Aslam, Jackab, Hari are equal partners with capitals of Rs. 1,500, Rs. 1,750 and Rs. 2,000 respectively. They agree to admit Satnam into equal partnership upon payment in cash of Rs. 1,500 for one-fourth share of the goodwill and Rs. 1,800 as his capital, both sums to remain in the business. The liabilities of the old firm amount Rs. 3,000 and the assets, apart from cash, consist of Motors Rs. 1,200, Furniture Rs. 400, Stock Rs. 2,650, Debtors of Rs. 3,780. The Motors and Furniture were revalued at Rs. 950 and Rs. 380 respectively, and the depreciation written-off. Ascertain cash in hand and prepare the balance sheet of the firm after Satnam’s admission.
Cash in Hand before admission: Rs. 220
REVALUATION ACCOUNT
| Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
|---|---|---|---|
| Motors A/c (Loss) | 250 | ||
| Furniture A/c (Loss) | 20 | ||
| Loss transferred to: | |||
| Aslam (1/3) | 90 | ||
| Jackab (1/3) | 90 | ||
| Hari (1/3) | 90 | ||
| Total | 270 | Total | 270 |
PARTNERS' CAPITAL ACCOUNTS
| Particulars | Aslam | Jackab | Hari | Satnam | Particulars | Aslam | Jackab | Hari | Satnam |
|---|---|---|---|---|---|---|---|---|---|
| Revaluation A/c | 90 | 90 | 90 | Balance b/d | 1,500 | 1,750 | 2,000 | ||
| Balance c/d | 1,910 | 2,160 | 2,410 | 1,800 | Premium for Goodwill | 500 | 500 | 500 | |
| Cash/Bank | 1,800 | ||||||||
| Total | 2,000 | 2,250 | 2,500 | 1,800 | Total | 2,000 | 2,250 | 2,500 | 1,800 |
BALANCE SHEET OF NEW FIRM
| Liabilities | Amount (Rs.) | Assets | Amount (Rs.) |
|---|---|---|---|
| Creditors | 3,000 | Cash at Bank (220+1,500+1,800) | 3,520 |
| Capital Accounts: | Motors | 950 | |
| Aslam | 1,910 | Furniture | 380 |
| Jackab | 2,160 | Stock | 2,650 |
| Hari | 2,410 | Debtors | 3,780 |
| Satnam | 1,800 | ||
| Total | 11,280 | Total | 11,280 |
Explanation
This question tests the student's understanding of admission of a partner, including calculation of cash in hand using the balance sheet equation, preparation of Revaluation Account for asset revaluation, distribution of goodwill premium among old partners in sacrificing ratio, and preparation of the new Balance Sheet. The sacrificing ratio is equal (1:1:1) since all partners share equally and Satnam is admitted for 1/4th share, leaving 3/4th to be shared equally among old partners.
Solution Steps
Step 1: Calculate Cash in Hand before admission using Balance Sheet equation: Total Liabilities (Capital 5,250 + Creditors 3,000) = Rs. 8,250. Assets excluding Cash = Motors 1,200 + Furniture 400 + Stock 2,650 + Debtors 3,780 = Rs. 8,030. Cash = 8,250 - 8,030 = Rs. 220.
Step 2: Prepare Revaluation Account with loss on Motors (1,200 - 950 = Rs. 250) and Furniture (400 - 380 = Rs. 20). Total Loss Rs. 270 distributed equally among old partners (Rs. 90 each).
Step 3: Calculate sacrificing ratio. Old ratio = 1:1:1. Satnam gets 1/4th share. Remaining 3/4th shared equally. New ratio = 1:1:1:1. Sacrifice = 1/3 - 1/4 = 1/12 each. Sacrificing ratio = 1:1:1.
Step 4: Distribute goodwill premium Rs. 1,500 equally among old partners (Rs. 500 each). Adjust capital accounts for revaluation loss and goodwill premium.
Step 5: Prepare new Balance Sheet with updated cash (220 + 1,500 + 1,800 = Rs. 3,520), revalued assets, and adjusted capital balances.