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Gita, Radha, and Garv Were Partners in a Firm Sharing Profits and Losses in the Ratio of 3:5:2. on 31st March, 2019, Their Balance Sheet Was as Follows: ​ - Accountancy

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Gita, Radha, and Garv were partners in firm sharing profits and losses in the ratio of 3: 5: 2. On 31st March 2019, their balance sheet was as follows: ​

Balance Sheet of Gita, Radha & Garv as on 31st March 2019 

Liabilities 

Amount (₹)

Assets Amount (₹)
Sundry Creditors

60,000

Cash 50,000
General Reserve

40,000

Stock 80,000
Capitals :

 

Debtors 40,000
Gita  -   3,00,000

 

Investments   30,000
Radha - 2,00,000

 

Buildings 5,00,000
Garv -  1,00,000

6,00,000

   
  7,00,000   7,00,000

Radha retired on the above date and it was agreed that:
(a) Goodwill of the firm be valued at ₹ 3,00,000 and Radha's share be adjusted through the capital accounts of Gita and Gary.
(b) Stock was to be appreciated by 20%.
(c) Buildings were found undervalued by ₹ 1,00,000.
(d) Investments were sold for ₹ 34,000.
(e) Capital of the new firm was fixed at ₹ 5,00,000 which will be in the new profit sharing ratio of the partners; the necessary adjustments for this purpose were to be made by opening current accounts of the partners.

Prepare Revaluation Account, Partner's Capital Accounts, and the Balance Sheet of the reconstituted firm on Radha's retirement.

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Solution

In the books of Gita and Garv 

Dr. Revaluation A/c Cr.
Particulars
Amount(₹)
Particulars Amount(₹)
 
 
By Stock A/c 16,000
 
 
By Building A/c 1,00,000
 
 
By Investments A/c 4,000
To Profit on revaluation transf. to:
 
   
Gita’s Capital A/c    36,000
 
   
Radha’s Capital A/c 60,000
 
   
Garv’s Capital A/c    24,000
1,20,000
   
 
1,20,000
  1,20,000

 

Dr. Partner’s Capital A/c Cr.
Particulars
Gita
(₹)
Radha
(₹)
Garv
(₹)
Particulars
Gita
(₹)
Radha
(₹)
Garv
(₹)
To Radha’s Capital A/c
90,000
 
60,000
By balance b/d
3,00,000
2,00,000
1,00,000
To Radha’s Loan A/c
 
4,30,000
 
By Gita’s Capital A/c
 
90,000
 
To balance c/d
3,00,000
 
2,00,000
By Garv’s Capital A/c
 
60,000
 
 
 
 
 
By General Reserve A/c
12,000
20,000
8,000
 
 
 
 
By Revaluation A/c
36,000
60,000
24,000
 
 
 
 
By Current A/c
42,000
 
1,28,000
 
3,48,000
4,30,000
2,60,000
 
3,48,000
4,30,000
2,60,000

Working Notes:

1) Calculation of Radha’s Share of Goodwill

Goodwill of the firm =  ₹ 3,00,000
Radha’s Share of Goodwill = ₹ (3,00,000 × 5/10) = ₹ 1,50,000

Gaining ratio will be same as the new profit-sharing ratio i.e. 3: 2

2) Adjustment of Capital:

Total Capital of the firm = ₹ 5,00,000
Gita’s New Capital = ₹ (5,00,000 × 3/5)= ₹ 3,00,000
Garv’s New Capital = ₹ (5,00,000 × 2/5)= ₹ 2,00,000

Existing Capitals of Gita and Garv are ₹ 2,58,000 and  ₹ 72,000

Amount to be debited to Gita’s Current A/c = New Capital – Old Capital
  = ₹ ( 3,00,000 – 2,58,000) = ₹ 42,000
Amount to be debited to Garv’s Current A/c = New Capital – Old Capital
  = ₹ ( 2,00,000 – 72,000)= ₹ 1,28,000

Balance Sheet as at 31st March, 2019 

Liabilities
Amount(₹)
Assets
Amount(₹)
Sundry Creditors
60,000
Stock
96,000
Radha’s Loan A/c
4,30,000
Building
6,00,000
Capital A/cs
 
Debtors
40,000
Gita - 3,00,000
 
Current A/c:
 
Garv - 2,00,000
5,00,000
Gita - 42,000
 
 
 
Garv - 1,28,000
1,70,000
 
 
Cash
84,000
 
 
(50,000 + 34,000)
 
 
9,90,000
 
9,90,000
Concept: Preparation of Revaluation Account and Balance Sheet
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