Question

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

Balance Sheet of Gita, Radha & Garv as on 31st March 2019
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)
Sundry Creditors		60,000	Cash	50,000
General Reserve		40,000	Stock	80,000
Capitals:		6,00,000	Debtors	40,000
Gita	3,00,000		Investments	30,000
Radha	2,00,000		Buildings	5,00,000
Garv	1,00,000
		7,00,000		7,00,000

Radha retired on the above date and it was agreed that:

1. Goodwill of the firm be valued at ₹ 3,00,000 and Radha’s share be adjusted through the capital accounts of Gita and Gary.
2. Stock was to be appreciated by 20%.
3. Buildings were found undervalued by ₹ 1,00,000.
4. Investments were sold for ₹ 34,000.
5. 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.

Answer 1

In the books of Gita and Garv
Dr.	Revaluation A/c			Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)
To Profit on revaluation transf. to:		1,20,000	By Stock A/c	16,000
Gita’s Capital A/c	36,000		By Building A/c	1,00,000
Radha’s Capital A/c	60,000		By Investments A/c	4,000
Garv’s Capital A/c	24,000
		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
	3,90,000	4,30,000	2,60,000		3,90,000	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 (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Sundry Creditors		60,000	Stock		96,000
Radha’s Loan A/c		4,30,000	Building		6,00,000
Capital A/cs:		5,00,000	Debtors		40,000
Gita	3,00,000		Current A/c:		1,70,000
Garv	2,00,000		Gita	42,000
			Garv	1,28,000
			Cash (50,000 + 34,000)		84,000
		9,90,000			9,90,000