L, B, and W are the partners sharing profit and loss in the ratio of 3 : 2 : 1. Balance sheet of their firm on 31.3.2024 was as under :
Balance-Sheet
| Liabilities | Amt. (₹) | Assets | Amt. (₹) |
|---|---|---|---|
| Capital : | Land-building | 1,00,000 | |
| L 60,000 | Machinery | 40,000 | |
| B 40,000 | Investments | 20,000 | |
| W 20,000 | 1,20,000 | Stock | 20,000 |
| General reserve | 12,000 | Debtors 40,000 | |
| Creditors | 88,000 | (–) Bad debt reserve 4,000 | 36,000 |
| Cash | 4,000 | ||
| 2,20,000 | 2,20,000 |
W retired on 31.3.2024. Following conditions were decided at the time of retirement :
(1) Value of land-building is to be increased by 20%.
(2) Machinery is valued at 90% of its book value.
(3) Market value of investments is 150% of its book value.
(4) Bad debt reserve on debtors is to be reduced by 5%.
(5) Goodwill of the firm is valued at ₹ 72,000.
(6) ₹ 4,000 is outstanding for salary payable to an employee.
(7) L and B will bring necessary amount in cash in such a manner that amount due to W is to be paid in cash and balance of cash may remain in the firm as working capital ₹ 28,000 and their capital in the new firm become proportionate to their new profit and loss sharing ratio.
Prepare necessary accounts and balance-sheet of the new firm.
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Start your 14-day free trial to unlock the full solution →Revaluation profit = ₹24,000 (L 12,000, B 8,000, W 4,000). W's capital = 20,000 + 4,000 + GR 2,000 + goodwill 12,000 = ₹38,000, paid in cash. Goodwill ₹72,000 × 1/6 = ₹12,000 charged to L & B in gaining ratio 3:2 (7,200 & 4,800). L & B bring cash so total capital ₹1,80,000 split 3:2 (L 1,08,000, B 72,000) with ₹28,000 cash retained.
Revaluation Account:
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Machinery (10% of 40,000) | 4,000 | By Land-Building (20% of 1,00,000) | 20,000 |
| To Outstanding salary | 4,000 | By Investments (150% → +10,000) | 10,000 |
| To Profit tr. to capitals (L 12,000; B 8,000; W 4,000) | 24,000 | By Bad-debt reserve (4,000→2,000) | 2,000 |
| Total | 32,000 | Total | 32,000 |
(Bad-debt reserve reduced to 5% of debtors = ₹2,000, a decrease of ₹2,000 — a gain.)
Goodwill adjustment: Goodwill ₹72,000; W's share = 1/6 × 72,000 = ₹12,000, borne by L and B in gaining ratio 3:2 → L ₹7,200, B ₹4,800 (debited to them, credited to W).
Partners' Capital Accounts:
| Particulars | L (₹) | B (₹) | W (₹) | Particulars | L (₹) | B (₹) | W (₹) |
|---|---|---|---|---|---|---|---|
| To W's capital (goodwill) | 7,200 | 4,800 | — | By Balance b/d | 60,000 | 40,000 | 20,000 |
| To Cash (W paid) | — | — | 38,000 | By General reserve | 6,000 | 4,000 | 2,000 |
| To Balance c/d | 1,08,000 | 72,000 | — | By Revaluation profit | 12,000 | 8,000 | 4,000 |
| By L & B's capital (goodwill) | — | — | 12,000 | ||||
| By Cash (brought in) | 37,200 | 24,800 | — | ||||
| Total | 1,15,200 | 76,800 | 38,000 | Total | 1,15,200 | 76,800 | 38,000 |
Cash brought in: Required total capital of new firm = ₹1,80,000 (see cash account); in new ratio 3:2 → L ₹1,08,000, B ₹72,000. Before fresh cash, L = 70,800, B = 47,200, so L brings ₹37,200 and B brings ₹24,800.
Cash Account:
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Balance b/d | 4,000 | By W's capital (paid) | 38,000 |
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