Question

Krish, Vrish and Peter are partners sharing profits in the ratio of 3 : 2 : 1. Vrish retired from the firm. On that date the Balance Sheet of the firm was as follows:

BALANCE SHEET as at 31st March, 2020
Liabilities	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Creditors	15,000	Bank		7,600
General Reserve	12,000	Furniture		41,000
Bills Payable	12,000	Stock		9,000
Outstanding Salary	2,200	Premises		80,000
Provision for Legal Damages	6,000	Debtors	6,000	5,600
Capitals:		Less: Provision for Doubtful Debts	400
Krish	46,000
Vrish	30,000
Peter	20,000
	1,43,200			1,43,200

Additional Information:

1. Premises to be appreciated by 20%, Stock to be depreciated by 10% and Provision for doubtful debts was to be maintained @ 5% on Debtors. Further, provision for legal damages is to be increased by 1,200 and furniture to be brought up to ₹ 45,000.
2. Goodwill of the firm is valued at ₹ 42,000.
3. ₹ 26,000 from Vrish’s Capital Account be transferred to his loan account and balance to be paid through bank; if required, necessary loan may be obtained from bank.
4. New profit sharing ratio of Krish and Peter is decided to be 5 : 1.

Prepare Revaluation Account, Partners Capital Accounts and Balance Sheet.

Answer 1

Dr.	Revaluation A/c			Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)
To Stock A/c		900	By Premises	16,000
To Provision for Legal Damages		1,200	By Provision for Doubtful Debts	100
To Profit t/f to Capital A/cs:		18,000	By Furniture	4,000
Krish	9,000
Vrish	9,000
Peter	9,000
		20,100		20,100

 

Dr.	Partner’s Capital A/c						Cr.
Particulars	Krish	Vrish	Peter	Particulars	Krish	Vrish	Peter
To Vrish’s Capital A/c	14,000	-	-	By Balance b/d	46,000	30,000	20,000
To Vrish’s Loan A/c	-	26,000	-	By General Reserve A/c	6,000	4,000	2,000
To Bank A/c	-	28,000	-	By Revaluation Profit A/c	9,000	6,000	3,000
To Balance c/d	47,000	-	25,000	By Krish’s Capital	-	14,000	-
	61,000	54,000	25,000		61,000	54,000	25,000

 

Balance Sheet of Krish and Peter (As At 1st April 2020)
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Creditors		15,000	Furniture		45,000
Bank Loan		20,400	Stock		8,100
Bills Payable		12,000	Premises		96,000
Outstanding Salary		2,200	Debtors	6,000	5,700
Provision for Legal Damages		7,200	Less: Provision for Doubtful Debts	(300)
Vrish’s Loan		26,000
Capitals:		72,000
Krish	47,000
Peter	25,000
		1,54,800			1,54,800

Working Note:

1. Calculation of Gaining ratio

Old Ratio 3 : 2 : 1

New Ratio = 5 : 1

Gaining ratio = New Ratio – Old Ratio

Krish = `5/6-3/6=(5-3)/6=2/6`

Peter = `1/6-1/6=(1-1)/6=0/6`

Only Krish gain

2. Calculation of partner’s share in Goodwill firm

Firm’s Goodwill = ₹ 42,000

Vrish’s (retiring partner’s) goodwill compensation

= `42,000 xx 2/6` = 14,000

Krish’s share in goodwill compensation = 14,000