The Balance Sheet of Mohit, Neeraj and Sohan, who are partners in a firm sharing profits according to their capitals, as on March 31, 2017 was as under:
| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Creditors | 21,000 | Buildings | 1,00,000 |
| Mohit's Capital | 80,000 | Machinery | 50,000 |
| Neeraj's Capital | 40,000 | Stock | 18,000 |
| Sohan's Capital | 40,000 | Debtors 20,000 − Provision 1,000 | 19,000 |
| General Reserve | 20,000 | Cash at bank | 14,000 |
| Total | 2,01,000 | Total | 2,01,000 |
On that date, Neeraj decided to retire from the firm and was paid for his share, subject to the following:
- Buildings to be appreciated by 20%.
- Provision for Bad debts to be increased to 15% on Debtors.
- Machinery to be depreciated by 20%.
- Goodwill of the firm is valued at ₹72,000 and the retiring partner's share is adjusted through the capital accounts of the remaining partners.
- The capital of the new firm be fixed at ₹1,20,000.
Prepare the Revaluation Account, Capital Accounts of the partners, and the Balance Sheet after Neeraj's retirement.
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Start your 14-day free trial to unlock the full solution →A ₹8,000 revaluation profit and the ₹20,000 reserve are shared 2 : 1 : 1; Neeraj's ₹18,000 goodwill is borne by Mohit (₹12,000) and Sohan (₹6,000). Neeraj is paid ₹65,000 through the bank (overdraft ₹54,000), and Mohit and Sohan withdraw ₹2,000 and ₹1,000 to fix capitals at ₹80,000 and ₹40,000. Balance Sheet total ₹1,95,000.
Working Notes
Profit sharing ratio = capital ratio 80,000 : 40,000 : 40,000 = 2 : 1 : 1. Gaining ratio of Mohit and Sohan = old mutual 2 : 1.
Revaluation Account
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Provision for Doubtful Debts | 2,000 | By Building A/c | 20,000 |
| To Machinery A/c | 10,000 | ||
| To Profit transferred to: | |||
| Mohit's Capital A/c | 4,000 | ||
| Neeraj's Capital A/c | 2,000 | ||
| Sohan's Capital A/c | 2,000 | ||
| Total | 20,000 | Total | 20,000 |
Partners' Capital Accounts
| Particulars | Mohit (₹) | Neeraj (₹) | Sohan (₹) | Particulars | Mohit (₹) | Neeraj (₹) | Sohan (₹) |
|---|---|---|---|---|---|---|---|
| To Neeraj's Capital (goodwill) | 12,000 | — | 6,000 | By Balance b/d | 80,000 | 40,000 | 40,000 |
| To Bank A/c (paid to Neeraj) | — | 65,000 | — | By General Reserve | 10,000 | 5,000 | 5,000 |
| To Bank A/c (excess withdrawn) | 2,000 | — | 1,000 | By Revaluation (Profit) | 4,000 | 2,000 | 2,000 |
| To Balance c/d | 80,000 | — | 40,000 | By Mohit's Capital (goodwill) | — | 12,000 | — |
| By Sohan's Capital (goodwill) | — | 6,000 | — | ||||
| Total | 94,000 | 65,000 | 47,000 | Total | 94,000 | 65,000 | 47,000 |
Bank Account (Working Note)
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Balance b/d | 14,000 | By Neeraj's Capital A/c | 65,000 |
| To Balance c/d (overdraft) | 54,000 | By Mohit's Capital A/c | 2,000 |
| By Sohan's Capital A/c | 1,000 |
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