Bittu and Chintu were partners in a firm sharing profits and losses in the ratio of 4 : 3. Their Balance Sheet as at 31st March, 2024 was as follows:
Balance Sheet of Bittu and Chintu as at 31st March, 2024
Liabilities Amount (₹) Assets Amount (₹) Capitals: Fixed Assets 15,40,000 Bittu 8,00,000 Stock 3,50,000 Chintu 6,00,000 Debtors 1,40,000 General Reserve 2,10,000 Bank 70,000 Creditors 4,90,000 Total 21,00,000 Total 21,00,000
On 1st April, 2024, Diya was admitted in the firm for 1⁄7 share in the profits on the following terms:
- New profit sharing ratio between Bittu, Chintu, and Diya will be 3 : 3 : 1.
- Fixed Assets were found to be overvalued by ₹ 1,40,000.
- Creditors were paid ₹ 4,20,000 in full settlement.
- Diya brought proportionate capital and ₹ 5,60,000 as her share of goodwill premium by cheque.
Prepare Revaluation Account and Partners’ Capital Accounts.
Bittu and Chintu were partners in a firm sharing profits and losses in the ratio of 4 : 3. Their Balance Sheet as at 31st March, 2024 was as follows:
Balance Sheet of Bittu and Chintu as at 31st March, 2024
| Liabilities | Amount (₹) | Assets | Amount (₹) |
| Capitals: | Fixed Assets | 15,40,000 | |
| Bittu | 8,00,000 | Stock | 3,50,000 |
| Chintu | 6,00,000 | Debtors | 1,40,000 |
| General Reserve | 2,10,000 | Bank | 70,000 |
| Creditors | 4,90,000 | ||
| Total | 21,00,000 | Total | 21,00,000 |
On 1st April, 2024, Diya was admitted in the firm for 1⁄7 share in the profits on the following terms:
- New profit sharing ratio between Bittu, Chintu, and Diya will be 3 : 3 : 1.
- Fixed Assets were found to be overvalued by ₹ 1,40,000.
- Creditors were paid ₹ 4,20,000 in full settlement.
- Diya brought proportionate capital and ₹ 5,60,000 as her share of goodwill premium by cheque.
Prepare Revaluation Account and Partners’ Capital Accounts.
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Solution and Explanation
Revaluation Account
| Particulars | Amount (₹) | Particulars | Amount (₹) |
| To Fixed Assets (Decrease) | 1,40,000 | By Creditors (Saving) | 70,000 |
| By Loss transferred: | |||
| Bittu’s Capital A/c | 40,000 | ||
| Chintu’s Capital A/c | 30,000 | ||
| Total | 1,40,000 | Total | 1,40,000 |
Loss on Revaluation
Loss on Revaluation = ₹ 70,000 distributed in 4 : 3 ratio
Bittu’s share = ₹ 70,000 × 4/7 = ₹ 40,000
Chintu’s share = ₹ 70,000 × 3/7 = ₹ 30,000
Partners’ Capital Accounts
Adjustment for General Reserve:
Bittu’s share = ₹ 2,10,000 × 4/7 = ₹ 1,20,000
Chintu’s share = ₹ 2,10,000 × 3/7 = ₹ 90,000
Adjustment for goodwill premium brought by Diya:
Diya brings ₹ 5,60,000
Divided in sacrificing ratio = old ratio – new ratio
Old ratio = 4 : 3
New ratio = 3 : 3 : 1
Sacrifice of Bittu = 4/7 – 3/7 = 1/7
Sacrifice of Chintu = 3/7 – 3/7 = 0
Thus entire premium goes to Bittu = ₹ 5,60,000
Capital of Diya = 1/7 of firm’s total capital = 1/7 × ₹ 21,00,000 = ₹ 3,00,000
Total brought in by Diya = ₹ 3,00,000 + ₹ 5,60,000 = ₹ 8,60,000
Final Answer
Revaluation loss ₹ 70,000 distributed and goodwill adjusted. Diya’s capital and premium recorded.
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