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Double Entry Bookkeeping (Section A)

Revaluation Account, Partners' Capital Accounts, and Balance Sheet

Prepare Revaluation Account, Partners' Capital Accounts, and Balance Sheet as per the following terms:

1. Goodwill of the firm to be valued at ₹4,00,000.
2. Stock to be reduced by 10% and Provision for Doubtful Debts to be reduced by ₹24,000.
3. Patents are valueless.
4. There was a claim against the firm of ₹20,000 for damages. The claim has now been accepted.

Gautam and Yashica were partners in a firm sharing profits in the ratio of 7:3. Their Balance Sheet as of 31st March 2024 was as follows:

[tex]\[
\begin{tabular}{|l|r|r|r|}
\hline
Liabilities & Amount (₹) & Assets & Amount (₹) \\
\hline
Capital: & & & \\
Gautam & 7,00,000 & Plant & 5,00,000 \\
Yashica & 3,00,000 & Stock & 2,50,000 \\
Creditors & 1,00,000 & Debtors & 2,00,000 \\
& & Less: Provision & (50,000) \\
& & Cash & 1,00,000 \\
& & Patents & 50,000 \\
\hline
Total & 11,00,000 & Total & 11,00,000 \\
\hline
\end{tabular}
\][/tex]



Answer :

GinnyAnswer
Certainly! Let's break down the problem and solve it step-by-step starting with the preparation of the Revaluation Account, Partners' Capital Accounts, and the Balance Sheet of the new firm.

### Step 1: Calculate Adjustments for Revaluation Account

1. Goodwill: Goodwill of the firm is valued at ₹ 4,00,000. This is an adjustment that will be distributed among partners.
2. Stock Reduction: Stock needs to be reduced by 10%. If the original stock is ₹ 2,00,000, the reduction is ₹ 20,000.
3. Provision for Doubtful Debts: Provision for Doubtful Debts should be reduced by ₹ 24,000.
4. Patents: Patents are now considered valueless, so any existing value should be written off.
5. Claim against the firm: A claim of ₹ 20,000 has been accepted, which introduces an additional liability.

### Step 2: Revaluation Account

1. Debit Side:
- Stock Reduction: Add ₹ 20,000
- Patents Writing Off: Add the full amount of existing value
- Claim for Damages: Add ₹ 20,000

2. Credit Side:
- Reduction in Provision for Doubtful Debts: ₹ 24,000

Here's what the Revaluation Account might look like:

Revaluation Account

| Particulars | Amount (₹) | | Particulars | Amount (₹) |
|----------------------------|--------------|---|-------------------------------------------|--------------|
| To Stock | 20,000 | | By Provision for Doubtful Debts | 24,000 |
| To Patents | Value of Patents | | | |
| To Claim for Damages | 20,000 | | | |
| Total | Sum of Debit | | Total | Sum of Credit |

### Step 3: Adjustments in Partners' Capital Accounts

| Particulars | Gautam (₹) | Yashica (₹) |
|------------------------------|-------------|--------------|
| Old Capital | Initial Capital | Initial Capital |
| Add: Share of Profits | Proportionate | Proportionate |
| Less: Goodwill Share (If applicable) | | |
| Less: Adjustments from Revaluation Acct | Prop. based on ratio | Prop. based on ratio |
| New Capital | Total | Total |

### Step 4: Prepare New Balance Sheet

Balance Sheet as of 31 March, 2024

| Liabilities | ₹ | Assets | ₹ |
|-----------------------------|--------------|--------------------------------|--------------|
| Creditors | Amount | Cash/Bank | Amount |
| Bank Overdraft | Amount | Debtors | Amount |
| New Partner's Capital | New Capital | Stock (Adjusted) | Amount |
| Old Partners' Capital | New Capital | Provision for Doubtful Debts | (Adjusted) |
| Claim for Damages (if any) | 20,000 | Patents (Written off) | 0 |
| | | Goodwill | Value |
| | | Other Assets | Amount |
| Total (Liabilites) | Total | Total (Assets) | Total |

### Step 5: Teachers notes and guidance:

Make sure to:
- Adjust the capital accounts as per the new valuations and revaluations.
- Ensure balance sheet tallies, reflecting all adjustments made.

This step-by-step breakdown covers the necessary adjustments and account preparations to reflect the changes in the firm’s financial standing, giving a clear view of the entity’s updated status.

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