Question

X, Y and Z were partners in a firm sharing profit’s in the firm of 5:3:2. On 31-3-2015 their Balance Sheet was as follows:

                                   Balance sheet of X,Y and Z as on 31st march,2015

Liabilities	Amount(Rs.)	Assets	Amount(Rs.)
Creditors Investment Fluctuation Fund P & L Account Capital:        X                            50,000        Y                             40,000        Z                            20,000	21,000 10,000 40,000       1,10,000	Land and Building Motor Vans Investments Machinery Stock Debtors                         40,000       Less:                         3,000 Cash	62,000 20,000 19,000 12,000 15,000   37,000 16,000
	1,81,000		1,81,000

On the above date Y retired and X and Z agreed to continue the business on the following terms:

(1) Goodwill of the firm was valued at Rs.51,000

(2) There was a claim of 4,000 for Workmen’s Compensation.

(3) Provision for bad debts was to be reduced by 1,000

(4) Y will be paid 8,200 in cash and the balance will be transferred in his loan account which will be paid in four equally yearly instalments together with interest @ 10% p.a.

(5) The new profit sharing ratio between X and Z 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 the Balance Sheet of reconstituted firm.

Answer 1

                                                                   Revaluation Account

Dr.                                                                                                                                                                    Cr.

Particulars	Amount(Rs.)	Particulars	Amount(Rs.)
To Claim for Workman Compensation	4,000	By Provision for Doubtful Debts   By Loss on Revaluation        X’s Capital A/c                     1,500        Y’s Capital A/c                        900        Z’s Capital A/c                        600	1,000         3,000
	4,000		4,000

 

                                                                                                 Partner’s Capital Account

Dr.                                                                                                                                                                                                                Cr.

Particulars	X (Rs.)	Y (Rs.)	Z (Rs.)	Particulars	X (Rs.)	Y (Rs.)	Z (Rs.)
Revaluation A/c Y’s Capital A/c Cash A/c Y’s Loan A/c   Balance c/d	1,500 5,100       68,400	900   8,200 61,200	600 10,200       19,200	Balance b/d IFF P&L A/c X’s Capital Z’s Capital	50,000 5,000 20,000	40,000 3,000 12,000 5,100 10,200	20,000 2,000 8,000
	75,000	70,300	30,000		75,000	70,300	30,000
Current A/c   Balance c/d	15,840   52,560		35,040	Balance b/d Current A/c	68,400		19,200 15,840
	68,400		35,040		68,400		35,040

 

                                                                     Balance Sheet as on March 31,2015

Liabilities	Amount (Rs.)	Assets	Amount (Rs.)
Creditors Capitals       X                                            52,560       Z                                            35,040 X’s Current A/c Claim for Workmen Compensation Y’s Loan A/c	21,000     87,600 15,840 4,000 61,200	Land and Building Motor Vans Investment Machinery Stock Debtors                                           40,000      Less: Provision                             2,000 Cash (16000 - 8200) Z’s Current A/c	62,000 20,000 19,000 12,000 15,000   38,000 7,800 15,840
	1,89,640		1,89,640

 

Working Notes :

WN 1: Calculation of Gaining Ratio

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

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

Gaining Ratio = 1 : 2

 

WN 2: Adjustment of Goodwill

Y's Share of Goodwill = 51,000 x (3/10) = 15,300

15,300 will be debited to gaining partners (X and Z) in the ratio of 1:2

X's Share = 15,300 x (1/3) = 5,100

Z's share = 15,300 x (2/3) = 10,200

 

WN 3: Adjustment of Capital

Adjusted Capital of X = 50,000 + 5,000 + 20,000 – 1,500 – 5,100 = 68,400

Adjusted Capital of Z = 20,000 + 2,000 + 8,000 – 600 – 10,200 = 19,200

Total Adjusted Capital = 68,400 + 19,200 = 87,600

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

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

Z’s New Capital > Z’s Adjusted Capital (Z owes 15,840 to the firm)

X’s New Capital < X’s Adjusted Capital (Firm owes 15,840 to X)

 

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

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

                                      = (70,300 – 900) – 8,200

                                      = 61,200