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Question
Following is the Balance Sheet of the firm of Nana, Nani and Sona who share Profits and Losses in the ratio of their Capital.
| Balance Sheet as on 31st March, 2019 |
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| Liabilities | Amount (₹) | Assets | Amount (₹) | |
| Capital A/c: | Machinery | 20,000 | ||
| Nana | 50,000 | Building | 55,000 | |
| Nani | 20,000 | Stock | 12,000 | |
| Sona | 30,000 | Debtors | 12,000 | 11,000 |
| Creditors | 10,000 | Less: RDD | 1,000 | |
| Bills Payable | 5,000 | Cash | 17,000 | |
| 1,15,000 | 1,15,000 | |||
Sona retires from the business on 1st April 2019 and the following Adjustment were agreed.
- Stock is to be valued at 92% of its Book Value.
- RDD is to be maintained at 10% on debtors.
- The value of Building is to be appreciated by 20%.
- The Goodwill of the firm be fixed at ₹ 12000. Sona’s share in the same be adjusted in the accounts of continuing partners in gaining Ratio.
- The entire Capital of the new firm be fixed at ₹ 1,60,000 between Nana and Nani in their New Profit sharing ratio which is fixed at 3:1 making adjustment in Cash.
- Amount payable to Sona paid in cash.
Prepare: Revaluation Account, Partnership Capital Account and Balance Sheet of the reconstituted firm.
Solution
| Dr. | In the Books of the Firm Revaluation Account |
Cr. | ||
| Particulars | Amount (₹) | Particulars | Amount (₹) | |
| To Stock A/c | 960 | By Building A/c | 11,000 | |
| To RDD A/c | 200 | |||
| To Profit transferred to Partners Capital A/c: |
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| Nana | 4,920 | 9,840 | ||
| Nani | 1,968 | |||
| Sona | 2,952 | |||
| 11,000 | 11,000 | |||
| Dr. | Partner's Capital Accounts | Cr. | |||||
| Particulars | Nana (₹) | Nani (₹) | Sona (₹) | Particulars | Nana (₹) | Nani (₹) | Sona (₹) |
| To Goodwill A/c | 3,000 | 600 | - | By Balance b/d | 50,000 | 20,000 | 30,000 |
| To Cash A/c | - | - | 36,552 | By Revaluation A/c (Profit) | 4,920 | 1,968 | 2,952 |
| To Balance c/d | 1,20,000 | 40,000 | - | By Goodwill A/c | - | - | 3,600 |
| By Cash A/c | 68,080 | 18,632 | - | ||||
| 1,23,000 | 40,600 | 36,552 | 1,23,000 | 40,600 | 36,552 | ||
| Balance Sheet as on 1st April, 2019 | |||||
| Liabilities | Amount (₹) | Assets | Amount (₹) | ||
| Creditors | 10,000 | Cash | 67,160 | ||
| Bills Payable | 5,000 | Machinery | 20,000 | ||
| Capital A/c: | Stock | 12,000 | 11,040 | ||
| Nana | 1,20,000 | 1,60,000 | Less: Reduction | 960 | |
| Nani | 40,000 | Debtors | 12,000 | 10,800 | |
| Less: RDD | 1,200 | ||||
| Building | 55,000 | 66,000 | |||
| Add: Appreciation | 11,000 | ||||
| 1,75,000 | 1,75,000 | ||||
Working Note:
Calculation of Gaining Ratio:
Old Ratio = 5 : 2 : 3
New Ratio = 3 : 1
Gain Ratio = New Ratio - Old Ratio
Nana's Gain Ratio = `3/4 - 5/10 = (30-20)/ 40 = 10/40`
Nani's Gain Ratio = `1/4 - 2/10 = (10-8)/40 = 2/40`
Gain Ratio = 10 : 2 i.e. 5 : 1
APPEARS IN
RELATED QUESTIONS
Name any two items that are shown under the head’ Other Current Liabilities’ and any two items that are shown under the head ‘Other Current Assets’ in the Balance Sheet of a company as per schedule III of the Companies Act, 2013.
