Question

Rakesh, Mahesh & Mukesh were partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1 respectively. Balance Sheet as on 31st March, 2019 as under:

Liabilities	Amount (₹)	Assets		Amount (₹)
Capital A/c:		Plant & Machinery		40,000
Rakesh	30,000	Motor Truck		20,000
Mahesh	20,000	Investment		18,000
Mukesh	10,000
Bank Loan	20,000	Debtors	16,000	14,000
Creditors	8,000	Less: RDD	2,000
Bills Payable	18,000	Bank		14,000
	1,06,000			1,06,000

Mukesh Died on 30th June, 2019 and following adjustments were made:

1. Assets were revalued as: Plant & Machinery ₹ 44,000, Motor Truck ₹ 18,000, Investment ₹ 17,000.
2. All debtors were good.
3. Goodwill of the firm valued at two times the average profits of the last five years. No Goodwill account to be shown in the books of the firm.
4. Mukesh's share of profit up to his death to be calculated on the basis of average profits last two years.
5. Five years Profits were - I year ₹ 6,000, II year ₹ 11,000, III year ₹ 7,000, IV year ₹ 12,000, V year ₹ 24,000 respectively.

Prepare Revaluation A/c, Partners Capital A/c and Balance Sheet as on 1 st July, 2019.

Answer 1

Dr.	Revaluation Account			Cr.
Particulars		Amount (₹)	Particulars	Amount (₹)
To Motor Truck		2,000	By Plant & Machinery	4,000
To Investment		1,000	By RDD A/c	2,000
To Partners Capital A/c (profit):
Rakesh	1,500	3,000
Mahesh	1,500
Mukesh	500
		6,000		6,000

 

Dr.	Partner's Capital Accounts						Cr.
Particulars	Rakesh (₹)	Mahesh (₹)	Mukesh (₹)	Particulars	Rakesh (₹)	Mahesh (₹)	Mukesh (₹)
To Mukesh's Capital A/c	2,400	1,600		By Balance b/d	30,000	20,000	10,000
To Mukesh's Executors A/c			15,250	By Revaluation A/c (Profit)	1,500	1,000	500
To Balance c/d	29,100	19,400		By Rakesh's Capital A/c (Goodwill)			2,400
				By Mahesh's Capital A/c  (Goodwill)			1,600
				By Profit & Loss Suspense A/c			750
	31,500	21,000	15,250		31,500	21,000	15,250

 

Balance Sheet as on 1st July, 2019
Liabilities	Amount (₹)	Assets	Amount (₹)
Capital Account:		Plant & Machinery	44,000
Rakesh	29,100	Motor Truck	18,000
Mahesh	19,400	Debtors	16,000
Mukesh's Executors Loan A/c	15,250	Investment	17,000
Creditors	8,000	Bank	14,000
Bank Loan	20,000	Profit & loss Suspense A/c	750
Bills Payable	18,000
	1,09,750		1,09,750

Working Note:

1. Valuation of Goodwill:

Total Profits = 6,000 + 12,000 + 7,000 + 11,000 + 24,000 = ₹ 60,000

Average Profit = `"60,000"/5` = ₹ 12,000

Goodwill = 12,000 × 2 = ₹ 24,000

Mahesh's Share in Goodwill = `24,000 xx 1/6` = ₹ 4,000

Goodwill is divided and debited to Rakesh and Mahesh's Capital A/c in the Ratio of 3 : 2

Rakesh = `4,000xx3/5` =  ₹ 2,400 

Mahesh = `4,000xx2/5` =  ₹ 1,600 

2. Calculation of Mukesh's Share in profit from 1st April, 2019 to 1st July, 2019

Total profit of current year = average profit of last 2 year profit

= `(12,000 + 24,000)/2`

= `(36,000)/2`

= ₹ 18,000

Proportional Profit = `18,000xx3/12` = ₹ 4,500

Mukesh's Share in profit = `4,500xx1/6` = ₹ 750