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✦ FREE LEARNING — CLASS 11 & 12 — CBSE · PSEB — ACCOUNTS · ECONOMICS · BST ✦
On 31st March, 2025, the Balance Sheet of A, B and C, who shared profits and losses in proportion to their capitals, showed Creditors ₹10,800, Bills Payable ₹5,000, Capitals – A ₹45,000, B ₹30,000, C ₹15,000; Cash at Bank ₹13,000, Debtors ₹10,000 less Provision ₹200, Stock ₹9,000, Machinery ₹24,000, Freehold Premises ₹50,000. B retired on 1st April, 2025 on these terms: (a) ₹1,000 of the insurance premium debited to Profit and Loss Account be carried forward as prepaid insurance. (b) Freehold Premises be appreciated by 10%. (c) Provision for Doubtful Debts be raised to 5% on Debtors. (d) Machinery be reduced by 5%. (e) A liability for Workmen Compensation of ₹1,500 be created. (f) Goodwill of the firm be fixed at ₹18,000 and B’s share be adjusted into the Capital Accounts of A and C, who will share future profits in the ratio of 3/4 and 1/4. (g) Total capital of the reconstituted firm be fixed at ₹60,000 between A and C in the ratio 3/4 : 1/4, actual cash being paid or brought in as required. (h) B be paid ₹5,000 in cash and the balance transferred to his Loan Account. Prepare the Revaluation Account, Partners’ Capital Accounts and the Balance Sheet of A and C.
REVALUATION ACCOUNT
| Particulars | ₹ | Particulars | ₹ |
|---|---|---|---|
| To Provision for Doubtful Debts A/c | 300 | By Prepaid Insurance A/c | 1,000 |
| To Machinery A/c | 1,200 | By Freehold Premises A/c | 5,000 |
| To Workmen’s Compensation Liability A/c | 1,500 | ||
| To Profit transferred to: | |||
| A’s Capital A/c 1,500 | |||
| B’s Capital A/c 1,000 | |||
| C’s Capital A/c 500 | 3,000 | ||
| Total | 6,000 | Total | 6,000 |
PARTNERS’ CAPITAL ACCOUNTS
| Particulars | A | B | C | Particulars | A | B | C |
|---|---|---|---|---|---|---|---|
| To B’s Capital A/c | 4,500 | – | 1,500 | By Balance b/d | 45,000 | 30,000 | 15,000 |
| To Bank A/c | – | 5,000 | – | By A’s Capital A/c | – | 4,500 | – |
| To B’s Loan A/c | – | 32,000 | – | By C’s Capital A/c | – | 1,500 | – |
| To Balance c/d | 42,000 | – | 14,000 | By Revaluation A/c | 1,500 | 1,000 | 500 |
| Total | 46,500 | 37,000 | 15,500 | Total | 46,500 | 37,000 | 15,500 |
| To Balance c/d | 45,000 | 15,000 | By Balance b/d | 42,000 | 14,000 | ||
| By Bank A/c | 3,000 | 1,000 | |||||
| Total | 45,000 | 15,000 | Total | 45,000 | 15,000 |
BALANCE SHEET as at 1st April, 2025 (after B’s Retirement)
| Liabilities | ₹ | Assets | ₹ |
|---|---|---|---|
| Creditors | 10,800 | Cash at Bank | 12,000 |
| Bills Payable | 5,000 | Debtors 10,000 less Provision 500 | 9,500 |
| Workmen’s Compensation Liability | 1,500 | Stock | 9,000 |
| B’s Loan A/c | 32,000 | Prepaid Insurance | 1,000 |
| Capitals: A 45,000; C 15,000 | 60,000 | Machinery | 22,800 |
| Freehold Premises | 55,000 | ||
| Total | 1,09,300 | Total | 1,09,300 |
Working Notes: Old ratio (by capital) A : B : C = 3 : 2 : 1. B’s share of goodwill = 18,000 × 2/6 = ₹6,000; new ratio A : C = 3 : 1, so both A and C gain, and both compensate B (A: ₹4,500; C: ₹1,500). Bank Account: 13,000 – 5,000 (paid to B) + 3,000 (brought in by A) + 1,000 (brought in by C) = ₹12,000.
Accounting & Commerce Educator
Sarbjit Singh holds a B.Com and M.Com degree and has over 12 years of teaching experience in double entry bookkeeping, financial accounting, and business studies.
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