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Adjustment of Capital - Case 2 | Admission of a Partner - 8 | Class 12 Accounts

CA Parag Gupta・2 minutes read

The process of capital adjustment involves determining the new partner's capital by calculating proportions and adjusting balances, with key steps including revaluation, debt distribution, and accounting for gains and losses. Practical steps such as creating revaluation accounts and balance sheets are essential for understanding and solving questions related to capital adjustment cases.

Insights

  • In Case 2 of capital adjustment, the new partner's capital can be determined by multiplying the combined adjusted capitals of old partners by the new partner's share, especially when the new partner brings a share of the total capital. This method is essential and distinct from other cases.
  • Practical steps for handling capital adjustments include creating a revaluation account, capital account, and balance sheet for the new firm, determining the sacrificial ratio, adjusting balance sheet items, and posting entries for cash, capital, and revaluation. These detailed processes are crucial for accurate and comprehensive accounting in such scenarios.

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Recent questions

  • How is a new partner's capital determined?

    By multiplying total capital by new partner's share.

  • What is the sacrificial ratio in capital adjustment?

    Determined by existing partners' share adjustments.

  • How are entries posted for cash and revaluation?

    Entries are made based on capital adjustments.

  • What is the significance of the revaluation account?

    It helps in adjusting partner's capital and assets.

  • How is a new partner's capital calculated in Case 1?

    By applying a new ratio and dividing total capital.

Related videos

Summary

00:00

Determining New Partner's Capital: Proportionate Adjustment

  • Case 2 of capital adjustment involves finding the capital of a new partner when it is not provided.
  • The key word for identifying this case is "Proportionate."
  • Steps for determining the new partner's capital include calculating the total capital and then multiplying it by the new partner's share.
  • The question may mention the new partner bringing a share of the combined or total capital of old partners.
  • If a slight twist occurs, the new partner's capital is calculated by multiplying the combined adjusted capitals of old partners by the new partner's share.
  • Question 686 will cover the specific scenario of the new partner bringing a share of the total capital.
  • Practical steps involve creating a revaluation account, capital account, and balance sheet for the new firm.
  • Not all details in the question are relevant, such as a creditor not claiming the amount.
  • The process includes determining the sacrificial ratio, adjusting the balance sheet items, and posting entries for cash, capital, and revaluation.
  • The final step involves calculating the new partner's capital by considering the shares of the existing partners and the remaining proportion for the new partner.

24:05

"Partnership Capital Calculation and Revaluation Process"

  • O's share is 1/6, leaving the other three with 5/6.
  • The combined capital of the remaining three partners is 282.
  • The blue pizza is valued at 282, leading to the calculation of the value of the portion with lines, representing 'O'.
  • The full pizza's cost is calculated as 38,400.
  • O's capital is determined to be 56,400.
  • The total asset liability is calculated to be 54,000.
  • Mohan is admitted as a partner with a fourth share.
  • Mohan's PFG is given as one lakh.
  • The revaluation account structure is created, followed by the partner's capital and balance sheet preparation.
  • The sacrifice ratio of honor and pride is determined, and entries for PFG distribution are made.

45:27

"Accounting Adjustments and New Partner Admission"

  • A new liability of Last Point Provision for Outstanding Legal Charges of Rs. 18000 has emerged.
  • The loss is recorded by writing two Outstanding Legal Charges of Rs. 18000 in debit.
  • Revaluation points have been completed, with a total loss of 140.
  • After subtracting 85 from 140, a gain of 55 is obtained.
  • The revaluation account is divided into 32 and 33, and 22.
  • Posting in the capital account involves balancing BD at 7 lakhs and 6 lakhs in the Cash Account.
  • A and S receive 60 and 40, respectively, while Buy Revaluation is divided between them as 33 and 22.
  • The total capital of A and S is 883 and 722, respectively.
  • Mohan's capital is calculated as one fourth of the total capital of A and S after adjustments.
  • C is admitted as a new partner with specific capital and asset adjustments.

01:07:36

Calculating Ratios and Capital in Accounting

  • To find the total capital of C, which is 18000, apply Case 1 by calculating a new ratio of 332. Then, determine the total capital of C by dividing 72000 in the new ratio, resulting in A's capital being 27, B's 27, and C's 18. Note the final balance in A and B's accounts, with A having 12500 on the debit side and B 12500 on the credit side.
  • The steps of Case 1 involve calculating a new ratio, determining the total capital of C, and finding the final balance in A and B's accounts, crucial for understanding and solving the board question provided. Remember, no balance sheet is required for this question.
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