New Balance Sheet

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.

Also, Read

Profit and Loss Account

A profit and Loss Account is the second financial statement prepared by an organization. This account is prepared to ascertain the net results of a firm in form of net profit earned or net loss incurred during an accounting period.

Accounting Software

Accounting software is an integral part of the computerized accounting system. The accounting software should be selected after considering the level of skill and proficiency of the accounting professionals.

What are Accounting Reports?

Accounting Reports: When the collected data is processed and manipulated in a useful sense that can be understood by the users without any ambiguity, then it becomes information.

Transaction Processing System

Transaction Processing System (TPS) refers to a computerized system that records, processes, validates, and stores routine transactions that occur in various functional areas of a business on daily basis.

Difference between Fixed Capital Method and Fluctuating Capital Method

The following are the points of difference between the Fixed Capital Method and Fluctuating Capital Method. Under this method, two different accounts are maintained for each partner of the firm.

Fixed Capital Method

Under Fixed Capital Method, the capital balances of the partners remain unchanged. It changes only when any amount of capital is withdrawn or additional capital is introduced during the accounting year by the partners.

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