Question

L, M and N were partners in firm sharing profits in the ratio of 2:1:1. On 15' April 2013 their Balance Sheet as follows:

Balance Sheet of L, M and N as on 1st April 2013
Liabilities	Rs	Assets	Rs
Capital:     L             6,00,000     M             4,80,000     N             4,80,000 General Reserve Workman’s Compensation Fund Creditors	15,60,000 4,40,000 3,60,000 2,40,000	Land Building Furniture Debtors             4,00,000 Less: Provision      20,000 Stock Cash	8,00,000 6,00,000 2,40,000   3,80,000 4,40,000 1,40,000
	26,00,000		26,00,000

On the above date, N retired

The following were agreed:

i. Goodwill of the firm was valued at Rs 6,00,000.
ii. The land was to be appreciated by 40% and Building was to be depreciated by Rs 1,00,000. Furniture was to be depreciated by Rs 30,000.
iii. The liabilities for Workmen's Compensation Fund was determined at Rs 1,60,000.
iv. The amount payable to N was transferred to his loan account.
v. Capitals of L and M were to be adjusted in their new profit sharing ratio and for this purpose current accounts of the partners will be opened.

Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of the new firm.

Answer 1

Revaluation Account
Particulars	Rs	Particulars	Rs
To Building A/c To Furniture A/c To Revaluation Profit L’s Capital A/c    95,000 M’s Capital A/c   47,500 N’s Capital A/c    47,500	1,00,000 30,000       1,90,000	By Land A/c	3,20,000
	3,20,000		3,20,000

 

Partners’ Capital Account
Particulars	L	M	N	Particulars	L	M	N
To N’s Capital A/c	1,00,000	50,000		Balance b/d	6,00,000	4,80,000	4,80,000
To M Current A/c		1,20,000		By General Reserve A/c	2,20,000	1,10,000	1,10,000
To M Current A/c		1,20,000		By Revaluation Profit A/c	95,000	47,500	47,500
To N’s Loan A/c			8,37,500	By Workmen Compensation fund	1,00,000	50,000	50,000
				By L’s Capital A/c			1,00,000
To Balance c/d	10,35,000	5,17,500		By M’s Capital A/c			50,000
				By L’s Current A/c	1,20,00
	11,35,000	6,40,000	8,37,500		11,35,000	6,40,000	6,40,000

 

Balance Sheet As on April 01, 2012 after N’s retirement
Liabilities	Rs	Assets	Rs
L’s Capital M’s Capital Workmen Compensation Liability Creditors N’s Loan L’s Current	10,35,000 5,17,500 1,60,000 2,40,000 8,37,500 1,20,000	Land Building Furniture Stock Cash Debtors            4,00,000 Less: Provision      20,000 M’s Current	11,20,000 5,00,000 2,10,000 2,10,000 1,40,000   3,80,000 1,20,000
	29,10,000		29,10,000

Working Notes:

Total Capital of L =10,15,000 – 1,00,000 = Rs 9,15,000

Total Capital of M = 6,87,500 – 50,000 = Rs 6,37,500

Total Capital of new firm = 9,15,000 + 6,37,500 = Rs 15,52,500

The new Capital has to be in the new profit sharing ratio = 2:1

Therefore, L's new capital  = `1552500 xx 2/3 = 1035000`

Mr's new Capital  = `1552000 xx 1/3 = 517500`