Question

A, B and C are partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1 .Their Balance Sheet as at 31st March, 2018 is:

Liabilities		Amount (₹)	Assets		Amount (₹)
Creditors		30,000	Cash in Hand		18,000
Bills Payable		16,000	Debtors	25,000
General Reserve		12,000	Less: Provision for D. Debts	3,000	22,000
Capital A/cs:			Stock		18,000
A	40,000		Furniture		30,000
B	40,000		Machinery		70,000
C	30,000	1,10,000	Goodwill		10,000
		1,68,000			1,68,000

Z is admitted as a new partner on 1st April, 2018 on the following terms:
(a) Provision for doubtful debts is to be maintained at 5% on Debtors.
(b) Outstanding rent amounted to ₹ 15,000.
(c) An accrued income of ₹ 4,500 does not appear in the books of the firm . It is now to be recorded.
(d) X takes over the Investments at an agreed value of ₹ 18,000.
(e) New Profit-sharing Ratio of partners will be 4 : 3 : 2 .
(f) Z will bring in ₹ 60,000 as his capital by cheque.
(g) Z is to pay an amount equal to his share in firm's goodwill valued at twice the average profits of the last three years which were ₹ 90,000 ; ₹ 78,000 and ₹ 75,000 respectively.
(h) Half of the amount of the goodwill is to be withdrawn by X and Y .
You are required to pass journal entries , prepare Revaluation Account , Partners' Capital and Current Accounts and the Balance Sheet of the new firm.

B retires on 1st April, 2018 on the following terms :
(a) Provision for Doubtful Debts be raised by ₹ 1,000.
(b) Stock to be depreciated by 10% and Furniture by 5% .
(c) Their is an outstanding claim of damages of ₹ 1,100 and it is to be provided for.
(d) Creditors will be written back by ₹ 6,000.
(e) Goodwill of the firm is valued at ₹ 22,000.
(f) Bis paid in full with the cash brought in by A and C in such a manner that their capitals are in proportion to their profit-sharing ratio and Cash in Hand remains at ₹ 10,000.
Prepare Revaluation Account , Partners' Capital Accounts and the Balance Sheet of A and C .

Answer 1

Revaluation Account
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Provision for Doubtful Debts		1,000	Creditors	6,000
Stock (18,000 × 10%)		1,800
Furniture (30,000 × 5%)		1,500
Outstanding Claim for Damages		1,100
Profit transferred to:
A’s Capital A/c	300
B’s Capital A/c	200
C’s Capital A/c	100	600
		6,000		6,000

Partners’ Capital Accounts
Dr.							Cr.
Particulars	A	B	C	Particulars	A	B	C
B’s Capital A/c (Goodwill)	5,500		1,833	Balance b/d	40,000	40,000	30,000
Goodwill A/c	5,000	3,333	1,667	Revaluation A/c	300	200	100
Cash A/c		48,200		A’s Capital A/c (Goodwill)		5,500
Balance c/d	35,800		28,600	C’s Capital A/c (Goodwill)		1,833
				General Reserve	6,000	4,000	2,000
	46,300	51,533	32,100		46,300	51,533	32,100
Cash A/c			2,450	Balance b/d	35,800		28,600
Balance c/d (WN 3)	78,450		26,150	Cash A/c	42,650
	78,450		28,600		78,450		28,600

Cash Account
Dr.			Cr.
Particulars	Amount Rs	Particulars	Amount Rs
Balance b/d	18,000	B’s Capital A/c	48,200
A’s Capital A/c	42,650	C’s Capital A/c	2,450
		Balance c/d	10,000
	60,650		60,650

Balance Sheet
as on April 01,2018 (after B’s Retirement)
Liabilities		Amount Rs	Assets		Amount Rs
Creditors		24,000	Cash in Hand		10,000
Bills Payable		16,000	Debtors	25,000
Outstanding Claim for Damages		1,100	Less: Provision for Doubtful Debts	(4,000)	21,000
Capital A/cs:			Stock		16,200
A	78,450		Furniture		28,500
C	26,150	1,04,600	Machinery		70,000
		1,45,700			1,45,700

Working Notes:

WN 1 Calculation of Profit Sharing Ratio

Old Ratio (A, B and C) = 3 : 2 : 1

B retires from the firm.

∴ New Ratio (A and C) = 3 : 1 and

Gaining Ratio = 3 : 1

WN 2 Adjustment of Goodwill

Goodwill of the firm = Rs 22,000

B’s Share of Goodwill =

This share of goodwill is to be distributed between A and C in their gaining ratio (i.e. 3 : 1).



WN 3 Adjustment of Partners’ Capital after B’s Retirement

Amount to be brought in by A and C = Cash to be paid to B + Minimum Balance of Cash − Existing Balance of Cash

= 48,200 + 10,000 − 18,000 = Rs 40,200

Combined Capital of A and C after of all adjustments = 35,800 + 28,600 = Rs 64,400

∴ Total Capital of the Firm = Amount to be brought in by A and C + Combined Capital of A and C

= 40,200 + 64,400 = 1,04,600