Question

Radha, Sheela and Meena were in partnership sharing profits and losses in the proportion of 3:2:1. On April 1, 2017, Sheela retires from the firm. On that date, their Balance Sheet was as follows:

Liabilities		Amount Rs	Assets	Amount Rs
Trade Creditors		3,000	Cash-in-Hand	1,500
Bills Payable		4,500	Cash at Bank	7,500
Expenses Owing		4,500	Debtors	15,000
General Reserve		13,500	Stock	12,000
Capitals:			Factory Premises	22,500
Radha	15,000		Machinery	8,000
Sheela	15,000		Losse Tools	4,000
Meena	15,000	45,000
		70,500		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 are to be valued at 10% less than their book value.

d) Factory premises are to be revalued at Rs 24,300.

Prepare:

1. Revaluation account

2. Partner’s capital accounts and

3. Balance sheet of the firm after retirement of Sheela.

Answer 1

Books of Radha and Meena Revaluation Account
Dr.			Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Machinery		800	Expenses Owing	750
Loose Tools		400	Factory Premises	1,800
Profit transferred to Capital Account:
Meena	675
Radha	450
Sheela	225	1,350
		2,550		2,550

Parters’ Capital Account
Dr.				Cr.
Particulars	Radha	Sheela	Meena		Particulars	Radha	Sheela	Meena
Sheela’s Capital A/c	3,375		1,125		Balance b/d	15,000	15,000	15,000
Sheela’s Loan A/c		24,450			General Reserve	6,750	4,500	2,250
Balance c/d	19,050		16,350		Revaluation (Profit)	675	450	225
					Radha’s Capital A/c		3,375
					Meena’s Capital A/c		1,125
	22,425	24,450	17,475			22,425	24,450	17,475

Balance Sheet as on April 01, 2017
Liabilities		Amount Rs	Assets		Amount Rs
Trade Creditors		3,000	Cash in Hand		1,500
Bills Payable		4,500	Cash at Bank		7,500
Expenses Owing		3,750	Debtors		15,000
Sheela’s Loan		24,450	Stock		12,000
			Factory Premises		24,300
Capitals:			Machinery	8,000
Radha	19,050		Less: 10%	(800)	7,200
Meena	16,350	35,400	Loose Tools	4,000
			Less: 10%	(400)	3,600
		71,100			71,100

Working Notes:

1) Sheela’s share of goodwill

Total goodwill of the firm × Retiring Partner’s share =$13,500\times \frac{2}{6}=4,500$

2) Gaining Ratio = New Ratio − Old Ratio

Radha’s Share

Meena’s Shares

Gaining Ratio between Radha and Meena = 6 : 2 or 3 : 1