Question

J, H and K were partners in a firm sharing profits in the ratio of 5 : 3 : 2. On 31st March, 2015, their Balance Sheet was as follows:
On the above date, H retired and J and K agreed to continue the business on the following terms:
(i) Goodwill of the firm was valued at ₹ 1,02,000.
(ii) There was a claim of ₹ 8,000 for workmen’s compensation.
(iii) Provision for bad debts was to be reduced by ₹ 2,000.
(iv) H will be paid ₹ 14,000 in cash and balance will be transferred in his Loan Account which will be paid in four equal yearly installments together with interest @ 10% p.a.
(v) The new profit-sharing ratio between J and K 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, Partners Capital Accounts and Balance Sheet of the new firm.

Answer 1

be done by opening Current Accounts.

Prepare Revaluation Account, Partners Capital Accounts and Balance Sheet of the new firm.

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Answer 2

The Revaluation Account, Partners Capital Accounts and Balance Sheet of the new firm are prepared and calculated below:

Explanation:

Calculation of Gaining Ratio

Gaining Ratio = New Ratio - Old Ratio

J's Share

$=\frac{3}{5}-\frac{5}{10}=\frac{6-5}{10}=\frac{1}{10}$

K's Share

$=\frac{2}{5}-\frac{2}{10}=\frac{4-2}{10}=\frac{2}{10}$

Gaining Ratio (J and K) $=1: 2$

Adjustment of Goodwill

H's share of Goodwill

$=1,02,000 \times \frac{3}{10}=30,600$

This amount of goodwill i.e. 30,600 is to be distributed between J and K in their $=1: 2$ (Gaining Ratio)

J's A/cDebited

$=30,600 \times \frac{1}{3}=10,200$

K's A/c Debited

$=30,600 \times \frac{2}{3}=20,400$

Total Adjustment of Capital

Total Adjusted Capital of J and K

J's Capital

$=1,00,000+10,000+40,000-3,000-10,200=\mathrm{Rs} .1,36,800$

K's Capital

$=40,000+4,000+16,000-1,200-20,400=\mathrm{Rs} .38,400$

Total Adjusted Capital

$=1,36,800+38,400=\mathrm{Rs} .1,75,200$

$\mathrm{J}^{\prime} \mathrm{s}=1,75,200 \times \frac{3}{5}=1,05,120$

$\mathrm{K}^{\prime} \mathrm{s}=1,75,200 \times \frac{2}{5}=70,080$

K's New Capital > K's Adjusted Capital (K will pay 31,680 to the firm)

J's New Capital < J's Adjusted Capital (Firm will pay 31,680 to J)

Amount transferred to H's Loan A/c

Amount to be transferred = Balance Amount - Cash paid

$=(1,40,600-1,800)-14,000=\mathrm{Rs} .1,24,800$