date Manoj was admitted as a new partner for 1/5th share in the profits of
the firm on the following terms:
(i) Manoj brought proportionate capital. He also brought his share of goodwill premium
of ` 80,000 in cash.
(ii) 10% of the general reserve was to be transferred to provision for doubtful debts.
(iii) Claim on account of workmen's compensation amounted to `40,000.
(iv) Stock was overvalued by `16,000.
(v)Leena, Rohit and Manoj will share future profits in the ratio of 5:3:2.
reconstituted firm. (CBSE 2019)
Answer:
Revaluation Account
Dr. Cr.
Amount Amount
By loss transferred to ;
To workers’ compensation Liabilities 40,000 Rohit×3/5=33,600
To Stock 16,000 Leena×2/5=22,400 56,000
56,000 56,000

Dr.
Particulars Leena Rohit Manoj

Particulars Leena Rohit Manoj
To Revaluation By Balance
a/c 32,600 22,400 b/d 160,000 140,000
By Premium
To Balance c/d 1,93,400 1,75,600 92,250 a/c 40,000 40,000
By General
reserve A/c
By Cash a/c 27,000 18,000 92,250
2,27,000 1,98,000 92,250 2,27,000 1,98,000 92,250

Balance Sheet
as on March 31, 2019 after Leander’s admission
Amount Amount
Cash
(42,000+80,000+92,250) 2,14,250
Creditors 80,000 Debtors
Bills payables 38,000 Less; prov. For doubtful 1,32,000
Workers’ compensation liabilities 40,000 debts 7,000 1,25,000
Capital a/c;
Leena 1,93,400
Rohit 1,75,600 Stock 1,30,000
Manoj 92,250 4,61,250 Plant and machinery 1,50,000
6,19,250 6,19,250
Working Notes;
WN 1:
Calculation of old ratio and sacrificing ratio
Leena Rohit Manoj
OLD RATION 3 : 2
NEW RATIO 5: 3 : 2
Sacrificing ratio= Old ratio – New Ratio
Leena =3/5-5/10=6-5/10=1/10
Rohit =2/5-3/10=4-3/10=1/10
Sacrificing ratio of Leena : Rohit=1:1
WN 2:
Calculation of Manoj’s capital
Capital of Leena and Rohit = 1,93,400+1,75,600=3,69,000
Share of Leena and Rohit = 8/10
Hence Capital of Leena ,Rohit and Manoj=3,69,000×10/8=4,61,250
Accordingly capital of Manoj=4,61,250-3,69,000=92,250
Page No 5.111:
Question 91:
Pradeep and Dhanraj were partners in a firm sharing profits in the ratio of 3 : 1. Their
Balance Sheet on 31st March, 2021 was:
Creditors 30,000 Cash 4,000
50,00
Bills Payable 1,000 Debtors 0
Less: Provision for
Reserve Fund 16,000 Doubtful Debts 5,000 45,000
Outstanding Salary 3,000 Stock 30,000
Capital A/cs: Bills Receivable 10,000
60,00
Pradeep 0 Patents 1,000
20,00
Dhanraj 0 80,000 Machinery 40,000
1,30,00 1,30,00
0 0
They admitted Leander as a new partner on this date. New profit-sharing ratio is agreed
as 3 : 2 : 3. Leander brings in proportionate capital after the following adjustments:
(a) Leander brings ` 16,000 as his share of goodwill.
(b) Provisions for Doubtful Debts is to be reduced by ` 2,000.
(c) There is an old Printer valued at ` 2,400. It does not appear in the books of the firm.
It is now to be recorded.
(d) Patents are valueless.
Prepare Revaluation Account, Capital Accounts and opening Balance Sheet of Pradeep,
Dhanraj and Leander.
Answer:
Revaluation Account
Dr. Cr.
Amount Amount
Provision for Doubtful
Patents 1,000 Debts 2,000
Profit on transferred
to Typewriter 2,400
Pradeep Capital 2,550
Dhanraj Capital 850
4,400 4,400

