Question

Mohan, Vinay and Nitya were partners in a firm sharing profits and losses in the proportion of `1/2,1/3` and `1/6` respectively. On 31st March, 2018, their Balance Sheet was as follows:

Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Creditors		48,000	Cash at Bank		31,000
Employee’s Provident Fund		1,70,000	Bills Receivable		54,000
Contingency Reserve		30,000	Book Debts	63,000	61,000
Capitals:		3,10,000	Less: Provision for Doubtful Debts	2,000
Mohan	1,20,000		Plant and Machinery		1,20,000
Vinay	1,00,000		Land and Building		2,92,000
Nitya	90,000
		5,58,000			5,58,000

Mohan retired on the above date and it was agreed that:

1. Plant and Machinery will be depreciated by 5%.
2. An old computer previously written off was sold for ₹ 4,000.
3. Bad debts amounting to ₹ 3,000 will be written off and a provision of 5% on debtors for bad and doubtful debts will be maintained.
4. Goodwill of the firm was valued at ₹ 1,80,000 and Mohan’s share of the same was credited in his account by debiting Vinay’s and Nitya’s accounts.
5. The capital of the new firm was to be fixed at ₹ 90,000 and necessary adjustments were to be made by bringing in or paying off cash as the case may be.
6. Vinay and Nitya will share future profits in the ratio of 3 : 2.

Prepare Revaluation Account, Partner’s Capital Accounts and the Balance Sheet of the reconstituted firm.

Answer 1

Dr.	Revaluation A/c				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Plant and Machinery A/c		6,000	By Bank A/c (Computer)		4,000
To Provision for Doubtful Debts:		4,000	By Loss t/f to capital A/cs:		6,000
Bad debts	1,000		Mohan	3,000
Provision for Doubtful Debts	3,000		Vinay	2,000
			Nitya	1,000
		10,000			10,000

 

Dr.	Partners’ Capital Account						Cr.
Particulars	Mohan	Vinay	Nitya	Particulars	Mohan	Vinay	Nitya
To Mohan’s Capital A/c	-	48,000	42,000	By Balance b/d	1,20,000	1,00,000	90,000
To Revaluation A/c - (Loss)	3,000	2,000	1,000	By Contingency Reserve A/c	15,000	10,000	5,000
To Mohan’s Loan A/c	2,22,000	-	-	By Vinay’s Capital A/c	48,000	-	-
To Bank A/c (Bal. fig.)	-	6,000	16,000	By Nitya’s Capital A/c	42,000	-	-
To Balance c/d	-	54,000	36,000
	2,25,000	1,10,000	95,000		2,25,000	1,10,000	95,000

 

Balance Sheet of the reconstituted firm as at 31st March, 2018
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Creditors		48,000	Cash at Bank		13,000
Employee’s Provident Fund		1,70,000	Bills Receivable		54,000
Mohan’s Loan A/c		2,22,000	Book Debts	63,000	57,000
Capitals A/cs:		90,000	Less: Bad Debts	(3,000)
Vinay	54,000		Less: Provision for doubtful debts	(3,000)
Nitya	36,000		Plant and Machinery		1,14,000
			Land and Building		2,92,000
		5,30,000			5,30,000

Working Notes:

Old Ratio = `1/2:1/3:1/6`

= 3 : 2 : 1

1. Calculation of Gaining ratio 

Gaining ratio = New Ratio – Old Ratio 

Vinay’s gain = `3/5-2/6=(18-10)/30=8/30`

Nitya’s gain = `2/5-1/6=(12-5)/30=7/30`

Gaining ratio of Vinay and Nitya = `4/15:7/30` = 8 : 7

2. Mohan’s share of Goodwill = `180,000/1/2` = ₹ 90,000

Vinay = `90,000xx8/15` = ₹ 48,000

Nitya = `90,000xx7/15` = ₹ 42,000

3. Calculation of Vinay’s Capital and Nitya’s Capital in new firm:

Total Capital of new firm sharing ratio = 3 : 2

Vinay = `90,000xx3/5` = ₹ 54,000

Nitya = `90,000xx2/5` = ₹ 36,000