Question

The Balance Sheet of Sohan, Rohan and Mohan who were sharing profits and Losses in the ratio of 3:2:1 as follows.

Balance Sheet as on 31st March 2019
Liabilities	Amount (₹)	Assets	Amount (₹)
Bank Overdraft	18,000	Bank	48,000
Creditors	85,000	Debtors	30,000
Bills payable	40,000	Land and Building	40,000
Bank Loan	1,50,000	Machinery	80,000
General Reserve	27,000	Investments	40,000
Capital Account:		Computers	40,000
Sohan	20,000	Stock	90,000
Rohan	20,000	Patents	12,000
Mohan	20,000
	3,80,000		3,80,000

Mr. Rohan died on 1^st October 2019 and the following adjustments were made.

1. Goodwill of the firm is valued at ₹ 30,000.
2. Land and Building and Machinery were found to be undervalued by 20%.
3. Investments are valued at ₹ 60,000
4. Stock to be undervalued by ₹ 5,000 and a provision of 10% as debtors were required.
5. Patents were valueless.
6. Mr. Rohan was entitled to share in profits up to the date of death and it was decided that he may be allowed to retain his drawings as his share of profit. Rohan’s drawings till the date of death was ₹ 25,000.

Prepare Partner’s capital accounts.

Answer 1

 

In the books of the Partnership firm
Dr.		Partners’ Capital Accounts						Cr.
Particulars		Sohan (₹)	Rohan (₹)	Mohan (₹)	Particulars	Sohan (₹)	Rohan (₹)	Mohan (₹)
To Executor’s Loan A/c		-	49,000	-	By Balance b/d	20,000	20,000	20,000
To Drawings A/c		-	25,000	-	By revaluation A/c	15,000	10,000	5,000
To Balance c/d		63,500	-	34,500	By General reserve A/c	13,500	9,000	4,500
					By Goodwill A/c	15,000	10,000	5,000
					By Profit and Loss Suspense A/c	-	25,000	-
		63,500	74,000	34,500		63,500	74,000	34,500

Working Notes:

(1)

Dr.		Revaluation Account			Cr.
Particulars		Amount (₹)	Amount (₹)	Particulars	Amount (₹)
To Stock A/c			5,000	By Land and Building A/c	10,000
To R.D.D. A/c			3,000	By Machinery A/c	20,000
To Patents A/c			12,000	By Investments A/c	20,000
To Partner’s Capital A/cs:			30,000
Sohan		15,000
Rohan		10,000
Mohan		5,000
			50,000		50,000

(2) Firm’s goodwill = ₹ 30,000. Distribute among partners in their profit and loss ratio 3: 2: 1.

(3) Revised value of Land & Building = `"Book value"/ (100  –  20) × 100 = (40,000)/ 80 × 100` = ₹ 50,000.

∴ Increase in the value of Land & Building = revised value – Book value = 50,000 – 40,000 = ₹ 10,000.

(4) Revised value of Machinery = `"Book value"/(100 – 20) × 100 = (80,000)/80 × 100` = ₹ 1,00,000.

∴ Increase in the value of Machinery = 1,00,000 – 80,000 = ₹ 20,000.

(5) Patents were valueless means it is loss for business.

(6) Rohan’s share in profit is ₹ 25,000 and his drawings is ₹ 25,000. rohan is allowed to retain his drawings as his share of profit. Means write ₹ 25,000 as drawings on debit side and write ₹ 25,000 as Profit and Loss Suspense A/c on Credit side of Partner’s Capital A/c.