Question

The Balance Sheet of A, B and C, who were sharing profit and losses in the proportion of their capitals, as at 31st March, 2025 was as follows:

Liabilities	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Sundry Creditors	3,500	Cash		2,700
Capitals:		Debtors	3,000
A	15,000	Less: Provision for Doubtful Debts	200	2,800
B	12,000	Stock		5,000
C	9,000	Machinery		14,000
		Building		15,000
	39,500			39,500

B retired on 1st April, 2025 and the following adjustments were made:

1. Building be appreciated by 20%, stock be depreciated by 10%, provision for doubtful debts be maintained at 5% and a provision for legal charges be created at ₹ 450.
2. The goodwill of the firm be fixed at ₹ 6,000 and B’s share be adjusted into A and C capital accounts.
3. ₹ 12,000 from B’s capital account be transferred to his loan account and balance be paid in cash, and
4. The capital of the new firm of A and C be fixed at ₹ 25,000 and the profit sharing ratio at 3 : 2. Capital accounts of partners be adjusted accordingly and any surplus or deficit be transferred to current accounts.

Prepare Revaluation Account, Capital Accounts and Balance Sheet of A and C.

Answer 1

Dr.	Revaluation A/c			Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)
To Stock A/c		500	By Building A/c	3,000
To Provision for legal charges		450	To Provision for Doubtful Debts A/c	50
To Profit t/f to Capital A/cs:
A	875
B	700
C	525	2,100
		3,050		3,050

 

Dr.	Partner’s Current A/c						Cr.
Particulars	A	B	C	Particulars	A	B	C
To B’s Capital A/c	1,100	-	900	By Balance b/d	15,000	12,000	9,000
To Cash A/c	-	2,700	-	By Revaluation A/c	875	700	525
To B’s Loan A/c	-	12,000	-	By A’s Capital A/c	-	1,100	-
To Balance c/d	14,775		8,625	By C’s Capital A/c	-	900	-
	15,875	12,000	9,525		15,875	12,000	9,525
				By Balance b/d	14,775	-	8,625
To Balance c/d	15,000	-	10,000	By Current A/c	225	-	1,375
	15,000	-	10,000		15,000	-	10,000

 

Balance sheet
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Sundry Creditors		3,500	Debtors	3,000
Provision for legal charges		450	Less: Provision for Doubtful Debts	150	2,850
B’s Loan		12,000	Stock		4,500
Capital A/cs:			Building		18,000
A	15,000		Machinery		14,000
C	10,000	25,000	Current A/cs:
			A	225
			C	1375	1,600
		40,950			40,950

Working notes:

1. Calculation of Gaining ratio 

Gaining ratio = New ratio - Old ratio 

A’s gain = `3/5-5/12=(36-25)/60=11/60`

C’s gain = `2/5-3/12=(24-15)/60=9/60`

Gaining ratio = 11 : 9

2. Goodwill of the firm = `6,000xx4/12` = 2,000

A’s capital = `2,000xx11/20` = 1,100

C’s capital = `2,000xx9/20` = 900