Question

J, H and K were partners in a firm sharing profits in the ratio of 5 : 3 : 2. On 31st March, 2015, their Balance Sheet was as follows:

Liabilities		Amount (₹)	Assets		Amount (₹)
Creditors		42,000	Land and Building		1,24,000
Investment Fluctuation Fund		20,000	Motor Vans		40,000
Profit and Loss Account		80,000	Investments		38,000
Capital A/cs: J	1,00,000		Machinery		24,000
H	80,000		Stock		30,000
K	40,000	2,20,000	Debtors	80,000
			Less: Provision	6,000	74,000
			Cash		32,000
		3,62,000			3,62,000

On the above date, H retired and J and K agreed to continue the business on the following terms:
(i) Goodwill of the firm was valued at ₹ 1,02,000.
(ii) There was a claim of ₹ 8,000 for workmen's compensation.
(iii) Provision for bad debts was to be reduced by ₹ 2,000.
(iv) H will be paid ₹ 14,000 in cash and balance will be transferred in his Loan Account which will be paid in four equal yearly instalments together with interest @ 10% p.a.
(v) The new profit-sharing ratio between J and K will be 3 : 2 and their capitals will be in their new profit-sharing ratio. The capital adjustments will be done by opening Current Accounts.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the new firm.

Answer 1

Revaluation Account
Dr.						Cr.
Particulars		Amount Rs	Particulars		Amount Rs
Claim for Workmen Comp.		8,000	Provision for Doubtful Debts		2,000
			Loss on Revaluation
			J’s Capital A/c	3,000
			H’s Capital A/c	1,800
			K’s Capital A/c	1,200	6,000
		8,000			8,000

Partners’ Capital Account
Dr.								Cr.
Particulars	J	H	K	Particulars	J	H	K
Revaluation A/c	3,000	1,800	1,200	Balance b/d	1,00,000	80,000	40,000
H’s Capital A/c	10,200		20,400	IFF	10,000	6,000	4,000
Cash A/c		14,000		P&L A/c	40,000	24,000	16,000
H’s Loan A/c		1,24,800		J’s Capital		10,200
Balance c/d	1,36,800		38,400	K’s Capital		20,400
	1,50,000	1,40,600	60,000		1,50,000	1,40,600	60,000
Current A/c	31,680			Balance b/d	1,36,800		38,400
Balance c/d	1,05,120		70,080	Current A/c			31,680
	1,36,800		70,080		1,36,800		70,080

Balance Sheet as on March 31, 2015
Liabilities		Amount (Rs)	Assets		Amount (Rs)
Creditors		42,000	Land and Building		1,24,000
Capitals:			Motor Vans		40,000
J	1,05,120		Investments		38,000
K	70,080	1,75,200	Machinery		24,000
J’s Current A/c		31,680	Stock		30,000
Claim for Workmen Compensation		8,000	Debtors	80,000
H’s Loan A/c		1,24,800	Less: Provision	4,000	76,000
			Cash (32,000 - 14,000)		18,000
			K’s Current A/c		31,680
		3,81,680			3,81,680

Working Notes:

WN1: Calculation of Gaining Ratio

WN2: Adjustment of Goodwill

WN3 Adjustment of Capital

WN4 Amount transferred to H’s Loan A/c

Amount to be transferred = (Credit side - Debit side) - Cash Paid

= (1,40,600 - 1,800) - 14,000 = Rs 1,24,800