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:
% [Balance Sheet Table - Simplified representation below] % Liabilities: Capitals (B:8L, C:6L) = 14L; General Reserve = 2.1L; Creditors = 4.9L; Total = 21L % Assets: Fixed Assets = 15.4L; Stock = 3.5L; Debtors = 1.4L; Bank = 0.7L; Total = 21L Liabilities: Capitals (Bittu:8L, Chintu:6L) 14L, General Reserve 2.1L, Creditors 4.9L. Total 21L.
Assets: Fixed Assets 15.4L, Stock 3.5L, Debtors 1.4L, Bank 0.7L. Total 21L.
On 1st April, 2024, Diya was admitted in the firm for \( \frac{1{7} \)th share in the profits on the following terms:

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

Revaluation Account
\begin{longtable}{|l|r|l|r|} \hline Dr. & Amount (Rs) & Cr. & Amount (Rs)
\hline \endfirsthead \hline Dr. & Amount (Rs) & Cr. & Amount (Rs)
\hline \endhead \hline \endfoot \hline \endlastfoot To Fixed Assets A/c & 1,40,000 & By Creditors A/c & 70,000
(Overvaluation rectified) & & (Gain on settlement [4.9L - 4.2L]) &
To Loss transferred to Old Partners' & & &
Capital Accounts (Old Ratio 4:3): & & &
\quad Bittu (4/7) & 40,000 & &
\quad Chintu (3/7) & \underline{30,000} & 70,000 &
\hline Total & 1,40,000 & Total & 1,40,000
\hline \end{longtable} \vspace{1cm} Partners' Capital Accounts
\begin{longtable}{|l|r|r|r|l|r|r|r|} \hline Dr. & Bittu (Rs) & Chintu (Rs) & Diya (Rs) & Cr. & Bittu (Rs) & Chintu (Rs) & Diya (Rs)
\hline \endfirsthead \hline Dr. & Bittu (Rs) & Chintu (Rs) & Diya (Rs) & Cr. & Bittu (Rs) & Chintu (Rs) & Diya (Rs)
\hline \endhead \hline \endfoot \hline \endlastfoot To Revaluation A/c (Loss) & 40,000 & 30,000 & - & By Balance b/d & 8,00,000 & 6,00,000 & -
To Balance c/d & 14,40,000 & 6,60,000 & 3,50,000 & By General Reserve A/c (4:3) & 1,20,000 & 90,000 & -
& & & & By Premium for Goodwill A/c (WN1) & 5,60,000 & - & -
& & & & By Bank A/c (Capital - WN2) & - & - & 3,50,000
\hline Total & 14,80,000 & 6,90,000 & 3,50,000 & Total & 14,80,000 & 6,90,000 & 3,50,000
\hline \end{longtable} \vspace{1cm} Working Notes:
1. Goodwill Treatment:
Old Ratio (B:C) = 4:3. New Ratio (B:C:D) = 3:3:1. Diya's Share = 1/7.
Sacrifice = Old - New.
Bittu: \( \frac{4}{7} - \frac{3}{7} = \frac{1}{7} \) (Sacrifice).
Chintu: \( \frac{3}{7} - \frac{3}{7} = 0 \) (No Sacrifice/Gain).
Since only Bittu sacrifices, the entire premium brought by Diya (Rs 5,60,000) is credited to Bittu's Capital Account.
2. Calculation of Diya's Proportionate Capital:
Adjusted Capital of Bittu = Opening Bal + Reserve + Goodwill - Revaluation Loss
= 8,00,000 + 1,20,000 + 5,60,000 - 40,000 = Rs 14,40,000.
Adjusted Capital of Chintu = Opening Bal + Reserve - Revaluation Loss
= 6,00,000 + 90,000 - 30,000 = Rs 6,60,000.
Total Adjusted Capital of Old Partners = Rs 14,40,000 + Rs 6,60,000 = Rs 21,00,000.
This represents the capital for the combined share of old partners in the new firm, which is \( 1 - \frac{1}{7} = \frac{6}{7} \).
Total Capital of the New Firm = Total Adjusted Capital of Old Partners / Combined New Share of Old Partners
= Rs 21,00,000 / (6/7) = Rs 21,00,000 \( \times \) 7/6 = Rs 24,50,000.
Diya's Proportionate Capital = Total Capital \( \times \) Diya's Share
= Rs 24,50,000 \( \times \) 1/7 = Rs 3,50,000.