Question

Aryan and Adya were partners in a firm sharing profits and losses in the ratio of 3 : 1. Their Balance Sheet on 31st March, 2024 was as follows :

Balance Sheet (Before Dev's Admission)

Liabilities	Amount (₹)	Assets	Amount (₹)
Capital: Aryan	3,20,000	Machinery	3,90,000
Capital: Adya	2,40,000	Furniture	80,000
Workmen’s Compensation Reserve	20,000	Debtors	90,000
Bank Loan	60,000	Less: Provision for Doubtful Debts	(1,000)
Creditors	48,000	Net Debtors	89,000
		Stock	77,000
		Cash	32,000
		Profit and Loss A/c	20,000
Total	₹6,88,000	Total	₹6,88,000

Note:

• Dev was admitted on 1st April 2024 for 1/5^th share in profits.
• Adjustments on admission included:
  • Revaluation of Machinery
  • Provision for Doubtful Debts created
  • Goodwill brought in cash
  • A liability of ₹3,500 was not likely to arise and to be written back

Hint:

Always adjust assets and liabilities in the Revaluation Account first, then distribute the revaluation profit/loss among partners. Goodwill brought in cash must be shared in the sacrificing ratio.

Answer 1

Step 1: Revaluation Account

Dr.	Amount (₹)	Cr.	Amount (₹)
To Provision for Doubtful Debts (5% of 90,000)	4,500	By Machinery A/c (Revalued ₹4,50,000 – ₹3,90,000)	60,000
To Creditors A/c (Liability not to arise)	3,500
Total	8,000	Total	60,000

Profit on Revaluation = ₹60,000 − ₹8,000 = ₹52,000
To be distributed among partners in old ratio (Aryan : Adya = 3 : 1):

\[ \text{Aryan’s Share} = ₹52,000 × \frac{3}{4} = ₹39,000 \\ \text{Adya’s Share} = ₹52,000 × \frac{1}{4} = ₹13,000 \]

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Step 2: Goodwill Brought by Dev

\[ \text{Goodwill of firm} = ₹2,00,000 \\ \text{Dev’s Share} = \frac{1}{5} × ₹2,00,000 = ₹40,000 \]

To be distributed in sacrificing ratio (Aryan : Adya = 3 : 1):

\[ \text{Aryan} = ₹40,000 × \frac{3}{4} = ₹30,000 \\ \text{Adya} = ₹40,000 × \frac{1}{4} = ₹10,000 \]

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Step 3: Dev’s Capital Calculation

\[ \text{Aryan’s Capital (after revaluation and goodwill)} = ₹3,20,000 + ₹39,000 + ₹30,000 = ₹3,89,000 \\ \text{Adya’s Capital (after revaluation and goodwill)} = ₹2,40,000 + ₹13,000 + ₹10,000 = ₹2,63,000 \]

\[ \text{Total capital of firm} = ₹3,89,000 + ₹2,63,000 = ₹6,52,000 \\ \text{Dev’s 1/5 share} = \frac{1}{5} × ₹6,52,000 = ₹1,63,000 \]

Dev brings:

• Capital = ₹1,63,000
• Goodwill = ₹40,000
• Total = ₹2,03,000