Question

A, B and C are partners sharing profits and losses in the ratio of 4 : 3 : 3. Their Balance Sheet as at 31st March, 2019 is:

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

On 1st April, 2019, B retired 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 Computer Printer are to be reduced 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 employees of the firm. This liability was not provided in the 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 (₹)	Particulars	Amount (₹)
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, 2019 (after B’s Retirement)
Liabilities	Amount (₹)	Assets	Amount (₹)
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).