A, B and C are partners sharing profits and losses in the ratio 3:2:1. Their Balance Sheet as on 31st March 2024 was as follows:
Balance Sheet of A, B and C as on 31st March 2024
| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Sundry Creditors | 40,000 | Land and Building | 1,20,000 |
| Bills Payable | 10,000 | Machinery | 90,000 |
| General Reserve | 24,000 | Stock | 60,000 |
| Capital A/cs: A 1,20,000; B 90,000; C 60,000 | 2,70,000 | Debtors 50,000 less Provision for Doubtful Debts 2,000 | 48,000 |
| Cash at Bank | 26,000 | ||
| Total | 3,44,000 | Total | 3,44,000 |
B retires on 31st March 2024 on the following terms:
(1) Goodwill of the firm is valued at ₹36,000.
(2) Land and Building is to be appreciated by 20%, and Machinery is to be depreciated by 10%.
(3) Stock is to be revalued at ₹54,000.
(4) General Reserve is to be distributed among the partners in their old profit-sharing ratio.
(5) The new profit-sharing ratio between A and C is agreed at 3:2.
(6) B is to be paid ₹20,000 in cash immediately, and the balance is to be transferred to his Loan Account.
Prepare (a) the Revaluation Account, (b) Partners' Capital Accounts, and (c) the Balance Sheet of the new firm.
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Start your 14-day free trial to unlock the full solution →Step 1 — New ratio and gaining ratio. New ratio (given) is A:C = 3:2, i.e. A's new share = 3/5, C's new share = 2/5. Old ratio was A:B:C = 3:2:1 (out of 6), i.e. A's old share = 3/6 = 1/2, B's old share = 2/6 = 1/3, C's old share = 1/6.
A's gain = 3/5 − 1/2 = 6/10 − 5/10 = 1/10 = 3/30.
C's gain = 2/5 − 1/6 = 12/30 − 5/30 = 7/30.
Gaining ratio A : C = 3 : 7 (check: 3/30 + 7/30 = 10/30 = 1/3, exactly B's old share, confirming the whole of B's vacated share is accounted for).
Step 2 — Revaluation Account. Land and Building appreciated by 20% of ₹1,20,000 = ₹24,000 (gain). Machinery depreciated by 10% of ₹90,000 = ₹9,000 (loss). Stock revalued from ₹60,000 to ₹54,000, a fall of ₹6,000 (loss).
| Dr. | Amount (₹) | Cr. | Amount (₹) |
|---|---|---|---|
| To Machinery A/c (depreciation) | 9,000 | By Land and Building A/c (appreciation) | 24,000 |
| To Stock A/c (decrease) | 6,000 | ||
| To Profit transferred to A's Capital A/c (3/6) | 4,500 | ||
| To Profit transferred to B's Capital A/c (2/6) | 3,000 | ||
| To Profit transferred to C's Capital A/c (1/6) | 1,500 | ||
| Total | 24,000 | Total | 24,000 |
Losses = ₹9,000 + ₹6,000 = ₹15,000. Profit on revaluation = ₹24,000 − ₹15,000 = ₹9,000, shared in the OLD ratio 3:2:1: A ₹4,500, B ₹3,000, C ₹1,500 — B shares in this profit too, since it relates to a period he was still a partner.
Step 3 — Goodwill. B's share of the ₹36,000 goodwill = his old share (1/3) × ₹36,000 = ₹12,000, credited to his Capital Account. This ₹12,000 is debited to A and C in the gaining ratio 3:7 found in Step 1: A's share = ₹12,000 × 3/10 = ₹3,600; C's share = ₹12,000 × 7/10 = ₹8,400. (Check: ₹3,600 + ₹8,400 = ₹12,000.)
Step 4 — General Reserve. Distributed in the OLD ratio 3:2:1: A = ₹24,000 × 3/6 = ₹12,000; B = ₹24,000 × 2/6 = ₹8,000; C = ₹24,000 × 1/6 = ₹4,000.
Step 5 — Partners' Capital Accounts.
| Particulars | A (₹) | B (₹) | C (₹) | Particulars | A (₹) | B (₹) | C (₹) |
|---|---|---|---|---|---|---|---|
| To B's Capital A/c (goodwill) | 3,600 | — | 8,400 | By Balance b/d | 1,20,000 | 90,000 | 60,000 |
| To Bank A/c | — | 20,000 | — | By General Reserve A/c | 12,000 | 8,000 | 4,000 |
| To B's Loan A/c | — | 93,000 | — | By Revaluation A/c (Profit) | 4,500 | 3,000 | 1,500 |
| To Balance c/d | 1,32,900 | — | 57,100 | By A's Capital A/c (goodwill) | — | 3,600 | — |
| By C's Capital A/c (goodwill) | — | 8,400 | — | ||||
| Total | 1,36,500 | 1,13,000 | 65,500 | Total | 1,36,500 | 1,13,000 | 65,500 |
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