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Illustrations · Illustration 10
Q.

Mitali, Indu and Geeta are partners sharing profits and losses in the ratio of 5 : 3 : 2. On March 31, 2017, their Balance Sheet was as under:

LiabilitiesAmount (₹)AssetsAmount (₹)
Capital Accounts:Goodwill25,000
Mitali1,50,000Buildings1,00,000
Indu1,25,000Patents30,000
Geeta75,000Machinery1,50,000
Sundry Creditors55,000Stock50,000
General Reserve30,000Debtors40,000
Cash40,000
Total4,35,000Total4,35,000

Geeta retires on the above date. It was agreed that Machinery be valued at ₹1,40,000; Patents at ₹40,000; and Buildings at ₹1,25,000. Record the necessary journal entries for the above adjustments and prepare the Revaluation Account.

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Machinery falls by ₹10,000 while Patents and Buildings rise by ₹35,000 together, giving a net revaluation profit of ₹25,000, shared among all three partners in the old ratio 5 : 3 : 2 (₹12,500 / ₹7,500 / ₹5,000).

Concept

On retirement, assets and liabilities are restated to current values through a Revaluation Account. The net profit or loss is transferred to all partners' capital accounts — including the retiring partner's — in the old profit sharing ratio, because the change in values belongs to the period before retirement.

Solution — Journal (Books of Mitali and Indu)

DateParticularsL.F.Debit (₹)Credit (₹)
2017 Mar 31Revaluation A/c Dr.10,000
To Machinery A/c10,000
(Decrease in value of machinery)
Patents A/c Dr.10,000
Buildings A/c Dr.25,000
To Revaluation A/c35,000
(Increase in value of patents and buildings)
Revaluation A/c Dr.25,000
To Mitali's Capital A/c12,500
To Indu's Capital A/c7,500
To Geeta's Capital A/c5,000
(Profit on revaluation transferred to all partners in old ratio 5 : 3 : 2)

Revaluation Account

| Particulars | Amount (₹) | Particulars | Amount (₹) | …

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