Question

Following is the Balance Sheet of Abhay and Binary as on 31st March, 2014 :
$\begin{array}{ccccccc}\text{Liabilities}& & & \text{Amount}& \text{Assets}& & \text{Amount}\\ & & & \text{(Rs)}& & & \text{(Rs)}\\ \text{Creditors}& & & 13,000& \text{Bank}& & 15,000\\ \text{Employees Provident Fund}& & & 8,000& \text{Debtors}& 22,000& \\ \text{Workmen's Compensation Fund}& & & 15,000& \text{Less : Provision for}& & \\ \text{Capitals :}& & & & \text{Doubtful Debts}& \underset{–}{1,000}& 21,000\\ & \text{Abhay}& 55,000& & \text{Stock}& & 10,000\\ & \text{Binay}& \underset{–}{30,000}& 85,000& \text{Plant and Machinery}& & 60,000\\ & & & & \text{Goodwill}& & 10,000\\ & & & & \text{Profit and Loss}& & 5,000\\ & & & \overline{1,21,000}& & & \overline{1,21,000}\end{array}$

Chitra was admitted as a partner for 1/4th share in the profits of the firm, it was decided that :

(a) Bad debts amounted to Rs 1,500 will be written off.

(b) Stock worth Rs 8,000 was taken over by Abhay and Binay at book value in their profit sharing ratio. The remaining stock was valued at Rs 2,500.

(c) Plant and Machinery and goodwill were valued at Rs 32,000 and Rs 20,000 respectively.

(d) Chitra brought her share of goodwill in cash.

(e) Chitra will bring proportionate capital and the capital of Abhay and Binay will be adjusted in their profit sharing ratio by bringing in or paying off cash as the case may be.

Prepare Revaluation Account, Partner's Capital Accounts and show the working.

OR

Lalit, Madhur and Neena were partners sharing profits as 50%, 30% and 20% respectively. On March 31st, 2013 their Balance Sheet was as follows :
$\begin{array}{ccccccc}\text{Liabilities}& & & \text{Amount}& \text{Assets}& & \text{Amount}\\ & & & \text{(Rs)}& & & \text{(Rs)}\\ \text{Creditors}& & & 28,000& \text{Cash}& & 34,000\\ \text{Employees Provident Fund}& & & 10,000& \text{Debtors}& 47,000& \\ \text{Investment Fluctuation Fund}& & & 10,000& \text{Less : Provision for}& & \\ \text{Capitals :}& & & & \text{Doubtful Debts}& \underset{–}{3,000}& 44,000\\ & \text{Lalit}& 50,000& & \text{Stock}& & 15,000\\ & \text{Madhur}& 40,000& & \text{Ivestment}& & 40,000\\ & \text{Neena}& \underset{–}{25,000}& 1,15,000& \text{Goodwill}& & 20,000\\ & & & & \text{Profit and Loss}& & 10,000\\ & & & \overline{1,63,000}& & & \overline{1,63,000}\end{array}$

On this date, Madhu retired. Lalit and Neena greed to continue on the following terms:

(a) The goodwill of the firm was valued at Rs 51,000.

(b) There was a claim for workmen's compensation to the extent of Rs 6,000.

(c) Investments were brought down to Rs 15,000.

(d) Provision for bad debts was reduced by Rs 1,000.

(e) Madhur was paid Rs 10,300 in cash and the balance was transferred to his loan account payable in two equal instalments together with interest $@12\%$ p.a.

Prepare Revaluation Account, Partner's Capital Accounts and Madhur's Loan Account till the loan is finally paid off.

Answer 1

Dr. REVALUATION ACCOUNT Cr.
$\begin{array}{ccccc}\text{Particulars}& \text{Amount}& \text{Particulars}& & \text{Amount}\\ & \text{(Rs)}& & & \text{(Rs)}\\ \text{To Bad Debts A/c}& & \text{By Stock A/c}& & \\ \text{(Rs 1,500 - Rs 1,000)}& 500& \text{(Rs 2,500 - Rs 2,000)}& & 500\\ \text{To Plant and Machinery A/c}& & \text{By Loss transferred to Partner's}& & \\ \text{(Rs 60,000 - Rs 32,000)}& 28,000& \text{Capital A/c}& & \\ & & \text{Abhay}& 14,000& \\ & & \text{Binay}& \underset{–}{14,000}& \underset{–}{28,000}\\ & \overline{28,500}& & & 28,500\end{array}$

Dr. PARTNER'S CAPITAL ACCOUNT Cr.
$\begin{array}{cccccccc}\text{Particulars}& \text{Abha}& \text{Binay}& \text{Chitra}& \text{Particulars}& \text{Abha}& \text{Binay}& \text{Chitra}\\ \text{To Profit}\&\text{Loss A/c}& 2,500& 2,500& \underset{–}{}& \text{By Balance b/d}& 55,000& 30,000& \underset{–}{}\\ \text{To Stock A/c}& 4,000& 4,000& \underset{–}{}& \text{By Workmen's}& & & \\ \text{To Revaluation A/c}& 14,000& 14,000& \underset{–}{}& \text{Compensation}& 7,500& 7,500& \underset{–}{}\\ \text{Goodwill A/c}& 5,000& 5,000& \underset{–}{}& \text{By Preminum for}& & & \\ \text{To Balance c/d}& \underset{–}{39,500}& \underset{–}{14,500}& \underset{–}{\underset{–}{}}& \text{Goodwill}& \underset{–}{2,500}& \underset{–}{2,500}& \underset{–}{\underset{–}{}}\\ & \underset{–}{65,000}& \underset{–}{40,000}& \underset{–}{}& & \underset{–}{65,000}& \underset{–}{40,000}& \underset{–}{}\\ & & & & & & & \\ \text{To Cash A/c}& 12,500& \underset{–}{}& \underset{–}{}& \text{By Balance b/d}& 39,500& 14,500& \underset{–}{}\\ \text{Balancing Fig.}& & & & \text{By Cash A/c}& \underset{–}{}& 12,500& 18,000\\ \text{To Balance c/d}& \underset{–}{27,000}& \underset{–}{27,000}& \underset{–}{18,000}& \text{(Balancing Fig.)}& & & \\ & 29,500& 27,000& 18,000& & \overline{39,500}& \overline{27,000}& \overline{18,000}\end{array}$

