question_answer
Karan and Pragya are partners in a firm sharing profits in the ratio of 2 : 3. The balance sheet of the firm as on 31st March, 2017 is given below: Balance sheet As at 31st March, 2017 Liabilities | | Amt (Rs.) | Assets | Amt (Rs.) |
Creditors | | 6,20,000 | Bills Receivable | 3,60,000 |
Bills Payable | | 1,80,000 | Stock | 16,00,000 |
Capital A/cs | | | Machinery | 18,40,000 |
Karan | 16,00,000 | | Land and Building | 10,00,000 |
Pragya | 24,00,000 | 40,00,000 | | |
| | 48,00,000 | | 48,00,000 |
The partners decided to share profits in equal ratio with effect from 1st April, 2017. The following adjustments were agreed upon: (i) Land and building was valued at Rs. 16,000 and machinery at Rs. 16,40,000 and were to appear at revalued amounts in the balance sheet. (ii) The goodwill of the firm was valued at Rs. 80,000 but it was not to appear in books. Pass the necessary journal entries to give affect to the above and also prepare revaluation account, partners? capital account and balance sheet.
Answer:
JOURNAL Date | Particulars | | LF | Amt (Dr) | Amt (Cr) |
| Land and Building A/c | Dr | | 6,00,000 | |
| To Revaluation A/c | | | | 6,00,000 |
| (Being value of land and building appreciated) | | | | |
| Revaluation A/c | Dr | | 2,00,000 | |
| To Machinery A/c | | | | 2,00,000 |
| (Being value of machinery depreciated) | | | | |
| Revaluation A/c | Dr | | 4,00,000 | |
| To Karan?s Capital A/c \[(4,00,000\times 2/5)\] | | | | 1,60,000 |
| To Pragya?s Capital A/c \[(4,00,000\times 3/5)\] | | | | 2,40,000 |
| (Being profit distributed among partners) | | | | |
| Karan?s Capital A/c | Dr | | 8,000 | |
| To Pragya?s Capital A/c | | | | 8,000 |
| (Being amount of goodwill adjusted among partners) | | | | |
Dr Revaluation Account Cr Particulars | | Amt (Rs.) | Particulars | Amt (Rs.) |
To Machinery | | 2,00,000 | By Land and Building | 6,00,000 |
To Profit Transferred to Capital A/cs | | | | |
Karan | 1,60,000 | | | |
Pragya | 2,40,000 | 4,00,000 | | |
| | 6,00,000 | | 6,00,000 |
Dr Partner?s Capital Account Cr Particulars | Karan (Rs.) | Pragya (Rs.) | Particulars | Karan (Rs.) | Pragya (Rs.) |
To Pragya?s capital A/c | 8,000 | - | By Balance b/d | 16,00,000 | 24,00,000 |
To Balance c/d | 17,52,000 | 26,48,000 | By Revaluation A/c (Profit) | 1,60,000 | 2,40,000 |
| | | By Karan?s Capital A/c | - | 8,000 |
| 17,60,000 | 26,48,000 | | 17,60,000 | 26,48,000 |
Balance Sheet as at? Liabilities | | Amt (Rs.) | Assets | | Amt (Rs.) |
Capital A/cs | | | Bills Receivable | | 3,60,000 |
Karan | 17,52,000 | | Stock | | 16,00,000 |
Pragya | 26,48,000 | 44,00,000 | Machinery | 18,40,000 | |
Creditors | | 6,20,000 | (-) Depreciation | (2,00,000) | 16,40,000 |
Bills Payable | | 1,80,000 | Land and Building | 10,00,000 | |
| | | (+) Appreciation | 6,00,000 | 16,00,000 |
| | 52,00,000 | | | 52,00,000 |
Working Notes Sacrificing Ratio = Old Share ? new Share Karan\[\,=\,\frac{2}{5}-\frac{1}{2}=\frac{4-5}{10}=\left( \frac{1}{10} \right)\,\,\text{Gain}\] Pragya\[\,=\,\frac{3}{5}-\frac{1}{2}=\frac{6-5}{10}=\frac{1}{10}\]