P, Q and R are partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. Their Balance Sheet as on 31st March, 2014 is as follows:
| Liabilities | ₹ | Assets | ₹ |
|---|---|---|---|
| Capital A/cs: | Building | 40,000 | |
| P | 36,000 | Furniture | 4,000 |
| Q | 24,000 | Stock | 15,000 |
| R | 20,000 | Debtors | 35,000 |
| Creditors | 30,000 | Cash | 16,000 |
| 1,10,000 | 1,10,000 |
On the above date, P retired on the following terms:
(i) Value of Building is to be raised by 20%.
(ii) Furniture is to be depreciated by 10%.
(iii) 5% provision is to be created on debtors.
(iv) Goodwill is to be valued at ₹ 18,000.
It is agreed that Q and R will share profits and losses equally after P's retirement. Amount due to P is to be transferred to P's Loan Account.
Prepare:
- Revaluation Account,
- Partners' Capital Accounts, and
- Balance Sheet.
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Start your 14-day free trial to unlock the full solution →Building +8,000, less Furniture -400 and new Debtors provision -1,750, gives revaluation profit 5,850 (3:2:1). Goodwill 18,000 -> P's share 9,000, charged to Q and R in gaining ratio 1:2 (Q 3,000, R 6,000). P's total due 47,925 -> P's Loan A/c. New B/S balances at 1,15,850.
(a) Revaluation Account
| Particulars | ₹ | Particulars | ₹ |
|---|---|---|---|
| To Furniture A/c | 400 | By Building A/c | 8,000 |
| To Provision for Doubtful Debts A/c | 1,750 | ||
| To Profit transferred to: | |||
| P 2,925 | |||
| Q 1,950 | |||
| R 975 | 5,850 | ||
| 8,000 | 8,000 |
Building 40,000 x 20% = 8,000; Furniture 4,000 x 10% = 400; Provision 35,000 x 5% = 1,750. Profit 8,000 - 2,150 = 5,850 (3:2:1 = 2,925 / 1,950 / 975).
Goodwill working: Old ratio P:Q:R = 3:2:1. New ratio Q:R = 1:1 (= 3:3 of 6). Gain: Q = 3/6 - 2/6 = 1/6; R = 3/6 - 1/6 = 2/6; gaining ratio 1:2. P's goodwill 18,000 x 3/6 = 9,000, borne Q 3,000, R 6,000.
(b) Partners' Capital Accounts
| Particulars | P (₹) | Q (₹) | R (₹) | Particulars | P (₹) | Q (₹) | R (₹) |
|---|---|---|---|---|---|---|---|
| To P's Capital (goodwill) | - | 3,000 | 6,000 | By Balance b/d | 36,000 | 24,000 | 20,000 |
| To P's Loan A/c | 47,925 | - | - | By Revaluation A/c | 2,925 | 1,950 | 975 |
| To Balance c/d | - | 22,950 | 14,975 | By Q's & R's Capital (goodwill) | 9,000 | - | - |
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