Following is the Balance Sheet of R.S. Ltd. as at 31st March, 2016 :
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R.S. Ltd. Balance Sheet as at 31-3-2016 |
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Particulars |
NoteNo. |
31-03-2016 (Rs) |
31-03-2015 (Rs) |
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I. Equity and Liabilities : (1) Shareholder's Funds |
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(a) Share Capital |
9,00,000 |
7,00,000 |
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(b) Reserves and Surplus |
1 |
2,50,000 |
1,00,000 |
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(2) Non-current Liabilities |
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Long-term borrowings |
2 |
4,50,000 |
3,50,000 |
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(3) Current Liabilities |
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(a) Short-term borrowings |
3 |
1,50,000 |
75,000 |
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(b) Short-term provisions |
4 |
2,00,000 |
1,25,000 |
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Total |
19,50,000 |
13,50,000 |
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II. Assets |
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(1) Non-current Assets |
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(a) Fixed Assets |
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(i) Tangible |
5 |
14,65,000 |
9,15,000 |
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(ii) Intangible |
6 |
1,00,000 |
1,50,000 |
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(b) Non-current Investments |
1,50,000 |
1,00,000 |
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(2) Current Assets |
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(a) Current Investments |
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40,000 |
70,000 |
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(b) Inventories |
7 |
1,22,000 |
72,000 |
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(c) Cash and Cash Equivalents |
73,000 |
43,000 |
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Total |
19,50,000 |
13,50,000 |
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Note No. |
Particulars |
31-03-2016 (Rs) |
31-03-2015 (Rs) |
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(1) |
Reserves and Surplus |
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(Surplus i.e. Balance in Statement of Profit and Loss) |
2,50,000 |
1,00,000 |
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2,50,000 |
1,00,000 |
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(2) |
Long-term borrowings |
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12% Debentures |
4,50,000 |
3,50,000 |
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4,50,000 |
3,50,000 |
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(3) |
Short-term borrowings |
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Bank overdraft |
1,50,000 |
75,000 |
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1,50,000 |
75,000 |
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(4) |
Short-term provisions |
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Proposed Dividend |
2,00,000 |
1,25,000 |
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2,00,000 |
1,25,000 |
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(5) |
Tangible Assets |
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Machinery |
16,75,000 |
10,55,000 |
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Accumulated Depreciation |
(2,10,000) |
(1,40,000) |
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14,65,000 |
9,15,000 |
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(6) |
Intangible Assets |
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Goodwill |
1,00,000 |
1,50,000 |
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1,00,000 |
1,50,000 |
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(7) |
Inventories |
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Stock in trade |
1,22,000 |
72,000 |
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1,22,000 |
72,000 |
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Additional Information :
(1) Rs 1,00,000, 12% Debentures were issued on 31-3-2016.
(2) During the year a piece of machinery costing Rs 80,000 on which accumulated depreciation was Rs 40,000 was sold at a loss of Rs 10,000.
Prepare a Cash Flow Statement.
Why is there need for the revaluation of assets and liabilities on the admission of a partner?
Sanjana and Alok were partners in firm sharing profits and losses in the ratio 3: 2. On 31st March 2018 their Balance Sheet was as follows:
Balance Sheet of Sanjana and Alok as on 31.3.2018
| Liabilities |
Amount (₹) |
Assets | Amount (₹) |
| Creditors | 60,000 | Cash | 1,66,000 |
| Work men's Compensation Fund | 60,000 | Debtors - 1,46,000 | |
| Less: Provision for doubtful debts - 2,000 | 1,44,000 | ||
| Capitals: | Stock | 1,50,000 | |
| Sanjana - 5,00,000 | Investments | 2,60,000 | |
| Alok - 4,00,000 | 9,00,000 | Furniture | 3,00,000 |
| 10,20,000 | 10,20,000 |
On 1st April 2018, they admitted Nidhi as a new partner for 1/4th share in the profits on the following terms:
(a) Goodwill of the firm was valued at ₹ 4,00,000 and Nidhi brought the necessary amount in cash for her share of goodwill premium, half of which was withdrawn by the old partners.
