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…

(a) Revaluation Account Particulars Amount (₹) Particulars Amount (₹) To Machinery A/c 7,500 By Land and Building A/c 36,000 To Furniture and Fixtures 5,000 By Stock 4,400 To Provision for doubtful debt 1,800 To Capital A/c (Revaluation Profit) A = 26,100 x 3/6 = 13,050 B= 26,100 x 2/6= 8,700 C = 26,100x 1/6= 4,350 26,100 40,400 40,400 Partners’ Capital Accounts Particulars A (₹) B (₹) C (₹) Particulars A (₹) B (₹) C (₹) To Bank A/c - C’s Executor’s 2,46,850 By Balance b/d 2,80,000 1,90,000 1,50,000 To C’s Capital A/c 30,000 10,000 – By General reserve 67,500 45,000 22,500 To Balance c/d 4,05,550 2,83,700 By A and B’s Capital A/c – – 40,000 By Revaluation A/c 13,050 8,700 4,350 By Joint Life Policy (WN.3) 75,000 50,000 25,000 By Profit and Loss suspense A/c (WN.1) 5,000 4,35,550 2,93,700 2,46,850 4,35,550 2,93,700 2,46,850 Balance Sheet of M/s ABC as at 30 th June, 2024 Liabilities Amount (₹) Assets Amount (₹) Capital accounts: Land and Building 2,76,000 A 4,05,550 Machinery 1,42,500 B 2,83,700 Stock 90,000 Furniture & fixtures 1,00,000 Trade payables 97,400 Trade Receivables 1,55,200 Less: Prov. for Doubtful Debt 7,500 1,47,700 Cash & bank (WN - 2) 25,450 Profit and Loss Suspense A/c 5,000 7,86,650 7,86,650 Working Note: 1. Calculation of goodwill and C’s share of profit (a) Average of last three year’s profits and losses Year ended on Profit/(loss) (₹) 31.3.2021 1,14,000 31.3.2022 1,22,000 31.3.2023 1,19,000 31.3.2024 1,25,000 4,80,000 Average profit (₹ 4,80,000/4) = 1,20,000 (b) Goodwill at 2 years’ purchase 1,20,000 x 2 = 2,40,000 Goodwill calculated at the time of death of partner C - 2,40,000 C’s Share in Goodwill (₹ 2,40,000/6 = 40,000) (c) C’s share of profits from the period 1.4.2024 to 30.06.2024 1,20,000 x 3/12 x 1/6 = 5,000 Calculation of Gaining Ratio Partner Old Share New Share Gain A 3/6 5/8 6/48 B 2/6 3/8 2/48 C 1/6 – – Adjusting entry: A’s Capital Account Dr.30,000 B’s Capital Account Dr.10,000 To C’s Capital Account - 40,000 (Adjustment for goodwill on the death of C on the basis of gaining ratio) 2. Bank A/c Particulars Amount (₹) Particulars Amount (₹) To Balance B/d 32,300 By C’s executors A/c 2,46,850 To Bank 2,40,000 By Balance c/d (bal fig) 25,450 2,72,300 2,72,300 Alternatively, the balance of Bank A/c can also be ascertained in statement form. 3. The Joint life policy is calculated on the basis of 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 a partner. Hence the calculations will be - 2,40,000-90,000 (Balance Sheet value) = 1,50,000 (divided in profit sharing ratio between the partners.) Alternatively, Joint life policy can also be routed through revaluation Account. In that case the solution shall be as follows: Revaluation Account Particulars Amount (₹) Particulars Amount (₹) To Machinery A/c 7,500 By Land and Building A/c 36,000 To Furniture and Fixtures 5,000 By Stock 4,400 To Provision for doubtful debt 1,800 By Joint Life Policy (WN.3) 1,50,000 To Capital A/c (Revaluation Profit) A = 1,76,100 x 3/6 = 88,050 B = 1,76,100 x 2/6 = 58,700 C = 1,76,100 x 1/6 = 29,350 1,76,100 1,90,400 1,90,400 Partners’ Capital Accounts Particulars A (₹) B (₹) C (₹) Particulars A (₹) B (₹) C (₹) To Bank A/c - C’s Executor’s 2,46,850 By Balance b/d 2,80,000 1,90,000 1,50,000 To C’s Capital A/c 30,000 10,000 – By General reserve 67,500 45,000 22,500 To Balance c/d 4,05,550 2,83,700 By A and B’s Capital A/c – – 40,000 By Revaluation A/c 88,050 58,700 29,350 By Profit and Loss Suspense A/c (WN.1) 5,000 4,35,550 2,93,700 2,46,850 4,35,550 2,93,700 2,46,850 Balance Sheet of M/s ABC as at 30 th June, 2024 Liabilities Amount (₹) Assets Amount (₹) Capital accounts: Land and Building 2,76,000 A 4,05,550 Machinery 1,42,500 B 2,83,700 Stock 90,000 Furniture & fixtures 1,00,000 Trade payables 97,400 Trade Receivables 1,55,200 Less: Prov. for Doubtful Debt 7,500 1,47,700 Cash & bank (WN - 2) 25,450 Profit and Loss Suspense A/c 5,000 7,86,650 7,86,650 Working Note: 1. Calculation of goodwill and C’s share of profit (a) Average of last three year’s profits and losses Year ended on Profit/(loss) (₹) 31.3.2021 1,14,000 31.3.2022 1,22,000 31.3.2023 1,19,000 31.3.2024 1,25,000 4,80,000 Average profit (₹ 4,80,000/4) = 1,20,000 (b) Goodwill at 2 years’ purchase 1,20,000 x 2 = 2,40,000 Goodwill calculated at the time of death of partner C - 2,40,000 C’s Share in Goodwill (₹ 2,40,000/6 = 40,000) (c) C’s share of profits from the period 1.4.2024 to 30.06.2024 1,20,000 x 3/12 x 1/6 = 5,000 Calculation of Gaining Ratio Partner Old Share New Share Gain A 3/6 5/8 6/48 B 2/6 3/8 2/48 C 1/6 – – Adjusting entry: A’s Capital Account Dr.30,000 B’s Capital Account Dr.10,000 To C’s Capital Account - 40,000 (Adjustment for goodwill on the death of C on the basis of gaining ratio) 2. Bank A/c Particulars Amount (₹) Particulars Amount (₹) To Balance B/d 32,300 By C’s executors A/c 2,46,850 To Bank 2,40,000 By Balance c/d (bal . fig) 25,450 2,72,300 2,72,300 Alternatively, the balance of Bank A/c can also be ascertained in statement form. 3. Joint Life Policy A/c Particulars Amount (₹) Particulars Amount (₹) To Balance b/d 90,000 By Bank A/c 2,40,000 To Revaluation A/c 1,50,000 2,40,000 2,40,000