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Cash Settlement with Retiring Partner

how will the ...

Question

how will the outstanding salary given in adjustment be treated while preparing revaluation account, partners'capital capital account and balance sheet?

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Solution

Dear student
Any adjustment entry has two effects. Outstanding salary represents an increase in liability, so it will be shown on the debit side of Revaluation A/c. The corresponding profit/loss on Revaluation A/c is transferred to credit/debit of partners' capital accounts respectively in their profit sharing ratio. In the balance sheet of the firm, outstanding salary would come on the liability side as it is an expense which is accrued but not paid.
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Q. Under which heads will the following items be shown in the Balance Sheet of a Company

(i) Bank Balance;	(ii) Investments (Long-term);	(iii) Outstanding Salary;
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Q. X, Y and Z were in partnership sharing profits and losses in the proportions of 3 : 2 : 1 . On 1st April, 2018 Y retires from the firm. On that date, their Balance Sheet was:



Liabilities		₹	Assets	₹
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
Reserve Fund		13,500	Stock	12,000
Capital A/cs: X	15,000		Factory Premises	22,500
Y	15,000		Machinery	8,000
Z	15,000	45,000	Loose Tools	4,000
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The terms were:
(a) Goodwill of the firm was valued at ₹ 13,500 and adjustment in this respect was to be made in the continuing Partners' Capital Accounts without raising Goodwill Account.
(b) Expenses Owing to be brought down to ₹ 3,750.
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(d) Factory Premises are to be revalued at ₹ 24,300.
Show Revaluation Account, Partners' Capital Accounts and prepare the Balance Sheet of the firm after the retirement of Y .

Q. Wages outstanding has not been adjusted. While preparing final accounts it should appear in ____________.

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