Question

Kannan, Rahim, and John are partners in a firm sharing profits and losses in the ratio of 5:3:2. The balance sheet as of 31st December 2017 was as follows:

Liabilities		₹	Assets	₹
Capital accounts:			Buildings	90,000
Kannan	1,00,000	2,20,000	Machinery	60,000
Rahim	80,000		Debtors	30,000
John	40,000		Stock	20,000
Workmen compensation funds		30,000	Cash at bank	50,000
Creditors		20,000	Profit and loss A/c (loss)	20,000
		2,70,000		2,70,000

John retires on 1st January 2018, subject to the following conditions :

1. To appreciate building by 10%
2. Stock to be depreciated by 5%
3. To provide ₹ 1,000 for bad debts
4. An unrecorded liability of ₹ 8,000 has been noticed.
5. The retiring partner shall be paid immediately.

Prepare revaluation account, partner’s capital account, and the balance sheet of the firm after retirement.

Answer 1

Dr.	Revaluation A/c			Cr.
Particulars	Rs	Particulars	Rs	Rs
To Stock	1,000	By Buildings		9,000
To Provision for Bad debts	1,000	By loss on revaluation transferred to
To liability	8,000	Kannan's capital A/c	500	1,000
		Rahim's capital A/c	300
		John's capital A/c	200
	10,000			10,000

 

Dr.	Capital Account						Cr.
Particulars	Kannan ₹	Rahim ₹	John ₹	Particulars	Kannan ₹	Rahim ₹	John ₹
To Revaluation A/c	500	300	200	By Balance b/d	1,00,000	80,000	40,000
To Profit and loss A/c	10,000	6,000	4,000	By Workmen compensation fund	15,000	9,000	6,000
To Bank (bal. fig)	-	-	41,800
To bal c/d	1,04,500	82,700	-
	1,15,000	89,000	46,000		1,15,000	89,000	46,000
				By Balance b/d	1,04,500	82,700	-

 

Balance Sheet as on 31.12.2017
Liabilities	Rs	Assets	Rs	Rs
Creditors	20,000	Building	90,000	99,000
Liability (unrecorded)	8,000	Add: Appreciation	9,000
Capital A/c		Machinery		60,000
Kannan	1,04,500	Debtors	30,000	29,000
Rahim	82,700	Less: Provision for Bad debts	1,000
		Stock	20,000	19,000
		Less: Depreciation	1,000
		Cash at Bank		8,200
	2,15,200			2,15,200

 

Dr.	Bank A/c		Cr.
Particulars	Rs	Particulars	Rs
To balance b/d	50,000	By John's capital A/c	41,800
		By balance c/d	8,200
	50,000		50,000
To balance b/d	8,200