Question

X, Y and Z are partners sharing profits in the ratio of 4 : 3 : 2. Their Balance Sheet as at 31st March, 2019 stood as follows:

Liabilities		Amount (₹)	Assets		Amount (₹)
Creditors		24,140	Cash at Bank		3,300
Capital A/cs:			Sundry Debtors	3,045
X	12,000		Less: Provision for Doubtful Debts	105	2,940
Y	9,000		Stock		4,800
Z	6,000	27,000	Plant and Machinery		5,100
			Land and Building		15,000
			Y's Loan		20,000
		51,140			51,140

Y retired on 1st April, 2019 after giving due notice. Following adjustments in the books of the firm were agreed:
(a) Land and Building be appreciated by 10%.
(b) Provision for Doubtful Debts is no longer necessary since all the debtors are good.
(c) Stock be appreciated by 20%.
(d) Adjustment be made in the accounts to rectify a mistake previously committed whereby Y was credited in excess by ₹ 810, while X and Z were debited in excess of ₹ 420 and ₹ 390 respectively.
(e) Goodwill of the firm be valued at ₹ 5,400 and Y's share of the same be adjusted to that of X and Z who were going to share in the ratio of 2 : 1.
(f) It was decide by X and Y to settle Y's account immediately on his retirement.
Prepare: (i) Revaluation Account; (ii) Partner's Capital Accounts and (iii) Balance Sheet of the firm after Y's retirement.

Answer 1

Revaluation Account
Dr.				Cr.
Particulars		Amount (₹)	Particulars	Amount (₹)
Profit transferred to :			Land and Building (15,000 × 10%)	1,500
X’s Capital A/c	1,140		Provision for Doubtful Debts	105
Y’s Capital A/c	855		Stock (4,800 × 20%)	960
Z’s Capital A/c	570	2,565
		2,565		2,565

Partners’ Capital Accounts
Dr.							Cr.
Particulars	X	Y	Z	Particulars	X	Y	Z
Y’s Capital A/c	1,200		600	Balance b/d	12,000	9,000	6,000
X’s Capital A/c (Rectification)		420		Revaluation A/c (Profit)	1,140	855	570
Z’s Capital A/c (Rectification)		390		X’s Capital A/c (Goodwill)		1,200
Y’s Loan A/c		10,845		Z’s Capital A/c (Goodwill)		600
Balanced c/d	12,360		6,360	Y’s Capital A/c (Rectification)	420		390
	13,560	11,655	6,960		13,560	11,655	6,960

Balance Sheet
as on March 31, 2019 (after Y’s Retirement)
Liabilities		Amount (₹)	Assets	Amount (₹)
Creditors		24,140	Cash at Bank	3,300
			Sundry debtors	3,045
			Stock (4,800 + 960)	5,760
Capital A/cs:			Plant and Machinery	5,100
X	12,360		Land and Building
Z	6,360	18,720	(15,000 + 1,500) Y's Loan (W. N. 2)	16,500 9,155
		42,860		42,860

Working Note:

1.Adjustment of Goodwill

Old Ratio (X, Y and Z) = 4 : 3 : 2

Y retires from the firm.

∴ Gaining Ratio = 4 : 2 or 2 : 1

Goodwill of the firm = Rs 5,400

Y’s Share of Goodwill =

This share of goodwill is to be distributed between X and Z in their gaining ratio (i.e. 2 : 1).


2. Computation of final settlement amount payable to/ receivable from Y after his retirement:

Existing Loan against Y = 20,000
Less: Amount payable = 10,845
9,155
Amount receivable from Y by the firm = Rs.9,155