Question

Naresh, David and Aslam are partners sharing profits in the ratio of 5 : 3 : 7. On April 1st, 2012, Naresh gave a notice to retire from the firm. David and Aslam decided to share future profits in the ratio of 2:3. The adjusted capital accounts of David and Aslam show a balance of Rs 33,000 and Rs 70,500 respectively. The total amount to be paid to Naresh is Rs 90,500. This amount is to be paid by David and Aslam in such a way that their capital become proportionate to their new profit sharing ratio. Pass necessary journal entries for the above transactions in the books of the firm. Show your working clearly.

Answer 1

Calculation of total capital of the firm after Naresh's retirement :

Rs

Adjusted Old Capital of David 33,000

Adjusted Old Capital of Aslam 70,500

Amount payable to Naresh 90,500

Total Capital of new firm ________
1,94,000 _________

New Ratio of David and Aslam = 2 : 3

David's new capital = $Rs1,94,000\times \frac{2}{5}=Rs77,600$

Aslam's new capital = $Rs1,94,000\times \frac{3}{5}=Rs1,16,400$

$\therefore$ Amount to be brought in by David and Aslam : David (Rs) Aslam (Rs)

New Capital 77,600 1,16,400

Less : Existing Capital 33,000 70,500

Amount to be brought in $\overline{\underset{–}{\underset{–}{44,600}}}$ $\overline{\underset{–}{\underset{–}{45,900}}}$

JOURNAL

$\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{L.F.}& \text{Dr. (Rs)}& \text{Cr. (Rs)}\\ 2012& & & & & \\ \text{April 1}& \text{Bank A/c}& \text{Dr.}& & 90,500& \\ & \text{To David's Capital A/c}& & & & 44,600\\ & \text{To Aslam's Capital A/c}& & & & 45,900\\ & \underset{–}{\text{(Amount brought in by continuing partners)}}& & & & \\ & \text{Naresh's Capital}& \text{Dr.}& & 90,500& \\ & \text{To Bank A/c}& & & & 90,500\\ & \text{(Amount paid off to Naresh)}& & & & \end{array}$