Prepare Revaluation Account, Partners' Capital Accounts and the new Balance Sheet of A, B, and C.

Steps to Solve

1. Calculate Goodwill
   The average profits over the last four years are given as ₹20,000. The goodwill is valued using 3 years' purchase:

   $$ \text{Goodwill} = \text{Average Profits} \times \text{Number of Years} = ₹20,000 \times 3 = ₹60,000 $$

2. Determine C's Share of Goodwill
   C is entitled to a 1/4 share of the profits. Therefore, C's share of goodwill is:

   $$ \text{C's Share of Goodwill} = \frac{1}{4} \times ₹60,000 = ₹15,000 $$

3. Calculate Sacrificing Ratios
   The sacrificing ratio for A and B can be calculated as follows:

   • A's new share = $ \frac{5}{8} $ (old share = $ \frac{5}{8} $)
   • B's new share = $ \frac{3}{8} $ (old share = $ \frac{3}{8} $)
   • A sacrifices $ \frac{5}{8} - \frac{5}{12} = \frac{5}{24} $
   • B sacrifices $ \frac{3}{8} - \frac{3}{12} = \frac{3}{24} $

   Therefore, the sacrificing ratio of A to B is $ 5:3 $.

4. Prepare the Revaluation Account
   Adjust the asset values based on new assessments. Here’s how the items will be adjusted:

   • Stock decreased by ₹1,000
   • Furniture increased by ₹12,000

   The Revaluation Account will have:

   $$ \text{Dr} \hspace{10pt} \text{To Stock A/c} \hspace{10pt} 1,000 $$ $$ \text{Dr} \hspace{10pt} \text{To Furniture A/c} \hspace{10pt} 12,000 $$

5. Update Partners' Capital Accounts
   After recording goodwill and revaluations, adjust the partners’ capital accounts. Each partner’s capital will be adjusted based on the sacrificial and goodwill calculations.