Question

A, B and C were partners in a business sharing Profits and Losses in the ratio of 2 : 2 : 1 respectively. Their Balance Sheet as on 31st March, 2022 is as under.

Balance Sheet as on 31st March, 2022
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Capital A/c:			Land and Building		89,280
A		64,000	Investment		48,000
B		64,000	Furniture		25,600
C		32,000	Debtors	33,280	32,000
Creditors		48,000	Less : R.D.D.	1,280
Bills Payable		3,200	Bank		13,120
Bank Loan		12,800	Goodwill		16,000
		2,24,000			2,24,000

On 1st July 2022, C died and the following adjustments were made:

(1) All the debtors were considered as good debtors.

(2) A contingent liability for a compensation of ₹ 1,440 was provided.

(3) Investment were sold out in the market at 10% profit.

(4) Loan were paid off.

5) Land and Building were depreciated by ₹ 1,280 and Furniture by ₹ 1,760.

(6) Goodwill of the firm was valued at ₹ 24,000. It was to be raised in the Books.

(7) C was entitled to get his share in the profit up to the date of his death. Profit for 2022-23 was estimated at ₹ 16,000.

(8) The amount due to C's executors was paid by NEFT.

Prepare Revaluation Account, Partners' Capital Account and Balance Sheet of new firm.

Answer 1

Dr.	In the books of the Partnership Firm  Revaluation Account				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Contingent Liability		1,440	By R.D.D. A/c		1,280
To Land and Building		1,280	By Investments		4,800
To Furniture		1,760
To Partner's Capital A/cs (Profit)
A	640	1,600
B	640
C	320
		6,080			6,080

 

Dr.	Partner's Capital Accounts						Cr.
Particulars	A (₹)	B (₹)	C (₹)	Particulars	A (₹)	B (₹)	C (₹)
To C’s Executor’s Loan A/c	-	-	34,720	By Balance b/d	64,000	64,000	32,000
To Balance c/d	67,840	67,840	-	By Revaluation A/c (Profit)	640	640	320
				By Goodwill A/c	3,200	3,200	16,000
				By Profit and Loss Suspense A/c	-	-	800
	67,840	67,840	34,720		67,840	67,840	34,720

 

Balance Sheet as on 1st July, 2022
Liabilities	Amount (₹)	Assets	Amount (₹)
Capital Account:		Land and Building	88,000
A	67,840	Debtors	33,280
B	67,840	Furniture	23,840
Creditors	48,000	Bank	18,400
Bills Payable	3,200	Goodwill	24,000
Contingent Liability	1,440	Profit and Loss Suspense A/c	800
	1,88,320		1,88,320

Working note:

(1) Calculation of C’s share in the profit till the date of his death. C died on 1st July, 2022. Profit for 2022-23 is estimated at ₹ 16,000.

C’s share in it for 3 months is ₹ `16,000 xx 3/12 xx 1/5 =  ₹ 800.`

(2) C’s Executor’s loan amount was fully paid, hence it is not transferred to liability side.

(3) Bank balance at the amount end = 13,120 + 52,800 (Inv. sold) – 12,800 (Loan paid) – 34,720 (C’s executor) = ₹ 18,400.