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Illustrations · Illustration 17
Q.

The Balance Sheet of Mohit, Neeraj and Sohan, who are partners in a firm sharing profits according to their capitals, as on March 31, 2017 was as under:

LiabilitiesAmount (₹)AssetsAmount (₹)
Creditors21,000Buildings1,00,000
Mohit's Capital80,000Machinery50,000
Neeraj's Capital40,000Stock18,000
Sohan's Capital40,000Debtors 20,000 − Provision 1,00019,000
General Reserve20,000Cash at bank14,000
Total2,01,000Total2,01,000

On that date, Neeraj decided to retire from the firm and was paid for his share, subject to the following:

  1. Buildings to be appreciated by 20%.
  2. Provision for Bad debts to be increased to 15% on Debtors.
  3. Machinery to be depreciated by 20%.
  4. Goodwill of the firm is valued at ₹72,000 and the retiring partner's share is adjusted through the capital accounts of the remaining partners.
  5. The capital of the new firm be fixed at ₹1,20,000.

Prepare the Revaluation Account, Capital Accounts of the partners, and the Balance Sheet after Neeraj's retirement.

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A ₹8,000 revaluation profit and the ₹20,000 reserve are shared 2 : 1 : 1; Neeraj's ₹18,000 goodwill is borne by Mohit (₹12,000) and Sohan (₹6,000). Neeraj is paid ₹65,000 through the bank (overdraft ₹54,000), and Mohit and Sohan withdraw ₹2,000 and ₹1,000 to fix capitals at ₹80,000 and ₹40,000. Balance Sheet total ₹1,95,000.

Working Notes

Profit sharing ratio = capital ratio 80,000 : 40,000 : 40,000 = 2 : 1 : 1. Gaining ratio of Mohit and Sohan = old mutual 2 : 1.

Revaluation Account

ParticularsAmount (₹)ParticularsAmount (₹)
To Provision for Doubtful Debts2,000By Building A/c20,000
To Machinery A/c10,000
To Profit transferred to:
Mohit's Capital A/c4,000
Neeraj's Capital A/c2,000
Sohan's Capital A/c2,000
Total20,000Total20,000

Partners' Capital Accounts

ParticularsMohit (₹)Neeraj (₹)Sohan (₹)ParticularsMohit (₹)Neeraj (₹)Sohan (₹)
To Neeraj's Capital (goodwill)12,000—6,000By Balance b/d80,00040,00040,000
To Bank A/c (paid to Neeraj)—65,000—By General Reserve10,0005,0005,000
To Bank A/c (excess withdrawn)2,000—1,000By Revaluation (Profit)4,0002,0002,000
To Balance c/d80,000—40,000By Mohit's Capital (goodwill)—12,000—
By Sohan's Capital (goodwill)—6,000—
Total94,00065,00047,000Total94,00065,00047,000

Bank Account (Working Note)

ParticularsAmount (₹)ParticularsAmount (₹)
To Balance b/d14,000By Neeraj's Capital A/c65,000
To Balance c/d (overdraft)54,000By Mohit's Capital A/c2,000
By Sohan's Capital A/c1,000

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