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\[\,=\,\frac{3}{5}-\frac{1}{2}=\frac{6-5}{10}=\frac{1}{10}\]