Question

Sarah and Varsha were partners in a firm sharing profits and losses in the ratio of \( 3 : 2 \). Their Balance Sheet as at 31\textsuperscript{st March, 2023 was as follows:} \[ \begin{array}{|l|c|c|} \hline Liabilities & Amount (₹) & Assets & Amount (₹)
\hline \text{Capital:} & & \text{Plant and Machinery} & 2,00,000
\text{Sarah} & 60,000 & \text{Stock} & 30,000
\text{Varsha} & 50,000 & \text{Debtors} & 50,000
\text{Workmen’s Compensation Fund} & 20,000 & \text{Less: Provision} & 5,000
\text{Provident Fund} & 1,20,000 & \text{Cash} & 25,000
\text{Creditors} & 50,000 & &
\hline \text{Total} & 3,00,000 & \text{Total} & 3,00,000
\hline \end{array} \] On 1\textsuperscript{st April, 2023, they decided to admit Tasha as a new partner for \( \frac{1}{4} \) share in the profits of the firm on the following terms:} Tasha brought ₹ 40,000 as her capital and ₹ 20,000 as her share of premium for goodwill. Plant and Machinery was valued at ₹ 1,90,000. An item of ₹ 20,000, included in creditors, is not likely to be claimed and should be written off. Capitals of the partners in the new firm are to be in the new profit-sharing ratio on the basis of Tasha’s capital, by bringing or paying off cash, as the case may be. Prepare Revaluation Account and Partners’ Capital Accounts.

Hint:

Always adjust the capital accounts of new and existing partners based on the new profit-sharing ratio, ensuring that all revaluation gains and losses are properly recorded.

Answer 1

(i) Revaluation Account: \[ \text{Revaluation Account:} \] \[ \begin{array}{|l|c|c|} \hline \textbf{Particulars} & \textbf{Dr Amount (₹)} & \textbf{Cr Amount (₹)}
\hline \text{To Plant and Machinery A/c} & 10,000 &
\text{To Workmen’s Compensation Fund A/c} & 20,000 &
\text{To Creditors A/c} & 20,000 &
\hline \end{array} \] (ii) Partners’ Capital Accounts: \[ \text{The capital accounts of Sarah, Varsha, and Tasha are adjusted to reflect the new profit-sharing ratio. Tasha's capital contribution is finalized, and the resulting balances are transferred to their respective capital accounts.} \]