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

Their Balance Sheet is as follows:

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

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