Dr. Cr.
Particulars Pradeep Dhanraj Leander Particulars Pradeep Dhanraj Leander
Balance b/d 60,000 20,000
Balance c/d 90,550 24,850 Reserve Fund 12,000 4,000
(after
adjustments) Revaluation 2,550 850
Premium for
Goodwill 16,000
90,550 24,850 90,550 24,850
Balance c/d 90,550 24,850
Cash 69,240
Balance c/d 90,550 24,850 69,240
90,550 24,850 69,240 90,550 24,850 69,240
Balance Sheet
as on March 31, 2021 after Leander’s admission
Amount Amount
Creditors 30,000 Debtors 50,000
Less: Prov. for D.
Bills Receivable 1,000 Debts 3,000 47,000
Outstanding Salary 3,000 Stock 30,000
Capital A/cs: Bills Receivable 10,000
Pradeep 90,550 Machinery 40,000
Dhanraj 24,850 Typewriter 2,400
Leander 69,240 1,84,640 Cash 89,240
2,18,640 2,18,640
Working Notes
WN1
Pradeep Dhanraj Leander

OLD RATION 3 : 1
NEW RATIO 3: 2 : 3

Pradeep = 3/4-3/8=3/8
Dhanraj =1/4-2/8=0/8
Leander acquires his share of profit from Pradeep only. Therefore, amount for goodwill
brought by Leander will be taken by Pradeep alone.
WN2
Distribution of Revaluation Profit
Pradeep ‘s share =3,400×3/4=2,550
Dhanraj’s share=3,400×1/4=850
WN3
Distribution of Reserve Fund
Pradeep ‘s share =16,000×3/4=12,000
Dhanraj’s share=16,000×1/4=4,000
WN4
Calculation of Leander’s Capital
Combined Capital of Pradeep and Dhanraj after all adjustments = 90,550 + 24,850 = 1,
15,400
Combined share of profit of Pradeep and Dhanraj = 1 − Leander share =1-3/8=5/8
Total Capital of the firm on the basis of combined capital of Pradeep and Dhanraj
=1,15,400×8/5=1,84,640
Leander’s capital=1,84,640×3/8=69,240
WN5
Cash Account
Dr. Cr.
Amount Amount
Balance b/d 4,000
Leander’s Capital 69,240
Premium for
Goodwill 16,000 Balance c/d 89,240
89,240 89,240
Page No 5.111:
Question 92:
Kalpana and Kanika were partners in a firm sharing profits in the ratio of 3 : 2. On 1st
April, 2021, they admitted Karuna as a new partner for 1/5th share in the profits of the
firm. The Balance Sheet of Kalpana and Kanika as on 1st April, 2021 was as follows:
BALANCE SHEET OF KALPANA AND KANIKA as on 1st April, 2021

Kalpana 4,80,000 Plant 2,70,000
Kanika 2,10,000 6,90,000 Stock 2,10,000
General Reserve 60,000 Debtors 1,32,000
Workmen's Compensation
Fund 1,00,000 Less: Provision 12,000 1,20,000
Creditors 90,000 Cash 26,000
1,30,000
9,40,000 9,40,000
It was agreed that:

(a) the value of Land and Building will be appreciated by 20%.
(b) the value of plant be increased by ` 60,000.
(c) Karuna will bring ` 80,000 for her share of goodwill premium.
(d) the liabilities of Workmen's Compensation Fund were determined at ` 60,000.
(e) Karuna will bring in cash as capital to the extent of 1/5th share of the total capital of
the new firm.
firm.
(Foreign 2014, Modified)
Answer:
Revaluation Account
Dr. Cr.
Amount Amount
Revaluation Profit Land and Building A/c 42,000
Kalpana’s Capital A/c 61,200 Plant A/c 60,000
Kanika’s Capital A/c 40,800 1,02,000
1,02,000 1,02,000

