A and B are partners in a firm sharing profits in the ratio 2:1. C is admitted into the firm with 1/4 share in profits. He will bring in Rs. 30,000 as capital and capitals of A and B are to be adjusted in the profit sharing ratio. The Balance Sheet of A and B as on March 31, 2017 (before C’s admission) was as under:

Other terms of agreement are as under:
1. C will bring in Rs. 12,000 as his share of goodwill.
2. Building was valued at Rs. 45,000 and Machinery at Rs. 23,000.
3. A provision for bad debts is to be created @ 6% on debtors.
4. The capital accounts of A and B are to be adjusted by opening current accounts. Record necessary journal entries, show necessary ledger accounts and prepare fund’s Balance Sheet after C’s admission.

Explanation

Notes 1. New Profit Sharing Ratio
Since nothing is given as to how C acquired his share from A and B. It is assumed that A and B, between themselves continue to share the profit in the old ratio of 2:1.
`{:(C's "Share of Profits",=(1)/(4)),("Remaining share",=1-(1)/(4)=(3)/(4)),("A's New Share",=(2)/(3) "of" (3)/(4)=(6)/(12)=(1)/(2)),("B's New Share",=(1)/(3)" of" (3)/(4)=(3)/(12)=(1)/(4)):}`
2. New Capitals of A and B C’s capital is Rs 30,000 and his share of profits is 1/4. Based on C’s capital, the total capital of the firm will work out at Rs `1,20,000 (4//1 xx 30,000)` and the respective capitals of A and B will be as follows :
`{:("A's Capital",=(2)/(4) "of" 120000 = Rs. 60000),("B's Capital",=(1)/(4) "of" 120000 = Rs. 30000):}`