A, B and C were in partnership sharing profits in proportion to their capitals Their Balancd Sheet on 31-03-2008 was as follows:

LIABILITIES

Creditors: 15,600

Reserve: 6,000

A's Capital: 90,000

B's Capital: 60,000

C's Capital: 30,00

ASSET

Building: 1,00,000

Debtors: 48,000

Stock18,000

Debtors: 20,000

less: Prov for doubtful debts 400 =19,600

Cash 16,000

Total: 2,01,600

On the above date B retired owing to ill health and the following adjustments were agreed upon

  • Building be appreciated by 10%
  • Provision for doubtful debts to be increased to 5% of debtors
  • Machinery be depreciated by 15%
  • Goodwill of the firm be valued at Rs 36,000 and be adjusted into Capital Accounts of A and C who will share profits in future in the ratio of 3:1
  • A provision be made for outstanding repairs bill of Rs 3,000
  • Included in the valued of creditors is Rs 1,800 for an outstanding legal claim, which is not likely to arise.
  • Out of the insurance premium paid Rs 2,000 is for the next year. The amount was debited to P&L A/c
  • The partners decide to fix the capital of the new firm as Rs 1,20,000 in the profit sharing ratio.
  • B to be paid Rs 9,000 in cash and the balance to be transferred to his Loan Account
  • Prepare the Revaluation Account, Partners's Capital Accounts and the balance sheet of the nwe firm after B's retirement..

Revaluation Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Provision for Doubtful Debts (1,000 – 400)

600

Buildings

10,000

Machinery (48,000 × 15%)

7,200

Creditors

1,800

Provision for outstanding Repair Bill

3,000

Prepaid Insurance

2,000

Profit on Revaluation transferred to:

 

 

 

A’s Capital A/c

1,500

 

 

 

B’s Capital A/c

1,000

 

 

 

C’s Capital A/c

500

3,000

 

 

 

13,800

 

13,800

 

 

 

 

 

Partners’ Capital Account

Dr.

Cr.

Particulars

A

B

C

Particulars

A

B

C

B’s Capital A/c

9,000

 

3,000

Balance b/d

90,000

60,000

30,000

Cash A/c (Payment to B in cash)

 

9,000

 

Reserve

3,000

2,000

1,000

Loan A/c

 

66,000

 

Revaluation A/c (Profit)

1,500

1,000

500

 

 

 

 

A’s Capital A/c (WN2)

 

9,000

 

 

 

 

 

C’s Capital A/c (WN2)

 

3,000

 

Balance c/d (WN3)

90,000

 

30,000

Cash A/c (WN4)

4,500

 

1,500

 

 

 

 

 

 

 

 

 

99,000

75,000

33,000

 

99,000

75,000

33,000

 

 

 

 

 

 

 

 

 

Balance Sheet

Liabilities

Amount

Rs

Assets

Amount

Rs

Creditors (15,600 – 1,800)

13,800

Building (1,00,000 + 10,000)

1,10,000

Provision for Outstanding Repairs Bill

3,000

Machinery  (48,000 – 7,200)

40,800

Capital A/cs:

 

Stock

18,000

A’s Capital A/c

90,000

 

Debtors

20,000

 

C’s Capital A/c

 

30,000

 

1,20,000

Less: Provision for Doubtful Debts

 

(1,000)

 

19,000

B’s Loan

66,000

Cash (WN5)

13,000

 

 

Prepaid Insurance

2,000

 

 

 

 

 

2,02,800

 

2,02,800

 

 

 

 

Note: In the question, there seems to be a typing mistake while writing the items of Balance Sheet as the debtors are mentioned two times. Therefore, debtors of Rs 48,000 is assumed to be Machinery Balance as the adjustment (c) asked to provide depreciation on machinery @ 15%.

Working Notes:

WN1Calculation of Gaining Ratio

Old Ratio (A, B and C) = 3 : 2 : 1

B retires from the firm.

New Ratio (A and C) = 3 : 1

Gaining Ratio = 3 : 1

 

WN2 Adjustment of Goodwill

Goodwill of the firm = 36,000

WN3 Calculation of New Capital Balance

Capital of the New Firm = 1,20,000

New Profit Sharing Ratio = 3 : 1

WN4 Calculation of Amount to be brought in/paid off to A and C

Adjusted Old Capital of A = Total of Credit Side – Total of Debit Side

    = 94,500 – 9,000 = 85,500

Adjusted Old Capital of C = Total of Credit Side – Total of Debit Side

    = 31,500 – 3,000 = 28,500

  Particulars 

A

C

New Capital Balance

90,000

30,000

Old Capital Balance

85,500

28,500

Deficit

4,500

1,500

 

 

 

 

WN5 Ascertainment of Cash Balance in Hand

Cash Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Balance b/d

16,000

B’s Capital A/c

9,000

A’s Capital A/c

4,500

Balance c/d

13,000

C’s Capital A/c

1,500

 

 

 

 

 

 

 

22,000

 

22,000

 

 

 

 

 

  • 5
What are you looking for?