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Question

Following is the Balance Sheet of Jain, Gupta and Malik as on March 31, 2016.

Books of Jain, Gupta and Malik

Balance Sheet as on March 31, 2016

Liabilities

Amount

Rs

Assets

Amount

Rs

Sundry Creditors

19,800

Land and Building

26,000

Telephone Bills Outstanding

300

Bonds

14,370

Accounts Payable

8,950

Cash

5,500

Accumulated Profits

16,750

Bills Receivable

23,450

Sundry Debtors

26,700

Capitals :

Stock

18,100

Jain

40,000

Office Furniture

18,250

Gupta

60,000

Plants and Machinery

20,230

Malik

20,000

1,20,000

Computers

13,200

1,65,800

1,65,800

The partners have been sharing profits in the ratio of 5:3:2. Malik decides to retire from business on April 1, 2016 and 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.

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Solution

In the books of Jain and Gupta

Revaluation Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Office Furniture

4,000

Stock

1,900

Land and Building

6,000

Plant and Machinery

3,300

Provision for Doubtful Debts

1,700

Loss transferred to

Jain's Capital A/c

3,250

Gupta's Capital A/c

1,950

Malik's Capital A/c

1,300

6,500

11,700

11,700


Partners’ Capital Account

Dr.

Cr.

Particulars

Jain

Gupta

Malik

Particulars

Jain

Gupta

Malik

Revaluation (Loss)

3,250

1,950

1,300

Balance b/d

40,000

60,000

20,000

Malik’s Capital

1,125

675

Accumulated Profits

8,375

5,025

3,350

Cash

16,500

Jain’s Capital A/c

1,125

Malik’s Loan

7,350

Gupta’s Capital A/c

675

Balance c/d

53,900

69,000

Cash

9,900

6,600

58,275

71,625

25,150

58,275

71,625

25,150

Balance Sheet

Liabilities

Amount

Rs

Assets

Amount

Rs

Sundry Creditors

19,800

Stock (18,100 + 1,900)

20,000

Telephone Bills Outstanding

300

Bonds

14,370

Accounts Payable

8,950

Cash

5,500

Malik’s Loan

7,350

Bills Receivable

23,450

Sundry Debtors

26,700

Partners’ Capital:

Less: Provision for Bad Debts

1,700

25,000

Jain

53,900

Land and Building (26,000 – 6,000)

20,000

Gupta

69,000

1,22,900

Office Furniture (18,250 – 4,000)

14,250

Plant and Machinery (20,230 + 3,300)

23,530

Computers

13,200

1,59,300

1,59,300

Working Note:

1) Malik’s share of goodwill = Total Goodwill × Retiring Partner Share =

2) Gaining Ratio = New Ratio – Old Ratio

Gaining Ratio between Jain and Gupta = 10:6 or 5:3


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