Question

Following is the Balance Sheet of A, B and C as at 31st March, 2011. They shared profits in the ratio of 2 : 2 : 1.

$\begin{array}{cccccc}\text{Capital and Liabilities}& & \text{Rs}& \text{Assets}& & \text{Rs}\\ \text{Sundry Creditors}& & 5,00,000& \text{Cash at Bank}& & 10,000\\ \text{General Reserve}& & 2,50,000& \text{Debtors}& 6,00,000& \\ \text{Partners Loan A/cs :}& & & \text{Less : Provision for}& & \\ \text{B}& 1,80,000& & \text{Doubtful Debts}& \underset{–}{(25,000)}& 5,75,000\\ \text{C}& \underset{–}{1,20,000}& 3,00,000& \text{Stock}& & 3,40,000\\ \text{Capital A/cs :}& & & \text{Land}\&\text{Buildings}& & 10,00,000\\ \text{A}& 5,00,000& & \text{Advertisement Suspense A/c}& & 60,000\\ \text{B}& 3,00,000& & \text{Profit and Loss A/c}& & 15,000\\ \text{C}& \underset{–}{1,50,000}& 9,50,000& & & \\ & & \overline{\underset{–}{\underset{–}{20,00,000}}}& & & \overline{\underset{–}{\underset{–}{20,00,000}}}\end{array}$

B retires on 1st April, 2011 on the following terms :

(i) Stock is overvalued by Rs 20,000 and land & buildings are undervalued by Rs 1,00,000.

(ii) Provision for doubtful debts is to be increased to Rs 30,000.

(iii) Old credit balances of Sundry Creditors Rs 40,000 be written off.

(iv) A computer purchased on 1st October, 2010 for Rs 50,000 debited to Office Expenses Account is to be brought into account charging depreciation @ 20% p.a.

(v) Goodwill of the firm is valued at Rs 1,50,000 and the amount due to B be adjusted in the capital accounts of A and C.

Prepare the Revaluation Account, Capital Accounts and the new Balance Sheet.

Answer 1

$\begin{array}{cccccccccccc}\text{Dr.}& & & & & & & \text{REVALUATION ACCOUNT}& & & & \text{Cr.}\end{array}$

$\begin{array}{ccccc}\text{Particulars}& & \text{Rs}& \text{Particulars}& \text{Rs}\\ \text{Stock A/c}& & 20,000& \text{Land}\&\text{Buildings A/c}& 1,00,000\\ \text{Provision for Doubtful Debts}& & & \text{Sundry Creditors A/c}& 40,000\\ \text{A/c}& & 5,000& \text{Office Equipment A/c (Computer)}& 45,000\\ \text{Profit on Revaluation}& & & & \\ \text{Transferred to :}& & & & \\ \text{A's Capital A/c}& 64,000& & & \\ \text{B's Capital A/c}& 64,000& & & \\ \text{C's Capital A/c}& \underset{–}{32,000}& \underset{–}{1,60,000}& & \\ & & \underset{–}{\underset{–}{1,85,000}}& & \overline{\underset{–}{\underset{–}{1,85,000}}}\end{array}$

$\begin{array}{ccccccccccccc}\text{Dr.}& & & & & & & & \text{CAPITAL ACCOUNTS}& & & & \text{Cr.}\end{array}$

$\begin{array}{cccccccc}\text{Particulars}& \text{A}& \text{B}& \text{C}& \text{Particulars}& \text{A}& \text{B}& \text{C}\\ & \text{Rs}& \text{Rs}& \text{Rs}& & \text{Rs}& \text{Rs}& \text{Rs}\\ \text{Advertise-}& & & & \text{Bal. b/d}& 5,00,000& 3,00,000& 1,50,000\\ \text{ment Sus-}& & & & \text{Genral}& & & \\ \text{pense A/c}& 24,000& 24,000& 12,000& \text{Reserve}& 1,00,000& 1,00,000& 50,000\\ \text{Profit and}& & & & \text{Revalua-}& & & \\ \text{Loss A/c}& 6,000& 6,000& 3,000& \text{tion A/c}& 64,000& 64,000& 32,000\\ \text{B's Capital}& & & & \text{A's Capital}& & & \\ \text{A/c (Good-}& & & & \text{A/c (Good-}& & & \\ \text{will)}& 40,000& -& 20,000& \text{will)}& -& 40,000& -\\ \text{B's Loan}& & & & \text{C's Capital}& & & \\ \text{A/c}& -& 4,94,000& -& \text{A/c (Good-}& & & \\ \text{Balance}& & & & \text{will)}& -& 20,000& -\\ \text{c/d}& 5,94,000& & 1,97,000& & & & \\ & \overline{\underset{–}{\underset{–}{6,64,000}}}& \overline{\underset{–}{\underset{–}{5,24,000}}}& \overline{\underset{–}{\underset{–}{2,32,000}}}& & \overline{\underset{–}{\underset{–}{6,64,000}}}& \overline{\underset{–}{\underset{–}{5,24,000}}}& \overline{\underset{–}{\underset{–}{2,32,000}}}\end{array}$

BALANCE SHEET

as at 1st April, 2011

$\begin{array}{cccccc}\text{Capital and Liabilities}& & \text{Rs}& \text{Assets}& & \text{Rs}\\ \text{Sundry Creditors}& & 4,60,000& \text{Cash at Bank}& & 10,000\\ \text{B's Loan A/c}& & & \text{Debtors}& 6,00,000& \\ (4,94,000+1,80,000)& & 6,74,000& \text{Less : Provision for}& & \\ \text{C's Loan A/c}& & 1,20,000& \text{Doubtful Debts}& \underset{–}{(30,000)}& 5,70,000\\ \text{Capital Accounts :}& & & \text{Stock}& & 3,20,000\\ \text{A}& 5,94,000& & \text{Office Equipment (Computer)}& & 45,000\\ \text{C}& \underset{–}{1,97,000}& 7,91,000& \text{Land and Buildings}& & 11,00,000\\ & & \overline{\underset{–}{\underset{–}{20,45,000}}}& & & \overline{\underset{–}{\underset{–}{20,45,000}}}\end{array}$

Working Notes :

(1) Computer purchased for Rs 50,000 was wrongly debited to Office Expenses Account, whereas it should have been debited to Office Equipment Account. Depreciation for 6 months i.e., from 1st October 2010 to 31st March 2011 @ 20% p.a. has not been charged. Hence Rs 45,000 (i.e. Rs 50,000 - Dep. Rs 5,000) will be adjusted by passing the following entry :

Office Equipment A/c Dr. 45,000
To Revaluation A/c 45,000

(2) B's share of Goodwill $=Rs1,50,000\times \frac{2}{5}=Rs60,000.$ It will be adjusted by passing the following entry :

A's Capital A/c $(60,000\times \frac{2}{3})$ Dr. 40,000

C's Capital A/c $(60,000\times \frac{1}{3})$ Dr. 20,000

To B's Capital A/c 60,000