Question

A, B and C are partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. Their Balance Sheet as at 31st March, 2019 is:
 

Liabilities		Amount (₹)	Assets		Amount (₹)
Creditors		30,000	Cash in Hand		18,000
Bills Payable		16,000	Debtors	25,000
General Reserve		12,000	Less: Provision for Doubtful Debts	3,000	22,000
Capital A/cs:			Stock		18,000
A	40,000		Furniture		30,000
B	40,000		Machinery		70,000
C	30,000	1,10,000	Goodwill		10,000
		1,68,000			1,68,000

B retires on 1st April, 2019 on the following terms:
(a) Provision for Doubtful Debts be raised by ₹ 1,000.
(b) Stock to be reduced by 10% and Furniture by 5%.
(c) Their is an outstanding claim of damages of ₹ 1,100 and it is to be provided for.
(d) Creditors will be written back by ₹ 6,000.
(e) Goodwill of the firm is valued at ₹ 22,000.
(f) B is paid in full with the cash brought in by A and C in such a manner that their capitals are in proportion to their profit-sharing ratio and Cash in Hand remains at ₹ 10,000.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of A and C.

Answer 1

Revaluation Account

Dr.				Cr.
Particulars		Amount (₹)	Particulars	Amount (₹)
Provision for Doubtful Debts		1,000	Creditors	6,000
Stock (18,000 × 10%)		1,800
Furniture (30,000 × 5%)		1,500
Outstanding Claim for Damages		1,100
Profit transferred to:
A’s Capital A/c	300
B’s Capital A/c	200
C’s Capital A/c	100	600
		6,000		6,000

 

Partners’ Capital Accounts 

Dr.							Cr.
Particulars	A	B	C	Particulars	A	B	C
B’s Capital A/c (Goodwill)	5,500		1,833	Balance b/d	40,000	40,000	30,000
Goodwill A/c	5,000	3,333	1,667	Revaluation A/c	300	200	100
Cash A/c		48,200		A’s Capital A/c (Goodwill)		5,500
Balance c/d	35,800		28,600	C’s Capital A/c (Goodwill)		1,833
				General Reserve	6,000	4,000	2,000
	46,300	51,533	32,100		46,300	51,533	32,100
Cash A/c			2,450	Balance b/d	35,800		28,600
Balance c/d (WN 3)	78,450		26,150	Cash A/c	42,650
	78,450		28,600		78,450		28,600

 

Cash Account

Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
Balance b/d	18,000	B’s Capital A/c	48,200
A’s Capital A/c	42,650	C’s Capital A/c	2,450
		Balance c/d	10,000
	60,650		60,650

 

Balance Sheet

as on April 01,2019 (after B’s Retirement)

Liabilities		Amount (₹)	Assets		Amount (₹)
Creditors		24,000	Cash in Hand		10,000
Bills Payable		16,000	Debtors	25,000
Outstanding Claim for Damages		1,100	Less: Provision for Doubtful Debts	(4,000)	21,000
Capital A/cs:			Stock		16,200
A	78,450		Furniture		28,500
C	26,150	1,04,600	Machinery		70,000
		1,45,700			1,45,700

Working Notes: 

WN 1 Calculation of Profit Sharing Ratio

Old Ratio (A, B and C) = 3 : 2 : 1

B retires from the firm.

∴ New Ratio (A and C) = 3 : 1 and

Gaining Ratio = 3 : 1

WN 2 Adjustment of Goodwill

Goodwill of the firm = Rs 22,000

B’s Share of Goodwill = `22,000xx 2/6 = "Rs" 7,333`

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

`"A's share" = 7,333 xx 3/4 = "Rs" 5,500`

`"C's share" = 7,333 xx 1/4 = "Rs" 1,833`

WN 3 Adjustment of Partners’ Capital after B’s Retirement

Amount to be brought in by A and C = Cash to be paid to B + Minimum Balance of Cash − Existing Balance of Cash

                                                    = 48,200 + 10,000 − 18,000                                                            = Rs 40,200

Combined Capital of A and C after of all adjustments = 35,800 + 28,600 = Rs 64,400

∴ Total Capital of the Firm = Amount to be brought in by A and C + Combined Capital of A and C

                                           = 40,200 + 64,400 = 1,04,600

`"A's new capital" = 1,04,600 xx 3/4 = "Rs" 78,480`

`"C's new capital" = 1,04,600 xx 1/4 = "Rs" 26,150`