Question

A, B and C are partners sharing profits in 4 : 3 : 3. Their Balance Sheet as at 31st March 2022 was as follows:

Liabilities	₹	₹	Assets	₹	₹
Sundry Creditors		1,20,000	Land and Building		5,00,000
General Reserve		40,000	Stock		2,40,000
Capital Accounts:			Debtors	1,50,000
A	4,00,000		Less: Provision for Doubtful Debts	30,000	1,20,000
B	2,00,000		Cash at Bank		1,00,000
C	2,00,000	8,00,000
		9,60,000			9,60,000

C retires on 1st April, 2022 and A and B decide to share future profits in the ratio of 6 : 4. It is agreed that:

1. Goodwill of the firm is valued at ₹ 80,000.
2. Land & Building is undervalued by ₹ 1,00,000 and Stock is overvalued by 20%.
3. Provision for Doubtful Debts is to be decreased to ₹ 10,000.
4. Computer valued ₹ 30,000 was unrecorded in the books.

It was decided to pay off C by giving him this computer and the balance in annual instalments of ₹ 1,00,000 together with interest @ 10% p.a.

You are required to prepare:

1. Revaluation Account,
2. C’s Capital Account, and
3. C’s Loan Account till it is finally closed.

Answer 1

Dr.	Revaluation A/c				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Stock A/c		40,000	By Land & Building A/c		1,00,000
To profit t/f to capital A/c		1,10,000	By Provision for Doubtful Debts A/c		20,000
A	44,000		By Computer A/c		30,000
B	33,000
C	33,000
		1,50,000			1,50,000

 

Dr.	C’s Capital A/c		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Computer A/c	30,000	By Balance b/d	2,00,000
To C's loan A/c	2,39,000	By A’s Capital A/c	16,000
		By B’s Capital A/c	8,000
		By Revaluation A/c	33,000
		By General Reserve A/c	12,000
	2,69,000		2,69,000

 

Dr.	C’s Loan A/c				Cr.
Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
31.3.21	To Bank A/c	1,23,900	1.4.20	By Balance b/d	2,39,000
31.3.21	To Balance c/d	1,39,000	31.3.21	By Interest A/c	23,900
		2,62,900			2,62,900
31.3.22	To Bank A/c	1,13,900	1.4.21	By Balance b/d	1,39,000
31.3.22	To Balance c/d	39,000	31.3.22	By Interest A/c	13,900
		1,52,900			1,52,900
31.3.23	To Bank A/c	42,900	1.4.22	By Balance b/d	39,000
			31.3.22	By Interest A/c	3,900
		42,900			42,900

Working Notes:

1. Old ratio of A, B & C = 4 : 3 : 3

C retires,

New ratio of A & B = 6 : 4

Gaining Ratio = New share – Old Share

A gains = `6/10-4/10`

= `2/10`

B gains = `4/10-3/10`

= `1/10`

Gaining Ratio of A & B = 2 : 1

2. Goodwill of the firm = ₹ 80,000

C’s share of Goodwill = `80,000xx3/10`

= ₹ 24,000