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Following is the Balance Sheet of Kusum, Sneh and Usha as on 31st March, 2019, who have agreed to share profits and losses in proportion of their capitals:
Liabilities Assets
Capital A/cs: Land and Building 4,00,000
Kusum 4,00,000 Machinery 6,00,000
Sneh 6,00,000 Closing Stock 2,00,000
Usha 4,00,000 14,00,000 Sundry Debtors 2,20,000
Employees' Provident Fund 70,000 Less: Provision for Doubtful Debts 20,000
Workmen Compensation Reserve 30,000 Cash at Bank 2,00,000
Sundry Creditors 1,00,000 2,00,000
16,00,000 16,00,000

On 1st April, 2019, Kusum retired from the firm and the remaining partners decided to carry on the business. It was agreed to revalue the assets and reassess the liabilities on that date, on the following basis:
(a) Land and Building be appreciated by 30%.
(b) Machinery be depreciated by 30%.
(c) There were Bad Debts of ₹ 35,000.
(d) The claim against Workmen Compensation Reserve was estimated at ₹ 15,000.
(e) Goodwill of the firm was valued at ₹ 2,80,000 and Kusum's share of goodwill was adjusted against the Capital Accounts of the continuing partners Sneh and Usha who have decided to share future profits in the ratio of 3 : 4 respectively.
(f) Capital of the new firm in total will be the same as before the retirement of Kusum and will be in the new profit-sharing ratio of the continuing partners.
(g) Amount due to Kusum be settled by paying ₹ 1,00,000 in cash and balance by transferring to her Loan Account which will be paid later on.
Prepare Revaluation Account, Capital Accounts of Partners and Balance Sheet of the new firm after Kusum's retirement.

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Solution

Revaluation Account
Dr.
Cr.
Particulars
Amount
(₹)
Particulars
Amount
(₹)
Machinery A/c
1,80,000
Land and Building A/c
1,20,000
Bad Debts A/c (35,000 – 20,000)
15,000
Loss on Revaluation transferred to:
Kusum
21,429
Sneh
32,142
Usha
21,429
75,000
1,95,000
1,95,000


Partners’ Capital Account
Dr.
Cr.
Particulars
Kusum
Sneh
Usha
Particulars
Kusum
Sneh
Usha
Revaluation A/c (Loss)
21,429
32,142
21,429
Balance b/d
4,00,000
6,00,000
4,00,000
Usha’s Capital A/c
80,000
Workmen Compensation Fund
4,286
6,428
4,286
Bank A/c
1,00,000
Usha’s Capital A/c
80,000
Kusum’s Loan A/c
3,62,857
Balance c/d
5,74,286
3,02,857
4,84,286
6,06,428
4,04,286
4,84,286
6,06,428
4,04,286
Balance c/d
6,00,000
8,00,000
Balance b/d
5,74,286
3,02,857
Bank A/c (WN3)
25,714
4,97,143
6,00,000
8,00,000
6,00,000
8,00,000

Balance Sheet

as at March 31, 2019

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Creditors

1,00,000

Land & Building

5,20,000

Employee’s Provident Fund

70,000

Machinery (6,00,000 – 1,80,000)

4,20,000

Workmen’s Compensation Claim

15,000

Stock

2,00,000

Kusum’s Loan

3,62,857

Sundry Debtors (2,20,000 – 35,000)

1,85,000

Capital A/c :

Bank

6,22,857

Sneh

6,00,000

Usha

8,00,000

14,00,000

19,47,857

19,47,857

Working Notes
WN 1 Calculation of Gaining Ratio

Old Ratio (Kusum, Sneh and Usha) = 2:3:2

New Ratio (Sneh and Usha) = 3:4

Gaining Ratio = New Ratio – Old Ratio


WN2 Adjustment of Goodwill

Total Goodwill of the Firm = 2,80,000


It is to be adjusted by the Gaining partners i.e. only by Usha
WN3 Adjustment of Capital



Particulars

Sneh

Usha

New Capital Balance
6,00,000
8,00,000
Adjusted Old Capital Balance
5,74,286
3,02,857
Cash brought in by the Partner
25,714
4,97,143

WN4

Cash at Bank A/c

Dr.

