Question

A, B and C were partners sharing profits in the ratio of 5:3:2. On 31.3.2020 their Balance

Sheet was as follows:

Liabilities Amount Assets Amount

Trade Creditors

Employees Provident Fund

A’s capital

B’s Capital

C’s Capital

Investment Fluctuation Reserve

Workmen’s Compensation Reserve

26,500

23,500

1,00,000

50,000

50,000

17,000

18,000

Bank

Debtors

Stock

Fixed Assets

Investments (cost)

Goodwill

Deferred Revenue Exp.

25,000

30,000

55,000

1,20,000

40,000

10,000

5000

2,85,000 2,85,000

B retired on 1.4.2020. For this purpose. The following adjustments were agreed upon:

(a) Goodwill was to be valued at 2 years’ purchase of the average profits of 3 completed years

preceding the date of retirement. The profits of previous years were:

2017-18 : Rs 55,000, 2018-19 : Rs 65,000, 2019-20 Rs 60,000. Goodwill is to be adjusted

through capital account of partners.

(b) Fixed assets were to be increased by Rs 25,000

(c) Stock was overvalued by Rs 5,000

(d) Market value of investments now is Rs 33,000

(e) Rs 20,000 were paid immediately to B and balance was transferred to his loan account.

Prepare Revaluation account, partner’s capital account and Balance Sheet after retirement of B.​

Answer 1

ANSWER

(i) REVALUATION A/C

Dr. Cr.

Particulars Amount Particulars Amount

To Provision for Doubtful Debts 1700 By Prepaid advertisement Expenses 1200

To A's Capital

(revenue expense) 2100 By B's Capital

(personal expenses) 2000

By Loss transferred to:

- A's Capital a/c

- B's Capital a/c

- C's Capital a/c

300

200

100

3800 3800

(ii) PARTNER'S CAPITAL A/C

Dr. Cr.

Particulars A B C D Particulars A B C D

To Revaluation a/c

(personal) 2000 By Balance b/d 60000 40000 40000

To Revaluation a/c

(loss) 300 200 100 By Cash a/c 40000

To Balance c/d 61800 37800 39900 50000 By Creditors 10000

By revaluation expenses 2100

62100 40000 40000 50000 62100 40000 40000 50000

(iii) BALANCE SHEET

Dr. Cr.

Liabilities Amount Assets Amount

Capital a/cs:

- A

- B

- C

- D

61800

57800

39900

50000 Land and Building 50000

Bills Payable 10000 Plant and Machinery 40000

Creditors 30000

(-) D's Capital (10000) 20000 Furniture 30000

Stock 20000

Prepaid Advertisement

Expenses 1200

Debtors 30000

(-) Provision for (1700)

Doubtful debts

(+) Bills receivable 4000

dishonoured 32300

Bills receivable 20000

Bank (10000+40000-4000) 46000

239500 239500