Ratan, Singh and Sharma were partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1. Their Balance Sheet on 31st March, 2024 was as follows:Balance Sheet of Ratan, Singh and Sharma as at 31st March, 2024
Liabilities Amount (₹) Assets Amount (₹) Creditors 90,000 Bank 65,000 Outstanding Wages 10,000 Stock 1,50,000 General Reserve 3,00,000 Debtors 90,000 Less: Provision for Doubtful Debts (5,000) 85,000 Capital A/cs: Plant and Machinery 2,50,000 Ratan 3,60,000 Land and Building 4,50,000 Singh 2,40,000 Profit and Loss A/c 1,00,000 Sharma 1,00,000 Total 11,00,000 Total 11,00,000
On 1st April, 2024 Sharma retired from the firm on the following terms :
(i) Plant and Machinery is revalued at ₹2,00,000.
(ii) Land and Building was to be appreciated by ₹49,500 and provision for bad debts will be maintained at 5% of the debtors.
(iii) Sharma's share in the goodwill of the firm was valued at ₹60,000 and the retiring partner's share was adjusted through the capital accounts of remaining partners.
(iv) Sharma was paid in cash brought by Ratan and Singh in such a way so as to make their capitals proportionate to their new profit sharing ratio.
Prepare Revaluation Account and Partners' Capitals Accounts.
Ratan, Singh and Sharma were partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1. Their Balance Sheet on 31st March, 2024 was as follows:Balance Sheet of Ratan, Singh and Sharma as at 31st March, 2024
| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Creditors | 90,000 | Bank | 65,000 |
| Outstanding Wages | 10,000 | Stock | 1,50,000 |
| General Reserve | 3,00,000 | Debtors | 90,000 |
| Less: Provision for Doubtful Debts | (5,000) | ||
| 85,000 | |||
| Capital A/cs: | Plant and Machinery | 2,50,000 | |
| Ratan | 3,60,000 | Land and Building | 4,50,000 |
| Singh | 2,40,000 | Profit and Loss A/c | 1,00,000 |
| Sharma | 1,00,000 | ||
| Total | 11,00,000 | Total | 11,00,000 |
On 1st April, 2024 Sharma retired from the firm on the following terms :
(i) Plant and Machinery is revalued at ₹2,00,000.
(ii) Land and Building was to be appreciated by ₹49,500 and provision for bad debts will be maintained at 5% of the debtors.
(iii) Sharma's share in the goodwill of the firm was valued at ₹60,000 and the retiring partner's share was adjusted through the capital accounts of remaining partners.
(iv) Sharma was paid in cash brought by Ratan and Singh in such a way so as to make their capitals proportionate to their new profit sharing ratio.
Prepare Revaluation Account and Partners' Capitals Accounts.
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Solution and Explanation
Revaluation Account
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Plant & Machinery A/c (Decrease in Value) | ₹50,000 | By Land & Building A/c (Appreciation) | ₹49,500 |
| To Provision for Doubtful Debts A/c (5% of ₹90,000) | ₹4,500 | By Loss transferred to Capital A/cs: | |
| Ratan’s Capital (2/5 of ₹5,000) | ₹2,000 | ||
| Singh’s Capital (2/5 of ₹5,000) | ₹2,000 | ||
| Sharma’s Capital (1/5 of ₹5,000) | ₹1,000 | ||
| Total | ₹54,500 | Total | ₹54,500 |
Partners’ Capital Accounts
| Particulars | Ratan (₹) | Singh (₹) | Sharma (₹) |
|---|---|---|---|
| To Sharma’s Capital (Goodwill Adjustment) | ₹2,000 | ₹2,000 | ₹1,000 |
| To Bank A/c (Settlement) | ₹24,000 | ₹16,000 | – |
| By Balance b/d | ₹3,60,000 | ₹2,40,000 | ₹1,20,000 |
| By General Reserve | ₹1,20,000 | ₹40,000 | – |
| By Profit and Loss A/c | ₹40,000 | – | – |
| By Ratan’s Capital A/c (Goodwill) | – | ₹1,19,000 | – |
| By Singh’s Capital A/c (Goodwill) | – | ₹1,00,000 | – |
| By Sharma’s Capital A/c (Goodwill) | ₹60,000 | ₹20,000 | ₹24,000 |
| Total | ₹5,42,000 | ₹3,98,000 | ₹2,00,000 |
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