Question

A, B and C were partners sharing profits and losses in the ratio of 5 : 3 : 2. Following was their Balance Sheet as at 31st March, 2023.

Liabilities	₹	₹	Assets	₹	₹
Sundry Creditors		1,20,000	Cash at Bank		34,000
Capitals A/cs:			Sundry Debtors	1,50,000
A	4,00,000		Less: Provision for Doubtful Debts	9,000	1,41,000
B	2,50,000		Stock		1,45,000
C	1,50,000	8,00,000	Plant		2,00,000
			Land and Building		4,00,000
Total		9,20,000	Total		9,20,000

A retires on this date and the following adjustments were agreed upon:

1. Bad Debts amounting to ₹ 10,000 were to be written off and provision for doubtful debts be maintained at existing rate.
2. An unrecorded creditor of ₹ 20,000 will be taken into account.
3. Provision is to be made for legal damages amounting to ₹ 25,000.
4. There is a liability for ₹ 15,000 for outstanding salaries.
5. Sundry creditors be reduced by ₹ 8,000 being a liability not payable.
6. Stock be increased by ₹ 15,000 and Plant is to be reduced to ₹ 1,80,000.

Pass journal entries to give effect to above adjustments and prepare Revaluation Account.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2023
Mar 31	Bad Debts A/c   ...Dr.		10,000
	To Sundry Debtors A/c			10,000
	(Being bad debts written off)
Mar 31	Provision for Doubtful Debts A/c   ...Dr.		9,000
	Revaluation A/c   ...Dr.		1,000
	To Bad Debts A/c			10,000
	(Being bad debts transferred to old provision and the remaining loss to Revaluation A/c)
Mar 31	Revaluation A/c   ...Dr.		88,400
	To Provision for Doubtful Debts A/c			8,400
	To Sundry Creditors A/c (Unrecorded)			20,000
	To Provision for Legal Damages A/c			25,000
	To Outstanding Salaries A/c			15,000
	To Plant A/c			20,000
	(Being decrease in assets and increase in liabilities recorded on revaluation)
Mar 31	Sundry Creditors A/c   ...Dr.		8,000
	Stock A/c   ...Dr.		15,000
	To Revaluation A/c			23,000
	(Being increase in asset values and reduction in liability recorded on revaluation)
Mar 31	A's Capital A/c   ...Dr.		33,200
	B's Capital A/c   ...Dr.		19,920
	C's Capital A/c   ...Dr.		13,280
	To Revaluation A/c			66,400
	(Being net loss on revaluation distributed among old partners in their old profit-sharing ratio of 5 : 3 : 2)

 

Particulars	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Bad Debts (Net loss above provision)	1,000	By Sundry Creditors		8,000
To Provision for Doubtful Debts	8,400	By Stock		15,000
To Sundry Creditors	20,000	By Loss on Revaluation transferred to:
To Provision for Legal Damages	25,000	A's Capital A/c (5/10):	33,200
To Outstanding Salaries	15,000	B's Capital A/c (3/10):	19,920
To Plant (2,00,000 − 1,80,000)	20,000	C's Capital A/c (2/10):	13,280	66,400
Total	89,400	Total		89,400

Working note:

1. Debtors and Provision Adjustment:

Existing Debtors: 1,50,000

Less Bad Debts: 210,000

New Debtors Balance: 1,50,000 − 10,000 = 1,40,000

Existing Rate of Provision: `(9,000)/(1,50,000) xx 100 = 6%`

New Provision Needed: 6% of 1,40,000 = 8,400

2. Net Revaluation Loss Distribution (Ratio 5 : 3 : 2):

A's Share: `66,400 xx 5/10 = 33,200`

B's Share: `66,400 xx 3/10 = 19,920`

C's Share: `66,400 xx 2/10 = 13,280`