Question

X, Y and Z were in partnership sharing profits and losses in the proportions of 3 : 2 : 1. On 1st April, 2019, Y retired from the firm. On that date, their Balance Sheet was:

Liabilities		Amount (₹)	Assets	Amount (₹)
Trade Creditors		30,000	Cash in Hand	15,000
Bills Payable		45,000	Cash at Bank	75,000
Expenses Owing		45,000	Debtors	1,50,000
General Reserve		1,35,000	Stock	1,20,000
Capital A/cs:			Factory Premises	2,25,000
X	1,50,000		Machinery	80,000
Y	1,50,000		Loose Tools	40,000
Z	1,50,000	4,50,000
		7,05,000		7,05,000

The terms were:
(a) Goodwill of the firm was valued at ₹ 1,35,000 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 ₹ 37,500.
(c) Machinery and Loose Tools are to be valued @ 10% less than their book value.
(d) Factory Premises are to be revalued at ₹ 2,43,000.
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 (₹)	Particulars	Amount (₹)
Machinery (80,000 × 10%)		8,000	Expenses Owing (45,000 –37,500)	7,500
Loose Tools (40,000 × 10%)		4,000	Factory Premises	18,000
Profit transferred to:			(2,43,000 – 2,25,000)
X’s Capital A/c	6,750
Y’s Capital A/c	4,500
Z’s Capital A/c	2,250	13,500
		25,500		25,500

Partners’ Capital Accounts
Dr.							Cr.
Particulars	X	Y	Z	Particulars	X	Y	Z
Y’s Capital A/c (Goodwill)	33,750		11,250	Balance b/d	1,50,000	1,50,000	1,50,000
				General Reserve	67,500	45,000	22,500
Y’s Loan A/c		2,44,500		Revaluation A/c	6,750	4,500	2,250
				X’s Capital A/c (Goodwill)		33,750
Balance c/d	1,90,500		1,63,500	Z’s Capital A/c (Goodwill)		11,250
	2,24,250	2,44,500	1,74,750		2,24,250	2,44,500	1,74,750

Balance Sheet
as on April 01, 2019 (after Y’s Retirement)
Liabilities		Amount (₹)	Assets	Amount (₹)
Trade Creditors		30,000	Cash in Hand	15,000
Bills Payable		45,000	Cash at Bank	75,000
Expenses Owing		37,500	Debtors	1,50,000
Y’s Loan		2,44,500	Stock	1,20,000
Capital A/c			Factory Premises	2,43,000
X	1,90,500		Machinery (8000 – 800)	72,000
Z	1,63,500	3,54,000	Loss tools (4,000 – 400)	36,000
		7,11,000		7,11,000

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 1,35,000

Y’s Share of Goodwill = $₹\left(1,35,000\times \frac{2}{6}\right)=₹45,000$

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

$$\begin{gathered} \mathrm{X}\text{'}\mathrm{s}\mathrm{Share}=₹\left(45,000\times \frac{3}{4}\right)=₹33,750 \\ \mathrm{Z}\text{'}\mathrm{s}\mathrm{Share}=₹\left(45,000\times \frac{1}{4}\right)=₹11,250 \end{gathered}$$