Question

J, H and K were partners in a firm sharing profits in the ratio of 5:3:2. On 31-3-2015 their Balance Sheet was as follows:

                                   Balance Sheet of J,H and K as on 31-3-2015

LIabilities	Amount(Rs.)	Assets	Amount(Rs.)
Creditors Investment Fluctuation Fund P & L Account Capital:        J                            1,00,000        H                             80,000        K                             40,000	42,000 20,000 80,000       2,20,000	Land and Building Motor Vans Investments Machinery Stock Debtors                         80,000       Less:                         6,000   Cash	2,24,000 40,000 38,000 24,000 30,000   74,000 32,000
	3,62,000		3,62,000

On the above data H retires and J and K agreed to continue the business on the following terms:

(i) Goodwill of the firm was valued at Rs.1,02,000.

(ii) There was a claim of Rs.8,000 for workmen's compensation.

(iii) Provision for bad debts was to be reduced by Rs.2,000.

(iv) H will be paid Rs.14,000 in cash and the balance will be transferred in his loan account which will be paid in four equal yearly installments together with interest @ 10% p.a.

(v) The new profit sharing ratio between J and K will be 3:2 and their capitals will be in their new profit sharing ratio. The capital adjustments will be done by opening current accounts.

Prepare Revaluation Account, Partner’s Capital Accounts and Balance Sheet of the new firm.

Answer 1

                                                                   Revaluation Account

Dr.                                                                                                                                                               Cr.

Particulars	Amount(Rs.)	Particulars	Amount(Rs.)
To Claim for Workman Compensation	8,000	By Provision for Doubtful Debts   By Loss on Revaluation       J’s Capital A/c                         3,000       H’s Capital A/c                        1,800       K’s Capital A/c                        1,200	2,000         6,000
	8,000		8,000

 

                                                                                                 Partner’s Capital Account

Dr.                                                                                                                                                                                                                Cr.

Particulars	J (Rs.)	H (Rs.)	K (Rs.)	Particulars	J (Rs.)	H (Rs.)	K (Rs.)
Revaluation A/c H’s Capital A/c Cash A/c H’s Loan A/c   Balance c/d	3,000 10,200       1,36,800	1,800   14,000 1,24,800	1,200 20,400       38,400	Balance b/d IFF P&L A/c J’s Capital K’s Capital	1,00,000 10,000 40,000	80,000 6,000 24,000 10,200 20,400	40,000 4,000 16,000
	1,50,000	1,40,600	60,000		1,50,000	1,40,600	60,000
Current A/c   Balance c/d	31,680   1,05,120		70,080	Balance b/d Current A/c	1,36,800		38,400 31,680
	1,36,800		70,080		1,36,800		70,080

 

                                                                     Balance Sheet as on March 31,2015

Liabilities	Amount (Rs.)	Assets	Amount (Rs.)
Creditors Capitals       J                                             1,05,120       H                                             70,080      J’s Current A/c Claim for Workmen Compensation H’s Loan A/c	42,000     1,75,200 31,680 8,000 1,24,800	Land and Building Motor Vans Investment Machinery Stock Debtors                                              80,000       Less: Provision                               4,000    Cash (32,000 - 14,000) K’s Current A/c	1,24,000 40,000 38,000 24,000 30,000   76,000 18,000 31,680
	3,81,680		3,81,680

 

Working Notes :

WN 1: Calculation of Gaining Ratio

J's = (3/5) - (5/10) = 1/10

K's = (2/5) - (2/10) = 2/10

Gaining Ratio = 1 : 2

 

WN 2: Adjustment of Goodwill

H's Share of Goodwill = 1,02,000 x (3/10) = 30,600

30,600 will be debited to gaining partners (J and K) in the ratio of 1:2

J's Share = 30,600 x (1/3) = 10,200

K's share = 30,600 x (2/3) = 20,400

 

WN 3: Adjustment of Capital

Adjusted Capital of J = 1,00,000 + 10,000 + 40,000 – 3,000 – 10,200 = 1,36,800

Adjusted Capital of K = 40,000 + 4,000 + 16,000 – 1,200 – 20,400 = 38,400

Total Adjusted Capital = 1,36,800 + 38,400 = 1,75,200

J's New Capital = 87,600 x (3/5) = 52,560

K's New Capital = 87,600 x (2/5) = 35,040

K’s New Capital > K’s Adjusted Capital (K owes 31,680 to the firm)

J’s New Capital < J’s Adjusted Capital (Firm owes 31,680 to J)

 

WN 4 Amount transferred to H’s Loan A/c

Amount to be transferred = (Credit side – Debit side) – Cash paid

                                      = (1,40,600 – 1,800) – 14,000

                                      = 1,24,800