Narang, Suri and Bajaj are partners in a firm sharing profits and losses in proportion of 1/2 , 1/6 and 1/3 respectively. The Balance Sheet on April 1, 2007 was as follows:

Books of Suri, Narang and Bajaj

Balance Sheet as on April 1, 2007

 

Liabilities

Amount

Rs

Assets

Amount

Rs

Bills Payable

12,000

Freehold Premises

40,000

Sundry Creditors

18,000

Machinery

30,000

Reserves

12,000

Furniture

12,000

Capital Accounts:

 

Stock

22,000

Narang

30,000

 

Sundry Debtors

20,000

 

Suri

30,000*

 

Less: Reserve

1,000

19,000

Bajaj

28,000

88,000

for Bad Debt

 

 

 

 

Cash

7,000

 

1,30,000

 

1,30,000

 

 

 

 

             

Bajaj retires from the business and the partners agree to the following:

a) Freehold premises and stock are to be appreciated by 20% and 15% respectively.

b) Machinery and furniture are to be depreciated by 10% and 7% respectively.

c) Bad Debts reserve is to be increased to Rs 1,500.

d) Goodwill is valued at Rs 21,000 on Bajaj’s retirement.

e) The continuing partners have decided to adjust their capitals in their new profit sharing ratio after retirement of Bajaj. Surplus/deficit, if any, in their capital accounts will be adjusted through current accounts.

Prepare necessary ledger accounts and draw the Balance Sheet of the reconstituted firm.

*In the given Question Suri’s Capital is Rs 30,000 instead of Rs 20,000.

 

Revaluation Account

 

Dr.

Cr.

 

Particulars

Amount

Rs

Particulars

Amount

Rs

Machinery

3,000

Freehold Properties

8,000

Furniture

840

Stock

3,300

Reserve for Bad debts

500

 

 

Capitals:

 

 

 

Narang

3,480

 

 

 

Suri

1,160

 

 

 

Bajaj

2,320

6,960

 

 

 

11,300

 

11,300

 

 

 

 

             

Partners’ Capital Account

 

Dr.

Cr.

 

Particulars

Narang

Suri

Bajaj

Particulars

Narang

Suri

Bajaj

Bajaj’s Capital A/c

5,250

1,750

 

Balance b/d

30,000

30,000

28,000

Bajaj's Loan

 

 

41,320

Reserves

6,000

2,000

4,000

 

 

 

 

Revaluation (Profit)

3,480

1,160

2,320

Balance c/d

34,230

31,410

 

Narang’s Capital A/c

 

 

5,250

 

 

 

 

Suri’s Capital A/c

 

 

1,750

 

39,480

33,160

41,320

 

39,480

33,160

41,320

 

 

 

 

 

 

 

 

Suri's Current A/c

 

15,000

 

Balance b/d

34,230

31,410

 

 

 

 

 

Narang's Current A/c

15,000

 

 

Balance c/d

49,230

16,410

 

 

 

 

 

 

49,230

31,410

 

 

49,230

31,410

 

 

 

 

 

 

 

 

 

                   

 

Balance Sheet as on April 01, 2007

 

Liabilities

Amount

Rs

Assets

Amount

Rs

Bills Payable

12,000

Free hold Premises

48,000

Sundry Creditors

18,000

Machinery

 

27,000

Bajaj’s Loan

41,320

Furniture

 

11,160

Suri’s Current

15,000

Stock

25,300

Capital Account:

 

Sundry Debtors

20,000

 

Narang

49,230

 

Less: Reserve for Bad Debt

1,500

18,500

Suri

16,410

65,640

Cash

 

7,000

 

 

 

Narang’s Current Account

15,000

 

1,51,960

 

1,51,960

 

 

 

 

               

 

Working Notes:

1. Bajaj Share in Goodwill = Total Goodwill of the firm ´ Retiring Partner’s Share =

2. Gaining Ratio = New Ratio – Old Ratio

Gaining Ratio between Narang and Suri = 3:1

3. Calculation of New Capitals of the existing partners.

Balance in Narang’s Capital

=

34,230

Balance in Suri’s Capital

=

31,410

Total Capital of the New firm after revaluation of assets and

 

 

liabilities and adjustment of  Goodwill and Reserves

=

Rs 65,640

Based on new profit sharing ratio of 3:1

NOTE:

i. In the given Question Suri’s Capital is Rs 30,000 instead of Rs 20,000.

ii. Due to insufficient balance in Bajaj’s Capital Account, the amount due to Bajaj is transferred to his Loan Account.

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