Question

Kushal Kumar and Kavita were partners in a firm sharing profit in the ratio 3 : 1 : 1. On 1st April 2023 their Balance Sheet was as follows:

Balance Sheet of Kushal, Kumar and Kavita as at 1st April, 2023
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Creditors		1,20,000	Cash		70,000
Bills Payable		1,80,000	Debtors	2,00,000	1,90,000
General Reserve		1,20,000	Less: Provision	10,000
Capitals:		8,80,000	Stock		2,20,000
Kushal	3,00,000		Furniture		1,20,000
Kumar	2,80,000		Building		3,00,000
Kavita	3,00,000		Land		4,00,000
		13,00,000			13,00,000

On the above date Kavita retired and the following was agreed:

1. Goodwill of the firm was valued at ₹ 40,000.
2. Land was to be appreciated by 30% and building was to be depreciated by ₹ 1,00,000.
3. Value of furniture was to be reduced by ₹ 20,000.
4. Bad debts provision is to be increased to ₹ 15,000.
5. 10% of the amount payable to Kavita was paid in cash and the balance was transferred to her Loan Account.
6. Capitals of Kushal and Kumar will be in proportion to their new profit sharing ratio. The surplus/deficit, if any in their Capital Accounts will be adjusted through Current Accounts.

Prepare Revaluation Account, Partner’s Capital Accounts and Balance Sheet of Kushal and Kumar after Kavita’s retirement.

Answer 1

Dr.	Revaluation A/c			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Building A/c	1,00,000	By Land A/c		1,20,000
To Furniture A/c	20,000	By Loss t/f to capital A/cs:
To Bad debts Provision A/c	5,000	Kushal	3,000
		Kumar	1,000
		Kavita	1,000	5,000
	1,25,000			1,25,000

 

Dr.	Partner’s Capital A/c						Cr.
Particulars	Kushal	Kumar	Kavita	Particulars	Kushal	Kumar	Kavita
To Revaluation loss A/c	3,000	1,000	1,000	By Balance b/d	3,00,000	2,80,000	3,00,000
To Kavita’s Capital A/c	6,000	2,000	-	By General Reserve A/c	72,000	24,000	24,000
To Cash A/c	-	-	33,100	By Kushal’s Capital A/c	-	-	6,000
To Kavita’s Loan A/c	-	-	2,97,900	By Kavita’s Capital A/c	-	-	2,000
To Balance c/d	3,63,000	3,01,000	-
	3,72,000	3,04,000	3,32,000		3,72,000	3,04,000	3,32,000
To Current A/c	-	1,35,000	-	By Balance b/d	3,63,000	3,01,000	-
To Balance c/d	4,98,000	1,66,000	-	By Current A/c	1,35,000	-	-
	4,98,000	3,01,000	-		4,98,000	3,01,000	-

 

Balance Sheet
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Creditors		1,20,000	Cash		36,900
Bill payable		1,80,000	Debtors	2,00,000	1,85,000
Kavita’s Loan A/c		2,97,900	Less: Provision	15,000
Capital A/cs:		6,64,000	Stock		2,20,000
Kushal	4,98,000		Furniture	1,20,000	1,00,000
Kumar	1,66,000		Less: Reduced	20,000
Kumar’s Current A/c		1,35,000	Building	3,00,000	2,00,000
			Less: Depreciation	1,00,000
			Land	4,00,000	5,20,000
			Add: Appreciation	1,20,000
			Kushal’s Current A/c		1,35,000
		13,96,900			13,96,900

Working Notes:

1. Old ratio of Kushal, Kumar & Kavita = 3 : 1 : 1

Kavita retired,

New ratio of Kushal & Kumar = 3 : 1

Gaining ratio = New ratio (i.e., 3 : 1)

2. Goodwill = ₹ 40,000

Kavita’s share of goodwill = `40,000xx1/5`

= ₹ 8,000 

3. Amount payable to Kavita = 3,31,000

Less: 10% paid in cash = 33,100

Kavita’s Loan = 2,97,900

4. Adjustment of capitals:

Capital balance (after all adjustment)	₹
Kushal	3,63,000
Kumar	3,01,000
Total Capital of new firm	6,64,000

Kushal’s Capital of new firm = `6,64,000xx3/4`

= ₹ 4,98,000

Kumar’s Capital of new firm = `6,64,000xx1/4`

= ₹ 1,66,000