Abha and Ritu were partners sharing profits and losses in the ratio of 5:3. Their Balance Sheet as at 31st March 2022 was as under: Liabilities Bills Payable Creditors Workmen Compensation Fund General Reserve Profit and Loss A/c Capital Accounts: Abha Ritu Amount (Rs.) Assets 22,000 45,000 40,000 24000 Cash in Hand Cash at Bank Debtors 70,000 Stock 20,000 Investments Furniture 3,20,000 Machinery 1,90,000 Goodwill 7,07,000 Amount (Rs.) 12,000 83,000 82,000 66,000 60,000 3 75,000 2,25,000 1,04,000 7,07,000 On 1 April, 2022 they admitted Sonal into the partnership firm for 1/4th share which she acquired from Abha and Ritu in the ratio of 2:1 respectively. Other adjustments were as follows: i. The Goodwill of the firm is valued at Rs. 96,000 and Sonal was unable to contribute her share of goodwill in cash. ii. Create a provision of Rs 6,000 for Doubtful Debts.
To address the partnership changes and adjustments for Abha, Ritu, and the newly admitted partner Sonal, we will follow these steps:
1. Calculate Sonal’s Share of Goodwill
The total goodwill of the firm is valued at Rs. 96,000. Since Sonal is acquiring a 1/4th share of the business, her share of goodwill will be:
2. Adjust the Capital Accounts of Abha and Ritu
Since Sonal cannot contribute her share of goodwill in cash, Abha and Ritu will bear this cost by reducing their capital accounts.
3. Create a Provision for Doubtful Debts
A provision for doubtful debts of Rs. 6,000 needs to be created. This will reduce the asset value in the balance sheet.
Adjusting Debtors:
4. Prepare the New Balance Sheet
After all adjustments have been made (including the new capital accounts and provision for doubtful debts), we can prepare the new balance sheet.
New Balance Sheet as at April 1st, 2022
Liabilities
Total Liabilities = Rs. (sum of all above)Assets
Total Assets = Rs. (sum of all above)
Conclusion
This new balance sheet reflects the changes due to Sonal’s admission into the partnership and includes necessary adjustments for goodwill and provisions for doubtful debts. Make sure to verify total assets equal total liabilities after adjustments to ensure accuracy in accounting records.
To analyze the partnership scenario involving Abha, Ritu, and the newly admitted partner Sonal, we will go through the necessary calculations and adjustments step by step.
Initial Partnership Details
Abha and Ritu share profits and losses in the ratio of 5:3. Their balance sheet as of March 31, 2022, is as follows:
Liabilities
Assets
Admission of Sonal
On April 1, 2022, Sonal is admitted into the partnership for a 1/4th share, which she acquires from Abha and Ritu in the ratio of 2:1 respectively.
Calculating Shares Transferred
Sonal takes:
New Profit-Sharing Ratio
After Sonal’s admission:
Total shares now = 11/3+7/3+2=(11+7+6)/3=24/3=8
Thus,
So the new profit-sharing ratio is 11:7:6.
Goodwill Adjustment
The goodwill of the firm is valued at Rs. 96,000.
Sonal’s Share of Goodwill
Sonal’s share of goodwill:
Sonal s Share=41×Rs.96,000=Rs.24,000
Since Sonal cannot contribute this amount in cash:
Provision for Doubtful Debts
A provision for doubtful debts of Rs.6,000 needs to be created by adjusting the debtors’ account.
Updated Balance Sheet Adjustments
After accounting for goodwill adjustments and the provision for doubtful debts:
Liabilities
Assets
After creating a provision for doubtful debts:
Final Totals
Total Liabilities and Assets should balance out after these adjustments.This comprehensive analysis provides a clear understanding of how to adjust the partnership structure upon Sonal’s admission while considering goodwill contributions and provisions for doubtful debts effectively.