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Illustrations · Illustration 12
Q.

The Balance Sheet of Ashish, Suresh and Lokesh, who were sharing profits in the ratio of 5 : 3 : 2, is given below as on March 31, 2017:

LiabilitiesAmount (₹)AssetsAmount (₹)
Capitals:Land4,00,000
Ashish7,20,000Building3,80,000
Suresh4,15,000Plant & Machinery4,65,000
Lokesh3,45,000Furniture & Fittings77,000
Reserve Fund1,80,000Stock1,85,000
Sundry Creditors1,24,000Sundry Debtors1,72,000
Outstanding Expenses16,000Cash in hand1,21,000
Total18,00,000Total18,00,000

Suresh retires on June 30, 2017 and the following adjustments are agreed upon on his retirement:

  1. Stock was valued at ₹1,72,000.
  2. Furniture and fittings were valued at ₹80,000.
  3. Profit share of Suresh till the date of his retirement is to be calculated on the basis of the firm's last year profit, which is ₹2,00,000.
  4. An amount of ₹10,000 due from Mr. Deepak, a debtor, was doubtful and a provision for the same was required.
  5. Goodwill of the firm was valued at ₹2,00,000.
  6. Suresh was paid ₹40,000 immediately on retirement and the balance was transferred to his loan account.
  7. Ashish and Lokesh were to share future profits in the ratio of 3 : 2.

Prepare the Revaluation Account, Capital Accounts and Balance Sheet of the reconstituted firm.

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After a ₹20,000 revaluation loss, Suresh is credited with his reserve share (₹54,000), goodwill (₹60,000) and intervening profit (₹15,000); of the resulting ₹5,38,000, ₹40,000 is paid in cash and ₹4,98,000 becomes his loan. Ashish and Lokesh close at ₹7,80,000 and ₹3,37,000, and the Balance Sheet totals ₹17,55,000.

Working Notes

1. Gaining ratio (Ashish : Lokesh): Ashish 3/5 − 5/10 = 1/10; Lokesh 2/5 − 2/10 = 2/10 → gaining ratio 1 : 2. Suresh's goodwill ₹60,000 is borne ₹20,000 (Ashish) and ₹40,000 (Lokesh).

2. Suresh's share of profit = ₹2,00,000 × (3 months / 12) × 3/10 = ₹15,000, credited through P&L Suspense A/c.

Revaluation Account

ParticularsAmount (₹)ParticularsAmount (₹)
To Stock A/c13,000By Furniture A/c3,000
To Provision for Doubtful Debts10,000By Loss transferred to:
Ashish's Capital A/c10,000
Suresh's Capital A/c6,000
Lokesh's Capital A/c4,000
Total23,000Total23,000

Partners' Capital Accounts

ParticularsAshish (₹)Suresh (₹)Lokesh (₹)ParticularsAshish (₹)Suresh (₹)Lokesh (₹)
To Revaluation (Loss)10,0006,0004,000By Balance b/d7,20,0004,15,0003,45,000
To Suresh's Capital (goodwill)20,000—40,000By Reserve Fund90,00054,00036,000
To Cash A/c—40,000—By P&L Suspense A/c—15,000—
To Suresh's Loan A/c—4,98,000—By Ashish's Capital (goodwill)—20,000—
To Balance c/d7,80,000—3,37,000By Lokesh's Capital (goodwill)—40,000—

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