A. B and C were partners in a firm sharing profits in the ratio of 5: 3: 2. On 31-3-2015 their Balance Sheet was as follows:
Balance Sheet of A,B and C as on 31-3-2015
| Liabilities | Amount(Rs) | Assets | Amount(Rs.) |
|
Creditors Investment Fluctuation Fund P & L Account Capitals A 1,50,000 B 1,20,000 C 60,000
|
63,000 30,000 1,20,000
3,30,000
|
Land & Building Motor Vans Investments Machinery Stock Debtors 1,20,000 Less : Provision 9,000 Cash
|
1,86,000 60,000 57,000 36,000 45,000
|
| 5,43,000 | 5,43,000 |
On the above date B retired and A and C agreed to continue the business on the following terms:
(1) Goodwill of the firm was valued at Rs.1, 53,000.
(2) Provision for bad debts was to be reduced by Rs.3,000.
(3) There was a claim of Rs.12,000 for workmen compensation.
(4) B will be paid Rs.24,600 in cash and the balance will be transferred to his loan account which will be paid in four equal yearly instalments together with interest 10% p.a.
(5) The new profit sharing ratio between A and C will be 3:2 and their capital will be in their new profit sharing ratio. The capital adjustments will be done by opening current accounts.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of A and C.
Solution
Revaluation Account
Dr. Cr.
| Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
|
To Claim for Workman Compensation
|
12,000
|
By Provision for Doubtful Debts By Loss on Revaluation A’s Capital A/c 4,500 B’s Capital A/c 2,700 C’s Capital A/c 1,800 |
3,000
9,000 |
| 12,000 | 12,000 |
Partner’s Capital Account
Dr. Cr.
| Particulars | A (Rs.) | B (Rs.) | C (Rs.) | Particulars | A (Rs.) | B (Rs.) | C (Rs.) |
|
Revaluation A/c B’s Capital A/c Cash A/c B’s Loan A/c Balance c/d |
4,500 15,300
2,05,200 |
2,700
24,600 1,83,600
|
1,800 30,600
57,600 |
Balance b/d IFF P&L A/c A’s Capital C’s Capital |
1,50,000 15,000 60,000
|
1,20,000 9,000 36,000 15,300 30,600 |
60,000 6,000 24,000
|
| 2,25,000 | 2,10,900 | 90,000 | 2,25,000 | 2,10,900 | 90,000 | ||
|
Current A/c Balance c/d |
47,520 1,57,680 |
|
1,05,120 |
Balance b/d Current A/c |
2,05,200
|
|
57,600 47,520 |
| 2,05,200 | 1,05,120 | 2,05,200 | 1,05,120 |
Balance Sheet
as on March 31,2015
| Liabilities | Amount (Rs.) | Assets | Amount (Rs.) |
|
Creditors Capitals A 1,57,680 C 1,05,120 ___________ A’s Current A/c Claim for Workmen Comp. B’s Loan A/c
|
63,000
2,62,800 47,520 12,000 1,83,600
|
Land and Building Motor Vans Investment Machinery Stock Debtors 1,20,000 Less : Provision 6,000 _______ Cash (32,000 – 14,000) K’s Current A/c |
1,86,000 60,000 57,000 36,000 45,000
1,14,000 23,400 47,520 |
| 5,68,920 | 5,68,920 |
Working Notes :
WN1: Calculation of Gaining Ratio
Gaining Ratio = New Ratio - Old Ratio
A's = (3/5) - (5/10) = 1/10
C's = (2/5) - (2/10) = 2/10
Gaining Ratio = 1:2
WN 2 : Adjustment of Goodwill
B's Share of Goodwill = 1,53,000 x (3/10) = 45,900
45,900 will be debited to gaining partners (A and C) in the ratio of 2:1
A's share = 45,900 x (1/3) = 15,300
C's share = 45,900 x (2/3) = 30,400
WN 3 Adjustment of Capital
Adjusted Capital of A = 1, 50,000 + 15,000 + 60,000 – 4,500 – 15,300 = 2,05,200
Adjusted Capital of C = 60,000 + 6,000 + 24,000 – 1,800 – 30,600 = 57,600
Total Adjusted Capital = 2, 05,200 + 57,600 = 2, 62,800
A's New Capital = 2,62,800 x (3/5) = 1,57,680
C's New Capital = 2,62,800 x (2/5) = 1,05,120
C’s New Capital > C’s Adjusted Capital (C owes 47,520 to the firm)
A’s New Capital < A’s Adjusted Capital (Firm owes 47,520 to A)
WN 4 Amount transferred to B’s Loan A/c
Amount to be transferred = (Credit side – Debit side) – Cash paid
= (2,10,900 – 2,700) – 24,600 = 1,83,600
