At the time of change in profit sharing ratio among the partners, many changes took place such as goodwill appearing in the books having to be written-off, adjustment of accumulated profits and losses, revaluation of assets and reassessment of liabilities, etc. Now because of these adjustments, there is a change in the balances of Partners’ Capital Account as well as in the assets and liabilities of the firm. Therefore, after all, such adjustments, the need arises for the preparation of the New Balance Sheet of the newly reconstituted firm (i.e. after the change in profit sharing ratio among the partners). Below mentioned is the procedure and a comprehensive format of the Balance Sheet.
Procedure to Prepare New Balance Sheet
The following are the various steps involved in the preparing New Balance Sheet.
Step 1: Firstly, all the assets are recorded on the Right Hand Side of the Balance Sheet, and all the Liabilities are recorded on the Left Hand Side on their net value i.e. after all adjustments in their values.
Step 2: There can be two probable cases of adjustments namely, to or by. In case the assets are increased or decreased, then the final value itself is shown in the New Balance Sheet. For Example, the value of machinery increased to Rs 10,000. In the New Balance Sheet machinery will be shown at Rs 10,000. On the other hand, if the assets are increased or decreased by, then the value of the asset is shown at its net value (i.e. after adding or subtracting the value as the case may be). For example, a Machinery of Rs 40,000 is increased by Rs 6,000. In the New Balance Sheet, machinery will be shown at Rs 46,000 (40,000 + 6,000).
Step 3: Similarly, Liabilities are also shown at their final value after considering all the adjustments.
Step 4: The funds such as Workmen’s Compensation Fund, Investment Fluctuation Fund, and Contingency Reserve are shown in the New Balance Sheet at the value given in the adjustment. Example: In case no adjustment regarding these funds is given, then these are not shown in the New Balance Sheet; rather these are distributed among all the partners in the old ratio.
Step 5: Now, the Unrecorded Assets and Liabilities found at the time of revaluation are to be shown in the New Balance Sheet.
Step 6: Capital Balances of the partners revealed through Partners’ Capital Account after all adjustments are recorded on the Liabilities side of the Balance Sheet. In case the Partners’ Capital Account shows a debit balance (i.e. balance c/d on the credit side) then it is shown on the Assets side of the Balance Sheet.
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