Preparation of Revaluation Account, Capital Accounts and Balance Sheet after admission of Partner

Preparation of Revaluation Account, Capital Accounts and Balance Sheet after admission of Partner :

Illustration :

Anitha and Vanitha are partners. They share profits and losses in the ratio of 3:1. Their Balance sheet as on 31st March 2005 is as follows:

Liabilities	Rs.	Assets	Rs.
Creditors	60,000	Cash	5,000

Bills payable	20,000	Debtors	70,000
General Reserve	40,000	Stock	30,000
Capitals:		Plant	25,000

Anitha 80,000		Buildings	1,00,000
Vanitha 40,000_	1,20,000	Profit and Loss A/c	10,000

	2,40,000		2,40,00

On 1st April 2005, they agreed to admit Kavitha into the firm for 1/5th Share of future profits on the following terms:

a) Building is revalued at Rs.1,20,000

b) Stock is revalued at Rs.21,500

c) Goodwill is raised at Rs.40,000

d) Provision for bad debts is made at 5%

e) Kavitha to bring in a Capital of Rs.50,000

Give journal entries to give effect of above adjustments, prepare Revaluation account, Capital accounts, Cash account and the Balance Sheet of the reconstituted firm.

Solution:

Journal Entries

`Date`	`Particulars`	`L.F`	`Debit` `Rs.`	`Credit` `Rs.`
	Building A/c Dr.		20,000
	To Revaluation A/c			20,000
	(Building appreciated)
	Revaluation A/c Dr.		12,500
	To Stock A/c			8,500
	To Provision for doubtful debts			3,500
	(Stock depreciated and provision for doubtful debts transferred)
	Revaluation A/c Dr.		8,000
	To Anitha’s Capital A/c			6,000
	To Vanitha’s Capital A/c			2,000
	(Profit on revaluation transferred to old partners in the old ratio)

	Anitha’s Capital A/c Dr.		7,500
	Vanitha’s Capital A/c Dr.		2,500
	To Profit & Loss A/c			10,000
	(Undistributed loss transferred)

	Goodwill A/c Dr.		40,000
	To Anitha’s Capital A/c			30,000
	To Vanitha’s Capital A/c			10,000
	(Goodwill raised and shared among old partners in the old ratio)

	Cash A/c Dr.		50,000
	To Kavitha’s Capital A/c			50,000
	(Capital brought in by Kavitha)

	General Reserve A/c Dr.		40,000
	To Anitha’s Capital A/c			30,000
	To Vanitha’s Capital A/c			10,000
	(Accumulated reserve transferred
	to old partners in the old ratio)

Revaluation Account

Dr. Cr.

Particulars	Rs.	Particulars	Rs.
To Stock	8,500	By Building A/c	20,000
To Provision for doubtful debts	3,500
To Profit on revaluation transferred to Capital Accounts:
Anitha 6,000
Vanitha 2,000
	8,000
	20,000		20,000

Capital Accounts
Dr. Cr.

Particulars	Anitha	Vanitha	Kavitha	Particulars	Anitha	Vanitha	Kavitha
Particulars	Rs.	Rs.	Rs.	Particulars	Rs.	Rs.	Rs.
To Profit and Loss A/c	7,500	2,500	–	By Balance b/d	80,000	40,000	–
To Balance cid	138,500	59,500	50,000	By Cash A/c			50,000
				By General Reserve	30,000	10,000	–
				By Goodwill	30,000	10,000	–
				By Revaluation A/c	6,000	2,000	–
	1,46,000	62,000	50,000		1,46,000	62,000	50,000

Cash Account

Dr. Cr.

Particulars

Rs.

Particulars

Rs.

To Balance b/d

To Kavitha’s Capital A/c

5,000

50,000

By Balance c/d

55,000

Balance Sheet of Anitha, Vanitha and Kavitha

as on 1.4.2005.

Liabilities		Rs.	Assets		Rs.
Creditors		60,000	Cash		55,000
Bills payable		20,000	Debtors	70,000
Capitals:			Less: Provision for Bad debts	3.500
Anitha	1,38,500				66,500
Vanitha	59,500		Stock		21,500
Kavitha	50.000	2,48,000	Plant		25,000
			Buildings		1,20,000
			Goodwill		40,000
		3,28,000			3,28,000

Illustration:

Sankari and Sudha are partners sharing profit and loss in the ratio of 3:2. Their Balance Sheet as on 31st March 2005 is as under :

Liabilities	Rs.	Assets	Rs.
Capital:		Land & Buildings	1,20,000
Sankari 90,000		Plant & Machinery	90,000
Sudha 75.000	1,65,000	Stock	33,000
Profit and Loss A/c	30,000	Sundry Debtors 15,000
Sundry Creditors	48,000	Less: Provision for
Bills payable	50,000	doubtful debts 1.000	14,000
		Cash	6,000
	—————–	Goodwill	30,000
	2,93,000		2,93,000

They decided to admit Santhi into the partnership with effect from 1st April 2005 on the following terms:

a) Santhi to bring in Rs.60,000 as Capital for 1/3rd share of profits.

b) Goodwill was valued at Rs.45,000

c) Land was valued at Rs.1,50,000

d) Stock was to be written down by Rs.8,000

e) The provision for doubtful debts was to be increased to Rs.3,000

f) Creditors include Rs.5,000 no longer payable and this sum was to be written off.

g) Investments of Rs.10,000 be brought into books.

Prepare Revaluation A/c, Capital A/c and Balance Sheet of the new firm.

Solution:

Dr. Revaluation Account Cr.

Particulars	Rs.	Particulars	Rs.
To Stock	8,000	By Land	30,000
To Provision for doubtful		By Creditors	5,000
debts	2,000	By Investments	10,000
To Profit on revaluation:
Sankari 21,000
Sudha 14.000___	35,000
	45,000		45,000

Capital Accounts
Dr. Cr.

Particulars	Sankari Rs.	Sudha Rs.	Santhi Rs.	Particulars	Sankari Rs.	Sudha Rs.	Santhi Rs.
To Balance cid	1,38,000	1,07,000	60,000	By Balance b/d	90,000	75,000
				By Cash			60,000
				By Goodwill	9,000	6,000
				By Profit and Loss A/c	18,000	12,000
				By Revaluation A/c	21,000	14,000
	1,38,000	1,07,000	60,000		1,38,000	1,07,000	60,000

Cash Account

Dr. Cr.

Particulars

Rs.

Particulars

Rs.

To Balance b/d

To Shanthi’s Capital A/c

6,000

60,000

By Balance c/d

66,000

Balance Sheet of Sankari, Sudha and Santhi
as on 1st April 2005

Liabilities		Rs.	Assets		Rs.
Capitals:			Land & Buildings		1,50,000
Sankari	1,38,000		Plant & Machinery		90,000
Sudha	1,07,000		Stock		25,000
Santhi	60.000	3,05,000	Sundry Debtors	15,000
Sundry Creditors		43,000	Less: Provision for doubtful debts	3,000	12,000
Bills payable		50,000	Goodwill		45,000
			Cash		66,000
			Investments		10,000
		3,98,000			3,98,000

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