Question

Following is the Balance Sheet of Jain, Gupta and Malik as on March 31, 2002.

$\text{Balance Sheet}$
$\text{as on March 31,2007}$
$\begin{array}{cccc}\text{Capital and Liabilities}& \text{Amt. (Rs)}& \text{Assets}& \text{Amt. (Rs)}\\ \text{Sundry Creditors}& 19,800& \text{Land and Building}& 26,000\\ \text{Telephone Bills}& 300& \text{Bonds}& 14,370\\ \text{Outstanding}& 8,950& \text{Cash}& 5,500\\ \text{Accounts Payable}& & \text{Bills Receivable}& 23,450\\ \text{Accumulated Profits}& 16,750& \text{Sundry Debtors}& 26,700\\ \text{Capital}& & \text{Stock}& 18,100\\ \text{Jain}40,000& & \text{Office Furniture}& 18,250\\ \text{Gupta}60,000& & \text{Plant and Machinery}& 20,230\\ \text{Malik}\underset{–}{20,000}& 1,20,000& \text{Computers}& 13,200\\ & \overline{\underset{–}{\underset{–}{1,65,800}}}& & \overline{\underset{–}{\underset{–}{1,65,800}}}\end{array}$

The partners have been sharing profits in the ratio of 5 : 3 : 2. Malik decides to retire from business on April 1, 2002 an d his share in the business is to be calculated as per the following terms of revaluation of assets and liabilities : Stock, Rs. 20,000; office furniture, Rs. 14,250; plant and machinery Rs. 23,530; land and building Rs. 20,000; A provision of Rs. 1,700 to be created for doubtful debts. The goodwill of the firm is valued at Rs. 9,000.

The continuing partners agreed to pay Rs. 16,500 as cash on retirement of Malik, to be contributed by continuing partners in the ratio of 3:2. The balance in the capital account of Malik will be treated as loan. Prepare revaluation account, capital accounts and balance sheet of the reconstituted firm.

Answer 1

$\text{Dr}\text{Revaluation Account}\text{Cr}$
$\begin{array}{cccc}\text{Capital and Liabilities}& \text{Amt. (Rs)}& \text{Assets}& \text{Amt. (Rs)}\\ \text{Office Furniture A/c}& 4,000& \text{Stock A/c}& 1,900\\ \text{Land and Building A/c}& 6,000& \text{Plant and Machinery A/c}& \\ \text{Provision for Doubtful Debts A/c}& 1,700& \text{Loss Transfered to}& \\ & & \text{Jain's Capital A/c}3,250& \\ & & \text{Gupta's Capital A/c}1,950& \\ & & \text{Malik's Capital A/c}\underset{–}{1,300}& 6,500\\ & \overline{\underset{–}{\underset{–}{11,700}}}& & \overline{\underset{–}{\underset{–}{11,700}}}\end{array}$

$\begin{array}{ccc}& & \\ \text{Dr}& \text{Partner's Capital Account}& \text{Cr}\end{array}$
$\begin{array}{cccccccc}\text{Particulars}& \text{Jain}& \text{Gupta}& \text{Malik}& \text{Particulars}& \text{Jain}& \text{Gupta}& \text{Malik}\\ \text{Revaluation (Loss)}& 3,250& 1,950& 1,300& \text{Balance b/d}& 40,000& 60,000& 20,000\\ \text{Malik's Capital A/c}& 1,125& 675& & \text{Jain's Capital A/c}& & & 1,125\\ \text{Cash A/c}& & & 16,500& \text{Gupta's Capital A/c}& & & 675\\ \text{Malik's Loan A/c}& & & 7,350& \text{Cash A/c}& 9,900& 6,600& \\ \text{Balance c/d}& 53,900& 69,000& & \text{Accumulated Profits}& 8,375& 5,025& 3,350\\ & \overline{\underset{–}{58,275}}& \overline{\underset{–}{71,625}}& \overline{\underset{–}{25,150}}& & \overline{\underset{–}{58,275}}& \overline{\underset{–}{71,625}}& \overline{\underset{–}{25,150}}\end{array}$

$\text{Balance Sheet}$
$\begin{array}{cccc}\text{Capital and Liabilities}& \text{Amt. (Rs)}& \text{Assets}& \text{Amt. (Rs)}\\ \text{Sundry Creditors}& 19,800& \text{Stock (18,100 + 1,900)}& 20,000\\ \text{Telephone Bills}& 300& \text{Bonds}& 14,370\\ \text{Outstanding}& 8,950& \text{Cash}& 5,500\\ \text{Accounts Payable}& & \text{Bills Receivable}& 23,450\\ \text{Malik's Loan}& 7,350& \text{Debtors}26,700& \\ \text{Capital}& & \text{(-) Reserve for Doubtful}\underset{–}{1,700}& 25,000\\ \text{Jain}53,900& & \text{Debts}& \\ \text{Gupta}\underset{–}{69,000}& 1,22,900& \text{Furniture}18,250& \\ & & \text{(-)Depreciation}\underset{–}{(4,000)}& 14,250\\ & & \text{Plant and Machinery}20,230& \\ & & \text{(+)Appreciation}\underset{–}{3,300}& 23,530\\ & & \text{Computers}& 13,200\\ & & \text{Land and Building}26,000& \\ & & \text{(-)Deprecation}\underset{–}{6,000}& 20,000\\ & \overline{\underset{–}{\underset{–}{1,59,300}}}& & \overline{\underset{–}{\underset{–}{1,59,300}}}\end{array}$

Working Note :

Cash paid to Malik Rs. 16,500

Contributed by Jain = $16,500\times \frac{3}{5}=9,900$

Contributed by Gupta = $16,500\times \frac{2}{5}=6,600$

Malik's Share of good will = $9,000\times \frac{2}{5}=1,800$

Contributed by remaining partners in gaining ratio

Jain = $1,800\times \frac{5}{8}=1,125$

Gupta = $1,800\times \frac{3}{8}=675$

Gaining ratio is same as share of remaining partners if no information is given i,e, 5:3