Question

G, E and F were partners in a firm sharing profits in the ratio of 7 : 2 : 1. The Balance Sheet of the firm as at 31st March, 2018, was as follows:

BALANCE SHEET OF G, E AND F as at 31st March, 2018
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)
Capitals:		2,00,000	Cash	90,000
G	1,40,000		Sundry Debtors	24,000
E	40,000		Stock	14,000
F	20,000		Machinery	80,000
Creditors		28,000	Land and Building	1,20,000
General Reserve		40,000
Loan from E		60,000
		3,28,000		3,28,000

E retired on the above data. On E’s retirement the following was agreed upon:

1. Land and Building were revalued at ₹ 1,88,000, Machinery at ₹ 76,000 and Stock at ₹ 10,000 and goodwill of the firm was valued at ₹ 90,000.
2. A provision of 2.5% was to be created on sundry debtors for doubtful debts.
3. The net amount payable to E was transferred to his loan account to be paid later on.
4. Total capital of the new firm was fixed at ₹ 2,40,000 which will be adjusted according to their new profit sharing ratio by opening current accounts.

Prepare Revaluation Account, Partner’s Capital Accounts and the Balance Sheet of reconstituted firm.

Answer 1

Dr.	Revaluation A/c			Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)
To Machinery A/c		4,000	By Land and Building A/c	68,000
To Stock A/c		4,000
To Provision for Doubtful debts		600
To Profit t/f to Partners Capital A/cs:		59,400
G	41,580
E	11,880
F	5,940
		68,000		68,000

 

Dr.	Partners’ Capital Accounts						Cr.
Particulars	G	E	F	Particulars	G	E	F
To E’s Capital A/c	15,750	-	2,250	By Balance b/d	1,40,000	40,000	20,000
To E’s Loan A/c	-	1,37,880	-	By Revaluation A/c - Profit	41,580	11,880	5,940
To Balance c/d	2,10,000	-	30,000	By G’s Capital A/c	-	15,750	-
				By F’s Capital A/c	-	2,250	-
				By General Reserve A/c	28,000	8,000	4,000
				By E’s loan A/c	-	60,000	-
				By G’s Current A/c	16,170	-	-
				By F’s Current A/c	-	-	2,310
	2,25,750	1,37,880	32,250		2,25,750	1,37,880	32,250

 

Balance Sheet of the Reconstituted firm as at 1st April 2018
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Capital A/cs:		2,40,000	Machinery		76,000
G	2,10,000		Debtors	24,000	23,400
F	30,000		Less: Provision for doubtful debts	(600)
E’s loan A/c		1,37,880	Stock		10,000
Creditors		28,000	Land and Building		1,88,000
			Cash		90,000
			G’s Current A/c		16,170
			F’s Current A/c		2,310
		4,05,880			4,05,880

Working Notes:

1. Calculation of Goodwill:

E’s share of Goodwill = `90,000xx2/10` = ₹ 18,000

G = `18,000xx7/8` = ₹ 15,750

F = `18,000xx1/8` = ₹ 2,250

2. Calculation of G’s Capital and F’s Capital in new firm:

New firm’s Capital = ₹ 2,40,000 

G’s Capital in new firm = `2,40,000xx7/8` = ₹ 2,10,000

F’s Capital in new firm = `2,40,000xx1/8` = ₹ 30,000