Question

Gita and Mita are partners in a firm sharing profits and losses in the ratio of 3:2. An extract of their Balance Sheet as at 31st March 2024, is as follows:

Balance Sheet of Gita and Mita (extract) As at 31st March 2024
Liabilities	(₹)	(₹)	Assets	(₹)	(₹)
Creditors		15,000	Plant & Machinery		1,20,000
			Sundry Debtors	1,50,000	1,35,000
			Less: Provision for Doubtful Debts	(15,000)

On the admission of Rita as a third partner for 1/4 share in the profits, the assets and liabilities of the firm were revalued as under:

1. Creditors include an amount of ₹ 5,000 received as commission from Ajay. The necessary adjustment to be made.
2. Creditors include ₹ 1,000 due to Nikhil paid by partner Gita privately for which she is not to be reimbursed.
3. The value of machinery, overvalued by ₹ 20,000 in the Balance Sheet, to be revised.
4. Out of the total insurance premium paid, ₹ 6,000 to be treated as prepaid insurance. The amount was earlier debited to Profit & Loss A/c.
5. ₹ 20,000 for damages claimed by a customer had been disputed by the firm. It was agreed at 70% by a compromise between the customer and the firm.
6. The provision for doubtful debts to be increased to ₹ 20,000.

You are required to prepare the Revaluation Account.

Answer 1

Dr.	Revaluation A/c				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Machinery		20,000	By Creditors A/c		5,000
To Claim for damages		14,000	By Creditors A/c (not to be paid)		1,000
To P.B.D.		5,000	By Prepaid Insurance A/c		6,000
			By Partner’s Capital A/c: (Loss)
			- Gita	16,200	27,000
			- Mita	10,800
		39,000			39,000

Working Note:

Nothing has been mentioned about a claim for damages in the firm’s balance. Hence, it is assumed that the claim was not accepted earlier; now, it has been accepted for 70% of 20,000, i.e., ₹ 14,000.