A, B & C are in partnership sharing profits in the ratio 5:3:2. The balance sheet of the firm as on 31st march 2014 was as follows:
Liabilities Rs. Assets Rs
Capital accounts bills receivables 15,000
A 40,000 machinery 82,000
B 61,000 furniture 4,000
C 24,000 debtors 70,000
Reserve 40,000 less: provision 3,000 67,000
Sundry creditors 50,000 stock 20,000
Profit and loss A/c 28,000 cash at bank 50,000
Bills payable 5,000 Advertisement suspense A/c 10,000
2,48,000 2,48,000
on 1st april 2014, B retires & A & C continued in partnership sharing profits and losses in the ratio 3:2. it was agreed that following adjustments were to be made on retirement of B:
A) The machinery was to be revalued at Rs.85,000
b) The stock was to be reduced by Rs.1,000
c) The furniture was to be reduced to Rs.1,600.
d) The provision for doubtful debts would be ^%
e) A provision of Rs.800 was to be made to outstanding expenses.
f) A liability n account of damages of Rs.7,000 included in creditors is settled at Rs.12,000.
The partnership agreement provides that in case of retirement of partner goodwill was to be valued at 3yrs purchase of a average profits which wRs.10,000but no goodwill is to be raised.
B was paid in full. A & C were to deposit such an amount in bank so as to make their capitals proportionate to the new profit sharing ratio, subject to the condition that a bank balance of Rs.40,000 was to be maintained as working capital.
Required: prepare revaluation account, partners capital account and balance sheet after retirement.
Dear Student,
The solution to your query is provided below.
Note: You have not specified the provision percentage. However, with the sign provided it is assumed to 6%.
Working Notes:
WN 1: Calculation of Provision amount.
WN 2: Calculation of Gaining Ratio
WN 3: Calculation of Adjusted Capital Balances of A and C
Shortfall = Rs 85,180 - Rs 10,000 = Rs 75,180
Hope this answers your query.
Keep Posting!!!
The solution to your query is provided below.
| Revaluation Account | ||||||
| Dr. | Cr. | |||||
| Particulars | Amount Rs |
Particulars | Amount Rs |
|||
| Stock | 1,000 | Machinery | 3,000 | |||
| Furniture | 2,400 | Loss transferred to Partners’ Capital A/cs: | ||||
| Provision for Debtors | 1,200 | A’s Capital A/c | 3,700 | |||
| Provision for Outstanding Expenses | 800 | B’s Capital A/c | 2,220 | |||
| Provision for Damages | 5,000 | C’s Capital A/c | 1,480 | 7,400 | ||
| 10,400 | 10,400 | |||||
| Partners’ Capital Accounts | |||||||||
| Dr. | Cr. | ||||||||
| Particulars | A | B | C | Particulars | A | B | C | ||
| Revaluation A/c | 3,700 | 2,220 | 1,480 | Balance b/d | 40,000 | 61,000 | 24,000 | ||
| B’s Capital A/c | 3,000 | - | 6,000 | Profit and Loss A/c | 14,000 | 8,400 | 5,600 | ||
| Advertisement Suspense A/c | 5,000 | 3,000 | 2,000 | A’s Capital A/c | - | 3,000 | - | ||
| C’s Capital A/c | - | 6,000 | - | ||||||
| Balance c/d | 62,300 | 85,180 | 28,120 | Reserve | 20,000 | 12,000 | 8,000 | ||
| 74,000 | 90,400 | 37,600 | 74,000 | 90,400 | 37,600 | ||||
| Bank A/c | 85,180 | Balance b/d | 62,300 | 85,180 | 28,120 | ||||
| Balance c/d | 99,360 | - | 66,240 | Bank A/c (Shortage) | 37,060 | - | 38,120 | ||
| 99,360 | - | 66,240 | 99,360 | - | 66,240 | ||||
| Balance Sheet as on March 31, 2014 after B’s retirement |
|||||
| Liabilities | Amount Rs |
Assets | Amount Rs |
||
| Capital A/c: | Bills Receivable | 15,000 | |||
| A | 99,360 | Machinery | 85,000 | ||
| C | 66,240 | 1,65,600 | Furniture | 1,600 | |
| Sundry Creditors | 50,000 | Debtors | 70,000 | ||
| Add: | 5,000 | 55,000 | Less: Provision for Debtors | (4,200) | 65,800 |
| Provision for Outstanding Expenses | 800 | Stock | 19,000 | ||
| Bills Payable | 5,000 | Cash at Bank | 40,000 | ||
| 2,26,400 | 2,26,400 | ||||
Working Notes:
WN 1: Calculation of Provision amount.
WN 2: Calculation of Gaining Ratio
WN 3: Calculation of Adjusted Capital Balances of A and C
Shortfall = Rs 85,180 - Rs 10,000 = Rs 75,180
Hope this answers your query.
Keep Posting!!!