Question

The Balance Sheet of A, B and C who were sharing profits in the ratio of 5 : 3 : 2 as at 31st March 2025 was as under:

Liabilities	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Sundry Creditors	1,50,000	Cash at Bank		1,20,000
General Reserve	2,45,000	Sundry Debtors	3,00,000	2,85,000
Workmen Compensation Reserve	60,000	Less: Provision for Doubtful Debts	15,000
Investment Fluctuation Reserve	45,000	Stock		1,25,000
A’s Capital	4,50,000	Investments (Market Value ₹ 2,40,000)		2,00,000
B’s Capital	3,00,000	Land & Building		6,80,000
C’s Capital	2,50,000	Goodwill		50,000
		Advertisement Suspense		40,000
	15,00,000			15,00,000

A retired on 1st April, 2025 and Band C decided to share future profits and losses in the ratio of 2 : 3. The partners agreed to the following terms:

1. Goodwill of the firm is valued at ₹ 2,00,000.
2. Land and Building is undervalued by ₹ 1,20,000.
3. There were bad debts ₹ 25,000.
4. A provision for ₹ 20,000 is to be made for outstanding legal charges.
5. A claim of ₹ 40,000 on account of Workmen Compensation is to be provided.
6. Continuing partners decided to record the effect of reserves (after adjusting claim on account of Workmen Compensation Reserve) and accumulated profits/losses without affecting their book values.
7. The amount to be paid to A is to be brought in by Band C in such a way that their Capitals are proportionate to their profit sharing ratio and leave a balance of ₹ 50,000 in the Bank Account.

Prepare Revaluation Account, Partner’s Capital Accounts and the Balance sheet of the new firm.

Answer 1

Dr.	Revaluation A/c			Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)
To Bad debts A/c		10,000	By Land and Building A/c	1,20,000
To Outstanding legal charges A/c		20,000	By Workmen Compensation A/c	40,000
To Profit t/f to Partners Capital A/cs:		1,30,000
A	65,000
B	39,000
C	26,000
		1,60,000		1,60,000

 

Dr.	Partner’s Capital A/c						Cr.
Particulars	A	B	C	Particulars	A	B	C
To A’s Capital A/c	-	20,000	80,000	By Balance b/d	4,50,000	3,00,000	2,50,000
To Goodwill A/c	25,000	15,000	10,000	By Revaluation A/c	65,000	39,000	26,000
To A’s Capital A/c	-	27,000	1,08,000	By B’s Capital A/c	20,000	-	-
To Cash A/c	7,25,000	-	-	By C’s Capital A/c	80,000	-	-
To Balance c/d	-	2,77,000	78,000	By B’s Capital A/c	27,000	-	-
				By C’s Capital A/c	1,08,000	-	-
	7,50,000	3,39,000	2,76,000		7,50,000	3,39,000	2,76,000
To Balance c/d	-	4,04,000	6,06,000	By Balance b/d		2,77,000	78,000
				By Bank A/c	-	1,27,000	5,28,000
	-	4,04,000	6,06,000		-	4,04,000	6,06,000

 

Balance sheet of the new firm
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Sundry Creditors		1,50,000	Sundry Debtors	3,00,000	2,75,000
Outstanding legal charges		20,000	Less: Provision for doubtful debts	25,000
General Reserve		2,45,000	Stock		1,25,000
Workmen Compensation Reserve		60,000	Investments		2,00,000
Investment Fluctuation Reserve		45,000	Land & Building		8,00,000
Capitals A/cs:		10,10,000	Advertisement Suspense		40,000
B	4,04,000		Cash at bank		90,000
C	6,06,000
		15,30,000			15,30,000

Working note:

(i) Gaining Ratio = New ratio – Old Ratio

B = `2/5-3/10=(20-15)/50=5/50`

C = `3/5-2/10=(30-10)/50=20/50`

= 5 : 20 

Gaining Ratio = 1 : 4

(ii) Goodwill of the firm = ₹ 2,00,000

A’s share of Goodwill = `2,00,000xx5/10` = ₹ 1,00,000

B = `1,00,000xx1/5` = ₹ 20,000

C = `1,00,000xx4/5` = ₹ 80,000

(iii) Adjustment for Accumulated Profits/Losses:

	₹
General Reserve	2,45,000
Workmen’s Compensation Reserve (60,000 – 40,000)	20,000
Investment Fluctuation Reserve	45,000
	3,10,000
Less: Advertisement Suspense	40,000
Net Amount	2,70,000

A’s share of Profits and Losses = `2,70,000xx5/10` = ₹ 1,35,000

B = `1,35,000xx1/5` = ₹ 27,000

C = `1,35,000xx4/5` = ₹ 1,08,000