Partnership and LLP AccountsQ- 10 | Partnership and LLP AccountsQuestion 4866 of 108
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Anu and Manu are carrying on business in partnership and sharing profits & losses in the ratio of 5:3. The firm's Balance Sheet as on 31st March, 2024 was as follows: Balance Sheet as on 31st March, 2024 Liabilities Amount Assets Amount Capital Accounts Anu Manu Long Term Loan Capital Accounts Trade Payables Outstanding Liabilities 2,80,000 2,50,000 2,00,000 1,19,500 16,200 Building machinery furniture trade Receivables inventories investments Cash at Bank 3,80,000 1,43,000 85,000 1,64,000 48,400 15,000 30,100 8,65,700 8,65,700 They decided to admit Ranu as a partner with effect from 1st April, 2024 on the following terms: (i) Ranu will be paid 1/5 share in the future profits and new profit sharing ratio would be 5: 3: 2. (ii) Ranu will bring 1,00,000 as his capital. (iii) Goodwill of firm is to be valued at 2 years' purchase of average profit of past 3 years and Ranu will bring his share of goodwill in cash. The profits of past 3 years ending on 31st March were as under: 31st March, 2022 87,000 31st March, 2023 1,06,000 31st March, 2024 1,22,000 (iv) It was also agreed that the partners will not withdraw their share of goodwill nor will the goodwill appear in the books of account. (v) It was also decided to value the assets: Building is to be appreciated by 2 50,000 and Machinery is to be depreciated by 10%. Furniture is revalued at 80,000, Investments at Inventories at 47,500. 16,000 and Provision for doubtful debts is to be created on debtors @ 5%. You are required to prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the reconstituted firm as on 1st April, 2024. [June 2024, 12 Marks]

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Detailed Solution & Explanation

Revaluation A/ c Particulars Amount Particulars Amount To Machinery To Furniture To Inventories To Provisions for DD. (164000 X 5%) To Profit on Revaluation Anu Manu 14,300 5,000 900 8,200 14,000 8,400 By Building By Investments 50,000 800 50,800 50,800 Partner's Capital A/ c Particulars Anu Manu Ranu Particulars Anu Manu Ranu To Anu’s Capital A/c 26,250 By Balance b/d 2,80, 000 2,50, 000 To Manu’s Capital A/c 15,750 By Revaluation A/c (profit) 14,000 8,400 To Balance c/d 3,20, 250 2,74 150 1,00, 000 By Cash & Bank A/ c 1,42, 000 By Ranu’s Capital A/c (share in goodwill) 26,250 15,750 Total 3,20, 250 2,74, 150 1,42, 000 Total 3,20, 250 2,74, 150 1,42, 000 Balance Sheet as on 01/04/2024 Liabilities Amount Assets Amount Capital Accounts Anu Manu Ranu Long term Loan 3,20,250 2,74,150 1,42,00 2,00,000 Building Machinery Furniture 4,30,000 1,28,700 80,000 Trade Payables Outstanding Liabilities 1,19,500 16,200 Trade Receivable 1,64,000 Less: Provision (200) Inventories Investment Cash & Bank (30, 100+ 1,42,000) 1,55,800 47,500 16,000 1,72,100 10,30,100 10,30,100 Working Note: Calculation of Ranu's Share of Goodwill- Average Profit of past 3 years = 87000 + 106000 + 122000 / 3 = 1,05,000 Goodwill = Average profit X No. of years of purchase=1,05,000 X 2=2,10,000 Ranu's Share of goodwill=2,10,000 x 1 / 5 = 42,000 Ranu's Capital A/ c Dr. 42,000 To Anu's Capital A/c [42000 X 5/8] 26,250 To Manu's Capital A/c [42000 X 3/8] 15,750 Sacrificing ratio= 5:3 (will be same as old profit sharing Ratio) Note:- For the purpose of valuation of goodwill, simple average profit method has been followed, alternatively weighted average profit method may also be applied.

About This Chapter: Partnership & Companies

Paper

Paper 1: Accounting

Weightage

15-20%

Key Topics

Admission, Retirement, Death, Shares, Debentures

This chapter covers Admission, Retirement, Death, Shares, Debentures and is part of Paper 1: Accounting in the CA Foundation exam.

View Official ICAI Syllabus

Exam Strategy Tip

This topic carries 15-20% weightage. Focus on understanding core concepts rather than memorizing.

Key Concepts to Understand

Balance Sheet

A statement showing the financial position of a business at a particular date, listing all assets on one side and all liabilities and capital on the other side. It is not an account but a statement.

Goodwill

An intangible asset representing the good reputation, brand name, customer loyalty, and earning capacity of a business over and above its net tangible assets. It arises in accounting during partnership changes or business acquisitions.

Related Comparison Tables

Revenue Expenditure vs Capital Expenditure: AccountsTrading Account vs P&L Account: Final Accounts ExplainedSLM vs WDV Depreciation: CA Foundation Accounts

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Following are the details of Assets and Liabilities of Mr. Sarthak for the year ended 31 March, 2023 and 31 March, 2024: 31.03.2023 31.03.2024 Assets Buildings Furniture Inventory Sundry debtors Cash at bank Cash in hand Liabilities: Loans Sundry Creditors 2,00,000 75,000 1,05,000 68,000 72,500 2,400 1,50,000 58,400 ? ? 1,95,000 94,000 86,800 3,800 1,25,000 79,500 It was decided to depreciate Building by 5% p.a. and Furniture by 10% p.a. On 1st June, 2023 an additional capital of 40,000 was brought in the business. Proprietor has withdrawn @ ₹ 2,500 p.m. for meeting the family expenses. Prepare Statement of Affairs as on 31 March, 2023 and 31 March, 2024. Find the profit or loss earned by Mr. Sarthak for the year ended 31st March, 2024. [Jan. 2025, 5 Marks]

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