Question

J, H and K were partners in a firm sharing profits in the ratio of 5 : 3 : 2. On 31st March, 2015, their Balance Sheet was as follows:
 

Liabilities		Amount (₹)	Assets		Amount (₹)
Creditors		42,000	Land and Building		1,24,000
Investment Fluctuation Fund		20,000	Motor Vans		40,000
Profit and Loss Account		80,000	Investments		38,000
Capital A/cs: J	1,00,000		Machinery		24,000
H	80,000		Stock		30,000
K	40,000	2,20,000	Debtors	80,000
			Less: Provision	6,000	74,000
			Cash		32,000
		3,62,000			3,62,000

On the above date, H retired and J and K agreed to continue the business on the following terms:
(i) Goodwill of the firm was valued at ₹ 1,02,000.
(ii) There was a claim of ₹ 8,000 for workmen's compensation.
(iii) Provision for bad debts was to be reduced by ₹ 2,000. 
(iv) H will be paid ₹ 14,000 in cash and balance will be transferred in his Loan Account which will be paid in four equal yearly instalments together with interest @ 10% p.a.
(v) The new profit-sharing ratio between J and K will be 3 : 2 and their capitals will be in their new profit-sharing ratio. The capital adjustments will be done by opening Current Accounts.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the new firm.

Answer 1

Revaluation Account

Dr.						Cr.
Particulars		Amount Rs	Particulars		Amount Rs
Claim for Workmen Comp.		8,000	Provision for Doubtful Debts		2,000
			Loss on Revaluation
			J’s Capital A/c	3,000
			H’s Capital A/c	1,800
			K’s Capital A/c	1,200	6,000
		8,000			8,000

 

Partners’ Capital Account

Dr.								Cr.
Particulars	J	H	K	Particulars	J	H	K
Revaluation A/c	3,000	1,800	1,200	Balance b/d	1,00,000	80,000	40,000
H’s Capital A/c	10,200		20,400	IFF	10,000	6,000	4,000
Cash A/c		14,000		P&L A/c	40,000	24,000	16,000
H’s Loan A/c		1,24,800		J’s Capital		10,200
Balance c/d	1,36,800		38,400	K’s Capital		20,400
	1,50,000	1,40,600	60,000		1,50,000	1,40,600	60,000
Current A/c	31,680			Balance b/d	1,36,800		38,400
Balance c/d	1,05,120		70,080	Current A/c			31,680
	1,36,800		70,080		1,36,800		70,080

 

Balance Sheet

as on March 31, 2015

Liabilities		Amount (Rs)	Assets		Amount (Rs)
Creditors		42,000	Land and Building		1,24,000
Capitals:			Motor Vans		40,000
J	1,05,120		Investments		38,000
K	70,080	1,75,200	Machinery		24,000
J’s Current A/c		31,680	Stock		30,000
Claim for Workmen Compensation		8,000	Debtors	80,000
H’s Loan A/c		1,24,800	Less: Provision	4,000	76,000
			Cash (32,000 - 14,000)		18,000
			K’s Current A/c		31,680

Working Notes:

WN1: Calculation of Gaining Ratio

Gaining ratio = New Ratio - Old Ratio

`"J's" = 3/5 - 5/10 = 1/10`

`"K's" = 2/5 - 2/10 = 2/10`

Gaining ratio = `1 : 2`

WN2: Adjustment of Goodwill

`"H's share of goodwill" = 1,02,000 xx 3/10 = "Rs" 30,600`

Rs 30,600 will be debited to gaining partner (J and K) in the ratio of `1 : 2`

`"J's share" = 30,600 xx 1/3 = "Rs" 10,200`

`"K's share" = 30,600 xx 2/3 = "Rs" 20,400`

WN3 Adjustment of Capital

Adjusted capital of J = `1,00,000 + 10,000 + 40,000 - 3,000 - 10,200 = "Rs" 1.36,800`

Adjusted capital of K = `40,000 + 4,000 + 16,000 - 1,200 - 20,400 = "Rs" 38,400`

Total Adjusted Capital = `1,36,800 + 38,400 = "Rs" 1,75,200`

`"J's new capital" = 1,75,200 xx 3/5 = "Rs" 1,05,120`

`"K's new capital" = 1,75,200 xx 2/5 = "Rs" 70,080`

K's new capital > K's adjusted capital (K owes Rs 31,680 to the firm)

J's new capital > J's adjusted capital (Firm owes Rs 31,680 to the J)

WN4 Amount transferred to H’s Loan A/c

Amount to be transferred = (Credit side - Debit side) - Cash Paid

                                         = (1,40,600 - 1,800) - 14,000

                                         = Rs 1,24,800