Working Notes :

(a) Chitra's share of goodwill Rs 20,000 $\times \frac{1}{4}$ = Rs 5,000, which is to be contributed by the old partners in their sacrificing ratio 1 :1.

(b) Capital of the firm at the time of Chitra's admission = Rs 39,500 + 14,500 = Rs 54,000 for 3/4 shares

Total new capital of the firm = Rs 54,000 $\times \frac{4}{3}=$ Rs 72,000

Chitra's capital in the new firm = Rs 72,000 $\times \frac{1}{4}=$ Rs 18,000

New capital of Abhay and Binay = Rs 72,000 - Rs 18,000 $\times \frac{1}{2}$ = Rs 27,000 each.

OR

$\begin{array}{ccccc}\text{Dr}& & \text{REVALUATION ACCOUNT}& & \text{Cr}\end{array}\begin{array}{ccccc}\text{Particulars}& \text{Amount}& \text{Particulars}& & \text{Amount}\\ & \text{(Rs)}& & & \text{(Rs)}\\ \text{To Workmen's Compensation}& & \text{By Provision for Doubtful Debts}& & 1,000\\ \text{Claim A/c}& 6,000& \text{By Loss Transferred to}& & \\ \text{To Investment A/c}& 15,000& \text{Partner's Capital A/c}& & \\ & & \text{Lalit}& 10,000& \\ & & \text{Madhur}& 6,000& \\ & & \text{Neena}& \underset{–}{4,000}& 20,000\\ & \overline{21,000}& & & \overline{21,000}\end{array}$

Working Notes :

(a) Depletion in the value of investments adjusted through Revaluation Account

= Investments - Investment Fluctuation Fund - Present Value

= Rs 40,000 - Rs 10,000 - Rs 15,000 = Rs 15,000

$\begin{array}{cccccccc}\text{Dr}& & & & \text{PARTNER'S CAPITAL ACCOUNT}& & & \text{Cr}\end{array}\begin{array}{cccccccc}\text{Particulars}& \text{Lalit}& \text{Madhur}& \text{Neena}& \text{Particulars}& \text{Lalit}& \text{Madhur}& \text{Neena}\\ & \text{(Rs)}& \text{(Rs)}& \text{(Rs)}& & \text{(Rs)}& \text{(Rs)}& \text{(Rs)}\\ \text{To Profit}\&\text{Loss A/c}& 5,000& 3,000& 2,000& \text{By Balance b/d}& 50,000& 40,000& 25,000\\ \text{To Goodwill A/c}& 10,000& 6,000& 4,000& \text{By Lalit's}& & & \\ \text{Revaluation A/c}& 10,000& 6,000& 4,000& \text{Capital A/c}& \underset{–}{}& 10,930& \underset{–}{}\\ \text{To Madhur's}& & & & \text{By Neena's}& & & \\ \text{Capital A/c}& 10,930& \underset{–}{}& 4,370& \text{Capital A/c}& \underset{–}{}& 4,370& \underset{–}{}\\ \text{To Cash A/c}& \underset{–}{}& 10,300& \underset{–}{}& & & & \\ \text{To Madhur's}& & & & & & & \\ \text{Loan A/c}& \underset{–}{}& 30,000& \underset{–}{}& & & & \\ \text{To Balance c/d}& 14,070& \underset{–}{}& 10,630& & & & \\ & \overline{50,000}& \overline{55,300}& \overline{25,000}& & \overline{50,000}& \overline{55,300}& \overline{25,000}\end{array}$

Working Notes :

(a) Madhur's share in good will = Rs 51,000 $\times \frac{3}{10}$ = Rs 15,300

which is contributed by Lalit and Neena in the ratio 5 :2

Lalit's contribution = Rs 15,300 $\times \frac{5}{7}=$ Rs 10,930

Neena's contribution = Rs 15,300 $\times \frac{2}{7}=$ Rs 4,370

MADHUR'S LOAN ACCOUNT
$\begin{array}{cccccc}\text{Date}& \text{Particulars}& \text{Amount}& \text{Date}& \text{Particulars}& \text{Amount}\\ & & \text{(Rs)}& & & \text{(Rs)}\\ 31-3-14& \text{To Bank A/c}& 18,600& 1-4-13& \text{By Madhur's Capital A/c}& 30,000\\ & \text{(Rs 15,000 + Rs 3,600)}& & 31-3-14& \text{By Interest}@12\%& 3,600\\ 31-3-14& \text{To Balance c/d}& 15,000& & & \\ & & \overline{33,600}& & & \overline{33,600}\\ 31-3-15& \text{To Bank A/c}& \overline{16,800}& 1-4-14& \text{By Balance}& \overline{15,000}\\ & \text{(Rs 15,000 + Rs 1,800)}& & & \text{By Interest}@12\%& 1,800\\ & & \overline{16,800}& & & \overline{16,800}\end{array}$