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Akul, Bakul and Chandan Were Partners in a Firm Sharing Profits in the Ratio of 2 : 2: 1. on 31st March, 2018 Their Balance Sheet Was as Follows: - Accountancy

Ledger

Akul, Bakul, and Chandan were partners in a firm sharing profits in the ratio of 2 : 2: 1. On 31st March 2018 their Balance Sheet was as follows:

Balance Sheet of Akul, Bakul and Chandan as on 31.3.2018 

Liabilities

Amount (₹)

Assets Amount (₹)
Sundry Creditors 45,000 Cash at Bank 42,000
Employees Provident Fund  13,000 Debtors           60,000  
General Reserve 20,000 Less: Provision for doubtful debts   2000 58,000
Capitals:      
Akul              1,60,000   Stock 80,000
Bakul            1,20,000   Furniture 90,000
Chandan         92,000 3,72,000 Plant and Machinery 1,80,000
  4,50,000   4,50,000

Bakul retired on the above date and it was agreed that:
(i) Plant and Machinery were undervalued by 10%.
(ii) Provision for doubtful debts was to be increased to 15% on debtors.
(iii) Furniture was to be decreased to ₹ 87,000.
(iv) Goodwill of the firm was valued at ₹ 3,00,000 and Bakul's share was to be adjusted through the capital accounts of Akul and Chandan.
(v) Capital of the new firm was to be in the new profit sharing ratio of the continuing partners.
Prepare Revaluation account, Partners' Capital accounts, and the Balance Sheet of the reconstituted firm.

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Solution

Dr. Revaluation A/c Cr.
Particulars

Amount (₹)

Particulars Amount (₹)
To Provision for Doubtful debts (9,000 – 2,000) 7,000 By Plant & Machinery 20,000
    (1,80,000 ×  100/90 – 1,80,000)  
To Furniture
(90,000 – 87,000)
3,000    
To Profit transferred to partners Capital A/cs 10,000    
Akul       -  4,000      
Bakul      -  4,000      
Chandan - 2,000      
  20, 000   20, 000

 

Dr. Partners’ Capital Accounts Cr.
Particulars L.F.

Akul(₹)

Bakul(₹)

Chandan(₹)

Particulars L.F.

Akul(₹)

Bakul(₹)

Chandan(₹)

          By Balance b/d   1,60,000 1,20,000 92,000
To Bakul’s Capita   80,000   40,000 By General Reserve   8,000 8,000 4,000
To Cash A/c       8,000 By Akul’s Capital A/c     80,000  
To Bakul’s Loan A/c     2,52,000   By Chandan’s Capital A/c     40,000  
          By Revaluation A/c   4,000 4,000 2,000
To Balance c/d   1,00,000   50,000 By Cash A/c   8,000    
    1,80,000 2,52,000 98,000    

1,80,000

2,52,000 98,000

Balance Sheet as on 31st March 2018 

Liabilities

Amount (₹)

Assets

Amount (₹)

Sundry Creditors 45,000 Cash at Bank (42,000 + 8,000 – 8,000) 42,000
Employees Provident Fund 13,000 Debtors  -          60,000  
Bakul’s Loan 2,52,000 Less: Provision - (9000) 51,000
Partners’ Capital Accounts   Stock 80,000
Akul       - 1,00,00   Furniture 87,000
Chandan - 50,000 1,50,000 Plant & Machinery 2,00,000
  4,60,000   4,60,000

Working Notes:

1) Computation of amount of goodwill to be credited to Bakul’s Capital 

Revalued Goodwill of the firm = ₹ 3,00,000

Bakul’s Share in Goodwill= `3,00,000 xx (2)/(5) = 1,20,000` 

Bakul’s share to be compensated by Aku = `1,20,000 xx (2)/(3) = 80,000`

Bakul’s share to be compensated by Chandan  = `1,20,000 xx (1)/(3) = 40,000`

2) Computation of New Capital of remaining partners after Bakul’s Retirement

Adjusted Capital of Akul = 92,000
Adjusted Capital of Chandan = 58,000

Total Adjusted Capital of Partners = (92,000 + 58,000) = 1,50,000

New Capital Share of Akul  = `1,50,000 xx (2)/(3) = ₹ 1,00,000`

New Capital Share of Chandan = `1,50,000 xx (1)/(3) = ₹ 50,000`

Disclaimer: It has been assumed that excess/shortage in partner’s capital was adjusted through bringing in/paying out cash to/by the partner(s).

Concept: Preparation of Revaluation Account and Balance Sheet
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