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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 Payable12,000Freehold Premises40,000
Sundry Creditors18,000Machinery30,000
Reserves12,000Furniture12,000
Capital Accounts: Stock22,000
Narang 30,000 Sundry Debtors
20,000
Suri 20,000  Less: Reserve
for Bad Debt
1,000		19,000
Bajaj 28,00088,000
   Cash7,000
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 Machinery3,000By Freehold Properties8,000
To Furniture840By Stock3,300
To Reserve for Bad debts500  
To Partners Capitals:   
Narang        3,480  
Suri             1,160  
Bajaj           2,3206,960 
 11,300  11,300
    
Partners’ Capital Account
ParticularsNarangSuriBajajParticularsNarangSuriBajaj
To Bajaj’s Capital A/c5,2501,750 By Balance b/d30,00030,00028,000
To Bajaj’s Loan  41,320By Reserves6,0002,0004,000
    By Revaluation (Profit)3,4801,1602,320
To Balance c/d34,23031,410 By Narang’s Capital A/c  5,250
    By Suri’s Capital A/c  1,750
 39,48033,16041,320 39,48033,16041,320
        
To Suri’s Current A/c 15,000 By Balance b/d34,23031,410 
    By Narang’s Current A/c15,000  
To Balance c/d49,23016,410     
 49,23031,410  49,23031,410 
        
Balance Sheet
as on April 01, 2007

Liabilities
Amount
(Rs.)
Assets
Amount
(Rs.)
To Bills Payable12,000By Free hold Premises48,000
To Sundry Creditors18,000By Machinery 27,000
To Bajaj’s Loan41,320By Furniture 11,160
To Suri’s Current15,000By Stock25,300
To PartnersCapital Account: By Sundry Debtors20,000
Narang 49,230 Less: Reserve for Bad Debt 1,50018,500
Suri 16,41065,640By Cash7,000
   Narang’s Current Account15,000
 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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