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Question

X, Y and Z are partners in a firm sharing profits in the ratio of 3 : 1 : 2. On 31st March, 2019, their Balance Sheet was:

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Bills Payable

12,000

Freehold Premises 40,000
Sundry Creditors 28,000 Machinery 30,000
General Reserve 12,000 Furniture 12,000
Capital A/cs: Stock 22,000
X 30,000 Sundry Debtors

20,000

Y 20,000 Less: Provision for Doubtful Debts

1,000

19,000

Z 28,000

78,000

Cash

7,000

1,30,000

1,30,000


Z retired on 1st April, 2019 from the business and the partners agree to the following:
(a) Freehold Premises and Stock are to be appreciated by 20% and 15% respectively.
(b) Machinery and Furniture are to be reduced by 10% and 7% respectively.
(c) Provision for Doubtful Debts is to be increased to ₹ 1,500.
(d) Goodwill of the firm is valued at ₹ 21,000 on Z's retirement.
(e) Continuing partners to adjust their capitals in their new profit-sharing ratio after retirement of Z. Surplus/deficit, if any, in their Capital Accounts will be adjusted through Current Accounts.
Prepare necessary Ledger Accounts and draw the Balance Sheet of the reconstituted firm.

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Solution

Revaluation Account

Dr.

Cr.

Particulars

Amount

(₹)

Particulars

Amount

(₹)

Machinery (30,000 × 10%)

3,000

Freehold Premises (40,000 × 20%)

8,000

Furniture (12,000 × 7%)

840

Stock (22,000 × 15%)

3,300

Provision for Doubtful Debts (1,500 – 1,000)

500

Profit transferred to:

X’s Capital A/c

3,480

Y’s Capital A/c

1,160

Z’s Capital A/c

2,320

6,960

11,300

11,300

Partner’s Capital Accounts

Dr.

Cr.

Particulars

X

Y

Z

Particulars

X

Y

Z

Z’s Capital A/c

5,250

1,750

Balance b/d

30,000

20,000

28,000

General Reserve

6,000

2,000

4,000

Z’s Loan A/c

41,320

X’s Capital A/c (Goodwill)

5,250

Y’s Capital A/c (Goodwill)

1,750

Balance c/d

34,230

21,410

Revaluation A/c (Profit)

3,480

1,160

2,320

39,480

23,160

41,320

39,480

23,160

41,320

Y’s Current A/c

7,500

Balance b/d

34,230

21,410

Balance c/d (WN 3)

41,730

13,910

X’s Current A/c

7,500

41,730

21,410

41,730

21,410

Balance Sheet
as on 1st April, 2019

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Bills Payable

12,000

Freehold Premises (40,000 + 8,000)

48,000

Sundry Creditors

28,000

Machinery (30,000 – 3,000)

27,000

Z’s Loan

41,320

Furniture (12,000 – 840)

11,160

Capital A/cs:

Stock (22,000 + 3,300)

25,300

X

41,730

Sundry Debtors

20,000

Y

13,910

55,640

Less: Provision for Doubtful Debts

(1,500)

18,500

Y’s Current A/c

7,500

Cash

7,000

X’s Current A/c

7,500

1,44,460

1,44,460


Working Notes:

WN 1 Calculation of Profit Sharing Ratio

Old Ratio (X, Y and Z) = 3 : 1 : 2

Z retires from the firm.

∴ New Ratio (X and Y) = 3 : 1 and

Gaining Ratio = 3 : 1

WN 2 Adjustment of Goodwill

Goodwill of the firm = Rs 21,000

Z’s Share of Goodwill =

This share of goodwill is to be distributed between X and Y in their gaining ratio (i.e. 3 : 1).



WN 3 Adjustment of Partners’ Capital after Z’s Retirement

Combined Capital of X and Y after all adjustments = 34,230 + 21,410 = Rs. 55,640

New Ratio = 3 : 1


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Q.

Narang, Suri and Bajaj are partners in a firm sharing profits and losses in proportion of 1/2 , 1/6 and 1/3 respectively. The Balance Sheet on April 1, 2015 was as follows:

Books of Suri, Narang and Bajaj

Balance Sheet as on April 1, 2015

Liabilities

Amount

Rs

Assets

Amount

Rs

Bills Payable

12,000

Freehold Premises

40,000

Sundry Creditors

18,000

Machinery

30,000

Reserves

12,000

Furniture

12,000

Capital Accounts:

Stock

22,000

Narang

30,000

Sundry Debtors

20,000

Suri

20,000

Less: Reserve

1,000

19,000

Bajaj

28,000

88,000

for Bad Debt

Cash

7,000

1,30,000

1,30,000

Bajaj retires from the business and the partners agree to the following:

a) Freehold premises and stock are to be appreciated by 20% and 15% respectively.

b) Machinery and furniture are to be depreciated by 10% and 7% respectively.

c) Bad Debts reserve is to be increased to Rs 1,500.

d) Goodwill is valued at Rs 21,000 on Bajaj’s retirement.

e) The continuing partners have decided to adjust their capitals in their new profit sharing ratio after retirement of Bajaj. Surplus/deficit, if any, in their capital accounts will be adjusted through current accounts.

Prepare necessary ledger accounts and draw the Balance Sheet of the reconstituted firm.

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