Question

Pankaj, Naresh and Saurabh are partners sharing profit in the ratio of 3 : 2 :1. Naresh retired from the firm due to his illness. On that date, the Balance Sheet of the firm was as follows

$\begin{array}{ccccccc}& & & & & & \\ & & & & \text{Balance Sheet}& & \\ \text{Dr}& & & & \text{as on March 31, 2007}& & \text{Cr}\end{array}\begin{array}{cccccc}\text{Capital and Liabilities}& & \text{Amt.(Rs)}& \text{Assets}& & \text{Amt.(Rs)}\\ \text{General Reserve}& & \text{12,000}& \text{Bank}& & \text{7,600}\\ \text{Sundry Creditors}& & \text{15,000}& \text{Debtors}& \text{6,000}& \\ \text{Bills Payable}& & \text{12,000}& \text{(-)Provision for}& \underset{–}{\left(400\right)}& \text{5,600}\\ \text{Outstanding Salary}& & \text{2,200}& \text{Doubtful Debts}& & \\ \text{Provision for Legal Damages}& & \text{6,000}& \text{Stock}& & \text{9,000}\\ \text{Capitals}& & & & & \\ \text{Pankaj}& \text{46,000}& & \text{Furniture}& & \text{41,000}\\ \text{Naresh}& \text{30,000}& & \text{Premises}& & \text{80,000}\\ \text{Saurabh}& \underset{–}{20,000}& \text{96,000}& & & \\ & & \overline{\underset{–}{\underset{–}{1,43,200}}}& & & \overline{\underset{–}{\underset{–}{1,43,200}}}\end{array}$

Additional Information

(i) Premises have appreciated by 20%, stock depreciated by 10% and provision for doubtful debts was to be made 5% on debtors. Further, provision for legal damages is to be made for Rs. 1,200 and furniture brought up to Rs.45,000.

(ii) Goodwill of the firm be valued at Rs. 42,000.

(iii) Rs. 26,000 from Naresh's Capital account be transferred to his loan account and balance be paid through bank; if required, necessary loan may be obtained from Bank.

(iv) New profit sharing ratio of Pankaj and Saurabh is decided to be 5:1.

Give the necessary ledger accounts the balance sheet of the firm after Naresh's retirement.

Answer 1

$\begin{array}{ccccccc}& & & & & & \\ \text{Dr}& & & & \text{Revaluation Account}& & \text{Cr}\end{array}\begin{array}{cccccc}\text{Particulars}& & \text{Amt.(Rs)}& \text{Particulars}& & \text{Amt.(Rs)}\\ \text{Stock A/c}& & \text{900}& \text{Premises A/c}& & \text{16,000}\\ \text{Provision for Legal Damages A/c}& & \text{1,200}& \text{Provision for Doubtful}& & \\ & & & \text{Debts A/c}& & \text{100}\\ \text{Profit Transferred to Capital}& & & \text{Furniture}& & \text{4,000}\\ \text{Provision for Legal Damages}& & & & & \\ \text{Pankaj}& \text{9,000}& & & & \\ \text{Naresh}& \text{6,000}& & & & \\ \text{Saurabh}& \underset{–}{3,000}& \text{18,000}& & & \\ & & \overline{\underset{–}{\underset{–}{20,100}}}& & & \overline{\underset{–}{\underset{–}{20,100}}}\end{array}$

$\begin{array}{ccccccc}& & & & & & \\ \text{Dr}& & & & \text{Partners' Capital Account}& & \text{Cr}\end{array}\begin{array}{cccccccc}\text{Particulars}& \text{Pankaj}& \text{Naresh}& \text{Saurabh}& \text{Particulars}& \text{Pankaj}& \text{Naresh}& \text{Saurabh}\\ \text{Naresh's}& \text{14,000}& & & \text{Balance b/d}& 46,000& 30,000& 20,000\\ \text{Capital A/c}& & & & & & & \\ \text{Naresh's Loan}& & \text{26,000}& & \text{General}& 6,000& 4,000& 2,000\\ \text{A/c}& & & & \text{Reserve}& & & \\ \text{Bank A/c}& & 28,000& & \text{Revaluation}& \text{9,000}& \text{6,000}& \text{3,000}\\ & & & & \text{(Profit)}& & & \\ \text{Balance c/d}& \text{47,000}& & \text{25,000}& \text{Pankaj's}& & \text{14,000}& \\ & & & & \text{Capital A/c}& & & \\ & \underset{–}{\underset{–}{\overline{61,000}}}& \underset{–}{\underset{–}{\overline{54,000}}}& \underset{–}{\underset{–}{\overline{25,000}}}& & \underset{–}{\underset{–}{\overline{61,000}}}& \underset{–}{\underset{–}{\overline{54,000}}}& \underset{–}{\underset{–}{\overline{25,000}}}\end{array}$

$\begin{array}{ccccccc}& & & & & & \\ \text{Dr}& & & & \text{Bank Account}& & \text{Cr}\end{array}\begin{array}{cccccc}\text{Particulars}& & \text{Amt.(Rs)}& \text{Particulars}& & \text{Amt.(Rs)}\\ \text{Balance b/d}& & \text{7,600}& \text{Naresh's Capital A/c}& & \text{28,000}\\ \text{Bank Loan (Balancing Figure)}& & \text{20,400}& & & \\ & & \overline{\underset{–}{\underset{–}{28,000}}}& & & \overline{\underset{–}{\underset{–}{28,000}}}\end{array}$

$\begin{array}{ccccccc}& & & & & & \\ & & & & \text{Balance Sheet}& & \\ \text{Dr}& & & & \text{as on March 31, 2007 (New Firm)}& & \text{Cr}\end{array}\begin{array}{cccccc}\text{Capital and Liabilities}& & \text{Amt.(Rs)}& \text{Assets}& & \text{Amt.(Rs)}\\ \text{Sundry Creditors}& & \text{15,000}& \text{Debtors}& \text{6,000}& \\ \text{Bills Payable}& & \text{12,000}& \text{(-)Provision for Bad}& & \\ & & & \text{Debts}& \underset{–}{300}& \text{5,700}\\ \text{Outstanding Salary}& & \text{2,200}& \text{Stock}& & \text{8,100}\\ \text{Provision for Legal Damages}& & \text{7,200}& \text{Furniture}& & \text{45,000}\\ \text{Bank Loan}& & \text{20,400}& \text{Premises}& & \text{96,000}\\ \text{Naresh's Loan}& & \text{26,000}& & & \\ \text{Capitals}& & & & & \\ \text{Pankaj}& \text{47,000}& & & & \\ \text{Saurabh}& \underset{–}{25,000}& \text{72,000}& & & \\ & & \overline{\underset{–}{\underset{–}{1,54,800}}}& & & \overline{\underset{–}{\underset{–}{1,54,800}}}\end{array}$

Working Note
(i) General reserve is to be distributed among all partner's in old ratio.

(ii) Naresh's share of goodwill = $42,000\times \frac{2}{6}$= Rs. 14,000

(iii) Gaining ratio of remaining partner's
Pankaj's gain = $\frac{5}{6}-\frac{3}{6}=\frac{5-3}{6}=\frac{2}{6}$; Saurabh's gain = $\frac{1}{6}-\frac{1}{6}=0$

Only Pankaj has gained on Naresh's retirement. Hence, contribution of goodwill for retiring partner will be made by Pankaj.