Question

X, Y and Z are partners sharing profits and losses in the ratio of 3 : 2 : 1. Balance Sheet of the firm as at 31st March, 2019 was as follows:

Liabilities		Amount (₹)	Assets		Amount (₹)
Creditors		21,000	Cash at Bank		5,750
Workmen Compensation Reserve		12,000	Debtors	40,000
Investments Fluctuation Reserve		6,000	Less: Provision for Doubtful Debts	2,000	38,000
Capital A/cs:			Stock		30,000
X	68,000		Investment (Market Value ₹ 17,600)		15,000
Y	32,000		Patents		10,000
Z	21,000	1,21,000	Machinery		50,000
			Goodwill		6,000
			Advertisement Expenditure		5,250
		1,60,000			1,60,000

Z retired on 1st April, 2019 on the following terms:
(a) Goodwill of the firm is to be valued at ₹ 34,800.
(b) Value of Patents is to be reduced by 20% and that of machinery to 90%.
(c) Provision for doubtful debts is to be created @ 6% on debtors.
(d) Z took over the investment at market value.
(e) Liability for Workmen Compensation to the extent of ₹ 750 is to be created.
(f) A liability of ₹ 4,000 included in creditors is not to be paid.
(g) Amount due to Z to be paid as follows: ₹ 5,067 immediately, 50% of the balance within one year and the balance by a draft for 3 Months.
Give necessary Journal entries for the treatment of goodwill, prepare Revaluation Account, Capital Accounts and the Balance Sheet of the new firm.

Answer 1

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019
April 01	X’s Capital A/c	Dr.		3,000
	Y’s Capital A/c	Dr.		2,000
	Z’s Capital A/c	Dr.		1,000
	To Goodwill A/c				6,000
	(Existing goodwill written off)
April 01	X’s Capital A/c	Dr.		3,480
	Y’s Capital A/c	Dr.		2,320
	To Z’s Capital A/c				5,800
	(Z’s share of goodwill credited to him and gaining partners debited in gaining ratio)

Revaluation Account
Dr.						Cr.
Particulars		Amount (₹)	Particulars		Amount (₹)
Patents		2,000	Investments (17,600 – 15,000)		2,600
Machinery		5,000	Creditors		4,000
Prov. for Doubtful Debts		400	Loss on Revaluation transferred
			X’s Capital A/c	400
			Y’s Capital A/c	267
			Z’s Capital A/c	133	800
		7,400			7,400

Partners’ Capital Accounts
Dr.									Cr.
Particulars		X	Y	Z	Particulars	X	Y	Z
Goodwill A/c		3,000	2,000	1,000	Balance b/d	68,000	32,000	21,000
Revaluation A/c		400	267	133	X’s Capital A/c			3,480
Z’s Capital A/c		3,480	2,320		Y’s Capital A/c			2,320
Advertisement Expenditure A/c		2,625	1,750	875	Workmen Compensation Reserve A/c*	5,625	3,750	1,875
Investments A/c				17,600	Investment Fluctuation Reserve A/c*	3,000	2,000	1,000
Bank A/c				5,067
Z’s Loan A/c				2,500
Bills Payable A/c				2,500
Balance c/d		67,120	31,413
		76,625	37,750	29,625		76,625	37,750	29,625

Balance Sheet as on April 01, 2019 after Z’s retirement
Liabilities		Amount (₹)	Assets		Amount (₹)
Creditors		17,000	Cash at Bank (5,750 – 5,067)		683
Workmen Compensation Claim		750	Stock		30,000
Bills Payable		2,500	Patents		8,000
Capital A/c’s:			Debtors A/c	40,000
X	67,120		Less: Prov. for D/ful Debts	2,400	37,600
Y	31,413	98,533	Machinery		45,000
Z’s Loan		2,500
		1,21,283			1,21,283

$$\begin{gathered} Note: \\ AmountduetoZ=(21,000+3,480+2,320+1,875+1,000)-(1,000+133+875+17,600) \\ =10,067 \\ AmoutpaidonRetirementimmediately:Rs5,067 \\ Amountpaidwithinoneyear:50\%of5,000=Rs2,500 \\ AmountpayablebyBillsofExchange:Rs2,500(balance50\%) \end{gathered}$$