(b) Stock was to be increased by 20% and furniture was to be reduced to 90%.
(c) Investments were to be valued at ₹ 3,00,000. Alok took over investments at this value.
(d) Nidhi brought ₹ 3,00,000 as her capital and the capitals of Sanjana and Alok were adjusted in the new profit sharing ratio.
Prepare Revaluation Account, Partners Capital Accounts, and the Balance Sheet of the reconstituted firm on Nidhi's admission.
Write the Word/Term/Phrase which can substitute of the following statement:
Partner’s Account where Loss or Profit on revaluation is transferred.
Shah, Lodha, and Dhole were partners sharing profits and losses in the ratio of 4:3:3. Their Balance Sheet as on 31st March 2019 is a given below.
| Balance Sheet as on 31st March, 2019 | |||||||
| Liabilities | Amount ₹ | Amount ₹ | Assets | Amount ₹ | Amount ₹ | ||
| Sundry Creditors | 20,000 | Cash | 9,000 | ||||
| Bills payable | 4,000 | Sundry Debtors | 10,000 | ||||
| Capital Account: | (−) R.D.D. | 1,000 | 9,000 | ||||
| Shah | 45,000 | Furniture | 25,000 | ||||
| Lodha | 35,000 | Computers | 43,000 | ||||
| Dhole | 27,000 | Vehicles | 45,000 | ||||
| 1,31,000 | 1,31,000 | ||||||
On 1st April 2019, Mr. Lodha retired from the firm on the following terms.
1. Goodwill is to be valued at average Profits and Losses of the last five years which were as follows.
| Years | Profit/Loss |
| 2015 | ₹ 35,000 |
| 2016 | ₹ 20,000 |
| 2017 | ₹ 30,000 |
| 2018 | ₹ 20,000 |
| 2019 | ₹ 25,000 |
2. Computers to be depreciated by 10%
3. Furniture to be revalued at ₹ 27,500
4. Vehicles appreciated by 20%
5. R.D.D. was no longer necessary
6. Shah and Dhole will share the future profits and losses in the ratio of 2:1
7. It was decided that goodwill should not appear in the books of a new firm and amount payable to Lodha is to be transferred to his Loan A/c
Prepare: Profit and Loss adjustment A/c, Partners capital accounts, Balance sheet of new firm.
Excess of the credit side over the debit side of the revaluation account.
Balance sheet prepared after new partnership agreement, assets and liabilities are recorded at:
Profit or Loss on revaluation of assets and reassessment of liabilities is transferred to Partners' Capital Accounts in their:
In case of admission of a partner, the entry for unrecorded investments will be:
When the balance sheet is prepared after the new partnership agreement, the assets and liabilities are recorded at:
At the time of admission of a new partner, general reserve appearing in the old Balance Sheet is transferred to:
The opening balance of Partner’s Capital Account is credited with:
Angle and Circle ware partners in a firm. Their Balance Sheet showed Furniture at ₹2,00,000; Stock at ₹1,40,000; Debtors at ₹1,62,000 and Creditors at ₹60,000. Square was admitted and new profit-sharing ratio was agreed at 2:3:5. Stock was revalued at ₹1,00,000, Creditors of ₹15,000 are not likely to be claimed, Debtors for ₹2,000 have become irrecoverable and Provision for doubtful debts to be provided @10%.
Angle’s share in loss on revaluation amounted to ₹30,000. Revalued value of Furniture will be?
Assertion (A): Revaluation A/c is prepared at the time of Admission of a partner.
