Question

The Balance Sheet of M, N and 0 who shared profits and Josses as 4 : 3 : 3 respectively.

Balance Sheet as on 31st March, 2023
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Creditors		14,000	Cash on Hand		9,000
Bank Loan		10,000	Sundry Debtors	10,000	9,000
General Reserve		12,500	Less: R.D .D	1,000
Capital Accounts :			Livestock		25,000
M		40,000	Motor Car		8,000
N		30,000	Furniture		35,000
O		24,500	Plant and Machinery		45,000
		1,31,000			1,31,000

N retires on 1st April, 2023 on the following terms:

(1) The share of N in Goodwill of the firm is valued at ₹ 5,400.

(2) Furniture to be depreciated by 10% and Motor Car by 12.5%.

(3) Livestock to be appreciated by 10% and Plant by 20%.

(4) A provision of ₹ 4,000 to be made for a claim of compensation.

(5) R.D.D. is no longer necessary.

(6) The amount payable to N should be transferred to his Loan A/c.

Prepare Profit and Loss Adjustment Ne, Partner's Capital Ncs and Balance Sheet of the new firm.

Answer 1

Dr.	In the books of Partnership Firm Profit and Loss Adjustments Account				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Furniture A/c		3,500	By Live Stock A/c		2,500
To Motor Car A/c		1,000	By Plant A/c		9,000
To Provision for Claim A/c		4,000	By R.D.D. A/c		1,000
To Partner's Capital A/cs: Profit
M	1,600	4,000
N	1,200
O	1,200
		12,500			12,500

 

Dr.	Partner's Capital Accounts						Cr.
Particulars	M	N	O	Particulars	M	N	O
To Loan A/c	-	40,350	-	By Balance b/d	40,000	30,000	24,500
To Balance c/d	46,600	-	29,450	By General Reserve A/c	5,000	3,750	3,750
				By Profit and Loss Adjustment A/c (Profit)	1,600	1,200	1,200
				By Goodwill A/c	-	5,400	-
	46,600	40,350	29,450		46,600	40,350	29,450

 

Balance Sheet as on 1st April, 2023
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Partner's Capital A/cs:			Furniture	35,000	31,500
M	46,600	76,050	Less: Depreciation	3,500
O	46,600		Motor Car	8,000	7,000
N’s Loan A/c		40,350	Less : Depreciation	1,000
Creditors		14,000	Sundry Debtors		10,000
Bank Loan		10,000	Live Stock	25,000	27,500
Provision for Claim		4,000	Add: Appreciation	2,500
			Plant and Machinery	45,000	54,000
			Add: Appreciation	9,000
			Cash on hand		9,000
			Goodwill		5,400
		1,44,400			1,44,400

Working Notes:

(1) R.D.D. is no longer require means it is a gain for the firm.

(2) A provision of ₹ 4,000 to be made for a claim of compensation, ₹ 4,000 is recorded on the debit side of Profit and Loss Adjustments A/c and then on the liabilities side of Balance Sheet.

(3) Total payable amount to N ₹ 40,350 is recorded as N’s Loan A/c.