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.

 

 

Journal

 

 

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)

 

 

 

 

 

 

 

 

 

 

Mar. 31

Factory Building A/c

Dr.

 

1,440

 

 

To Revaluation A/c

 

 

 

1,440

 

( Factory Building appreciated)

 

 

 

 

 

 

 

 

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)

 

 

 

 

 

 

 

 

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)

 

 

 

 

 

 

 

 

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

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)

 

 

 

 

 

 

 

 

 

 

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)

 

 

 

 

 

 

 

 

               

 

Parters’ Capital Account

 

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

 

 

 

 

 

 

 

 

                   

 

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

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

 

 

 

 

             

 

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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