The following is the Balance Sheet of Ram and Mohan, who share profits in the ratio of 3:2 as on 1st January, 2020:

 The following is the Balance Sheet of Ram and Mohan, who share profits in the ratio of 3:2 as on 1st January, 2020:

On this date Shyam was admitted on the following:

1. He is to pay 25,000 as his capital and 10,000 as his share of goodwill for one   fifth share in profits.

2. The new profits sharing ratio will be 5:3:2.

3. The assets are to be revalued as under:

4. It was found that there was a liability for 1,500 for goods received but not recorded in books.

Give journal entries to record the above. Also, give the Balance Sheet of the partnership firm after Shyam’s

admission.

Solution:-

Date    Particular             LF      Debit   Credit  

Jan. 1.  Bank Account Dr. 35,000

                 To Shyam’s Capital Account 35,000

(Being amount brought in by Shyam for capital and goodwill)

          Shyam’s Capital Account Dr. 10,000

                        To Ram’s Capital Account 5,000

                        To Mohan’s Capital Account 5,000

(Being Shyam’s share of goodwill adjusted to existing partners’ capital accounts in the profit sacrificing ratio 1:1)

           Revaluation Account Dr. 5,000

                  To Plant and Machinery Account 3,000

                  To Provisions for Doubtful Debts Account 500

                  To Trade payables Account 1,500

(Being recording of the reduction in the value of assets and the liability which had been previously omitted)

           

          Building Account Dr. 7,000

                  To Revaluation Account 7,000

(Being increase in the value of building brought into account)

          

          Revaluation Account Dr. 2,000

               To Ram’s Capital Account 1,200

               To Mohan’s Capital Account 800

(Being profit on revaluation credited to Ram and Mohan in the old profit sharing ratio)

Working Note:

Profit sacrificing ratio:

Ram = 3/5 - 1/2 = 1/10

Mohan = 2/5 - 3/10 = 1/10