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Admission of a Partner 3.21

Illustration 16.
Amit and Sumit are partners sharing profits and losses in the ratio of 3 : 2. Their Balance
Sheet as at 31st March, 2018 is given below:
Liabilities ` Assets `
Capital A/cs: Land and Building 3,20,000
Amit 1,76,000 Investments (Market Value ` 55,000) 50,000
Sumit 2,54,000 4,30,000 Debtors 3,00,000
Loan from Puneet 3,00,000 Less: Provision for Doubtful Debts 10,000 2,90,000
General Reserve 30,000 Stock 1,10,000
Employees’ Provident Fund 10,000 Cash at Bank 50,000
Creditors 50,000
8,20,000 8,20,000
They decided to admit Puneet as a new partner from 1st April, 2018 on the following terms:
(i) Amit will give 1/3rd of his share and Sumit will give 1/4th of his share to Puneet.
(ii) Puneet’s Loan Account will be converted into his Capital.
(iii) The Goodwill of the firm is valued at ` 3,00,000. Puneet will bring his share of Goodwill
in cash and the same was immediately withdrawn by the partners.
(iv) Based on the valuation of an Architect, Land and Building was found undervalued by
` 1,00,000. Architect was paid ` 10,000 as his fee for Valuation Report.
(v) Stock was found overvalued by ` 50,000.
(vi) Provision for Doubtful Debts will be made equal to 5% of Debtors.
(vii) Investments are to be valued at their market price.
It was decided that the total capital of the firm after admission of new partner would
be ` 10,00,000. Capital Accounts of Partners will be readjusted on the basis of their
profit-sharing ratio and excess or deficiency will be adjusted in cash.
Prepare (i) Revaluation Account; (ii) Partners’ Capital Accounts; and (iii) Balance Sheet of the
firm after admission of new partner.
Solution:
Dr. REVALUATION ACCOUNT Cr.
Particulars ` Particulars `
To Stock A/c 50,000 By Land and Building A/c 1,00,000
To Provision for Doubtful Debts A/c 5,000 By Investments A/c 5,000
To Bank A/c (Architect’s Fee) 10,000
To Gain (Profit) on Revaluation t/f to:
Amit’s Capital A/c 24,000
Sumit’s Capital A/c 16,000 40,000
1,05,000 1,05,000

Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.
Particulars Amit (`) Sumit (`) Puneet (`) Particulars Amit (`) Sumit (`) Puneet (`)
To Bank A/c 60,000 30,000 ... By Balance b/d 1,76,000 2,54,000 ...
To Balance c/d (WN 3) 4,00,000 3,00,000 3,00,000 By General Reserve A/c 18,000 12,000 ...
By Revaluation A/c (Gain) 24,000 16,000 ...
By Puneet’s Loan A/c ... ... 3,00,000
By Premium for
Goodwill (WN 2) 60,000 30,000 ...
By Bank A/c 1,82,000 18,000 ...
(Balancing Figure)
4,60,000 3,30,000 3,00,000 4,60,000 3,30,000 3,00,000