Narang, Suri and Bajaj are Partners in a Firm Sharing Profits and Losses in Proportion of 1/2 , 1/6 and 1/3 respectively. The Balance Sheet on April 1, 2015

Narang, Suri and Bajaj are partners in a firm sharing profits and losses in proportion of 1/2 , 1/6 and 1/3 respectively. The Balance Sheet on April 1, 2015 was as follows:

Books of Suri, Narang and Bajaj

Balance Sheet as on April 1, 2015

Liabilities	Amount (Rs.)	Assets	Amount (Rs.)
Bills Payable	12,000	Freehold Premises	40,000
Sundry Creditors	18,000	Machinery	30,000
Reserves	12,000	Furniture	12,000
Capital Accounts:		Stock	22,000
Narang 30,000		Sundry Debtors 20,000
Suri 20,000		Less: Reserve for Bad Debt 1,000	19,000
Bajaj 28,000	88,000
		Cash	7,000
	1,30,000		1,30,000

Bajaj retires from the business and the partners agree to the following:
a) Freehold premises and stock are to be appreciated by 20% and 15% respectively.
b) Machinery and furniture are to be depreciated by 10% and 7% respectively.
c) Bad Debts reserve is to be increased to Rs 1,500.
d) Goodwill is valued at Rs 21,000 on Bajaj’s retirement.
e) The continuing partners have decided to adjust their capitals in their new profit sharing ratio after retirement of Bajaj. Surplus/deficit, if any, in their capital accounts will be adjusted through current accounts.
Prepare necessary ledger accounts and draw the Balance Sheet of the reconstituted firm.

Revaluation Account

Particulars	Amount (Rs.)	Particulars	Amount (Rs.)
To Machinery	3,000	By Freehold Properties	8,000
To Furniture	840	By Stock	3,300
To Reserve for Bad debts	500
To Partners Capitals:
Narang        3,480
Suri             1,160
Bajaj           2,320	6,960
	11,300		11,300

Partners’ Capital Account

Particulars	Narang	Suri	Bajaj	Particulars	Narang	Suri	Bajaj
To Bajaj’s Capital A/c	5,250	1,750		By Balance b/d	30,000	30,000	28,000
To Bajaj’s Loan			41,320	By Reserves	6,000	2,000	4,000
				By Revaluation (Profit)	3,480	1,160	2,320
To Balance c/d	34,230	31,410		By Narang’s Capital A/c			5,250
				By Suri’s Capital A/c			1,750
	39,480	33,160	41,320		39,480	33,160	41,320
To Suri’s Current A/c		15,000		By Balance b/d	34,230	31,410
				By Narang’s Current A/c	15,000
To Balance c/d	49,230	16,410
	49,230	31,410			49,230	31,410

Balance Sheet

as on April 01, 2007

Liabilities	Amount (Rs.)	Assets	Amount (Rs.)
To Bills Payable	12,000	By Free hold Premises	48,000
To Sundry Creditors	18,000	By Machinery	27,000
To Bajaj’s Loan	41,320	By Furniture	11,160
To Suri’s Current	15,000	By Stock	25,300
To PartnersCapital Account:		By Sundry Debtors	20,000
Narang 49,230		Less: Reserve for Bad Debt 1,500	18,500
Suri 16,410	65,640	By Cash	7,000
		Narang’s Current Account	15,000
	1,51,960		1,51,960

Working Notes:

1. Bajaj Share in Goodwill = Total Goodwill of the firm X Retiring Partner’s Share

= Rs 21,000 X `1/3`

= Rs 7,000

2. Gaining Ratio = New Ratio – Old Ratio

Narang's Gaining Share = `3/4`-`3/6` 

= `"9 - 6"/"12"` = `3/12`

Suri's Gaining Share = `1/4`-`1/6` 

= `"3 - 2"/"12"` = `1/12`

Gaining Ratio Between Narang and Suri is 3:1

3. Calculation for New Capitals of the existing partners.

Balance in Narang’s Capital	=	34,230
Balance in Suri’s Capital	=	31,410
Total Capital of the New firm after revaluation of assets and
liabilities and adjustment of  Goodwill and Reserves	=	Rs 65,640

Based on new profit sharing ratio of 3:1

Narang's Capital = 65,640 x `3/4` = Rs. 49,230

Suri's Capital = 65,640 x `1/4` = Rs. 16,410

NOTE: i. In the given Question Suri’s Capital is Rs 30,000 instead of Rs 20,000. ii. Due to insufficient balance in Bajaj’s Capital Account, the amount due to Bajaj is transferred to his Loan Account.

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