Reason (R): It is required to adjust the values of assets and liabilities at the time of admission of a partner, so that the true financial position of the firm is reflected.
Vedesh Ltd. purchased a running business of Vibhu Enterprises for a sum of ₹ 12,00,000. Vedesh Ltd. paid ₹ 60,000 by drawing a promissory note in favour of Vibhu Enterprises., ₹1,90,000 through bank draft and balance by issue of 8% debentures of ₹ 100 each at a discount of 5%. The assets and liabilities of Vibhu Enterprises consisted of Fixed Assets valued at ₹ 17,30,000 and Trade Payables at ₹ 3,20,000. You are required to pass necessary journal entries in the books of Vedesh Ltd.
The sum due to the retiring partner (in case of retirement) and to the legal representatives/executors (in case of death) includes which of the following cases?
Arun and Vijay are partners in firm sharing profits and losses in the ratio of 5 : 1.
| Balance Sheet (Extract) | |||
| Liabilities | Amount (₹) | Assets | Amount (₹) |
| Machinery | 40,000 | ||
If the value of machinery in the balance sheet is undervalued by 20%, then at what value will machinery be shown in a new balance sheet?
Ajay, Vijay and Sanjay were partners sharing profits and losses in the ratio of 3 : 3 : 2. Their Balance Sheet as on 31st March 2020 is as follows:
| Balance Sheet as on 31st March, 2020 | |||
| Liabilities | Amount (₹) | Assets | Amount (₹) |
| Creditors | 32,700 | Bank | 19,800 |
| Reserve Fund | 12,000 | Stock | 19,800 |
| Capital Accounts: | Debtors | 15,000 | |
| Ajay | 33,000 | Livestock | 30,000 |
| Vijay | 45,000 | Plant and Machinery | 62,100 |
| Sonjay | 24,000 | ||
| 1,46,700 | 1,46,700 | ||
On 1st April 2020 Sanjay retired from the firm on the following terms:
- R.D.D. is to be maintained at 10% on debtors.
- ₹ 300 to be written off from creditors.
- Goodwill of the firm is to be valued at ₹ 12,000. however only Sanjay's share in it is to be raised in the books and written off immediately.
- Assets to be revalued as: Stock ₹ 18,900, Plant and machinery ₹ 60,000, Live Stock ₹ 30,600.
- The amount payable to Sanjay is to be transferred to his Loan account after retirement:
Prepare:
- Revaluation Account
- Partners' Capitol Account
- Balance Sheet of the New firm.
On the reconstitution of a firm the value of furniture increased from ₹ 7,00,000 to ₹ 8,00,000 and stock reduced to ₹ 4,00,000 from ₹ 4,20,000. Gain or loss on revaluation will be ______.
Mita, Geeta and Mohit were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. With effect from 1st April 2022, they mutually agreed to share profits and losses in the ratio of 2:2:1. It was agreed that:
- Goodwill of the firm was valued at ₹ 1,40,000.
- Profit on revaluation of assets and re-assessment of liabilities amounted to ₹ 1,20,000.
Pass necessary journal entries for the above transactions in the books of the firm. Show your working notes clearly.
On reconstitution of a firm, the value of machinery was depreciated by ₹1,00,000 and investments increased to ₹70,000 from ₹20,000. Gain or loss on revaluation will be ______.
On the reconstitution of a firm, the value of the land was appreciated by ₹ 2,00,000 and plant and machinery reduced to ₹ 7,00,000 from ₹ 10,00,000. Gain or loss on revaluation will be ______.
X, Y and Z are partners sharing profits and losses in the ratio of 2: 3: 1. They decided to share future profits in the ratio of 3:2: 1 with effect from 1st April, 2022. At the time of change of profit sharing ratio, unrecorded furniture will be recorded in the books of Accounts by ______.
Decrease in the value of assets should be ______ to Profit and Loss Adjustment Account.
