Question

Radha, Manas and Arnav were partners in a firm sharing profits and losses in the ratio of 3 : 1 : 1. Their Balance Sheet as at 31st March, 2019 was as follows:

BALANCE SHEET OF RADHA, MANAS AND ARNAV as at 31st March, 2019
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Capitals:		9,00,000	Furniture		4,60,000
Radha	4,00,000		Investments		2,00,000
Manas	3,00,000		Stock		2,40,000
Arnav	2,00,000		Sundry Debtors	2,20,000	2,10,000
Investment Fluctuation Fund		1,10,000	Less: Provision for Doubtful Debts	10,000
Creditors		2,50,000	Cash		1,50,000
		12,60,000			12,60,000

Manas retired on 1st April, 2019. It was agreed that:

1. Stock was to be appreciated by 20%.
2. Provision for doubtful debts was to be increased to ₹ 15,000.
3. Value of furniture was to be reduced by ₹ 3,000.
4. Market value of investments was ₹ 1,90,000.
5. Goodwill of the firm was valued at ₹ 2,00,000 and Manas’s share was adjusted in the accounts of Radha and Arnav.
6. Manas was paid ₹ 68,000 in cash and the balance was transferred to his loan account.
7. Capitals of Radha and Arnav were to be in proportion to their new profit sharing ratio. Surplus/deficit, if any, in their capital accounts was to be adjusted through current accounts.

Prepare Revaluation Account, Partner’s Capital Accounts and the Balance Sheet of the reconstituted firm.

Answer 1

Dr.	Revaluation A/c			Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)
To Provision for Doubtful debts A/c		5,000	By Stock A/c	48,000
To Furniture A/c		3,000
To Profit t/f to Partners Capital A/cs:		40,000
Radha	24,000
Manas	8,000
Arnav	8,000
		48,000		48,000

 

Dr.	Partners’ Capital A/c						Cr.
Particulars	Radha	Manas	Arnav	Particulars	Radha	Manas	Arnav
To Manas Capital A/c	30,000	-	10,000	By Balance b/d	4,00,000	3,00,000	2,00,000
To Cash A/c	-	68,000	-	By Revaluation A/c - Profit	24,000	8,000	8,000
To Manas’s Loan A/c	-	3,00,000	-	By Radha’s Capital A/c	-	30,000	-
To Balance c/d	4,54,000	-	2,18,000	By Arnav’s Capital A/c	-	10,000	-
				By Investment Fluctuation Fund A/c	60,000	20,000	20,000
	4,84,000	3,68,000	2,28,000		4,84,000	3,68,000	2,28,000
To Arnav’s Current A/c	-	-	50,000	By Balance b/d	4,54,000	-	2,18,000
To Balance c/d	5,04,000	-	1,68,000	By Radha’s Current A/c	50,000	-	-
	5,04,000	-	2,18,000		5,04,000	-	2,18,000

 

Balance Sheet as at 31st March
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Capital A/cs:		6,72,000	Furniture		4,57,000
Radha	5,04,000		Debtors	2,20,000	2,05,000
Arnav	1,68,000		Less: Provision for doubtful debts	(15,000)
Manas’s loan A/c		3,00,000	Stock		2,88,000
Arnav’s Current A/c		50,000	Investments		1,90,000
Creditors		2,50,000	Cash		82,000
			Radha’s Current A/c		50,000
		12,72,000			12,72,000

Working notes:

1. Calculation of Partner’s share in Goodwill of the firm

Goodwill of the firm = ₹ 2,00,000

Manas share in Goodwill = `2,00,000xx1/5` = ₹ 40,000

Radha = `40,000xx3/4` = ₹ 30,000

Arnav = `40,000xx1/4` = ₹ 10,000

2. Calculation of Total Capital of the new firm

Total Capital of the new firm = Adjusted Capital of Radha & Adjusted Capital of Arnav 

= ₹ 4,54,000 + ₹ 2,18,000

= ₹ 6,72,000

Radha = `6,72,000xx3/4` = ₹ 5,04,000

Arnav = `6,72,000xx1/4` = ₹ 1,68,000