Rai, Rwik and Neel were carrying on partnership business sharing profits in the ratio of 5 : 3 : 2 respectively. On 31st March, 2017, the Balance Sheet of the firm stood as follows:
BALANCE SHEET as on 31st March, 2017
| Liabilities | ₹ | Assets | ₹ |
|---|---|---|---|
| Capitals : | Building | 80,000 | |
| Rai 60,000 | Stock | 30,000 | |
| Rwik 40,000 | Debtors | 60,000 | |
| Neel 40,000 | 1,40,000 | Cash | 50,000 |
| General Reserve | 50,000 | ||
| Creditors | 30,000 | ||
| 2,20,000 | 2,20,000 |
Neel retired on 1st April, 2017 on the following terms:
(i) Building to be appreciated by ₹ 20,000.
(ii) Provision for Doubtful Debts to be made at 10% on debtors.
(iii) Goodwill of the firm is valued at ₹ 80,000 and value of goodwill will not be shown in the Balance Sheet after retirement of Neel.
(iv) ₹ 26,000 to be paid immediately and the balance of his Capital Account to be transferred to his Loan Account.
Prepare Revaluation Account and Partners’ Capital Accounts in the books of the firm.
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Start your 14-day free trial to unlock the full solution →Revaluation net gain = 14,000 (shared 5:3:2); General Reserve 50,000 distributed 5:3:2; Neel's goodwill share 16,000 credited to him and debited to Rai and Rwik in 5:3. Neel's total claim 68,800 → 26,000 paid in cash, 42,800 to his Loan A/c. Closing capitals: Rai 82,000, Rwik 53,200.
Workings
- Revaluation: Building up 20,000 (gain); Provision for Doubtful Debts = 10% × 60,000 = 6,000 (loss); net gain = 14,000 → Rai 7,000, Rwik 4,200, Neel 2,800.
- General Reserve 50,000 → Rai 25,000, Rwik 15,000, Neel 10,000.
- Goodwill: Neel's share = 2/10 × 80,000 = 16,000; borne by Rai and Rwik in their gaining ratio 5:3 → Rai 10,000, Rwik 6,000. Goodwill is not retained in the books.
Revaluation Account
| Particulars | ₹ | Particulars | ₹ |
|---|---|---|---|
| To Provision for Doubtful Debts | 6,000 | By Building | 20,000 |
| To Profit transferred: Rai 7,000; Rwik 4,200; Neel 2,800 | 14,000 | ||
| 20,000 | 20,000 |
Partners' Capital Accounts
| Particulars | Rai | Rwik | Neel | Particulars | Rai | Rwik | Neel |
|---|---|---|---|---|---|---|---|
| To Neel's Capital (Goodwill) | 10,000 | 6,000 | — | By Balance b/d | 60,000 | 40,000 | 40,000 |
| To Cash A/c | — | — | 26,000 | By General Reserve | 25,000 | 15,000 | 10,000 |
| To Neel's Loan A/c | — | — | 42,800 | By Revaluation A/c | 7,000 | 4,200 | 2,800 |
| To Balance c/d | 82,000 | 53,200 | — | By Rai & Rwik (Goodwill) | — | — | 16,000 |
| 92,000 | 59,200 | 68,800 | 92,000 | 59,200 | 68,800 | ||
| … |
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