Following is the Balance Sheet of Jain, Gupta and Malik as on March 31, 2020
| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Sundry Creditors | 19,800 | Land and Building | 26,000 |
| Telephone bills Outstanding | 300 | Bonds | 14,370 |
| Accounts Payable | 8,950 | Cash | 5,500 |
| P&L A/c | 16,750 | Bills Receivable | 23,450 |
| Capitals: | Sundry Debtors | 26,700 | |
| Jain | 40,000 | Stock | 18,100 |
| Gupta | 60,000 | Office Furniture | 18,250 |
| Malik | 20,000 | Plants and Machinery | 20,230 |
| Computers | 13,200 | ||
| Total | 1,65,800 | Total | 1,65,800 |
The partners have been sharing profits in the ratio of 5:3:2. Malik decides to retire from business on April 1, 2020 and his share in the business is to be calculated as per the following terms of revaluation of assets and liabilities: Stock ₹20,000; Office furniture ₹14,250; Plant and Machinery ₹23,530; Land and Building ₹20,000. A provision of ₹1,700 to be created for doubtful debts. The goodwill of the firm is valued at ₹9,000. The continuing partners agreed to pay ₹16,500 as cash on retirement of Malik, to be contributed by continuing partners in the ratio of 3:2. The balance in the capital account of Malik will be treated as loan. Prepare 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 →Revaluation gives a loss of ₹6,500 (shared 5:3:2). After distributing the P&L balance and adjusting Malik's ₹1,800 share of goodwill (borne by Jain and Gupta in 5:3), Malik is paid ₹16,500 in cash and his balance ₹7,350 is carried to his Loan A/c. Jain's capital becomes ₹53,900, Gupta's ₹69,000, and the reconstituted Balance Sheet totals ₹1,59,300.
Old ratio Jain : Gupta : Malik = 5 : 3 : 2.
Revaluation Account
| Particulars | ₹ | Particulars | ₹ |
|---|---|---|---|
| To Office Furniture A/c (18,250 − 14,250) | 4,000 | By Stock A/c (20,000 − 18,100) | 1,900 |
| To Land & Building A/c (26,000 − 20,000) | 6,000 | By Plant & Machinery A/c (23,530 − 20,230) | 3,300 |
| To Provision for Doubtful Debts A/c | 1,700 | By Loss trf. to Capitals — Jain 3,250, Gupta 1,950, Malik 1,300 | 6,500 |
| 11,700 | 11,700 |
Partners' Capital Accounts
| Particulars | Jain | Gupta | Malik | Particulars | Jain | Gupta | Malik |
|---|---|---|---|---|---|---|---|
| To Revaluation A/c (loss) | 3,250 | 1,950 | 1,300 | By Balance b/d | 40,000 | 60,000 | 20,000 |
| To Malik's Capital (Goodwill) | 1,125 | 675 | — | By P&L A/c (5:3:2) | 8,375 | 5,025 | 3,350 |
| To Bank A/c (paid to Malik) | — | — | 16,500 | By Jain & Gupta (Goodwill) | — | — | 1,800 |
| To Malik's Loan A/c | — | — | 7,350 | By Bank A/c (cash brought in, 3:2) | 9,900 | 6,600 | — |
| To Balance c/d | 53,900 | 69,000 | — | ||||
| 58,275 | 71,625 | 25,150 | 58,275 | 71,625 | 25,150 |
Goodwill: Malik's share = 9,000 × 2/10 = ₹1,800, borne by Jain and Gupta in their gaining ratio 5:3 → Jain ₹1,125, Gupta ₹675. Accumulated profit (P&L A/c ₹16,750) is distributed 5:3:2 → Jain ₹8,375, Gupta ₹5,025, Malik ₹3,350. Cash of ₹16,500 for Malik is brought in by Jain and Gupta in 3:2 (₹9,900 and ₹6,600).
Balance Sheet of the reconstituted firm (as on 1 April 2020)
| Liabilities | ₹ | Assets | ₹ | …
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