Page 73 - DEBKVOL-1

Chapter 4 Change in Profit-Sharing Ratio Among the Existing Partners 4.5
.
Illustration 2.

X, Y and Z are partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1. Their
Balance Sheet as at 31st March, 2018 was as follows:

Liabilities ` Assets `
Sundry Creditors 50,000 Cash at Bank 1,01,000
General Reserve 50,000 Sundry Debtors 1,00,000
Capital A/cs: Stock 2,10,000
X 3,00,000 Machinery 2,60,000
Y 3,00,000 Building 2,25,000
Z 2,00,000 8,00,000 Advertisement Suspense 4,000
(Deferred Revenue Expenditure)
9,00,000 9,00,000
Partners decided that with effect from 1st April, 2018 they would share profits and losses
equally. It was agreed that:
(i) Stock is to be valued at ` 2,00,000.
(ii) Value of Machinery is to be decreased by 10%.
(iii) A Provision for Doubtful Debts is to be made on Sundry Debtors @ 5%.
(iv) Building to be appreciated by ` 50,000.
(v) It was agreed that Z would carry out reconstituting the firm for which he will be paid
remuneration of ` 5,000.
Partners agreed that revised (changed) values of assets and liabilities are to be recorded in
the books. Pass necessary accounting entries and prepare Revaluation Account.

Solution: JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)

2018
April 1 Revaluation A/c ...Dr. 41,000
To Stock A/c 10,000
To Machinery A/c 26,000
To Provision for Doubtful Debts A/c 5,000
(Decrease in the value of assets and provision made for doubtful debts)
April 1 Building A/c ...Dr. 50,000
To Revaluation A/c 50,000
(Increase in the value of building)
April 1 Revaluation A/c ...Dr. 5,000
To Z’s Capital A/c 5,000
(Z’s remuneration for reconstituting the firm)
April 1 Revaluation A/c ...Dr. 4,000
To X’s Capital A/c 1,600
To Y’s Capital A/c 1,600
To Z’s Capital A/c 800
(Transfer of gain (profit) on revaluation to the
Capital Accounts of Partners in their old profit-sharing ratio)