25. Dhwani and Iknoor were partners sharing Profits & Losses in the ratio 3:2. Their Balance Sheet on March 31, 2025 was as follows
On the above date, they admitted Ishaya into partnership for 25% share. Ishaya brings Rs 2,50,000 as capital and Rs 40,000 for goodwill. Goodwill of the firm was valued at Rs 2,00,000. Following agreements were agreed upon:-
a) Bad Debts amounted to Rs 5,000 and Provision for doubtful debts to be created at same existing rate.
b) Investments were valued at Rs 1,00,000.
c) Accrued Income was recovered only of Rs 14,500 in settlement.
d) Building was overvalued by 20%.
e) Capital of Dhwani and Iknoor were to be adjusted on the basis Ishaya’s capital contribution. Necessary adjustment to be done by opening Current Accounts.
You are required to prepare Revaluation Account and Partner’s Capital Account at the time of admission of partner.
Solution :-
WORKING NOTES :
Calculation of New Profit Sharing Ratio
Dhwani = 3/4 x 3/5 = 9/20
Iknoor = 3/4 x 2/5 = 6/20
Ishaya = 1/4 x 5/5 = 5/20
Calculation of Gaining and Sacrificing ratio of partners
New Ratio – Old Ratio
Dhwani = 9/20 – 3/5 = -3/20 (Sacrifice)
Iknoor = 6/20 – 2/5 = -2/20 (Sacrifice)
Ishaya = 5/20 (Gain)
Sacrificing ratio of Dhwani and Iknoor is 3:2
Calculation of share of Goodwill
Dhwani’s share of goodwill = 40,000 x 3/5 = Rs 24,000
Iknoor’s share of goodwill = 40,000 x 2/5 = Rs 16,000
Adjustment of Capital
Ishaya’s Capital = Rs 2,50,000
Ishaya’s share in Profit = 1/4
Total Capital of the firm = 2,50,000 x 4 = Rs 10,00,000
Dhwani’s New Capital = 10,00,000 x 9/20 = Rs 4,50,000
Iknoor’s New Capital = 10,00,000 x 6/20 = Rs 3,00,000