Question

Bittu and Chintu were partners in a firm sharing profit and losses in the ratio of 4 : 3. Their Balance Sheet as at 31st March, 2024 was as follows:

  
On 1st April, 2024, Diya was admitted in the firm for \( \frac{1}{7} \)th share in the profits on the following terms:

• (i) New profit sharing ratio between Bittu, Chintu and Diya was 3 : 3 : 1 .
• (ii) Fixed Assets were found to be overvalued by ₹ 1,40,000.
• (iii) Creditors were paid ₹ 4,20,000 in full settlement.
• (iv) Diya brought proportionate capital and ₹ 5,60,000 as her share of goodwill premium by cheque.

Prepare Revaluation Account and Partners' Capital Accounts. 

Hint:

Steps for Admission Problem: 1. Calculate Sacrificing Ratio (Old - New). 2. Prepare Revaluation A/c for changes in asset/liability values. Distribute profit/loss in OLD ratio. 3. Adjust Goodwill: Cr. Sacrificing Partners (in Sacrificing Ratio), Dr. Gaining Partners (if existing goodwill adjusted) or Cr. Premium for Goodwill (if brought in cash). 4. Distribute existing reserves/accumulated profits/losses in OLD ratio. 5. Prepare Capital Accounts, posting all adjustments. 6. Calculate new partner's proportionate capital if required: Find adjusted capitals of old partners, determine total firm capital based on their combined share, then find new partner's share.

Answer 1

1. Revaluation Account

Particulars	Amount (₹)	Particulars	Amount (₹)
Fixed Assets (Overvaluation)	1,40,000	Creditors (Settlement)	70,000
		Profit on Revaluation:
		Bittu (4/7)	40,000
		Chintu (3/7)	30,000
Total	1,40,000	Total	1,40,000

Explanation:

• Fixed Assets: The fixed assets were found to be overvalued by ₹ 1,40,000, so this amount is debited to reduce the value of assets.
• Creditors: Creditors of ₹4,90,000 were paid ₹ 4,20,000 in full settlement. This means that there is a profit on revaluation of ₹70,000 (₹4,90,000-₹4,20,000).
• Revaluation Profit Distribution: The profit on revaluation (₹70,000 total) is then distributed between Bittu and Chintu in their old profit-sharing ratio (4:3).
  • To calculate the profit of revaluation (70000-140000)= ₹(70,000) total is then losses on revaluation is distributed between Bittu and Chintu in their old profit-sharing ratio (4:3).
  • To calculate the loss of Bittu (70,000)*4/7=(40,000)
  • To calculate the Loss of Chintu (70,000)*3/7=(30,000)

2. Partners' Capital Accounts

Particulars	Bittu (₹)	Chintu (₹)	Diya (₹)	Particulars	Bittu (₹)	Chintu (₹)	Diya (₹)
To Revaluation A/c	40,000	30,000		By Balance b/d	8,00,000	6,00,000
To General Reserve A/c (4/7)	1,20,000	90,000		By General Reserve A/c (₹ 2,10,000*4/7)	1,20,000	1,20,000
				By Bank (Capital)			5,60,000
To Bank A/c				By Bank(Goodwill)	5,60,000
				By Partner capital/ premium		5,60,000
To Balance c/d	15,20,000	6,60,000	5,60,000
Total	16,80,000	7,80,000	5,60,000	Total	16,80,000	7,80,000	5,60,000

Explanation:

• Balances b/d: These are the opening balances of the partners' capital accounts from the Balance Sheet.
• Revaluation Profit: The profit on revaluation is credited to the partners' capital accounts in their old profit-sharing ratio (4:3).
• General Reserve Distribution: The general reserve (₹ 2,10,000) is distributed to the old partners (Bittu and Chintu) in their old profit-sharing ratio (4:3)
  • Bittu (210000*4/7) =1,20,000
  • Chintu (210000*3/7)=90,000
• Diya's Capital: Diya brings in ₹ 5,60,000 as her capital, and this amount is credited to her capital account.
• Bittu's Goodwill: Bittu receives ₹ 5,60,000 for the goodwill and is credited to his capital account.
• Chintu's Partner Capital/ Premium: Chintu receives ₹ 5,60,000 for the premium and is credited to his capital account.

Working Notes for Diya Capital Calculation:
Given that, Diya was admitted for 1/7th share
Thus, the capital bought by Diya must be
-1/7th * of total capital=560000
-7* 560000= 560000, the amount paid by Diya will be paid as goodwill to the partners