Keshav and Madhav were partners sharing profits and losses in the ratio of 2:3.

 Their Balance Sheet is as follows:

Liabilities	Amount Rs.	Amount Rs.	Assets	Amount Rs.	Amount Rs.
Capital A/c			Livestock		20000
Keshav		250000	Building		138000
Madhav		260000	Investments		45000
Creditors		8500	Loose Tools		38000
			Debtors	90000
			(-) R.D.D.	-18000	72000
			Profit & Loss A/c		15000
			Closing Stock		104500
			Cash in Hand		86,000
		518500			518500

 

On 1^st April, 2011 they admitted Uddhav on the following terms:

1. The new profit sharing ratio is equal.

2. Uddhav brings Rs. 2,00,000 as his capital and Rs. 80,000 as share of goodwill in cash.

3. Prepaid insurance of Rs. 7500 was not recorded in the books.

4. Loose Tools were found undervalued by 5% and Buildings was found overvalued by 15% in the books.

5. All debtors are considered as good and out of creditors Rs. 500 is longer payable.

6. The market value of investment is 50% more than its book value.

Prepare, Profit & Loss Adjustment A/c, Capital Accounts of partners and Balance Sheet of the new firm.

Solution:

In the books of Partnership firm.

Profit and Loss Adjustment Account

Particulars	Rs.	Rs.	Particulars	Rs.	Rs.
To Building A/c		18000	By Prepaid Insurance		7500
To Partners' Capital A/c (Profit)			By Loose Tool		2000
Keshav	13000		By R.D.D. A/c		18000
Madhav	19500	32500	By Creditors A/c		500
			By Investment A/c		22500
		50500			50500

Partner's Capital Accounts

Particulars	Keshav	Madhav	Uddhav	Particulars	Keshav	Madhav	Uddhav
To Profit & Loss A/c	6000	9000	-	By Balance b/d	250000	260000	-
To Balance C/d	273000	334500	200000	By Cash A/c	-	-	200000
				By Goodwill A/c	16000	64000	-
				By Profit and Loss Adjustment A/c	13000	19500	-
	279000	343500	200000		279000	343500	200000

Balance Sheet as on 1^st April, 2011

Liabilities	Amount	Amount	Assets	Amount	Amount
Partners' Capital A/c			Building	138000
Keshav	273000		(-) Overvaluation by 15%	-18000	120000
Madhav	334500		Loose Tools	38000
Uddhav	200000	807500	(+) Undervaluation by 5%	+2000	40000
Creditors	8500		Livestock		20000
(-) Claims Waived	-500	8000	Investment	45000
			(+) Increase in Market value by 50%	22500	67500
			Debtors		90000
			Closing Stock		104500
			Prepaid Insurance		7500
			Cash in Hand		366000
		815500			815500