Dr. Cr.
Particulars Kalpana Kanika KarunaParticulars Kalpana Kanika Karuna
Balance b/d 4,80,000 2,10,000
Cash 2,43,000
Balance c/d 6,49,200 3,22,800 2,43,000 General Reserve 36,000 24,000
Workmen
Compensation
Fund 24,000 16,000
Revaluation A/c 61,200 40,800
Premium for
Goodwill 48,000 32,000
6,49,200 3,22,800 2,43,000 6,49,200 3,22,800 2,43,000
Balance Sheet
as on April 01, 2021 after Karuna’s admission
Amount Amount
Creditors 90,000 Cash in Hand 4,53,000
Capitals: Debtors 1,32,000
Less: Provision for
Kalpana 6,49,200 debtors 12,000 1,20,000
Kanika 3,22,800 Stock 2,10,000
Karuna 2,43,000 12,15,000 Land and Building 2,52,000
Liability for Workmen
Compensation 60,000 Plant 3,30,000
13,65,000 13,65,000
Working Notes:
WN1 Calculation of New share

Karuna is admitted for 1/5th share
Let the total share of the firm be 1
Remaining share =1-15=45
This remaining share will be shared among old partners in their old ratio i.e. 3 : 2
Kalpana's Share =4/5×3/5=12/25
Kanika's Share =4/5×2/5=8/25
New Ratio = 12 : 8 : 5
Calculation of Sacrificing Ratio
Sacrificing Ratio = Old Ratio – New Ratio

Kalpana=3/5-12/25=3/25
Kanika=2/5-8/25=2/25
Sacrificing Ratio = 3 : 2
WN2 Calculate of Karuna's Capital

Adjusted Capital of Kalpana = 6.49,200
Adjusted Capital of Kanika = 3,22,800
Total Adjusted Capital = 9,72,000 (6,49,200+3,22,800)
Karuna’s capital =9,72,000 ×1/5×5/4=2,43,000
Page No 5.112:
Question 93:
A and B are partners sharing profits in the ratio of 3 : 2. They admit C as a new partner
from 1st April, 2021. They have decided to share future profits in the ratio of 4 : 3 : 3.
The Balance Sheet as at 31st March, 2021 is given below:
A's Capital 1,76,000 Goodwill 34,000
B's Capital 2,54,000 4,30,000 Land and Building 60,000
Workmen Compensation Investment
Reserve 20,000 (Market value `45,000) 50,000
Investments Fluctuation
Reserve 10,000 Debtors 1,00,000
Less: Provision for
Employee's Provident Fund 34,000 Doubtful Debts 10,000 90,000
C's Loan 3,00,000 Stock 3,00,000
Bank Balance 2,50,000
Advertising Suspense A/c 10,000
7,94,000 7,94,000
Terms of C's admission are as follows:

(i) C contributes proportionate capital and 60% of his share of goodwill in cash.
(ii) Goodwill is to be valued at 2 years' purchase of super profit of last three completed
years. Profits for the years ended 31st March were:
2017 − ` 4,80,000; 2018 − ‹ ` 9,30,000; 2021 − ` 13,80,000.
The normal profit is ` 5,30,000 with same amount of capital invested in similar
industry.
(iii) Land and Building was found undervalued by ` 1,00,000.
(iv) Stock was found overvalued by ‹ ` 31,000.
(v) Provision for Doubtful Debts is to be made equal to 5% of the debtors.
(vi) Claim on account of Workmen Compensation is ` 11,000.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet.
Answer:
Revaluation Account
Dr. Cr.
Amount Amount
Stock 31,000 Land & Building 1,00,000

Profit transferred to: Provision for Doubtful Debts 5,000
A’s Capital A/c 44,400
B’s Capital A/c 29,600 74,000
1,05,000 1,05,000

