Question

The Balance Sheet of Sohan, Rohan, and Mohan who were sharing profits and losses in the ratio of 3 : 2 : 1 is as follows:

Balance Sheet as of 31st March 2019

Mr. Rohan died on 1st October 2019 and the following adjustments were made:

1. Goodwill of the firm is valued at ₹ 30,000. 

2. Land and Building and Machinery were found to be undervalued by 20%. 

3. Investments are valued at ₹ 60,000. 

4. Stock to be undervalued by ₹ 5,000 and a provision of 10% as debtors were required. 

5. Patents were valueless. 

6. Mr. Rohan was entitled to share in profits up to the date of death and it was decided that he may be allowed to retain his drawings as his share of profit. Rohan’s drawings till the date of death were ₹ 25,000. 

Prepare Partners’ Capital Accounts.

Answer 1

In the books of the Partnership firm

Partner’s Capital Account

Working Notes:

1.

Revaluation Account

2. Firm’s goodwill = ₹ 30,000. DistrIbute among partners in their profit and loss ratio 3 : 2 : 1.

3. Revised value of Land & Building = \(\frac{Book\,value}{(100-20)}\times100\)

= \(\frac{40,000}{80}\times100\)

= ₹ 50,000.

∴ Increase In the value of Land & Building = Revised value – Book value

= 50,000 – 40,000

= ₹ 10,000.

4. Revised value of Machinery = \(\frac{Book\,value}{(100-20)}\times100\)

= \(\frac{80,000}{80}\times100\)

= ₹ 1 ,00,000.

∴ Increase in the value of Machinery = 1,00,000 – 80,000 = ₹ 20,000.

5. Patents were valueless means it is a loss for the business.

6. Rohan’s share In profit is ₹ 25,000 and his drawings are ₹ 25,000. Rohan is allowed to retain his drawings as his share of profit. Means write ₹ 25,000 as drawings on the debit side and write ₹ 25,000 as Profit and Loss Suspense A/c on the Credit side of Partners’ Capital A/c.