Question

Kanika, Disha and Kabir Were Partners Sharing Profits in the Ratio of 2 : 1 : 1. on 31st March, 2016, Their Balance Sheet Was as Under:

Liabilities		Amount (₹)	Assets	Amount (₹)
Trade creditors		53,000	Bank	60,000
Employees Provident Fund		47,000	Debtors	60,000
Kanika’s Capital		2,00,000	Stock	1,00,000
Disha’s Capital		1,00,000	Fixed assets	2,40,000
Kabir’s Capital		80,000	Profit and Loss A/c	20,000
		4,80,000		4,80,000

Kanika retired on 1st April, 2016. For this purpose, the following adjustments were agreed upon:

1. Goodwill of the firm was valued at 2 years' purchase of average profits of three completed years preceding the date of retirement. The profits for the year: 2013-14 were ₹ 1,00,000 and for 2014-15 were ₹ 1,30,000.
2. Fixed Assets were to be increased to ₹ 3,00,000.
3. Stock was to be valued at 120%.
4. The amount payable to Kanika was transferred to her Loan Account.

​Prepare Revaluation Account, Capital Accounts of the partners and the Balance Sheet of the reconstituted firm.

Hint. Kanika's share of goodwill ₹70,000.

Answer 1

Dr.	Revaluation A/c			Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)
To Profit t/f to capital A/cs:		80,000	By Fixed Assets A/c	60,000
Kanika	40,000		By Stock A/c	20,000
Disha	20,000
Kabir	20,000
		80,000		80,000

 

Dr.	Partners’ Capital Account						Cr.
Particulars	Kanika	Disha	Kabir	Particulars	Kanika	Disha	Kabir
To Profit & Loss A/c	10,000	5,000	5,000	By Balance b/d	2,00,000	1,00,000	80,000
To Kanika’s Capital A/c	-	35,000	35,000	By Disha’s Capital A/c	35,000	-	-
To Kanika’s Loan A/c	3,00,000	-	-	By Kabir’s Capital A/c	35,000	-	-
To Balance c/d	-	80,000	60,000	By Revaluation Profit A/c	40,000	20,000	20,000
	3,10,000	1,20,000	1,00,000		3,10,000	1,20,000	1,00,000

 

Balance Sheet as on March 31, 2016
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)
Employees’ Provident Fund		47,000	Bank	60,000
Trade Creditors		53,000	Sundry Debtors	60,000
Kanika’s Loan A/c		3,00,000	Stock	1,20,000
Capitals A/cs:		1,40,000	Fixed Assets	3,00,000
Disha	80,000
Kabir	60,000
		5,40,000		5,40,000

Working Notes:

1. Calculation of Goodwill

Goodwill = Average profits × Number of year’s purchase

`"Average profits" = "Total profits"/"Number of years"`

= `(1,00,000 + 1,30,000 - 20,000)/3`

= `(2,10,000)/3`

= ₹ 70,000

Goodwill = 70,000 × 2

= ₹ 1,40,000

Kanika’s share = `1,40,000 xx 2/4`

= 70,000     

2. Calculation of Gaining ratio 

Gaining ratio = New ratio – Old Ratio

Disha = `1/2-1/4=(2-1)/4=1/4`

Kabir = `1/2-1/4=(2-1)/4=1/4`

Gaining ratio = 1 : 1

Diksha’s share = `70,000xx1/2` = 35,000

Kabir’s share = `70,000xx1/2` = 35,000