Question

Digvijay, Brijesh and Parakaram were partners in a firm sharing profits in the ratio of 2 : 2 : 1. Their Balance Sheet as on March 31, 2007 was as follows

$\begin{array}{ccccc}\text{Capital and Liabilites}& & \text{Amt.(Rs)}& \text{Assets}& \text{Amt.(Rs)}\\ \text{Creditors}& & \text{49,000}& \text{Cash}& \text{8,000}\\ \text{Reserves}& & \text{18,500}& \text{Debtors}& \text{19,000}\\ \text{Digvijay's Capital}& & \text{82,000}& \text{Stock}& \text{42,000}\\ \text{Brijesh's Capital}& & \text{60,000}& \text{Buildings}& \text{2,07,000}\\ \text{Parakaram's Capital}& & \text{75,500}& \text{Patents}& \text{9,000}\\ & & \underset{–}{\underset{–}{\overline{2,85,000}}}& & \underset{–}{\underset{–}{\overline{2,85,000}}}\end{array}$

Brijesh retired on March 31, 2007 on the following terms

(i) Goodwill of the firm was valued at Rs. 70,000 and was not to appear in the books.

(ii) Bad debts amounting to Rs. 2,000 were to be written off.

(iii) Patents were considered as valueless.

Prepare revaluation account, partners' capital accounts and the balance sheet of Digvijay and Parakaram after Brijesh's retirement.

Answer 1

$\begin{array}{ccc}& & \\ \text{Dr}& \text{Revaluation Account}& \text{Cr}\end{array}\begin{array}{ccccc}\text{Particulars}& & \text{Amt.(Rs)}& \text{Particulars}& \text{Amt.(Rs)}\\ \text{Bad Debts A/c}& & \text{2,000}& & \\ \text{Patents A/c}& & \text{9,000}& \text{Loss Transferred to Capital Account}& \\ & & & \text{Digvijay}& \text{4,400}\\ & & & \text{Brijesh's}& \text{4,400}\\ & & & \text{Parakaram's}& \text{2,200}\\ & & \underset{–}{\underset{–}{\overline{11,000}}}& & \underset{–}{\underset{–}{\overline{11,000}}}\end{array}$

$\begin{array}{ccc}& & \\ \text{Dr}& \text{Partners' Capital Account}& \text{Cr}\end{array}\begin{array}{cccccccc}\text{Particulars}& \text{Digvijay}& \text{Brijesh}& \text{Parakaram}& \text{Particulars}& \text{Digvijay}& \text{Brijesh}& \text{Parakaram}\\ \text{Brijesh's}& & & & \text{Balance}& & & \\ \text{Capital A/c}& 18,667& & 9,333& \text{b/d}& 82,000& 60,000& 75,500\\ \text{Revaluation}& & 4,400& 2,200& \text{Digvijay's}& & & \\ \text{(Loss)}& 4,400& & & \text{Capital A/c}& & 18,667& \\ \text{Brijesh's}& & 91,000& & \text{Parakaram's}& & & \\ \text{Loan}& & & & \text{Capital A/c}& & 9,333& \\ \text{(Balance Figure)}& & & & & & & \\ \text{Balance c/d}& 66,333& & 67,667& \text{Reserves}& 7,400& 7,400& 3,700\\ & \underset{–}{\underset{–}{\overline{89,400}}}& \underset{–}{\underset{–}{\overline{95,400}}}& \underset{–}{\underset{–}{\overline{79,200}}}& & \underset{–}{\underset{–}{\overline{89,400}}}& \underset{–}{\underset{–}{\overline{95,400}}}& \underset{–}{\underset{–}{\overline{79,200}}}\end{array}$

$\begin{array}{ccc}& & \\ & \text{Balance Sheet}& \\ \text{Dr}& \text{as on 31 March, 2007 (New Firm)}& \text{Cr}\end{array}\begin{array}{cccccc}\text{Capital and Liabilities}& & \text{Amt.(Rs)}& \text{Assetss}& & \text{Amt.(Rs)}\\ \text{Creditors}& & \text{49,000}& \text{Cash}& & \text{8,000}\\ \text{Brijesh's Loan}& & \text{91,000}& \text{Debtors}& \text{19,000}& \\ \text{Digvijay's Capital A/c}& & \text{66,333}& \text{(-)Bad Debts}& \left(\underset{–}{2,000}\right)& 17,000\\ \text{Parakara's Capital A/c}& & \text{67,667}& \text{Stock}& & \text{42,000}\\ & & & \text{Buildings}& & \text{2,07,000}\\ & & \underset{–}{\underset{–}{\overline{2,74,000}}}& & & \underset{–}{\underset{–}{\overline{2,74,000}}}\end{array}$

Note: If no information is given, the amount due to Brijesh (the balance of his capital account) is transferred to his loan account.

Working Note

Brijesh's share of goodwill = Goodwill of firm $\times$ His profit share

$=70,000\times \frac{2}{5}=Rs.28,000$

Gaining ratio = New ratio - Old ratio

Digvijay's gain = $\frac{2}{3}-\frac{2}{5}=\frac{10-6}{15}=\frac{4}{15}$

Parakaram's gain =$\frac{1}{3}-\frac{1}{5}=\frac{5-3}{15}=\frac{2}{15}$ or 4:2 or 2:1

Brijesh's share of goodwill to be contributed by remaining partners in gaining ratio.

Digvijay = $28,000\times \frac{2}{3}=Rs.18,667$; Parakaram = $28,000\times \frac{1}{3}=Rs.9,333$