Following is the Balance Sheet of A and B, who had been sharing profits in proportion of 3/4th and 1/4th as at 31st March, 2019:

They admit C into partnership on 1st April, 2019 on the following terms:
(i) C pays RS.14,000 as his capital for 1/5th share in the future profits.
(ii) Goodwill is valued at RS.20,000. C is unable to bring cash for his share of goodwill.
(iii) Stock and Furniture be reduced by 10% and 5% Provision for Doubtful Debts be created on Debtors.
(iv) Land and Building be appreciated by 20%.
(v) Capital Accounts of the partreciated be readjusted on the basis of their profito-sharing arrangement and any excess or deficiency is to be transferre to their Currnet Accounts.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of the new firm.

Explanation

1. Calculation of New Profit-sharing Ratio:
Let Total Profit=1
C's Share = 1/5
`because` Remaining profit= 1- 1/5= 4/5 will be shared by A and B in their old profit-sharing ratio of 3 : 1.
A's new share `=4//5xx3//4=3//5`
B's new share `=4//5xx1//4=1//5`
`because` New Profit-sharing Ratio `=3//5:1//5:1//5=3: 1:1`.
2. C's share in goodwill RS. 4,000 `(i.e.,RS.20,000xx1//5)` is adjusted through C's Currnet Account because capitals of old partners are also adjusted on the basis of C's Capital.
3. Adjustment of Capital:
C brought Capital for 1/5th share =RS.14,000
Total Capital of the new firm `RS.14,000xx5//1=RS.70,000`
Thus, A's Capital `RS.70,000xx3//5=RS.42,000,`
B's Capital `=RS.70,000xx1//5=RS.14,000` and
C's Capital `=RS.70,000xx1//5=RS.14,000`.
4. Dr. Balance of Current Account is shown on the Assets Side of the Balance Sheet and Cr. Balance on the liabilities side of the Balance Sheet.