Question

Radha, Sheela and Meena were in partnership sharing profits and losses in the proportion of 3 : 2 : 1. On April 1, 2007, Sheela retires from the firm. On that date, their Balance Sheet was as follows

$\begin{array}{ccccc}\text{Capital and Liabilities}& & \text{Amt. (Rs)}& \text{Assets}& \text{Amt. (Rs)}\\ \text{Trade Creditors}& & 3,000& \text{Cash in Hand}& 1,500\\ \text{Bills payable}& & 4,500& \text{Cash at Bank}& 7,500\\ \text{Expenses Owing}& & 4,500& \text{Debtors}& 15,000\\ \text{General Reserve}& & 13,500& \text{Stock}& 12,000\\ \text{Capitals}& & & \text{Factory Premises}& 22,500\\ \text{Radha}& 15,000& & \text{Machinery}& 8,000\\ \text{Sheela}& 15,000& & \text{Loose Tools}& 4,000\\ \text{Meena}& \underset{–}{15,000}& 45,000& & \\ & & \underset{–}{\underset{–}{\overline{70,500}}}& & \underset{–}{\underset{–}{\overline{70,500}}}\end{array}$

The terms were

(a) Goodwill of the Firm was valued at Rs.13,500.

(b) Expenses owing to be brought down to Rs.3,750.

(c) Machinery and Loose Tools are to be valued at 10 % less than their book value.

(d) Factory premises are to be revalued at Rs.24300.

Prepare

1. Revaluation account

2. Partners capital accounts

3. Balance sheet of the firm after retirement of Sheela

Answer 1

$\begin{array}{ccccccc}\text{Dr}& & & & \text{Revaluation Account}& & \text{Cr}\end{array}\begin{array}{ccccc}\text{Particulars}& & \text{Amt. (Rs)}& \text{Particulars}& \text{Amt. (Rs)}\\ \text{Machinery A/c}& & 800& \text{Expenses Owing A/c}& 750\\ \text{Loose Tools A/c}& & 400& \text{Factory Premises A/c}& 1,800\\ \text{To Profit Transferred to Capital Account}& & & & \\ \text{Meena}& 675& & & \\ \text{Radha}& 450& & & \\ \text{Sheela}& \underset{–}{225}& 1,350& & \\ & & \underset{–}{\underset{–}{\overline{2,550}}}& & \underset{–}{\underset{–}{\overline{2,550}}}\end{array}$

$\begin{array}{ccccccc}\text{Dr}& & & & \text{Partners' Capital Account}& & \text{Cr}\end{array}\begin{array}{cccccccc}\text{Particulars}& \text{Radha}& \text{Sheela}& \text{Meena}& \text{Particulars}& \text{Radha}& \text{Sheela}& \text{Meena}\\ \text{Sheela's}& & & & \text{Balance b/d}& 15,000& 15,000& 15,000\\ \text{Capital A/c}& 3,375& & 1,125& & & & \\ \text{Sheela's Loan}& & & & \text{General}& & & \\ \text{A/c(Balancing}& & & & \text{Reserve}& 6,750& 4,500& 2,250\\ \text{Figure)}& & 24,450& & & & & \\ \text{Balance c/d}& 19,050& & 16,350& \text{Revaluation}& & & \\ & & & & \text{(Profit)}& 675& 450& 225\\ & & & & \text{Radha's}& & & \\ & & & & \text{Capital A/c}& & 3,375& \\ & & & & \text{Meena's}& & & \\ & & & & \text{Capital A/c}& & 1,125& \\ & \underset{–}{\underset{–}{\overline{22,425}}}& \underset{–}{\underset{–}{\overline{24,450}}}& \underset{–}{\underset{–}{\overline{17,475}}}& & \underset{–}{\underset{–}{\overline{22,425}}}& \underset{–}{\underset{–}{\overline{24,450}}}& \underset{–}{\underset{–}{\overline{17,475}}}\end{array}$

$\begin{array}{ccccccc}& & & & & & \\ & & & & \text{Balance Sheet}& & \\ \text{Dr}& & & & \text{as on April 1, 2007 (New Firm)}& & \text{Cr}\end{array}\begin{array}{cccccc}\text{Capital and Liabilities}& & \text{Amt.(Rs)}& \text{Assets}& & \text{Amt.(Rs)}\\ \text{Trade Creditors}& & \text{3,000}& \text{Cash in Hand}& & \text{1,500}\\ \text{Bill Payable}& & \text{4,500}& \text{Cash at Bank}& & \text{7,500}\\ \text{Expenses Owing}& & \text{3,750}& \text{Debtors}& & \text{15,000}\\ \text{Sheela's Loan}& & \text{24,450}& \text{Stock}& & \text{12,000}\\ \text{Capitals}& & & \text{Factory Premises}& & \text{24,300}\\ \text{Radha}& \text{19,050}& & \text{Machinery}& \text{8,000}& \\ \text{Meena}& \underset{–}{16,350}& \text{35,400}& \text{(-)10 \%}& \underset{–}{800}& \text{7,200}\\ & & & \text{Loose Tools}& \text{4,000}& \\ & & & \text{(-)10 \%}& \underset{–}{400}& \underset{–}{3,600}\\ & & \overline{\underset{–}{\underset{–}{71,100}}}& & & \underset{–}{\underset{–}{71,100}}\end{array}$

Working Note

(i) General reserve is to be written off among all partners in old profit sharing ratio.

(ii) Sheela's share of goodwill = $13,000\times \frac{2}{6}$= Rs. 4,333

(iii) Gaining ratio of remaining partner's

Radha's gain = $\frac{3}{4}-\frac{3}{6}=\frac{9-6}{12}=\frac{3}{12}$

Meena's gain =$\frac{1}{4}-\frac{1}{6}=\frac{3-2}{12}=\frac{1}{12}$
or 3:1

(iv) Contribution for goodwill of retiring partner by remaining partners

Radha = $4,500\times \frac{3}{4}$ = Rs. 3,375

Meena = $4,500\times \frac{1}{4}$ = Rs. 1,125