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Numerical Questions · Q12
Q.

Following is the Balance Sheet of Jain, Gupta and Malik as on March 31, 2020

LiabilitiesAmount (₹)AssetsAmount (₹)
Sundry Creditors19,800Land and Building26,000
Telephone bills Outstanding300Bonds14,370
Accounts Payable8,950Cash5,500
P&L A/c16,750Bills Receivable23,450
Capitals:Sundry Debtors26,700
Jain40,000Stock18,100
Gupta60,000Office Furniture18,250
Malik20,000Plants and Machinery20,230
Computers13,200
Total1,65,800Total1,65,800

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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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)4,000By Stock A/c (20,000 − 18,100)1,900
To Land & Building A/c (26,000 − 20,000)6,000By Plant & Machinery A/c (23,530 − 20,230)3,300
To Provision for Doubtful Debts A/c1,700By Loss trf. to Capitals — Jain 3,250, Gupta 1,950, Malik 1,3006,500
11,70011,700

Partners' Capital Accounts

ParticularsJainGuptaMalikParticularsJainGuptaMalik
To Revaluation A/c (loss)3,2501,9501,300By Balance b/d40,00060,00020,000
To Malik's Capital (Goodwill)1,125675—By P&L A/c (5:3:2)8,3755,0253,350
To Bank A/c (paid to Malik)——16,500By Jain & Gupta (Goodwill)——1,800
To Malik's Loan A/c——7,350By Bank A/c (cash brought in, 3:2)9,9006,600—
To Balance c/d53,90069,000—
58,27571,62525,15058,27571,62525,150

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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