Question

X, Y and Z were in partnership sharing profits and losses in the proportions of 3 : 2 : 1 . On 1st April, 2018 Y retires from the firm. On that date, their Balance Sheet was:

Liabilities		₹	Assets	₹
Trade Creditors		3,000	Cash in Hand	1,500
Bills Payable		4,500	Cash at Bank	7,500
Expenses Owing		4,500	Debtors	15,000
Reserve Fund		13,500	Stock	12,000
Capital A/cs: X	15,000		Factory Premises	22,500
Y	15,000		Machinery	8,000
Z	15,000	45,000	Loose Tools	4,000
		70,500		70,500

The terms were:
(a) Goodwill of the firm was valued at ₹ 13,500 and adjustment in this respect was to be made in the continuing Partners' Capital Accounts without raising Goodwill Account.
(b) Expenses Owing to be brought down to ₹ 3,750.
(c) Machinery and Loose Tools are to be valued @ 10% less than their book value.
(d) Factory Premises are to be revalued at ₹ 24,300.
Show Revaluation Account, Partners' Capital Accounts and prepare the Balance Sheet of the firm after the retirement of Y .

Answer 1

Revaluation Account
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Machinery (8,000 × 10%)		800	Expenses Owing (4,500 –3,750)	750
Loose Tools (4,000 × 10%)		400	Factory Premises (24,300 – 22,500)	1,800
Profit transferred to:
X’s Capital A/c	675
Y’s Capital A/c	450
Z’s Capital A/c	225	1,350
		2,550		2,550

Partners’ Capital Accounts
Dr.							Cr.
Particulars	X	Y	Z	Particulars	X	Y	Z
Y’s Capital A/c (Goodwill)	3,375		1,125	Balance b/d	15,000	15,000	15,000
				Reserve Fund	6,750	4,500	2,250
Y’s Loan A/c		24,450		Revaluation A/c	675	450	225
				X’s Capital A/c (Goodwill)		3,375
Balance c/d	19,050		16,350	Z’s Capital A/c (Goodwill)		1,125
	22,425	24,450	17,475		22,425	24,450	17,475

Balance Sheet
as on April 01, 2018 (after Y’s Retirement)
Liabilities		Amount Rs	Assets	Amount Rs
Trade Creditors		3,000	Cash in Hand	1,500
Bills Payable		4,500	Cash at Bank	7,500
Expenses Owing		3,750	Debtors	15,000
Y’s Loan		24,450	Stock	12,000
Capital A/c			Factory Premises	24,300
X	19,050		Machinery (8000 – 800)	7,200
Z	16,350	35,400	Loss tools (4,000 – 400)	3,600
		71,100		71,100

Working Notes:

WN 1 Calculation of Gaining Ratio

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

Y retires from the firm.

∴Gaining Ratio = 3: 1

WN 2 Adjustment of Goodwill

Goodwill of the firm = Rs 13,500

Y’s Share of Goodwill =

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