Partnership and LLP AccountsQ- 19 | Partnership and LLP AccountsQuestion 4875 of 108
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A, B and C are partners sharing profits & losses in the ratio of 3:2:1. The following is the Balance Sheet of their firm M/s. ABC Trading Corpo- ration as on 31 March, 2024: Balance Sheet as on 31st March 2024 Liabilities Amount Assets Amount Capital Accounts: A B C General Reserve Trade Payables 2,80,000 1,90,000 1,50,000 1,35,000 97,400 Land & Building Machinery Furniture & Fixtures Trade Receivables 1,55,200 Less: Provision for Doubtful debts 5,700 Stock Joint Life Policy Cash & Bank 2,40,000 1,50,000 1,05,000 1,49,500 85,600 90,000 32,300 8,52,400 8,52,400 C died on 30th June, 2024. As per Partnership deed the following arrangement was to be put into effect: i. Goodwill of firm was to be valued at 2 years' purchase of average profit of four years to 31st March preceding the death of partner. The profits were as under: 31st March, 2021 1,14,000 31st March, 2022 1,22,000 31st March. 2023 1,19,000 31st March, 2024 1,25,000 Goodwill Account will not be opened in the books of account and C was to be credited with his share. The new profit-sharing ratio of A and B will be 5:3. ii. Profit till the date of death to be ascertained on the basis of average profit of previous four years and share of C was to be credited to his capital account. iii. Assets were to be revalued: Land & Building was appreciated by 15%, Machinery to be depreciated by 5%, Furniture & Fixtures to be revalued at ₹ 1,00,000 and the value of Stock to be taken at ₹ 90,000. iv. Provision for doubtful debts to be increased by ₹ 1,800. v. A sum of 2,40,000 was received from insurance company against Joint Life Policy. vi. Amount due to C was paid to the executors. You are required to prepare Revaluation Account, Partners Capital Accounts and Balance Sheet as on 30th June, 2024, along with necessary workings. [Jan. 2025, 15 Marks]

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Detailed Solution & Explanation

Revaluation Account Particulars Amount Particulars Amount To Machinery To Furniture & Fixtures To Provisions for DD To Profit on Revaluation: A 3/6 B 2/6 C 1/6 7,500 5,000 1,800 13,050 8,700 4,350 By Land & Building By Stock 36,000 4,400 40,400 40,400 Partners Capital A/ c Particulars A B C Particulars A B C To C's capital 30,000 10,000 By Balance b/d 2,80, 000 1,90, 000 1,50, 000 To Bank 2,46, 850 By General Reserve 67, 500 45, 000 22, 500 To Balance c/d 4,05, 550 2,83, 700 By Joint life Policy 75, 000 50, 000 25, 000 By Revaluation 13, 050 8,700 4,350 By A Capital 30,000 By B Capital 10,000 By Profit & Loss [Suspense] 5,000 Total 4,35, 550 2,93, 700 2,46, 850 Total 4,35, 550 2,93, 700 2,46, 850 Cash & Bank Account Particulars Amount Particulars Amount To Balance B/ d To Bank 32,300 2,40,000 By C' Capital By Balance c/ d 2,46,850 25,450 2,72,300 2,72,300 Balance Sheet as on Liabilities Amount Assets Amount Capital A/ c:- A B Trade payables 4,05,550 2,83,700 97,400 Land & Building [2,40,000 +36,000] Machinery [ 1,50,000 - 7,500] Furniture Trade Receivable 1,55,200 Less: Provision (7,500) Bank Stock Profit and loss Suspense a/c 2,76,000 1,42,500 1,00,000 1,47,700 25,450 90,000 5,00 7,86,650 7,86,750 Working Notes:- 1. Goodwill valuation: 2020-21 - 1,14,000 2021-22 - 1,22,000 2022-23 - 1,19,000 2023-24 - 1,25,000 Total = (4,80,000) Average = 4,80,000 / 4 = 1,20,000 Goodwill = 1,20,000 x 2 = 2,40,000 2. Journal entry for adjustment of goodwill: A Capital A/c 30,000 B Capital A/c 10,000 To C Capital A/c [ 2,40,000 X 1 /6] 40,000 Gaining Ratio :- New Old Α = 5/8 – 3/6 = 3 /24 B = 3/8 – 2/6 = 1/24 GR = 3:1 3. Calculation of Share in Profit till the date of death = 1,20,000 x 3/12 x 1/6 = 5,000 4. The joint life policy in this question is based on the surrender value method -where in the amount shown in the balance sheet shall be deducted from the JLP proceeds received from insurance co., on the death of partner ie. 2,40,000 - 90,000 = 1,50,000. UNIT – 1 & 2 (Introduction to Company Accounts & Issue, Forfeiture & Reissue of shares) DESCRIPTIVE QUESTIONS

About This Chapter: Partnership & Companies

Paper

Paper 1: Accounting

Weightage

15-20%

Key Topics

Admission, Retirement, Death, Shares, Debentures

This chapter covers Admission, Retirement, Death, Shares, Debentures and is part of Paper 1: Accounting in the CA Foundation exam.

View Official ICAI Syllabus

Exam Strategy Tip

This topic carries 15-20% weightage. Focus on understanding core concepts rather than memorizing.

Key Concepts to Understand

Partnership Deed

A written agreement between partners detailing the terms and conditions of the partnership (profit sharing ratio, interest on capital, etc.).

Balance Sheet

A statement showing the financial position of a business at a particular date, listing all assets on one side and all liabilities and capital on the other side. It is not an account but a statement.

Goodwill

An intangible asset representing the good reputation, brand name, customer loyalty, and earning capacity of a business over and above its net tangible assets. It arises in accounting during partnership changes or business acquisitions.

Related Comparison Tables

Revenue Expenditure vs Capital Expenditure: AccountsTrading Account vs P&L Account: Final Accounts ExplainedSLM vs WDV Depreciation: CA Foundation Accounts

More Questions from Partnership and LLP Accounts

Following are the details of Assets and Liabilities of Mr. Sarthak for the year ended 31 March, 2023 and 31 March, 2024: 31.03.2023 31.03.2024 Assets Buildings Furniture Inventory Sundry debtors Cash at bank Cash in hand Liabilities: Loans Sundry Creditors 2,00,000 75,000 1,05,000 68,000 72,500 2,400 1,50,000 58,400 ? ? 1,95,000 94,000 86,800 3,800 1,25,000 79,500 It was decided to depreciate Building by 5% p.a. and Furniture by 10% p.a. On 1st June, 2023 an additional capital of 40,000 was brought in the business. Proprietor has withdrawn @ ₹ 2,500 p.m. for meeting the family expenses. Prepare Statement of Affairs as on 31 March, 2023 and 31 March, 2024. Find the profit or loss earned by Mr. Sarthak for the year ended 31st March, 2024. [Jan. 2025, 5 Marks]

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