Cr.

Particulars

Amount

(₹)

Particulars

Amount

(₹)

Balance b/d

2,00,000

Kusum’s Capital A/c

1,00,000

Sneh’s Capital A/c

25,714

Balance c/d

6,22,857

Usha’s Capital A/c

4,97,143

7,22,857

7,22,857


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Q. Following is the Balance Sheet of Kusum, Sneh and Usha as on 31st March, 2018, who have agreed to share profits and losses in proportion of their capitals :
Liabilities
Assets
Capital A/cs
Land and Building
4,00,000
Kusum
4,00,000 Machinery 6,00,000
Sneh
6,00,000 Closing Stock 2,00,000
Usha
4,00,000 14,00,000 Sundry Debtors
Employees' Provident Fund 70,000 Less: Provision for Doubtful Debts 2,20,000
Workmen Compensation Reserve
30,000
Cash at Bank
21,429
2,00,000
Sundry Creditors 1,00,000 2,00,000
16,00,000
16,00,000


On 31st March, 2018, Kusum retired from the firm and the remaining partners decided to carry on the business . It was agreed to revalue the assets and reassess the liabilities on that date , on the following basis:
(a) Land and Building be appreciated by 30%.
(b) Machinery be depreciated by 30%.
(c) There were Bad Debts of ₹ 35,000.
(d) The claim against Workmen Compensation Reserve was estimated at ₹ 15,000.
(e) Goodwill of the firm was valued at ₹ 2,80,000 and Kusum's share of goodwill was adjusted against the Capital Accounts of the continuing partners Sneh and Usha who have decided to share future profits in the ratio of 3 : 4 respectively.
(f) Capital of the new firm in total will be the same as before the retirement of Kusum and will be in the new profit-sharing ratio of the continuing partners .
(g) Amount due to Kusum be settled by paying ₹ 1,00,000 in cash and balance by transferring to her Loan Account which will be paid later on.
Prepare Revaluation Account , Capital Accounts of Partners and Balance Sheet of the new firm after Kusum's retirement.

Q.

Following is the Balance Sheet of Aruna, Karuna and Varuna as at 31st March, 2009, who have agreed to share profits and losses in proportion of their capitals.

Balance Sheet of Aruna, Karuna and Varuna
as at 31st March, 2009
Capital and LiabilitiesRsAssetsRsCapitals: Land and Building2,00,000Aruna 2,00,000Machinery3,00,000Karuna 3,00,000Closing Stock1,00,000Varuna 2,00,000––––––––7,00,000Sundry Debtors 1,10,000General Reserve35,000Less:Provision forWorkmen Compensation Reserve15,000Doubtful debts (10,000)––––––––1,00,000Sundry Creditors50,000––––––Cash at Bank1,00,000––––––––8,00,000––––––––8,00,000––––––––

On 31st March, 2009 Aruna desired to retire from the firm and the remaining partners decided to carry on the business. It was agreed to ravalue the assets and re-assess the liabilities on the following basis :

(i) Land and building to be appreciated by 30%

(ii) Machinery be depreciated by 20%.

(iii) There were bad debts of Rs 17,000.

(iv) The claim on account of workmen's compensation was estimated at Rs 8,000.

(v) Goodwill of the firm was valued at Rs 1,40,000 and Aruna's share of Goodwill be adjusted against the Capital Accounts of the continuing partners Karuna and Varuna who have decided to share future profits in the ratio of 4 : 3 respectively.

(vi) Capital of the new firm in total will be the same as before the retirement of Aruna and will be in the new profit sharing ratio of the continuing partners.

(vii) Amount due to Aruna be settled by paying Rs 50,000 in cash and the balance by transferring to her loan account which will be paid later on.

Prepare Revaluation Account, Capital Accounts of partners and Balance Sheet of time firm after Aruna's retirement.

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