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.
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 |
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| Cash | 7,000 | ||
|
| 1,30,000 |
| 1,30,000 | |||
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|
| |||
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 |
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| Capitals: |
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| Narang | 3,480 |
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|
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| Suri | 1,160 |
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|
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| Bajaj | 2,320 | 6,960 |
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| 11,300 |
| 11,300 | |||
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| Partners’ Capital Account |
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| 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 | ||
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| Revaluation (Profit) | 3,480 | 1,160 | 2,320 | ||
| Balance c/d | 34,230 | 31,410 |
| Narang’s Capital A/c |
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| 5,250 | ||
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|
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|
| Suri’s Capital A/c |
|
| 1,750 | ||
|
| 39,480 | 33,160 | 41,320 |
| 39,480 | 33,160 | 41,320 | ||
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| Suri's Current A/c |
| 15,000 |
| Balance b/d | 34,230 | 31,410 |
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| Narang's Current A/c | 15,000 |
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| Balance c/d | 49,230 | 16,410 |
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| 49,230 | 31,410 |
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| 49,230 | 31,410 |
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| 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 | ||||
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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.