The Balance Sheet of Rajesh, Pramod and Nishant who were sharing profits in proportion to their capitals stood as on March 31, 2015
| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Bills Payable | 6,250 | Factory Building | 12,000 |
| Sundry Creditors | 10,000 | Debtors 10,500 − Provision for doubtful debts 500 | 10,000 |
| General Reserves | 2,750 | Bills Receivable | 7,000 |
| Capital Accounts: | Stock | 15,500 | |
| Rajesh | 20,000 | Plant and Machinery | 11,500 |
| Pramod | 15,000 | Bank Balance | 13,000 |
| Nishant | 15,000 | ||
| Total | 69,000 | Total | 69,000 |
Pramod retired on the date of Balance Sheet and the following adjustments were made:
- Stock is to be reduced by 10%.
- Factory buildings were appreciated by 12%.
- Provision for doubtful debts be created up to 5%.
- Provision for legal charges to be made at ₹265.
- The goodwill of the firm be fixed at ₹10,000.
- The capital of the new firm be fixed at ₹30,000. The continuing partners decide to keep their capitals in the new profit sharing ratio of 3:2. Record journal entries and prepare the balance sheet of the reconstituted firm after transferring the balance in Pramod's Capital account to his loan account.
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Start your 14-day free trial to unlock the full solution →Pramod retires; the revaluation gives a loss of ₹400. After distributing the General Reserve and charging Pramod's ₹3,000 share of goodwill to Rajesh and Nishant (gaining ratio 2:1), the capital accounts close at Rajesh ₹18,940 and Nishant ₹14,705, and Pramod's ₹18,705 is carried to his Loan Account. The continuing partners then fix their capitals at ₹30,000 in the 3:2 ratio (₹18,000 and ₹12,000), withdrawing the excess ₹3,645 from the bank. The Balance Sheet totals ₹65,220.
Concept
Rajesh, Pramod and Nishant share profits in their capital ratio 20,000 : 15,000 : 15,000 = 4:3:3. Pramod retires and the continuing partners take the new ratio 3:2. Revaluation loss and the General Reserve go to all partners in the old ratio; goodwill is charged to the gaining partners in their gaining ratio.
Working Note 1: Gaining ratio and goodwill
Gaining ratio = new − old. Rajesh: 3/5 − 4/10 = 2/10; Nishant: 2/5 − 3/10 = 1/10 → 2:1. Pramod's share of goodwill = 3/10 × ₹10,000 = ₹3,000, borne by Rajesh (₹2,000) and Nishant (₹1,000).
Revaluation Account
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Stock A/c (15,500 − 13,950) | 1,550 | By Factory Building A/c (13,440 − 12,000) | 1,440 |
| To Provision for Doubtful Debts A/c (525 − 500) | 25 | By Loss trf. to Capitals — Rajesh 160, Pramod 120, Nishant 120 | 400 |
| To Provision for Legal Charges A/c | 265 | ||
| Total | 1,840 | Total | 1,840 |
Partners' Capital Accounts
| Particulars | Rajesh (₹) | Pramod (₹) | Nishant (₹) | Particulars | Rajesh (₹) | Pramod (₹) | Nishant (₹) |
|---|---|---|---|---|---|---|---|
| To Revaluation A/c (loss) | 160 | 120 | 120 | By Balance b/d | 20,000 | 15,000 | 15,000 |
| To Pramod's Capital (goodwill) | 2,000 | — | 1,000 | By General Reserve (4:3:3) | 1,100 | 825 | 825 |
| To Pramod's Loan A/c | — | 18,705 | — | By Rajesh & Nishant (goodwill) | — | 3,000 | — |
| To Bank A/c (excess withdrawn) | 940 | — | 2,705 | ||||
| To Balance c/d | 18,000 | — | 12,000 | ||||
| Total | 21,100 | 18,825 | 15,825 | Total | 21,100 | 18,825 | 15,825 |
Working Note 2: Fixing the continuing capitals
After all adjustments the capital-account balances are Rajesh ₹18,940 (20,000 + 1,100 − 160 − 2,000) and Nishant ₹14,705 (15,000 + 825 − 120 − 1,000) — the figures printed in NCERT's answer key. The new firm's capital is fixed at ₹30,000 in 3:2 → Rajesh ₹18,000, Nishant ₹12,000. The excess (Rajesh ₹940, Nishant ₹2,705 — total ₹3,645) is withdrawn through the bank, reducing Bank from ₹13,000 to ₹9,355.
Journal Entries (in brief)
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Revaluation A/c Dr. | 1,840 | |
| To Stock A/c / Provision for Doubtful Debts A/c / Provision for Legal Charges A/c | 1,550 / 25 / 265 | |
| Factory Building A/c Dr. | 1,440 | |
| To Revaluation A/c | 1,440 | |
| Rajesh's Capital A/c Dr. 160; Pramod's Capital A/c Dr. 120; Nishant's Capital A/c Dr. 120 | 400 | |
| To Revaluation A/c (loss shared 4:3:3) | 400 | |
| General Reserve A/c Dr. | 2,750 |
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