Question

Asha and Indra were partners in a firm sharing profits and losses in the ratio of 3 : 2. Their Balance Sheet on 31st March, 2025 was as following : Balance Sheet of Asha and Indra as at 31st March, 2025

On 1st April, 2025, Suraj was admitted for 1/4th share in the profits of the firm on the following terms : (i) Suraj will bring capital proportionate to his share in the profits of the firm. (ii) Goodwill of the firm was valued at ₹ 1,00,000 and Suraj will bring his share of goodwill premium in cash. (iii) Furniture was taken over by Asha at ₹ 1,00,000. (iv) A liability of ₹ 5,000 included in creditors was not likely to arise. (v) Plant and Machinery was revalued at ₹ 4,35,000. Prepare Revaluation Account and Partners' capital accounts on Suraj's admission. Show the calculation of proportionate capital clearly.

Hint:

When a new partner is admitted, prepare Revaluation Account for asset/liability adjustments. New partner's capital is calculated based on the adjusted capitals of old partners and his profit share.

Answer 1

In the Books of the Firm

Revaluation Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Furniture A/c (1,20,000 − 1,00,000)	20,000	By Plant & Machinery A/c (4,35,000 − 4,05,000)	30,000
To Profit on Revaluation transferred to:		By Creditors A/c	5,000
	Asha’s Capital A/c (3/5) = 9,000  Indra’s Capital A/c (2/5) = 6,000
Total	35,000	Total	35,000

Partners’ Capital Accounts

Dr.				Cr.
Particulars	Asha (₹)	Indra (₹)	Suraj (₹)	Particulars	Asha (₹)	Indra (₹)	Suraj (₹)
To Furniture A/c	1,00,000	-	-	By Balance b/d	4,00,000	3,00,000	-
				By General Reserve A/c	30,000	20,000	-
				By Revaluation A/c (Profit)	9,000	6,000	-
				By Premium for Goodwill A/c	15,000	10,000	-
				By Bank A/c (Capital)	-	-	2,30,000
To Balance c/d	3,54,000	3,36,000	2,30,000
Total	4,54,000	3,36,000	2,30,000	Total	4,54,000	3,36,000	2,30,000

Working Notes

1. New Profit Sharing Ratio

Old Ratio (Asha : Indra) = \( 3 : 2 \) Suraj’s Share = \( \frac{1}{4} \) Remaining Share = \[ 1 - \frac{1}{4} = \frac{3}{4} \] Asha’s New Share: \[ \frac{3}{4} \times \frac{3}{5} = \frac{9}{20} \] Indra’s New Share: \[ \frac{3}{4} \times \frac{2}{5} = \frac{6}{20} \] Suraj’s Share: \[ \frac{1}{4} = \frac{5}{20} \] New Ratio = **9 : 6 : 5** ---

2. Goodwill Treatment

Firm’s Goodwill = ₹ 1,00,000 Suraj’s Share of Goodwill: \[ 1,00,000 \times \frac{1}{4} = 25,000 \] ---

3. Sacrificing Ratio

Asha’s Sacrifice: \[ \frac{3}{5} - \frac{9}{20} = \frac{12}{20} - \frac{9}{20} = \frac{3}{20} \] Indra’s Sacrifice: \[ \frac{2}{5} - \frac{6}{20} = \frac{8}{20} - \frac{6}{20} = \frac{2}{20} \] Sacrificing Ratio = **3 : 2** ---

4. Distribution of Goodwill Premium

Asha’s Share: \[ 25,000 \times \frac{3}{5} = 15,000 \] Indra’s Share: \[ 25,000 \times \frac{2}{5} = 10,000 \] ---

5. Revaluation Adjustments

Increase in Plant & Machinery = ₹ 30,000 Decrease in Furniture = ₹ 20,000 Creditors no longer payable = ₹ 5,000 Net Profit: \[ 30,000 + 5,000 - 20,000 = 15,000 \] Distributed: - Asha = ₹ 9,000 - Indra = ₹ 6,000 ---

6. Suraj’s Proportionate Capital

Total Capital of Old Partners: \[ 3,54,000 + 3,36,000 = 6,90,000 \] This represents \( \frac{3}{4} \) of total capital. \[ \text{Total Firm Capital} = 6,90,000 \times \frac{4}{3} = 9,20,000 \] Suraj’s Capital: \[ 9,20,000 \times \frac{1}{4} = 2,30,000 \] Total brought by Suraj: \[ 2,30,000 + 25,000 = 2,55,000 \]