Question

X, Y and Z were partners in a firm sharing profits in the ratio of 2 : 2 : 1. Their Balance Sheet as at 31st March, 2018 was:

Liabilities		₹	Assets	₹
Creditors		49,000	Cash	8,000
Reserve		18,500	Debtors	19,000
Capital A/cs: X	82,000		Stock	42,000
Y	60,000		Building	2,07,000
Z	75,500	2,17,500	Patents	9,000
		2,85,000		2,85,000

Y retired on 1st April, 2018 on the following terms:
(a) Goodwill of the firm was valued at ₹ 70,000 and was not to appear in the books.
(b) Bad Debts amounted to ₹ 2,000 were to be written off.
(c) Patents were considered as valueless.
Prepare Revaluation Account , Partners' Capital Accounts and the Balance Sheet of X and Z after Y's retirement.

Answer 1

Revaluation Account
Dr.						Cr.
Particulars		Amount Rs	Particulars		Amount Rs
Bad Debts		2,000	Loss transferred to:
Patents		9,000	X’s Capital A/c	4,400
			Y’s Capital A/c	4,400
			Z’s Capital A/c	2,200	11,000
		11,000			11,000

Partners’ Capital Accounts
Dr.								Cr.
Particulars		X	Y	Z	Particulars	X	Y	Z
Revaluation A/c (Loss)		4,400	4,400	2,200	Balance b/d	82,000	60,000	75,500
Y’s Capital A/c (Goodwill)		18,667	–	9,333	Reserve (Old Ratio)	7,400	7,400	3,700
Y’s Loan A/c		–	91,000	–	X’s Capital A/c (Goodwill)	–	18,667	–
Balance c/d		66,333	–	67,667	Z’s Capital A/c (Goodwill)	–	9,333	–
		89,400	95,400	79,200		89,400	95,400	79,200

Balance Sheet as on March 31, 2018 (after Y’s Retirement)
Liabilities		Amount Rs	Assets	Amount Rs
Creditors		49,000	Cash	8,000
Y’s Loan		91,000	Debtors (19000-2000)	17,000
Capital A/cs:			Stock	42,000
X	66,333		Building	2,07,000
Z	67,667	1,34,000
		2,74,000		2,74,000

Working Notes:

WN 1 Calculation of Gaining Ratio

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

Y retires from the firm.

∴Gaining Ratio = 2 : 1

WN 2 Adjustment of Goodwill

Goodwill of the firm = Rs 70,000

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).

Journal
Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)
X’s Capital A/c	Dr.		18,667
Z’s Capital A/c	Dr.		9,333
To Y’s Capital A/c				28,000
(Adjustment of goodwill made on Y’s retirement)