The Balance Sheetof Rajesh, Pramod and Nishantwho were sharing profits in proportion to their capitals stood as on March 31,2007:
Books of Rajesh, Pramod and Nishant
Balance Sheet as on March 31, 2007
Liabilities
Amount
Rs
Assets
Amount
Rs
Bills Payable
6,250
Factory Building
12,000
Sundry Creditors
10,000
Debtors
10,500
Reserve Fund
2,750
Less: Reserve
500
10,000
Capital Accounts:
Bills Receivable
7,000
Rajesh
20,000
Stock
15,500
Pramod
15,000
Plant and Machinery
11,500
Nishant
15,000
50,000
Bank Balance
13,000
69,000
69,000
Pramodretired on the date of Balance Sheet and the following adjustments were made:
a) Stock was valuedat 10% less than the book value.
b) Factorybuildings were appreciated by 12%.
c) Reserve fordoubtful debts be created up to 5%.
d) Reserve forlegal charges to be made at Rs 265.
e) The goodwill ofthe firm be fixed at Rs 10,000.
f) The capital ofthe new firm be fixed at Rs 30,000. The continuingpartners decide to keep their capitals in the new profit sharing ratio of 3:2.
Pass journalentries and prepare the balance sheet of the reconstituted firm aftertransferring the balance in Pramod’s Capital accountto his loan account.
The Balance Sheetof Rajesh, Pramod and Nishantwho were sharing profits in proportion to their capitals stood as on March 31,2007:
Books of Rajesh, Pramod and Nishant
Balance Sheet as on March 31, 2007
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Liabilities | Amount Rs | Assets | Amount Rs | |||
Bills Payable | 6,250 | Factory Building | 12,000 | |||
Sundry Creditors | 10,000 | Debtors | 10,500 |
| ||
Reserve Fund | 2,750 | Less: Reserve | 500 | 10,000 | ||
Capital Accounts: |
| Bills Receivable | 7,000 | |||
Rajesh | 20,000 |
| Stock | 15,500 | ||
Pramod | 15,000 |
| Plant and Machinery | 11,500 | ||
Nishant | 15,000 | 50,000 | Bank Balance | 13,000 | ||
| 69,000 |
| 69,000 | |||
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Pramodretired on the date of Balance Sheet and the following adjustments were made:
a) Stock was valuedat 10% less than the book value.
b) Factorybuildings were appreciated by 12%.
c) Reserve fordoubtful debts be created up to 5%.
d) Reserve forlegal charges to be made at Rs 265.
e) The goodwill ofthe firm be fixed at Rs 10,000.
f) The capital ofthe new firm be fixed at Rs 30,000. The continuingpartners decide to keep their capitals in the new profit sharing ratio of 3:2.
Pass journalentries and prepare the balance sheet of the reconstituted firm aftertransferring the balance in Pramod’s Capital accountto his loan account.
Journal
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Date | Particulars | L.F. | Amount Rs | Amount Rs | |||
2007 |
|
|
|
|
| ||
Mar. 31 | Revaluation A/c | Dr. |
| 1,840 |
| ||
| To Stock A/c |
|
|
| 1,550 | ||
| To Reserve for Doubtful Debts A/c |
|
|
| 25 | ||
| To Reserve for Legal Charges A/c |
|
|
| 265 | ||
| (Assets and Liabilities are revalued) |
|
|
| |||
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|
|
|
|
|
| |
Mar. 31 | Factory Building A/c | Dr. |
| 1,440 |
| ||
| To Revaluation A/c |
|
|
| 1,440 | ||
| ( Factory Building appreciated) |
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|
| |||
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| |||
Mar. 31 | Rajesh’s Capital A/c | Dr. |
| 160 |
| ||
| Pramod’s Capital A/c | Dr. |
| 120 |
| ||
| Nishant’s Capital A/c | Dr. |
| 120 |
| ||
| To Revaluation A/c |
|
|
| 400 | ||
| (Loss on Revaluation adjusted to Partners’ Capital Account) |
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Mar. 31 | Rajesh’s Capital A/c | Dr. |
| 2,000 |
| ||
| Nishant’s Capital A/c | Dr. |
| 1,000 |
| ||
| To Pramod Capital’s A/c |
|
|
| 3,000 | ||
| (Pramod’s share of goodwill adjusted to Rajesh’s and Nishant’s Capital Account in their gaining ratio) |
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Mar. 31 | Reserve Fund A/c | Dr. |
| 2,750 |
| ||
| To Rajesh’s Capital A/c |
|
|
| 1,100 | ||
