Mohit, Neeraj and Sohan are partners in a firm sharing profits in the ratio of 2 : 1 : 1. Neeraj retires and Mohit and Sohan decided that the capital of the new firm will be fixed at Rs. 1,20,000 and D is to bring in cash equivalent to 1/4th of this amount as his capital. The capital accounts of Mohit and Sohan show a credit balance of Rs. 82,000 and Rs. 41,000 respectively after making all the adjustments. Calculate the actual cash to be paid off or to be brought in by the continuing partners in total-
Mohit, Neeraj and Sohan are partners in a firm sharing profits in the ratio of 2 : 1 : 1. Neeraj retires and Mohit and Sohan decided that the capital of the new firm will be fixed at Rs. 1,20,000 and D is to bring in cash equivalent to 1/4th of this amount as his capital. The capital accounts of Mohit and Sohan show a credit balance of Rs. 82,000 and Rs. 41,000 respectively after making all the adjustments. Calculate the actual cash to be paid off or to be brought in by the continuing partners in total-
Solution
Given information:
- Original partners: Mohit, Neeraj, Sohan (Ratio 2:1:1)
- Neeraj retires
- New total capital of firm = Rs. 1,20,000
- D (new partner) brings capital = 1/4 × 1,20,000 = Rs. 30,000
- After all adjustments:
- Mohit's Capital = Rs. 82,000
- Sohan's Capital = Rs. 41,000
Calculation of Required Capital for Continuing Partners:
Capital available for Mohit and Sohan = Total Capital - D's Capital
= 1,20,000 - 30,000 = Rs. 90,000
Since original ratio of Mohit:Sohan was 2:1, this Rs. 90,000 will be distributed in 2:1 ratio:
- Mohit's Required Capital = × 90,000 = Rs. 60,000
- Sohan's Required Capital = × 90,000 = Rs. 30,000
Calculation of Adjustment Required:
| Partner | Present Capital | Required Capital | Adjustment |
|---|---|---|---|
| Mohit | 82,000 | 60,000 | 22,000 (Excess - to be withdrawn) |
| Sohan | 41,000 | 30,000 | 11,000 (Excess - to be withdrawn) |
| Total | 33,000 (to be withdrawn) |
Net Cash Flow Calculation:
Cash brought in by D = Rs. 30,000 (Inflow)
Cash to be paid to continuing partners = Rs. 33,000 (Outflow)
Net cash to be paid off from firm = 33,000 - 30,000 = Rs. 3,000
The cash brought in by the new partner D is insufficient to adjust the capital accounts of continuing partners, therefore an additional Rs. 3,000 needs to be paid off from the firm.
Answer: Option 3 - Rs. 3000 paid off
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