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A, B and C Were Partners in a Firm Sharing Profits in the Ratio of 3:2:1. on 1.4.2014 Their Balance Sheet Was as Follows : Prepare Revaluation Account and Partners' Capital Accounts on C'S Retirement - CBSE (Arts) Class 12 - Accountancy

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Question

A, B and C were partners in a firm sharing profits in the ratio of 3:2:1. On 1.4.2014 their Balance Sheet was as follows :

Liabilities

Amount

Rs

Assets

Amount

Rs

Creditors 

Provident Fund

General Reserve

Capital Accounts

   A   80,000

   B   73,000 

   C   40,000

25,200

3,000

21,000

 

 

 

1,93,000

Bank

Debtors              60,000

   Less: Provision 2,000

Stock

Investment

Patents

Machinery

8,200

 

58,000

50,000

20,000

10,000

96,000

  2,42,200   2,42,200

On the above date, C retired. It was agreed that:
(i) Goodwill of the firm will be valued at Rs 5,400.
(ii) Depreciation of 10% was to be provided on machinery.
(iii) Patents were to be reduced by 20%.
(iv) Liability on account of Provident Fund was estimated at Rs 2,500.
(v) C took over investments for Rs 31,700.
(vi) A and B decided to adjust their capitals in proportion to their profit sharing ratio. For this
purpose, current accounts were opened.
Prepare Revaluation Account and Partners' Capital Accounts on C's retirement

Solution

Revaluation Account
Dr.   Cr.
Particulars Rs Particulars Rs

To Machinery A/c

To Patents A/c

To Profit transferred to

   A’s Capital A/c   300

   B’s Capital A/c  200

   C’s Capital A/c  100

9,600

2,000

 

 

 

600

By Investment A/c

By Provident Fund A/c

 

 

 

 

11,700

500

 

 

 

 

  12,200   12,200
       

 

Partner’s Capital Account
Dr.   Cr.
Particulars A B C Particulars A B C
To Investment A/c     31,700 By Balance b/d 80,000 73,000 40,000
To C’s Capital A/c 540 360   By General Reserve A/c 10,500 7,000 3,500
To Loan A/c     12,800 By Revaluation A/c 300 200 100
To Current A/c   11,800   By A’s Capital A/c     540
To Balance c/d 1,02,060 68,040   By B’s Capital A/c     360
        By Current A/c 11,800    
  1,02,600 80,200 44,500   1,02,600 80,200 44,500

Working Notes
WN 1 Adjustment of Goodwill

C's Share of Goowill = `5400 xx 1/6 = 900`

A will pay = `900 xx 3/5 = 540`

B will pay = `900 xx 2/5 = 360`

WN 2 Adjustment of Capital
Adjusted Old Capital of A = 90,800 (80,000 + 10,500 + 300) – 540 = 90,260
Adjusted Old Capital of B = 80,200 (73,000 + 7,000 + 200) -360 = 79,840
Total Adjusted Capital = 90,260 + 79,840 = 1, 70,100
New Profit sharing Ratio = 3:2

A's New Capital = `170100 xx 3/5 = 102060`

B's New Capital = `170100 xx 2/5 = 68040`

Note: Since, here no information is given regarding the share acquired by A and B, therefore, their gaining ratio is same as their new profit sharing ratio i.e. 3:2

  Is there an error in this question or solution?

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Solution A, B and C Were Partners in a Firm Sharing Profits in the Ratio of 3:2:1. on 1.4.2014 Their Balance Sheet Was as Follows : Prepare Revaluation Account and Partners' Capital Accounts on C'S Retirement Concept: Preparation of Revaluation Account and Balance Sheet.
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