Question : A and B share profits and losses equally. They have Rs.20,000 each as capital. They admit C as equal partner and goodwill was valued at Rs.30,000. C is to bring in Rs.30,000 as his capital and necessary cash towards his share of goodwill. Goodwill Account will not remain open in books. If profit on revaluation is Rs.13,000, find the closing balance of the capital accounts -
Option 1: Rs.31,500; Rs.31,500; Rs.30,000
Option 2: Rs.26,500; Rs.26,500; Rs.30,000
Option 3: Rs.31,500; Rs.31,500; Rs.20,000
Option 4: Rs.20,000; Rs.20,000; Rs.30,000
Correct Answer: Rs.31,500; Rs.31,500; Rs.30,000
Solution : Goodwill of firm is 30,000.
Now we will find the share of C in goodwill because he is admitted as new partner in business and he should bring his share of goodwill
His share of goowill will be distributed to sacrificing partners.
C's share in goodwill = 30,000 × 1 / 3
= 10,000
- Now we will find sacrificing ratio .
- Sacrificing Ratio = Old Profit Ratio - New Profit Ratio
Old profit sharing ratio of A and B was 1 :1 and new profit sharing ratio of A,B,C is 1 : 1 : 1
A's Sacrificing Ratio = 1 / 2 - 1 / 3
= 3 - 2 / 6
= 1 / 6
B's Sacrificing Ratio = 1 / 2 - 1 / 3
= 3 - 2 / 6
= 1 / 6
Sacrificing Ratio is 1 : 1.
So A's share in goodwill = 1 / 2 × 10,000
= 5,000
B's share in goodwill be 5,000.
Revaluation Profit = 13,000
Revaluation Profit will be shared in old partners in old profit sharing ration.
A share in profit = 13,000 × 1 / 2
= 6,500
B share in profit = 6,500
A Capital = 20,000 + 5,000 + 6,500
= 31,500
B Capital = 20,000 + 5,000 + 6,500
= 31,500
Hence,A's Closing capital is 31,500 and B's Closing capital is 31,500 and C's Closing capital is Rs.30000
Hence the correct answer is option 1.