Dr. Cr.
Goodwill 20,400 13,600 Balance b/d 1,76,000 2,54,000
Advertisement
Suspense A/c 6,000 4,000 Bank A/c 3,06,000
Premium for
Balance c/d 3,62,400 3,51,600 3,06,000 Goodwill A/c 96,000 48,000
C’s Current A/c 64,000 32,000
Revaluation A/c 44,400 29,600
IFR 3,000 2,000
WCR 5,400 3,600
3,88,800 3,69,200 3,06,000 3,88,800 3,69,200 3,06,000
Bank Account
Dr. Cr.
Amount Amount
Balance b/d 2,50,000 Balance c/d 7,00,000
C’s Capital 3,06,000
Premium for Goodwill 1,44,000
7,00,000 7,00,000
Balance Sheet
as on 1st April, 2021 after C’s admission
Liabilities Amount Assets Amount
` `
Workmen Compensation Reserve 11,000 Land & Building 1,60,000
Employees Provident Fund 34,000 Bank A/c 7,00,000
C ‘s Loan 3,00,000 Investment 45,000
Capital Stock 2,69,000
A 3,62,400 C ‘s Current A/c 96,000
B 3,51,600 Debtors 1,00,000
Less : Provision for
C 3,06,000 10,20,000 Doubtful Debts 5,000 95,000
13,65,000 13,65,000
Working Notes:
WN1: Calculation of Sacrifice or Gain
A :B=3:2 (Old Ratio)

A :B :C=4:3 :3 (New Ratio)S
acrificing (or Gaining) Ratio = Old Ratio - New Ratio
A's share=3/5−4/10=6−4/10=2/10
B's share=2/5−3/10=4−3/10=1/10
A:B=2:1
WN:2 Calculation of Goodwill
Goodwill=Super Profit×No. of Years' Purchase

=4,00,000×2= ` 8,00,000
C's share of Goodwill=8,00,000×3/10= ` 2,40,000
Goodwill brought in cash = 2,40,000×60/100= ` 1,44,000
Average Profit=Total Profits of past years givenNumber of Years =27,90,000/3= ` 9,30,
000
Normal Profit=Capital Employed×Normal Rate of Return/100
= ` 5,30,000
Super Profit = Average Profit-Normal Profit
=9,30,000-5,30,000= ` 4,00,000
WN:3 Calculation of C’s Capital

Combined Capital A and B's Capital for 7/10th=3,62,400 + 3,51,600 = ` 7,14,000
So, C's Capital = 7,14,000×10/7×3/10= ` 3,06,000
Page No 5.110:
Question 94: On 31st March, 2021 the Balance Sheet of Ram and Shyam who share
profits and losses in the ratio of 3:2 was as follows:
BALANCE SHEET OF RAM AND SHYAM as at 31st March, 2021
Cash at Bank
Debtors
Creditors 70,000 Less: Provision for Doubtful 1,62,500 25,000
General Reserve 25,000 debts 12,500
Employees' Provident Fund 55,000 1,50,000
Capitals:
Ram 1,50,000 Stock 82,500
Shyam 1,00,000 2,50,000 Machinery 142,500
4,00,000 4,00,000
They decided to admit Mahesh on 1st April, 2021 for 1/5th share which Mahesh acquired
wholly from Shyam on the following terms:
(i) Mahesh shall bring `25,000 as his share of premium for Goodwill.
(ii) A debtor whose dues of `7,500 were written off as bad debt paid `5,000 in settlement.
(iii) A claim of `12,500 on account of workmen's compensation was to be provided for.
(iv) Machinery were undervalued by `5,000. Stock was valued 10% more than its market
value.
(v) Mahesh was to bring in capital equal to 20% of the combined capitals of Ram and
Shyam after all adjustments.
firm.
Answer:
Revaluation A/c
By Bad debts Recovered 5,000
To Worker compensation By Machinery 5,000
Liabilities By Loss Transferred to-
To Stock 12,500 Ram’s Capital =6,000
(82,500×10/110) 7,500 Shyam’s Capital =4,000 10,000
20,000 20,000

