X and Y share profits in the ratio of 5 : 3. Their Balance Sheet as at 31st March, 2023 was:

Liabilities ₹ Assets ₹
Creditors
Employee’s Provident Fund
Workmen Compensation Reserve
Capital A/cs:
X
Y		 15,000
10,000
5,800
70,000
31,000		 Cash at Bank
Sundry Debtors
Less: Provision for Doubtful Debts
Stock
Fixed Assets
Profit & Loss A/c		 20,000
600		 5,00019,400
25,000
80,000
2,400
1,31,800 1,31,800

They admit Z into partnership with 1/8th share in profits on 1st April, 2023. Z brings ₹ 20,000 as his capital and ₹ 12,000 for goodwill in cash. Z acquires his share from X. Following revaluations are also made:

  • Employee’s Provident Fund liability is to be increased by ₹ 5,000.
  • All debtors are good.
  • Stock includes ₹ 3,000 for obsolete items. Hence, are to be written off.
  • Creditors are to be paid ₹ 1,000 more.
  • Fixed Assets are to be revalued at ₹ 70,000.

Prepare Journal entries, necessary accounts and new Balance Sheet. Also, calculate new profit-sharing ratio.

Solution :