Question

A, B and C are partners sharing profits and losses in the ratio of 4 : 3 : 3 respectively. Their Balance Sheet as at 31st March, 2018 is:

Liabilities		Amount (₹)	Assets		Amount (₹)
Creditors		7,000	Land and Building		36,000
Bills Payable		3,000	Pland and Machinery		28,000
Reserves		20,000	Electronic Typewriter		8,000
			Stock		20,000
Capital A/cs:			Sundry Debtors	14,000
A	32,000		Less: Provision for D. Debts	2,000	12,000
B	24,000		Bank		2,000
C	20,000	76,000
		1,06,000			1,06,000

On 1st April, 2018, B retires from the firm on the following terms:
(a) Goodwill of the firm is to be valued at ₹ 14,000.
(b) Stock, Land and Building are to be appreciated by 10%.
(c) Plant and Machinery and Electronic Typewriter are to be depreciated by 10%.
(d) Sundry Debtors are considered to be good.
(e) There is a liability of ₹ 2,000 for the payment of outstanding salary to the employee of the firm . This liability has not been shown in the above Balance Sheet but the same is to be recorded now .
(f) Amount payable to B is to be transferred to his Loan Account.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of A and C after B's retirement.

Answer 1

Revaluation Account
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Plant and Machinery (28,000 × 10%)		2,800	Stock (20,000 × 10%)	2,000
Electronic Typewriter (8,000 × 10%)		800	Land and Building (36,000 × 10%)	3,600
Outstanding Salary		2,000	Provision for Doubtful Debts	2,000
Profit transferred to:
A’s Capital A/c	800
B’s Capital A/c	600
C’s Capital A/c	600	2,000
		7,600		7,600

Partners’ Capital Accounts
Dr.							Cr.
Particulars	A	B	C	Particulars	A	B	C
B’s Capital A/c	2,400		1,800	Balance b/d	32,000	24,000	20,000
				Reserves	8,000	6,000	6,000
B’s Loan A/c		34,800		Revaluation A/c	800	600	600
				A’s Capital A/c		2,400
Balance c/d	38,400		24,800	C’s Capital A/c		1,800
	40,800	34,800	26,600		40,800	34,800	26,600

Balance Sheet
an on April 01, 2018 (after B’s Retirement)
Liabilities	Amount Rs	Assets	Amount Rs
Creditors	7,000	Land and Building (36,000 + 3,600)	39,600
Bills Payable	3,000	Plant and Machinery (28,000 – 2,800)	25,200
B’s Loan	34,800	Electronic Typewriter (8000 – 800)	7,200
Capital A/cs:		Stock (20,000 + 2,000)	22,000
A	38,400	Sundry Debtors	14,000
C	24,800	Bank	2000
Outstanding Salary	2,000
	1,10,000		1,10,000

Working Note:

Adjustment of Goodwill

Old Ratio (A, B and C) = 4 : 3 : 3

B retires from the firm.

∴ Gaining Ratio = 4 : 3

Goodwill of the firm = Rs 14,000

B’s Share of Goodwill =

This share of goodwill is to be distributed between A and C in their gaining ratio (i.e. 4 : 3).