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PRACTICAL PROBLEM

Pai, Amba and Manoj are partners in a firm sharing profit and losses in the proportion to their capitals. Their Balance Sheet as on 31.3.2012 is as follow:

Balance Sheet as on 31st March, 2012
Liabilities
Amount
Rs
Assets
Amount
Rs
Capitals
Cash
3,000
Pai
30,000
Stock
12,000
Amba
30,000
Debtors
20,000
Manoj
15,000
Plant
13,000
Creditors
7,000
Building
20,000
Outstanding Expenses
15,000
Motor Van
31,000
Profit and Loss A/c
20,000
Goodwill
18,000
1,17,000
1,17,000

On the above date Pai retired and the following adjustments have been agreed upon

1) Goodwill was revalued at Rs 15,000

2) Assets and Liabilities were revalued as under debtors Rs 17,000 stock at 90% of book value Building Rs 35,000 Plant Rs 11,500 Motor Van Rs 29, 500, Outstanding expenses Rs 18,000

3) Amba and Manoj contributed additional capital of Rs 20,000 and Rs 10,000 respectively

4) Balance due to Mr. Pai is transferred to his loan account after paying him Rs 1,000/-

Prepare:- Profit and Loss adjustment A/c,. Partner’s Capital A/c’s and Balance Sheet of new firm

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Solution

Profit and Loss Adjustment Account
Dr.
Cr.
Particulars
Amount
Rs
Particulars
Amount
Rs
Reserve for Discount on Debtors
3,000
Building
15,000
Stock
1,200
Plant
1,500
Motor van
1,500
Outstanding Expenses
3,000
Goodwill
3,000
Profit transferred to:
Pai’s Capital
720
Amba’s Capital
720
Manoj’s Capital
360
1,800
15,000
15,000

Partners’ Capital Accounts
Dr.
Cr.
Particulars
Pai
Amba
Manoj
Particulars
Pai
Amba
Manoj
Cash A/c
1,000
Balance b/d
30,000
30,000
15,000
Loan A/c
37,720
Profit and Loss Adjustment
A/c (Profit)
720
720
360
Balance c/d
58,720
29,360
Profit and Loss A/c
8,000
8,000
4,000
Cash A/c
20,000
10,000
38,720
58,720
29,360
38,720
58,720
29,360

Balance Sheet
as on April 01, 2012 after Pai’s retirement
Liabilities
Amount
Rs
Assets
Amount
Rs
Creditors
7,000
Stock
12,000
Outstanding Expenses
18,000
Less: Depreciation
1,200
10,800
Capital A/cs:
Building
35,000
Amba
58,720
Debtors
20,000
Manoj
29,360
88,080
Less: Reserve for Doubtful Debts
3,000
17,000
Loan A/c of Pai
37,720
Motor Van
31,000
Less: Depreciation
1,500
29,500
Goodwill
15,000
Plant
13,000
Less: Depreciation
1,500
11,500
Cash
32,000
1,50,800
1,50,800

Working Notes:

WN1: Distribution of Profit and Loss A/c

Cash Account

Dr.

Cr.

Particulars

Amount

(Rs)

Particulars

Amount

(Rs)

Balance b/d

3,000

Pai’s Capital A/c

1,000

Capital A/cs:

Balance c/d

32,000

Amba

20,000

Manoj

10,000

30,000

33,000

33,000


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Q.

The Balance Sheet of Rajesh, Pramod and Nishant who were sharing profits in proportion to their capitals stood as on March 31, 2015:

Books of Rajesh, Pramod and Nishant

Balance Sheet as on March 31, 2015

Liabilities

Amount

Rs

Assets

Amount

Rs

Bills Payable

6,250

Factory Building

12,000

Sundry Creditors

10,000

Debtors

10,500

Reserve Fund

2,750

Less: Reserve

500

10,000

Capital Accounts:

Bills Receivable

7,000

Rajesh

20,000

Stock

15,500

Pramod

15,000

Plant and Machinery

11,500

Nishant

15,000

50,000

Bank Balance

13,000

69,000

69,000

Pramod retired on the date of Balance Sheet and the following adjustments were made:

a) Stock was valued at 10% less than the book value.

b) Factory buildings were appreciated by 12%.

c) Reserve for doubtful debts be created up to 5%.

d) Reserve for legal charges to be made at Rs 265.

e) The goodwill of the firm be fixed at Rs 10,000.

f) The capital of the new firm be fixed at Rs 30,000. The continuing partners decide to keep their capitals in the new profit sharing ratio of 3:2.

Pass journal entries and prepare the balance sheet of the reconstituted firm after transferring the balance in Pramod’s Capital account to his loan account.

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