Question

X, Y and Z are in partnership sharing profits in the ratio of 5 : 3 : 2. Their Balance Sheet as at 1st April, 2012, the day Y decided to retire was as follows :

$\begin{array}{cccc}\text{Capital and Liabilities}& \text{Rs}& \text{Assets}& \text{Rs}\\ \text{X's Capital}& 30,000& \text{Buildings}& \text{25,000}\\ \text{Y's Capital}& 20,000& \text{Plant}\&\text{Machinery}& 15,000\\ \text{Z's Capital}& 20,000& \text{Investments}& 10,000\\ \text{General Reserve}& 10,000& \text{Debtors}& 10,000\\ \text{Sundry Creditors}& 7,000& \text{Stock}& 5,000\\ \text{Bills Payable}& 3,000& \text{Cash at Bank}& 25,000\\ & \underset{–}{\underset{–}{\overline{90,000}}}& & \underset{–}{\underset{–}{\overline{90,000}}}\end{array}$

The terms of retirement were :

(a) Y sells his share of goodwill to X for Rs 8,000 and to Z for Rs 4,000.

(b) Stock to be appreciated by 20% and buildings by Rs 5,000.

(c) Investments were sold for Rs 22,000.

(d) Y is paid off in cash.

Prepare Revaluation Account, Capital Accounts of Partners and the Balance Sheet of the new firm.

Answer 1

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

$\begin{array}{cccccc}\text{Particulars}& & \text{Rs}& \text{Particulars}& & \text{Rs}\\ \text{Profit transferred to :}& & & \text{Stock A/c}& & 1,000\\ \text{X's Capital A/c}& 9,000& & \text{Buildings A/c}& & 5,000\\ \text{Y's Capital A/c}& 5,400& & \text{Investments A/c}& & \\ \text{Z's Capital A/c}& \underset{–}{3,600}& \underset{–}{18,000}& \text{(Profit on sale of Investments)}& & 12,000\\ & & \overline{\underset{–}{\underset{–}{18,000}}}& & & \overline{\underset{–}{\underset{–}{18,000}}}\end{array}$

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

$\begin{array}{cccccccc}\text{Particulars}& \text{X}& \text{Y}& \text{Z}& \text{Particulars}& \text{X}& \text{Y}& \text{Z}\\ \text{Y's Capital A/c}& & & & \text{Balance b/d}& 30,000& 20,000& 20,000\\ \text{(Goodwill)}& 8,000& -& 4,000& \text{General Reserve}& 5,000& 3,000& 2,000\\ \text{Bank}& -& 40,400& -& \text{Revaluation A/c}& 9,000& 5,400& 3,600\\ \text{Balance c/d}& 36,000& -& 21,600& \text{X's Capital A/c}& & & \\ & & & & \text{(Goodwill)}& -& 8,000& -\\ & & & & \text{(By Z's Capital A/c)}& & & \\ & & & & \text{(Goodwill)}& -& 4,000& -\\ & \overline{\underset{–}{\underset{–}{44,000}}}& \overline{\underset{–}{\underset{–}{40,400}}}& \overline{\underset{–}{\underset{–}{25,600}}}& & \overline{\underset{–}{\underset{–}{44,000}}}& \overline{\underset{–}{\underset{–}{40,400}}}& \overline{\underset{–}{\underset{–}{25,600}}}\end{array}$

BALANCE SHEET

as at 1st April, 2012

$\begin{array}{cccccc}\text{Capita and Liabilities}& & \text{Rs}& \text{Assets}& & \text{Rs}\\ \text{Capitals :}& & & \text{Buildings}& & 30,000\\ \text{X}& 36,000& & \text{Plant}\&\text{Machinery}& & 15,000\\ \text{Z}& \underset{–}{21,600}& 57,600& \text{Debtors}& & 10,000\\ \text{Sundry Creditors}& & 7,000& \text{Stock}& & 6,000\\ \text{Bills Payable}& & 3,000& \text{Cash at Bank}& & 6,600\\ & & \underset{–}{\underset{–}{\overline{67,600}}}& & & \underset{–}{\underset{–}{\overline{67,600}}}\end{array}$

Working Notes :
(1) Entry for sale of Investments :
Bank A/c Dr. 22,000
To Investments 22,000
(2) Entry for transfer of profit on Investments :
Investments A/c Dr. 12,000
To Revaluation A/c 12,000
(3)

$\begin{array}{ccccccccc}\text{Dr}& & & & & \text{BANK A/C}& & & \text{Cr}\end{array}$

$\begin{array}{cccc}\text{Particulars}& \text{Rs}& \text{Particulars}& \text{Rs}\\ \text{Balance b/d}& 25,000& \text{Y's Capital A/c}& 40,400\\ \text{Investments A/c}& 22,000& \text{Balance c/d}& 6,600\\ & \overline{\underset{–}{\underset{–}{47,000}}}& & \overline{\underset{–}{\underset{–}{47,000}}}\end{array}$