Question

The Balance Sheet of Karma, Punya and Bandhan who were sharing Profits and Losses in the ratio of 3 : 2 : 1 is as follows:

Balance Sheet as on 31st March, 2022
Liabilities	Amount (₹)	Assets	Amount (₹)
Bank Overdraft	27,000	Bank	72,000
Creditors	1,27,500	Debtors	45,000
Bills Payable	60,000	Land and Building	60,000
Bank Loan	2,25,000	Machinery	1,20,000
General Reserve	40,500	Investments	60,000
Capital Accounts:		Computers	60,000
Karma	30,000	Stock	1,35,000
Punya	30,000	Patents	18,000
Bandhan	30,000
	5,70,000		5,70,000

Punya died on 1st October, 2022 and the following adjustments were made:

(1) Goodwill of the firm is valued at ₹ 45,000.

(2) Land & Building and Machinery were found to be undervalued by 20%.

(3) Investments are valued at ₹ 90,000.

(4) Stock to be undervalued by ₹ 7,500 and a provision of 10% as Debtors was required.

(5) Patents were valueless.

(6) Punya was entitled to share in profits up to the date of death and it was decided that he may be allowed to retain his drawings as his share of profit. Punya's drawings till date of death was ₹ 37,500.

Prepare Partner's Capital Accounts.

Answer 1

Dr.	In the books of the Partnership firm Partner's Capital Accounts						Cr.
Particulars	Karma (₹)	Punya (₹)	Bandhan (₹)	Particulars	Karma (₹)	Punya (₹)	Bandhan (₹)
To Drawings A/c	-	37,500	-	By Balance b/d	30,000	30,000	30,000
To Executor’s Loan A/c	-	73,500	-	By Revaluation A/c (Profit)	22,500	15,000	7,500
To Balance c/d	95,250	-	51,750	By General Reserve A/c	20,250	13,500	6,750
				By Goodwill A/c	22,500	15,000	7,500
				By Profit and Loss Suspense A/c	-	37,500	-
	95,250	1,11,000	51,750		95,250	1,11,000	51,750

Working Notes:

(1)

Dr.	Revaluation Account				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Stock A/c		7,500	By Land and Building A/c		15,000
To R.D.D. A/c		4,500	By Machinery A/c		30,000
To Patents A/c		18,000	By Investments A/c		30,000
To Partner’s Capital A/cs (Profit)
Karma	22,500	45,000
Punya	15,000
Bandhan	7,500
		75,000			75,000

(2) Firm’s goodwill = ₹ 45,000. Distribute among partners in their profit and loss ratio 3 : 2: 1.

(3) Revised value of Land and Building = `"Book value"/"(100 – 20)" xx 100 = (60,000)/80 xx 100 = ₹ 75,000.`

∴ Increase in the value of Land and Building = Revised value – Book value

= 75,000 – 60,000 = ₹ 15,000.

(4) Revised value of Machinery = `"Book value"/"(100 – 20)" xx 100 = (1,20,000)/80 xx 100 = ₹ 1,50,000.`

∴ Increase in the value of Machinery = 1,50,000 – 1,20,000 = ₹ 30,000.

(5) Patents were valueless means it is loss for business.

(6) Punya’s share in profit is ₹ 37,500 and his drawings is ₹ 37,500. Punya is allowed to retain his drawings as his share of profit. Means write ₹ 37,500 as drawings on debit side and write ₹ 37,500 as Profit and Loss Suspense A/c on Credit side of Partner's Capital A/c.