Following was the Balance Sheet of A and B who were sharing profits in the ratio of 2 : 1 as at 31st March, 2023:

Liabilities ₹ Assets ₹
Capital A/cs:
A
B
Sundry Creditors		 15,000
10,000
32,950		 Building
Plant and Machinery
Stock
Sundry Debtors
Cash in Hand		 25,000
17,500
10,000
4,850
600
57,950 57,950

They admit C into partnership on 1st April, 2023 on the following terms:

  • C was to being ₹ 7,500 as his capital and ₹ 3,000 as goodwill for 1/4th share in the firm.
  • Values of the stock and Plant and Machinery were to be reduced by 5%.
  • A Provision for Doubtful Debts was to be created on respect of Sundry Debtors ₹ 375.
  • Building was to be appreciated by 10%.

Pass necessary Journal entries to give effect to the arrangements. Prepare Profit & Loss Adjustment Account (or Revaluation Account), Partner’s Capital Accounts and Balance Sheet of the new firm.

Solution :