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Rajib and Sanjiv are in partnership sharing profits and losses in the ratio of 3 : 2. Their Balance Sheet as on 31st March, 2023 is as under:

Liabilities Assets
Rajib’s Capital

Sanjiv’s Capital

Workmen Compensation Reserve

Investment Fluctuation Reserve

Employee’s Provident Fund

Sagar’s Loan

1,76,000

2,54,000

20,000

10,000

3,00,000

Goodwill

Land and Building

Investments (Market Value ₹ 45,000)

Debtors
Less: Provision For Doubtful Debts

Stock

Bank Balance

Advertisement Suspense A/c

 

 

 

1,00,000
10,000

 

10,000

60,000

50,000

90,000

3,00,000

2,50,000

10,000

7,70,000 7,70,000

On 1st April, 2023, they agree to take Sagar as a partner to increase the capital base of the firm, under the following terms:

(i) Rajib will sacrifice 1/3rd of his share while Sanjiv sacrifices 1/10 from his share in favour of Sagar.

(ii) Sagar’s loan will be converted into his capital.

(iii) Sagar brings in 60^ of his share of goodwill in cash.

iv) Goodwill is to be valued at 3 year’s purchase of super profit of the last three completed years, profits for the last three years ended 31st march, as as follows:

2021 – ₹ 4,80,000; 2022 – ₹ 9,30,000; and 2023 – ₹ 13,80,000.

(v) Land and Building was undervalued by ₹ 50,000. Stock was overvalued by ₹ 7,000 and provision for doubtful debts is to be equal to 5% of the debtors.

(vi) Claim on account of Workmen Compensation is ₹ 10,000. An unrecorded accrued income of ₹ 10,0000 be provided for. A debtor whose dues of ₹ 50,000 were written off as bad debts paid ₹ 4,000 in full settlement.

(vii) Workmen Compensation Reserve and Investment Fluctuation Reserve are to appear in the books of the new firm after adjusting workmen compensation claim and difference between book value and market value of investment. Sund adjustment should be made by opening partner’s current account.

(viii) Capital Accounts of the partners to be readjusted on the basis of their profit sharing ratio and any excess or deficiency by adjusted in cash.

Prepare Revaluation Account, Partner’s Capital and Balance Sheet of the reconstituted firm.

Anurag Pathak Changed status to publish July 17, 2023
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