Dr. Cr.
Particulars Ram Shyam Mahesh Particulars Ram Shyam Mahesh
To Revaluation A/c 6,000 4,000 By Balance b/d 1,50,000 1,00,000
By Premium A/c 25,000
To Balance c/d 1,59,000 1,31,000 By General Reserve 15,000 10,000
1,65,000 1,35,000 1,65,000 1,35,000
To Balance c/d 1,59,000 1,31,000 58,000 Balance b/d 1,59,000 1,31,000
Bank a/c 58,000
1,59,000 1,31,000 58,000 1,59,000 1,31,000 58,000
Balance Sheet
as on 1st April, 2021
Amount Amount
Workmen Compensation Reserve 12,500 Bank A/c 1,13,000
Employees Provident Fund 5,500 (25,000+25,000+58,000+5,000)
Creditors 70,000 machinery 1,47,500
Capital Stock 75,000
Ram 1,59,000
Shyam 1,31,000 Debtors 1,62,500
Less : Provision for
Mahesh 58,000 3,48,000 Doubtful Debts 12,500 1,50,000
4,85,500 4,85,500
Working notes;
WN-1
Calculation of Old and sacrificing ratio
Old ratio of Ram and shyam= 3:2
New ratio of –
Ram=3/5
Shyam=2/5-1/5=2-1/5=1/5
Mahesh= 1/5
New ratio of Ram, shyam and Mahesh=3:1:1
Sacrificing ratio of –
Ram =3/5-3/5=3-3/5=0/5
Shyam=2/5-1/5=2-1/5=1/5
Sacrificing ratio of Ram and Shyam = 0:1
WN-2
Adjusted Capital of Ram and shyam= 1,59,000+1,31,000=2,90,000
Mahesh’s capital= 2,90,000×20/100=58,000

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Page No 5.

Partners’ Capital Accounts

Partners’ Capital a/c

Partners’ Current a/c

1. Calculation of Sacrificing Ratio

Calculation of new profit sharing ratio

2. Goodwill for 1/6th share of Raina = `12,000

Goodwill payable to Badal and Bijli

April 1 Stationery A/c Dr. 1,000

April 1 X’s Capital A/c Dr. 7,800

April 1 Reserve Fund A/c Dr. 18,000

April 1 Cash A/c Dr. 55,000

April 1 Premium for Goodwill A/c Dr. 15,000

April 1 X’s Capital A/c Dr. 5,000

April 1 Cash A/c Dr. 4,800

April 1 Y’s Capital A/c Dr. 26,600

Typewriter (5,000 × 20%) 1,000 Investment 2,000

Cash 26,600 Balance b/d 74,200 66,600 40,000

80,000 66,600 40,000 80,000 66,600 40,000

WN1: Sacrificing Ratio

WN4: Adjustment of Capital

WN1: Sacrificing Ratio

WN3: Distribution of Revaluation Profit

WN4: Adjustment of Capitals (in new ratio)

Partners’ Capital Accounts

WN3 Distribution of Revaluation Profit

WN4 Adjustment of Capital

Total Capital of the firm

It was agreed that:

Partners’ Capital Accounts

Balance c/d 9,40,000 4,10,000 4,30,000 General Reserve 70,000 30,000

Premium for Goodwill 17,500 7,500

Revaluation A/c (Profit) 17,500 7,500

9,40,000 4,10,000 4,30,000 9,40,000 4,10,000 4,30,000

Calculation of Profit Sharing Ratio:

WN1: Distribution of Goodwill brought in by Kavi:

WN2: Distribution of Workmen’s Compensation Fund

WN3: Distribution of General Reserve:

WN4: Adjustment of Capital:

Shikhar’s new of capital=17,40,000×21/40=9,03,000

General Reserve 15,000 Stock 1,37,000

On the above date, W is admitted as a partner on the following terms:

Partners’ Current Account

Partners’ Capital Account

WN2 Distribution of Goodwill

W's Share of Goodwill=90,000×16= ` 15,000

WN3 Adjustment of Capital

Total Capital of the firm=W's Capital×Reciprocal of his share

Partners’ Capital Account

1,34,8 50,00 1,48,0 1,34,8 50,00

WN 1Calculation of Sacrificing Ratio

WN 2Share of Rishabh’s Share of Goodwill

Raghu‘s new capital= 2,00,000× 2/4=1,00,000

WN-1 Calculation of old and sacrificing ratio;

WN-2 Calculation of new firm’s capital;

Partners’ Capital Accounts

WN1 Calculation of Chitra's Capital

Chitra's Capital=Total Adjusted Capital of Abha and Binay×Reciprocal of Combined Pro

WN2 Calculation of New Capital