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7.10 Double Entry Book Keeping—CBSE XII
Illustration 6.

The Balance Sheet of M, N and O who are sharing profits and losses in the ratio of 5 : 3 : 2
respectively was as follows on 31st March, 2018:
Liabilities ` Assets `
Sundry Creditors 12,000 Goodwill 10,000
Employees’ Provident Fund 6,000 Patents 52,000
Investment Fluctuation Reserve 7,000 Machinery 62,400
Workmen Compensation Reserve 7,000 Investment 6,000
Capital A/cs: Stock 20,000
M 1,35,000 Sundry Debtors 24,000
N 95,000 Less: Provision for Doubtful Debts 4,000 20,000
O 74,000 3,04,000 Loan to O 1,000
Cash at Bank 600
Advertisement Expenditure 2,000
Profit and Loss A/c 1,50,000
O’s Drawings 12,000
3,36,000 3,36,000
O died on 1st April, 2018 and M and N decide to share future profits and losses in the ratio of
3 : 5. It was agreed that:
(i) Goodwill of the firm be valued at 2½ years’ purchase of average of four completed years’
profits which were: 2014–15—` 2,02,000; 2015–16—` 28,000; 2016–17—` 32,000.
(ii) • Patents are undervalued by ` 14,000 and machinery overvalued by ` 13,600.
• All debtors are good. A debtor whose dues of ` 400 were written off as bad debts paid
50% in full settlement.
• Unaccounted Accrued Income of ` 2,200 is to be accounted.
• ` 1,000 included in Sundry Creditors is not likely to arise.
• A claim of ` 1,000 on account of Workmen Compensation to be provided for.
(iii) Investment be sold for ` 8,200 and a sum of ` 11,200 be paid to executors of O immediately.
The balance to be paid in four equal half-yearly instalments with interest @ 10% p.a. at
half year rest.
Show Revaluation Account, Capital Account of Partners and the Balance Sheet of the new firm.
Note: Firm enjoys bank overdraft facility.
Solution:
Dr. REVALUATION ACCOUNT Cr.
Particulars ` Particulars `
To Machinery A/c 13,600 By Patents A/c 14,000
To Gain (Profit) transferred to: By Provision for Doubtful Debts A/c 4,000
M’s Capital A/c 5,000 By Bad Debts Recovered A/c 200
N’s Capital A/c 3,000 By Accrued Income A/c 2,200
O’s Capital A/c 2,000 10,000 By Sundry Creditors A/c 1,000
By Investment A/c 2,200
23,600 23,600