Question

Kanika, Disha and Kabir were partners sharing profits in the ratio of 2 : 1 : 1. On 31st March, 2016, their Balance Sheet was as under:

Liabilities		Amount (₹)	Assets	Amount (₹)
Trade creditors		53,000	Bank	60,000
Employees' Provident Fund		47,000	Debtors	60,000
Kanika's Capital		2,00,000	Stock	1,00,000
Disha's Capital		1,00,000	Fixed assets	2,40,000
Kabir's Capital		80,000	Profit and Loss A/c	20,000
		4,80,000		4,80,000

Kanika retired on 1st April, 2016. For this purpose, the following adjustments were agreed upon:
(a) Goodwill of the firm was valued at 2 years' purchase of average profits of three completed years preceding the date of retirement. The profits for the year:
2013-14 were ₹ 1,00,000 and for 2014-15 were ₹ 1,30,000.
(b) Fixed Assets were to be increased to ₹ 3,00,000.
(c) Stock was to be valued at 120%.
(d) The amount payable to Kanika was transferred to her Loan Account.
​Prepare Revaluation Account, Capital Accounts of the partners and the Balance Sheet of the reconstituted firm.

Answer 1

Revaluation Account
Dr.	Cr.
Particulars			Amount Rs	Particulars	Amount Rs
Revaluation Profit				Fixed Assets	60,000
Kanika’s Capital		40,000		Stock	20,000
Disha’s Capital		20,000
Kabir’s Capital		20,000	80,000
			80,000		80,000

Partners’ Capital Account
Dr.					Cr.
Particulars	Kanika	Disha	Kabir	Particulars		Kanika	Disha	Kabir
Profit & Loss A/c	10,000	5,000	5,000	Balance b/d		2,00,000	1,00,000	80,000
Kanika’s Capital A/c		35,000	35,000	Disha’s Capital A/c		35,000
Kanika’s Loan A/c	3,00,000			Kabir’s Capital A/c		35,000
Balance c/d		80,000	60,000	Revaluation		40,000	20,000	20,000
	3,10,000	1,20,000	1,00,000			3,10,000	1,20,000	1,00,000

Balance Sheet as on March 31, 2016
Liabilities		Amount (₹)	Assets	Amount (₹)
Employees’ Provident Fund		47,000	Bank	60,000
Trade Creditors		53,000	Sundry Debtors	60,000
Kanika’s Loan A/c		3,00,000	Stock	1,20,000
Capitals			Fixed Assets	3,00,000
Disha	80,000
Kabir	60,000	1,40,000
		5,40,000		5,40,000

Working Notes:
WN1: Calculation of Goodwill

$$\begin{gathered} \mathrm{Goodwill}=\mathrm{Average}\mathrm{Profits}\times \mathrm{Number}\mathrm{of}\mathrm{Years}\text{'}\mathrm{Purchase} \\ \begin{array}{c}\begin{array}{rcl}\mathrm{Average}\mathrm{Profits}& =& \frac{\mathrm{Total}\mathrm{Profits}}{\mathrm{Number}\mathrm{of}\mathrm{Years}}\\ & =& \frac{1,00,000+1,30,000-20,000}{3}\\ & =& \frac{2,10,000}{3}=\mathrm{Rs}70,000\end{array}\end{array} \\ \mathrm{Goodwill}=70\mathrm{,000}\times 2=\mathrm{Rs}1,40,000 \\ \mathrm{Kanika}\text{'}s\mathrm{share}=1\mathrm{,40,000}\times \frac{2}{4}=70,000(\mathrm{to}\mathrm{be}\mathrm{borne}\mathrm{by}\mathrm{gaining}\mathrm{partners}\mathrm{in}\mathrm{gaining}\mathrm{ratio}) \end{gathered}$$

Note: Since no information is given about the share of gain, it is assumed that the old partners are gaining in their old profit sharing ratio.