| To Pramod’s Capital A/c |
|
|
| 825 | ||
| To Nishant’s Capital A/c |
|
|
| 825 | ||
| (Reserve Fund distributed all the partners) |
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Mar. 31 | Pramod’s Capital A/c | Dr. |
| 18,705 |
| ||
| To Pramod’s Loan A/c |
|
|
| 18,705 | ||
| (Pramod’s Capital transferred to his Loan Account) |
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| |||
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| |
Mar. 31 | Rajesh’s Capital A/c | Dr. |
| 940 |
| ||
| Nishant’s Capital A/c | Dr. |
| 2,705 |
| ||
| To Rajesh’s Current A/c |
|
|
| 940 | ||
| To Nishant’s Current A/c |
|
|
| 2,705 | ||
| (Excess in Capital Account is transferred to Current Account) |
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Parters’ Capital Account |
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Dr. | Cr. |
| |||||||
Particulars | Rajesh | Pramod | Nishant | Particulars | Rajesh | Pramod | Nishant | ||
Revaluation (Loss) | 160 | 120 | 120 | Balance b/d | 20,000 | 15,000 | 15,000 | ||
Pramod’s Capital A/c | 2,000 |
| 1,000 | Reserve Fund | 1,100 | 825 | 825 | ||
Pramod’s Loan A/c |
| 18,705 |
| Rajesh’s Capital A/c |
| 2,000 |
| ||
Rajesh's Current A/c | 940 |
|
| Nishant’s Capital A/c |
| 1,000 |
| ||
Nishant's Current A/c |
|
| 2,705 |
|
|
|
| ||
Balance c/d | 18,000 |
| 12,000 |
|
|
|
| ||
| 21,100 | 18,825 | 15,825 |
| 21,100 | 18,825 | 15,825 | ||
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Balance Sheet as on March 31, 2007
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Liabilities | Amount Rs | Assets | Amount Rs | |||
Bills Payable | 6,250 | Plant and Machinery | 11,500 | |||
Sundry Creditors | 10,000 | Debtors | 10,500 |
| ||
Reserve for Legal Charges | 265 | Less: Reserve | (525) | 9,975 | ||
Pramod’s Loan | 18,705 | Bills Receivable | 7,000 | |||
Current Account: |
| Stock | 15,500 |
| ||
Rajesh | 940 |
| Less: 10% Depreciation | (1,550) | 13,950 | |
Nishant | 2,705 | 3,645 |
|
|
| |
Capital Account: |
| Factory Building | 12,000 | 13,440 | ||
Rajesh | 18,000 |
| Add: 12% Appreciation | 1,440 |
| |
Nishant | 12,000 | 30,000 | Bank Balance | 13,000 | ||
| 68,865 |
| 68,865 | |||
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Working Notes:
1) Pramod’s share of goodwill = Total goodwill of the firm × Retiring Partner’s Share =
2) Gaining Ratio = New Ratio − Old Ratio
Gaining Ratio between Rajesh and Nishant = 2:1
NOTE: In the above solution, in order to adjust the capital of remaining partners in the new firm according to their new profit sharing ratio, the surplus or the deficit of Capital Account is transferred to their Current Account. But, in order to match the answer with that of given in the book, the surplus or the deficit amount of the Partners' Capital Account, will either be withdrawn or brought in by the old partners. This treatment will be shown in the Partners’ Capital itself and no need to transfer the surplus or deficit capital balance to their Current Accounts. The following Journal entry is passed to record the withdrawal of surplus capital by the partners.
If existing partners withdraw their excess capital
Journal entry
Rajesh’s Capital A/c | Dr. | 940 |
|
Nishant’s Capital A/c | Dr. | 2,705 |
|
To Bank A/c |
| 3,645 | |
(Surplus Capital withdrawn) |
|
|
Balance Sheet as on March 31, 2007
|
| |||||
Liabilities | Amount Rs | Assets | Amount Rs | |||
Bills Payable | 6,250 | Plant and Machinery | 11,500 | |||
Sundry Creditors | 10,000 | Debtors | 10,500 |
| ||
Reserve for Legal Charges | 265 | Less: Reserve | (525) | 9,975 | ||
Pramod’s Loan | 18,705 | Bills Receivable | 7,000 | |||
Capital: |
| Stock | 15,500 |
| ||
Rajesh | 18,000 |
| Less: 10% Depreciation | (1,550) | 13,950 | |
Nishant | 12,000 | 30,000 |
|
|
| |
|
|
| Factory Building | 12,000 |
| |
|
| Add: 12% Appreciation | 1,440 | 13,440 | ||
|
| Bank Balance | 9,355 | |||
| 65,220 |
| 65,220 | |||
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