Question

A, B and C are partners sharing profits and losses in the ratio of 2 : 3 : 1. Their Balance Sheet as at 31st March 2025 is given below:

Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Creditors		2,00,000	Bank		3,37,000
Profit & Loss Account		1,20,000	Sundry Debtors	4,00,000	3,75,000
General Reserve		1,50,000	Less: Provision for Doubtful Debts	25,000
Workmen Compensation Reserve		80,000	Stock		5,10,000
Investment Fluctuation Reserve		50,000	Investments (Market Value ₹ 1,32,000)		1,50,000
Capital A/cs:		16,00,000	Land & Building		8,00,000
A	6,00,000		Advertisement Suspense		28,000
B	7,00,000
C	3,00,000
		22,00,000			22,00,000

C retires on 1st April, 2025 and A and B continued in partnership, sharing future profits and losses in the ratio of 3 : 2. Following was agreed upon:

1. Land & Building is to be appreciated by 10% and Stock was found overvalued by ₹ 20,000.
2. Provision for Doubtful Debts is to be made equal to 5% of the debtors.
3. Claim on account of Workmen Compensation is ₹ 24,000.
4. Goodwill of the firm be valued at ₹ 4,50,000.
5. A debtor whose due of ₹ 20,000 was written off as bad debts paid 50% in full settlement.
6. A and B decide that after the adjustment of Workmen Compensation Claim from Workmen Compensation Reserve and difference between market value and book value of investments from Investment Fluctuation Reserve, remaining balance of such reserves and all accumulated profits/losses are to appear in the Balance Sheet of the new firm.
7. Amount due to C is to be settled 50% on retirement and balance 50% within one year.

Prepare Revaluation Account, Partner’s Capital Accounts and the Balance Sheet after C’s retirement.

Answer 1

Dr.	Revaluation A/c			Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)
To Stock A/c		20,000	By Land and Building A/c	80,000
To Profit t/f to Partners Capital A/cs:		75,000	By Provision for Doubtful Debts A/c	5,000
A	25,000		By Bad Debts Recovered A/c	10,000
B	37,500
C	12,500
		95,000		95,000

 

Dr.	Partner’s Capital A/c						Cr.
Particulars	A	B	C	Particulars	A	B	C
To B’s Capital A/c	45,000	-	-	By Balance b/d	6,00,000	7,00,000	3,00,000
To C’s Capital A/c	75,000	-	-	By Revaluation A/c	25,000	37,500	12,500
To B’s Capital A/c	33,000	-	-	By A’s Capital A/c	-	45,000	75,000
To C’s Capital A/c	55,000	-	-	By A’s Capital A/c	-	33,000	55,000
To C’s loan A/c	-	-	2,21,250
To Bank A/c	-	-	2,21,250
To Balance c/d	4,17,000	8,15,500	-
	6,25,000	8,15,500	4,42,500		6,25,000	8,15,500	4,42,500

 

Balance sheet of the firm after C’s retirement
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)
Creditors		2,00,000	Sundry Debtors	3,90,000
Profit & Loss Account		1,20,000	Stock	4,90,000
General Reserve		1,50,000	Investments	1,32,000
Workmen Compensation Claim		24,000	Land & Building	8,80,000
Workmen Compensation Reserve		56,000	Bank	1,15,750
Investment Fluctuation Reserve		32,000	Advertisement Expenditure	28,000
To C’s loan A/c		2,21,250
Capital A/cs:
A	4,17,000
B	8,15,500	12,32,500
		20,35,750		20,35,750

Working note:

(i) Gaining Ratio = New ratio – Old Ratio

A = `3/5-2/6=(18-10)/30=8/30`

B = `2/5-3/6=(15-12)/30=3/30`

(ii) Goodwill of the firm = ₹ 4,50,000

Gaining partner’s account will be debited and sacrificing partner’s accounts will be credited.

A’s share = `4,50,000xx8/30` = ₹ 1,20,000

B’s share = `4,50,000xx3/30` = ₹ 45,000

C’s share = `4,50,000xx5/30` = ₹ 75,000

(iii) Adjustment for Accumulated Profits/Losses:

	₹
Profit & Loss Account	1,20,000
General Reserve	1,50,000
Workmen’s Compensation Reserve (80,000 – 24,000)	56,000
Investment Fluctuation Reserve (50,000 – 18,000)	32,000
	3,58,000
Less: Advertisement Suspense	28,000
Net Amount	3,30,000

A’s share of Profits and Losses = `3,30,000xx8/30` = ₹ 88,000

B’s share = `3,30,000xx3/30` = ₹ 33,000

C’s share = `3,30,000xx5/30` = ₹ 55,000