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, 2019 was:

Liabilities		Amount (₹)	Assets	Amount ​(₹)
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, 2019 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 (₹)	Particulars		Amount (₹)
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, 2019 (after Y’s Retirement)
Liabilities		Amount (₹)	Assets	Amount (₹)
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
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019 April 1	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)