Comprehension Passage
Radha, Sheela, and Meena were in partnership sharing profits and losses in the proportion of 3:2:1. On April 1, 2019, Sheela retires from the firm. On that date, their Balance Sheet was as follows:
Balance Sheet as on April 1, 2019
| Liabilities | Amount (Rs.) |
|---|---|
| Trade Creditors | 3,000 |
| Bills Payable | 4,500 |
| Expenses Owing | 4,500 |
| General Reserve | 13,500 |
| Capitals: | |
| Radha | 15,000 |
| Sheela | 15,000 |
| Meena | 15,000 |
| Total | 70,500 |
| Assets | Amount (Rs.) |
|---|---|
| Cash-in-Hand | 1,500 |
| Cash at Bank | 7,500 |
| Debtors | 15,000 |
| Stock | 12,000 |
| Factory Premises | 22,500 |
| Machinery | 8,000 |
| Loose Tools | 4,000 |
| Total | 70,500 |
The terms were:
(a) Goodwill of the firm was valued at Rs. 13,500.
(b) Expenses owing to be brought down to Rs. 3,750.
(c) Machinery and Loose Tools to be valued at 10% less than their book value.
(d) Factory premises are to be revalued at Rs. 24,300.
The reduction in the expenses owing account to Rs. 3,750 suggests which of the following adjustments in the final balance sheet?
1
Expenses owing is written off as an expense in the current year’s profit and loss account
2
The reduction in expenses owing is credited to the partners' capital accounts
3
The reduction is recorded as a gain and credited to the profit and loss account
4
The reduction is adjusted in the bank account