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Madan, Dass and Param were partners sharing profits and losses in the ratio of 5 : 3 : 2. On 31st March, 2023, their Balance Sheet was as under:

Liabilities Assets

Sundry Creditors

Employees Provident Fund

General Reserve

Capital A/cs:

Madan

Dass

Param

26,500

3,500

20,000

1,00,000

50,000

40,000

Cash at Bank

Sundry Debtors

Stock

Fixed Assets

Goodwill

Advertisement Expenditure

20,000

30,000

55,000

1,15,000

15,000

5,000

  2,40,000   2,40,000

Dass retires on 1st April, 2023. For the purpose, the following adjustments were agreed upon:

(i) Goodwill of the firm is to be valued at 2 years’ purchase of the average profit of 3 completed years preceding the date of retirement. The profits for previous years ended 31st March were:

Year Profit (₹)
2019-20 45,000
2020-21 50,000
2021-22 55,000
2022-23 60,000

(ii) Fixed Assets were undervalued by ₹ 25,000.

(iii) Stock was overvalued by ₹ 5,000.

(iv) New profit-sharing ratio of Madan and Param will be 3 : 2.

(v) Dass be paid through amount brought in by Madan and Param in such a way as to make their capitals proportionate. Minimum Bank Balance is to be maintained at ₹ 10,000.

Prepare Revaluation Account, Capital Accounts of Partners and the Balance Sheet of Madan and Param.

Anurag Pathak Changed status to publish March 3, 2024
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