The Balance Sheet of Ashish, Suresh and Lokesh, who were sharing profits in the ratio of 5 : 3 : 2, is given below as on March 31, 2017:
| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Capitals: | Land | 4,00,000 | |
| Ashish | 7,20,000 | Building | 3,80,000 |
| Suresh | 4,15,000 | Plant & Machinery | 4,65,000 |
| Lokesh | 3,45,000 | Furniture & Fittings | 77,000 |
| Reserve Fund | 1,80,000 | Stock | 1,85,000 |
| Sundry Creditors | 1,24,000 | Sundry Debtors | 1,72,000 |
| Outstanding Expenses | 16,000 | Cash in hand | 1,21,000 |
| Total | 18,00,000 | Total | 18,00,000 |
Suresh retires on June 30, 2017 and the following adjustments are agreed upon on his retirement:
- Stock was valued at ₹1,72,000.
- Furniture and fittings were valued at ₹80,000.
- Profit share of Suresh till the date of his retirement is to be calculated on the basis of the firm's last year profit, which is ₹2,00,000.
- An amount of ₹10,000 due from Mr. Deepak, a debtor, was doubtful and a provision for the same was required.
- Goodwill of the firm was valued at ₹2,00,000.
- Suresh was paid ₹40,000 immediately on retirement and the balance was transferred to his loan account.
- Ashish and Lokesh were to share future profits in the ratio of 3 : 2.
Prepare the Revaluation Account, Capital Accounts and Balance Sheet of the reconstituted firm.
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Start your 14-day free trial to unlock the full solution →After a ₹20,000 revaluation loss, Suresh is credited with his reserve share (₹54,000), goodwill (₹60,000) and intervening profit (₹15,000); of the resulting ₹5,38,000, ₹40,000 is paid in cash and ₹4,98,000 becomes his loan. Ashish and Lokesh close at ₹7,80,000 and ₹3,37,000, and the Balance Sheet totals ₹17,55,000.
Working Notes
1. Gaining ratio (Ashish : Lokesh): Ashish 3/5 − 5/10 = 1/10; Lokesh 2/5 − 2/10 = 2/10 → gaining ratio 1 : 2. Suresh's goodwill ₹60,000 is borne ₹20,000 (Ashish) and ₹40,000 (Lokesh).
2. Suresh's share of profit = ₹2,00,000 × (3 months / 12) × 3/10 = ₹15,000, credited through P&L Suspense A/c.
Revaluation Account
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Stock A/c | 13,000 | By Furniture A/c | 3,000 |
| To Provision for Doubtful Debts | 10,000 | By Loss transferred to: | |
| Ashish's Capital A/c | 10,000 | ||
| Suresh's Capital A/c | 6,000 | ||
| Lokesh's Capital A/c | 4,000 | ||
| Total | 23,000 | Total | 23,000 |
Partners' Capital Accounts
| Particulars | Ashish (₹) | Suresh (₹) | Lokesh (₹) | Particulars | Ashish (₹) | Suresh (₹) | Lokesh (₹) |
|---|---|---|---|---|---|---|---|
| To Revaluation (Loss) | 10,000 | 6,000 | 4,000 | By Balance b/d | 7,20,000 | 4,15,000 | 3,45,000 |
| To Suresh's Capital (goodwill) | 20,000 | — | 40,000 | By Reserve Fund | 90,000 | 54,000 | 36,000 |
| To Cash A/c | — | 40,000 | — | By P&L Suspense A/c | — | 15,000 | — |
| To Suresh's Loan A/c | — | 4,98,000 | — | By Ashish's Capital (goodwill) | — | 20,000 | — |
| To Balance c/d | 7,80,000 | — | 3,37,000 | By Lokesh's Capital (goodwill) | — | 40,000 | — |
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