Question 30 of 38intermediate🔧 ApplyNumerical6 marks

Himanshu, Gagan and Naman are partners sharing profits and losses in the ratio of 3:2:1. On March 31, 2019, Naman retires. The various assets and liabilities of the firm on the date were as follows: Cash Rs. 10,000, Building Rs. 1,00,000, Plant and Machinery Rs. 40,000, Stock Rs. 20,000, Debtors Rs. 20,000 and Investments Rs. 30,000. The following was agreed upon between the partners on Naman’s retirement: (i) Building to be appreciated by 20%. (ii) Plant and Machinery to be depreciated by 10%. (iii) A provision of 5% on debtors to be created for bad and doubtful debts. (iv) Stock was to be valued at Rs. 18,000 and Investment at Rs. 35,000. Record the necessary journal entries to the above effect and prepare the revaluation account.

Correct Answer

(Journal Entries) 1. Building A/c Dr. Rs. 20,000 To Revaluation A/c Rs. 20,000 (Being Building appreciated by 20%)

  1. Revaluation A/c Dr. Rs. 4,000 To Plant and Machinery A/c Rs. 4,000 (Being Plant and Machinery depreciated by 10%)

  2. Revaluation A/c Dr. Rs. 1,000 To Provision for Bad Debts A/c Rs. 1,000 (Being provision created at 5% on Debtors)

  3. Revaluation A/c Dr. Rs. 2,000 To Stock A/c Rs. 2,000 (Being Stock revalued at Rs. 18,000)

  4. Investment A/c Dr. Rs. 5,000 To Revaluation A/c Rs. 5,000 (Being Investment revalued at Rs. 35,000)

  5. Revaluation A/c Dr. Rs. 18,000 To Himanshu's Capital A/c Rs. 9,000 To Gagan's Capital A/c Rs. 6,000 To Naman's Capital A/c Rs. 3,000 (Being profit on revaluation transferred to partners' capital accounts)

(Revaluation Account) REVALUATION ACCOUNT

Dr. Side:

  • Plant and Machinery: Rs. 4,000
  • Provision for Bad Debts: Rs. 1,000
  • Stock: Rs. 2,000
  • Profit transferred to: Himanshu (3/6): Rs. 9,000 Gagan (2/6): Rs. 6,000 Naman (1/6): Rs. 3,000
  • Total: Rs. 25,000

Cr. Side:

  • Building: Rs. 20,000
  • Investment: Rs. 5,000
  • Total: Rs. 25,000
Exercise: Questions for Practice | Q: 3 | (Page 42)
For More Understanding

Explanation

This question tests the student's understanding of revaluation of assets and liabilities at the time of partner retirement. The revaluation account records all changes in asset/liability values, and the resulting profit/loss is distributed among all partners (including the retiring partner) in their old profit sharing ratio.

Solution Steps

  1. Step 1: Calculate Building appreciation = 20% of Rs. 1,00,000 = Rs. 20,000 (Gain)

  2. Step 2: Calculate Plant and Machinery depreciation = 10% of Rs. 40,000 = Rs. 4,000 (Loss)

  3. Step 3: Calculate Provision for Bad Debts = 5% of Rs. 20,000 = Rs. 1,000 (Loss)

  4. Step 4: Calculate Stock decrease = Rs. 20,000 - Rs. 18,000 = Rs. 2,000 (Loss)

  5. Step 5: Calculate Investment increase = Rs. 35,000 - Rs. 30,000 = Rs. 5,000 (Gain)

  6. Step 6: Total Gains = Rs. 20,000 + Rs. 5,000 = Rs. 25,000

  7. Step 7: Total Losses = Rs. 4,000 + Rs. 1,000 + Rs. 2,000 = Rs. 7,000

  8. Step 8: Net Profit on Revaluation = Rs. 25,000 - Rs. 7,000 = Rs. 18,000

  9. Step 9: Distribute profit in ratio 3:2:1 - Himanshu: Rs. 9,000, Gagan: Rs. 6,000, Naman: Rs. 3,000

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