Question

A, B and C are partners sharing profits in the ratio of 1/2 : 1/3 and 1/6 respectively. Their Balance Sheet as at 31st March, 2024 was as follows:

Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Creditors		1,60,000	Land & Buildings		4,00,000
Provision for Legal Damages		40,000	Computers		40,000
Expenses Owing		10,000	Stock		1,40,000
Capital A/cs:		6,30,000	Sundry Debtors	80,000	76,000
A	3,40,000		Less: Provision for Doubtful Debts	4,000
B	1,50,000		Cash at Bank		1,69,000
C	1,40,000		Advertisement Expenditure		15,000
		8,40,000			8,40,000

B retired on 1st April 2024 and the new ratio between A and C was agreed at 3 : 2. The following were agreed:

1. Goodwill of the firm is valued at ₹ 1,50,000.
2. Land & Buildings are to be increased by 10%.
3. Provision for Doubtful Debts is to be increased by ₹ 6 000.
4. Out of the insurance premium of ₹ 10,000 which was entirely debited to Profit and Loss Account, ₹ 2,000 be carried forward as unexpired insurance.
5. Creditors will be written back by ₹ 20,000.
6. Part of the stock which had been included at cost of ₹ 10,000 had been badly damaged in storage and could only expect to realise ₹ 2,000.
7. Total capital of the new firm will be ₹ 5,00,000 and will be in the new profit sharing ratio of continuing partners. B will be paid 1,50,000 on retirement and the balance after six months.

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

Answer 1

Dr.	Revaluation Account			Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)
To Stock A/c		8,000	By Land & Buildings A/c	40,000
To Provision for Doubtful Debts A/c		6,000	By Prepaid Insurance A/c	2,000
Profit t/f to capital A/c		48,000	By Creditors A/c	20,000
A	24,000
B	16,000
C	8,000
		62,000		62,000

 

Dr.	Partner’s capital A/c						Cr.
Particulars	A	B	C	Particulars	A	B	C
To B’s Capital A/c	15,000	-	35,000	By Balance b/d	3,40,000	1,50,000	1,40,000
To Balance c/d	3,49,000	-	1,13,000	By Revaluation A/c - Profit	24,000	16,000	8,000
To B’s Loan A/c	-	61,000		By A’s Capital A/c	-	15,000	-
To B’s Capital A/c	-	1,50,000		By C’s Capital A/c	-	35,000	-
	3,64,000	2,16,000	1,48,000		3,64,000	2,16,000	1,48,000
To Balance c/d	3,00,000	-	2,00,000	By Balance b/d	3,49,000	-	1,13,000
To Bank A/c (balancing figure)	49,000	-	-	By Bank A/c (balancing figure)	-	-	87,000
	3,49,000	-	2,00,000		3,49,000	-	2,00,000

 

Balance Sheet
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Creditors		1,40,000	Land & Buildings		4,40,000
Provision for Legal Damages		40,000	Computers		40,000
Expenses Owing		10,000	Stock		1,32,000
B’s Loan (Due after 6 months)		61,000	Sundry Debtors	80,000	70,000
Capital’s A/cs		5,00,000	Less: Provision for Doubtful Debts	10,000
A	3,00,000		Unexpired Insurance		2,000
C	2,00,000		Cash at Bank		67,000
		7,51,000			7,51,000

Working Notes:

(i) Calculation of Gaining Ratio:

Gaining ratio = New ratio – Old ratio

A = `3/5-3/6=(18-15)/30=3/30`

C = `2/5-1/6=(12-5)/30=7/30` 

Gaining ratio = 3 : 7

(ii) B’s share of Goodwill = `1,50,000xx 2/6`

= ₹ 50,000

A’s Capital = `50,000xx3/10` = ₹ 15,000

C’s Capital = `50,000xx7/10` = ₹ 35,000