A, B & C are in partnership sharing profits in the ratio 5:3:2. The balance sheet of the firm as on 31st march 2014 was as follows:

Liabilities Rs. Assets Rs
Capital accounts bills receivables 15,000
A 40,000 machinery 82,000
B 61,000 furniture 4,000
C 24,000 debtors 70,000
Reserve 40,000 less: provision 3,000 67,000
Sundry creditors 50,000 stock 20,000
Profit and loss A/c 28,000 cash at bank 50,000
Bills payable 5,000 Advertisement suspense A/c 10,000
2,48,000 2,48,000



on 1st april 2014, B retires & A & C continued in partnership sharing profits and losses in the ratio 3:2. it was agreed that following adjustments were to be made on retirement of B:
A) The machinery was to be revalued at Rs.85,000
b) The stock was to be reduced by Rs.1,000
c) The furniture was to be reduced to Rs.1,600.
d) The provision for doubtful debts would be ^%
e) A provision of Rs.800 was to be made to outstanding expenses.
f) A liability n account of damages of Rs.7,000 included in creditors is settled at Rs.12,000.
The partnership agreement provides that in case of retirement of partner goodwill was to be valued at 3yrs purchase of a average profits which wRs.10,000but no goodwill is to be raised.
B was paid in full. A & C were to deposit such an amount in bank so as to make their capitals proportionate to the new profit sharing ratio, subject to the condition that a bank balance of Rs.40,000 was to be maintained as working capital.
Required: prepare revaluation account, partners capital account and balance sheet after retirement.

Dear Student,
The solution to your query is provided below.
Revaluation Account
Dr.   Cr.
Particulars Amount
Rs
Particulars Amount
Rs
Stock 1,000 Machinery 3,000
Furniture 2,400 Loss transferred to Partners’ Capital A/cs:  
Provision for Debtors 1,200 A’s Capital A/c 3,700  
Provision for Outstanding Expenses 800 B’s Capital A/c 2,220  
Provision for Damages 5,000 C’s Capital A/c 1,480 7,400
  10,400   10,400
       
 
Partners’ Capital Accounts
Dr.   Cr.
Particulars A B C Particulars A B C
Revaluation A/c 3,700 2,220 1,480 Balance b/d 40,000 61,000 24,000
B’s Capital A/c 3,000 - 6,000 Profit and Loss A/c 14,000 8,400 5,600
Advertisement Suspense A/c 5,000 3,000 2,000 A’s Capital A/c - 3,000 -
        C’s Capital A/c - 6,000 -
Balance c/d 62,300 85,180 28,120 Reserve 20,000 12,000 8,000
  74,000 90,400 37,600   74,000 90,400 37,600
Bank A/c   85,180   Balance b/d 62,300 85,180 28,120
Balance c/d 99,360 - 66,240 Bank A/c (Shortage) 37,060 - 38,120
  99,360 - 66,240   99,360 - 66,240
               
 
Balance Sheet
as on March 31, 2014 after B’s retirement
Liabilities Amount
Rs
Assets Amount
Rs
Capital A/c:   Bills Receivable 15,000
A 99,360   Machinery 85,000
C 66,240 1,65,600 Furniture 1,600
Sundry Creditors 50,000   Debtors 70,000  
Add: 5,000 55,000  Less: Provision for Debtors  (4,200)  65,800
Provision for Outstanding Expenses 800 Stock 19,000
 Bills Payable  5,000 Cash at Bank 40,000
  2,26,400   2,26,400
       
Note: You have not specified the provision percentage. However, with the sign provided it is assumed to 6%.
Working Notes:
WN 1: Calculation of Provision amount.
70,000 × 6100 = Rs 4,200Less:Existing Provision = Rs 3,000Amount to be shown in Revaluation A/c = Rs 1,200

WN 2: Calculation of Gaining Ratio
A = 35 - 510 = 110 (gain)C = 25 - 210 = 210 (gain)Gaining Ratio = 1 : 2

WN 3: Calculation of Adjusted Capital Balances of A and C
Shortfall = Rs 85,180 - Rs 10,000 = Rs 75,180
Total Capital of firm = 62,300 + 28,120 + 75,580 = Rs 1,65,600A's Capital =1,65,600 × 35 = Rs 99,360 B's Capital =1,65,600 × 25 = Rs 66,240 

Hope this answers your query.
Keep Posting!!!

  • 1
What are you looking for?