Question

The Balance Sheet of X, Y and Z who were sharing profits in the ratio of 5 : 3 : 2 as at March 31, 2007 :

$\begin{array}{ccccc}\text{Capital and Liabilities}& & \text{Rs}& \text{Assets}& \text{Rs}\\ \text{Creditors}& & 50,000& \text{Cash at Bank}& 40,000\\ \text{Employee's Provident Fund}& & 10,000& \text{Sundry Debtors}& 1,00,000\\ \text{Profit}\&\text{Loss A/c}& & 85,000& \text{Stock}& 80,000\\ \text{Capital A/cs}:& & & \text{Fixed Assets}& 60,000\\ \text{X}& 40,000& & & \\ \text{Y}& 62,000& & & \\ \text{Z}& \underset{–}{33,000}& \underset{–}{1,35,000}& & \\ & & \underset{–}{\underset{–}{2,80,000}}& & \underset{–}{\underset{–}{2,80,000}}\end{array}$

X retired on March 31, 2007 and Y and Z decided to share profits in future in the ratio of 3 : 2 respectively.

The other terms on retirement were as follows :

(i) Goodwill of the firm is to be valued at Rs 80,000.

(ii) Fixed Assets are to be depreciated to Rs 57,500.

(iii) Make a provision for doubtful debts at 5% on debtors.

(iv) A liability for claim, included in creditors for Rs 10,000, is settled and paid at Rs 8,000.

Prepare Revaluation Account and Partner's Capital Accounts.

Answer 1

$\begin{array}{cccccc}\text{Dr}& & & \text{REVALUATION ACCOUNT}& & \text{Cr}\end{array}$

$\begin{array}{ccccc}\text{Particulars}& \text{Rs}& \text{Particulars}& & \text{Rs}\\ \text{Fixed Assets A/c}& 2,500& \text{Creditors A/c}& & 2,000\\ \text{Provision for Doubtful}& & \text{Loss transferred to :}& & \\ \text{Debts A/c}& 5,000& \text{X's Capital A/c}& 2,750& \\ & & \text{Y's Capital A/c}& 1,650& \\ & & \text{Y's Capital A/c}& \underset{–}{1,100}& 5,500\\ & \overline{\underset{–}{\underset{–}{7,500}}}& & & \overline{\underset{–}{\underset{–}{7,500}}}\end{array}$

$\begin{array}{cccccccccc}\text{Dr}& & & & & \text{PARTNER'S CAPITAL ACCOUNT}& & & & \text{Cr}\end{array}$

$\begin{array}{cccccccc}\text{Particulars}& \text{X}& \text{Y}& \text{Z}& \text{Particulars}& \text{X}& \text{Y}& \text{Z}\\ & \text{Rs}& \text{Rs}& \text{Rs}& & \text{Rs}& \text{Rs}& \text{Rs}\\ \text{Profit}\&\text{Loss}& & & & \text{Bal. b/d}& 40,000& 62,000& 33,000\\ \text{Adjustment A/c}& 2,750& 1,650& 1,100& \text{Profit}\&\text{Loss}& & & \\ \text{X's Capital}& & & & \text{A/c}& 42,500& 25,500& 17,000\\ \text{A/c (Goodwill)}& & 24,000& 16,000& \text{Y's Capital}& & & \\ \text{X's Loan A/c}& 1,19,750& & & \text{A/c (Goodwill)}& 8,000& & \\ \text{Bal. c/d}& & 61,850& 32,900& & & & \\ & & & & \text{Z's capital}& & & \\ & & & & \text{A/c (Goodwill)}& 32,000& & \\ & \overline{\underset{–}{\underset{–}{1,22,500}}}& \overline{\underset{–}{\underset{–}{87,500}}}& \overline{\underset{–}{\underset{–}{50,000}}}& & \overline{\underset{–}{\underset{–}{1,22,500}}}& \overline{\underset{–}{\underset{–}{87,500}}}& \overline{\underset{–}{\underset{–}{50,000}}}\end{array}$

Working Notes :

(1) Calculation of Gaining Ratio :

Gaining Ratio = New Ratio - Old Ratio

$Y=\frac{3}{5}-\frac{3}{10}=\frac{6-3}{10}=\frac{3}{10}$

$Z=\frac{2}{5}-\frac{2}{10}=\frac{4-2}{10}=\frac{2}{10}$

Gaining Ratio = 3 : 2

(2) Adjustment for Goodwill :

X's share in Goodwill $=80,000\times \frac{5}{10}=40,000,$ which is to be contributed by Y and Z in their gaining ratio of 3 : 2 as under :

$Y=40,000\times \frac{3}{5}=Rs24,000$

$Z=40,000\times \frac{2}{5}=Rs16,000$