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Question

A and B are partners sharing profits in the ratio of 4 :3 . Their Balance Sheet as at 31st March, 2018 stood as:

Liabilities

Assets

Sundry Creditors 28,000 Cash 20,000
Reserve 42,000 Sundry Debtors 1,20,000
Capital A/cs: Stock 1,40,000
A 2,40,000 Fixed Assets 4,20,000

B

1,20,000

3,60,000

4,30,000

4,30,000

They decided that with effect from 1st April, 2018, they will share profits and losses in the ratio of 2 : 1 . For this purpose they decided that:
(i) Fixed Assets are to be depreciated by 10%.
(ii) A Provision for Doubtful Debts of 6% be made on Sundry Debtors.
(iii) Stock be valued at ₹ 1,90,000.
(iv) An amount of ₹ 3,700 included in Creditors is not likely to be claimed .
Partners decided to record the revised values in the books . However, they do not want to disturb the Reserve . You are required to pass journal entries , prepare Capital Accounts of Partners and the revised Balance Sheet.

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Solution

Journal

Date
2018

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

April 1

A’s Capital A/c

Dr.

4,000

To B’s Capital A/c

4,000

(Adjustment of General Reserve on change in profit sharing ratio)

Partners’ Capital Accounts

Dr.

Cr.

Particulars

A

B

Particulars

A

B

B’s Capital A/c
4,000
Balance b/d
2,40,000
1,20,000
(Adjustment of General Reserve)
Revaluation (Profit)
18,000
13,500
Balance c/d
2,54,000
1,37,500
A’s Capital A/c
4,000
(Adjustment of General Reserve)
2,58,000
1,37,500
2,58,000
1,37,500

Balance Sheet
as on 01st April, 2018

Liabilities

Amount Rs

Assets

Amount Rs

Sunday Creditors (28,000 –3,700)

24,300

Cash

20,000

General Reserve

42,000

Sundry Debtors

1,20,000

Capital Account

Less: Provision for Doubtful Debts

(7,200)

1,12,800

A

2,54,000

Stock

1,90,000

B

1,37,500

3,91,500

Fixed Assets (1,50,000 – 15,000)

1,35,000

4,57,800

4,57,800

Working Notes:

WN 1 Calculation of Sacrificing (or Gaining) Ratio

Old Ratio (A and B) = 4 : 3

New Ratio (A and B) = 2 : 1

Sacrificing (or Gaining) Ratio = Old Ratio − New Ratio

WN 2 Adjustment of General Reserve

WN 3

Revaluation Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Fixed Assets

15,000

Stock

50,000

Provision for Doubtful Debts

(1,20,000 × 6%)

7,200

Creditors

3,700

Profit transferred to:

A’s Capital A/c

18,000

B’s Capital A/c

13,500

31,500

53,700

53,700


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