Question

On 31st March, 2024, the Balance Sheet of Saman, Harish and Meeta who were sharing profits and losses in the ratio of 2 : 3 : 2, stood as follows:

BALANCE SHEET as at 31st March, 2024
Liabilities	₹	₹	Assets	₹
Capitals:		35,00,000	Land and Buildings	19,00,000
Saman	10,00,000		Machinery	5,00,000
Harish	15,00,000		Furniture	7,70,000
Meeta	10,00,000		Closing Stock	5,00,000
Workmen Compensation Reserve		8,40,000	Sundry Debtors	7,00,000
Sundry Creditors		5,10,000	Cash	4,80,000
		48,50,000		48,50,000

On 31st March, 2024, Harish retired from the firm and the remaining partners decided to carry on the business. It was agreed to revalue the assets and liabilities as follows:

1. Land and buildings be appreciated by 20%.
2. Machinery be depreciated by 20%.
3. Closing stock be valued at ₹ 4,50,000.
4. Provision for Doubtful Debts be made at 5% on Debtors.
5. Sundry creditors of ₹ 65,000 be written off.
6. Goodwill of the firm be valued at ₹ 5,60,000 and Harish’s share of the goodwill be adjusted in the accounts of Saman and Meeta who will share the future profits and losses in the ratio of 3 : 2.
7. The total capital of the newly constituted firm will be ₹ 35,00,000, which will be adjusted by opening Current Accounts.
8. Amount due to Harish was settled by accepting a bill of exchange in his favour payable after 4 months.

Prepare Revaluation Account, Partner’s Capital Accounts and Balance Sheet of the new firm on Harish’s retirement.

Answer 1

Dr.	Revaluation Account			Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)
To Machinery A/c		1,00,000	By Land & Buildings A/c	3,80,000
To Closing Stock A/c		50,000	By Sundry Creditors A/c	65,000
To Provision for Doubtful Debts A/c		35,000
To Profit t/f to capital A/c		2,60,000
Saman	74,286
Harish	1,11,428
Meeta	74,286
		4,45,000		4,45,000

 

Dr.	Partner’s capital A/c						Cr.
Particulars	Saman	Harish	Meeta	Particulars	Saman	Harish	Meeta
To Harish’s Capital A/c	1,76,000	-	64,000	By bal. b/d	10,00,000	15,00,000	10,00,000
To Bills Payable A/c	-	22,11,428	-	By Workmen Compensation Reserve A/c	2,40,000	3,60,000	2,40,000
To bal c/d	11,38,286	-	12,50,286	By Revaluation A/c - Profit	74,286	1,14,428	74,286
				To Saman’s Capital A/c	-	1,76,000	-
				To Meeta’s Capital A/c	-	64,000	-
	13,14,286	22,11,428	13,14,286		13,14,286	22,11,428	13,14,286

 

Dr.	Partner’s capital A/c				Cr.
Particulars	Saman	Meeta	Particulars	Saman	Meeta
To bal c/d	21,00,000	14,00,000	By bal. b/d	11,38,286	12,50,286
			To Saman’s Current A/c	9,61,714	-
			To Meeta’s Current A/c	-	-
	21,00,000	14,00,000		21,00,000	14,00,000

 

Balance Sheet
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Capital’s A/cs		35,00,000	Land & Buildings	19,00,000	22,80,000
Saman	21,00,000		Add: Appreciation	3,80,000
Meeta	14,00,000		Machinery	5,00,000	4,00,000
Sundry Creditors	5,10,000	4,45,000	Less: Depreciation	1,00,000
Less: write off	65,000		Furniture		7,70,000
Bills Payable		22,11,428	Closing Stock	5,00,000	4,50,000
			Less: Decreased	50,000
			Sundry Debtors	7,00,000	6,65,000
			Less: Provision for doubtful debts	35,000
			Current A/cs		11,11,428
			Saman	9,61,714
			Meeta	1,49,714
			Cash		4,80,000
		61,56,428			61,56,428

Working Notes:

1. Old ratio of Saman, Harish & Meeta = 2 : 3 : 2

Harsih retired, 

New ratio of Saman & Meeta = 3 : 2

Gaining ratio = New share - Old share

Saman gains = `3/5-2/7`

= `(21-10)/35`

= `11/35`

Meeta gains = `2/5-2/7`

= `(14-10)/35`

= `4/35`

Gaining ratio of Saman & Meeta = 11 : 4

2. Goodwill of the firm = ₹ 5,60,000

Harish’s share of goodwill = `5,60,000xx3/7`

= ₹ 2,40,000