Question

Rupal, Shanu and Trisha were partners in a firm sharing profits and losses in the ratio of 4:3:1. Their Balance Sheet as at 31st March, 2024 was as follows: 

(i) Trisha's share of profit was entirely taken by Shanu. 
(ii) Fixed assets were found to be undervalued by Rs 2,40,000. 
(iii) Stock was revalued at Rs 2,00,000. 
(iv) Goodwill of the firm was valued at Rs 8,00,000 on Trisha's retirement. 
(v) The total capital of the new firm was fixed at Rs 16,00,000 which was adjusted according to the new profit sharing ratio of the partners. For this necessary cash was paid off or brought in by the partners as the case may be. 
Prepare Revaluation Account and Partners' Capital Accounts. 

Hint:

Retirement Steps: 1. Calculate New \& Gaining Ratio (New - Old). 2. Prepare Revaluation A/c, distribute profit/loss in OLD ratio to ALL partners. 3. Adjust Goodwill: Debit Gaining Partners (Gaining Ratio), Credit Retiring Partner (Retiring partner's share of goodwill). 4. Distribute Reserves/Accumulated P/L in OLD ratio to ALL partners. 5. Calculate amount due to retiring partner and transfer to Loan A/c (or pay). 6. Adjust remaining partners' capitals if required: Calculate required capital (Total Capital x New Share), find surplus/deficit vs adjusted balance, adjust via cash/bank.

Answer 1

1. Revaluation Account

Particulars	Amount (₹)	Particulars	Amount (₹)
Stock (Downward Revaluation)	80,000	Fixed Assets	2,40,000
		Profit on Revaluation:
		Rupal (4/7)	91,429
		Shanu (3/7)	68,571
Total	3,20,000	Total	3,20,000

Explanation:

• Fixed Assets: Fixed assets were undervalued by ₹ 2,40,000, so this amount is credited to increase the value of assets.
• Stock: Stock was revalued at ₹ 2,00,000, but the book value of the stock from the Balance Sheet is ₹ 2,80,000. This means there is a decrease in the value of the stock by ₹ 80,000 (₹2,80,000 - ₹2,00,000), so this amount is debited.
• The solution of revaluation is the reduction of profit from total values
• To calculate the profit of revaluation (240000-80000)= ₹160,000 total is then profit on revaluation is distributed between Rupal and Shanu in their old profit-sharing ratio (4:3).
  • To calculate the profit of Rupal (160,000)*4/7=(91,429)
  • To calculate the Profit of Shanu (160,000)*3/7=(68,571)

2. Partners' Capital Accounts

Particulars	Rupal (₹)	Shanu (₹)	Trisha (₹)	Particulars	Rupal (₹)	Shanu (₹)	Trisha (₹)
To Trisha's Capital(Rupal)		80,000		By Balance b/d	8,00,000	6,00,000	2,00,000
To Trisha's Capital(Shanu)			60,000	By General Reserve	1,28,000	96,000	32,000
To Trisha's Capital				By Revaluation A/c	91,429	68,571
To Balance B/D (Trisha's Capital)			2,40,000	By Goodwill	3,42,857	68,571	2,74,286
To Trisha's Capital			80,000	By Bal B/D			2,20,000
To Balance C/D	7,00,000	11,20,000		By cash	4,00,000	2,51,428
To Cash		44,286		By Bal C/D
Total	12,61,429	10,88,571	4,16,8000	Total	12,61,429	10,88,571	4,16,8000

Working Notes:

1. Goodwill Adjustment:

• Total firm goodwill = ₹ 8,00,000
• Trisha's share of goodwill = (1/8) * ₹ 8,00,000 = ₹ 1,00,000 (Debit Trisha and Credit Rupal in this ratio because the share is being taken by Rupal in same ratio as their ratios)
• Goodwill = (value for all partners-all debit balances)=total share /all partners
• All partners capital balance = 16,00,000

New profits after Trisha leaves
The debit capital to the all partner is in ratio 4:3

• Ruval ratio is 4/7 = 16,00,00 * 4/7 =7,00,000
• Shanu ratio is 3/7 = 16,00,00 * 3/7 = 11,20,000

2. General Reserve Distribution:

• The general reserve distributed to each partner is in the proportion 4:3:1
• Rupal General reverse = (4/8) *3,20000 =₹ 1,28,000
• Shanu General reverse = (3/8)*3,20000=₹ 96,000
• Trisha General reverse = (1/8)*3,20000 =₹ 32,000

3. Cash balance after sale
The cash balance is the asset sides is added with good balance to have it reevaluated to Trisha's balance to a amount of 3.20.000

4. Trisha's payment calculation
* Trisha share = good will/profit=800,000 (4:3:1)
Trisha share good will 1.Trisha's share =800,000/8=100,000( for 1/8 part

5. Balance in each partner's share after retirement
Trisha's account after retirement
Rupal's account =400000 (transfer to rupal)
* Trisha's capital to Rupal and is transferred
* Trisha final balance=Cash +All partner's goodwll - revaluation
=128000+960000+32000+(10000)

*To check Rupals' Capital the balance = 8,00,000
Rupal = (240,000 - 342,857)-(91429 +68571)+0422-34

After the balance:
The calculation of Ruval
To recheck Balance
Balance-C = (goodwill -revaluation)+revaluation
*to have it equal with partners ratio's new ratio
*After the transfer of Trisha's balances.

Important Notes:

• Goodwill Adjustment: This is crucial in retirement cases. Make sure the remaining partners compensate the retiring partner for their share of goodwill.
• Partners Ratio:
  • Rupals's ratio 4
  • Shanus's ratio 3
  • Trisha's ratio 1
  • TotalRatio is 8
• Revaluation: Accurately account for any changes in asset/liability values.
• Capital Adjustments: Ensure the capital accounts of the remaining partners are adjusted according to the agreement, considering any cash brought in or paid out.