Question

Balance Sheet of P, Q and R who were sharing profits in proportion to their capitals stood as follows on 31 st March, 2025:

Liabilities	₹	₹	Assets	₹
Sundry Creditors		70,000	Land & Buildings	1,00,000
Capital Accounts:		3,50,000	Machinery	1,70,000
P	1,00,000		Inventory	50,000
Q	1,50,000		Sundry Debtors	60,000
R	1,00,000		Cash at Bank	56,000
Current Accounts:		26,000	R’s Current A/c	10,000
Q	20,000
R	6,000
		4,46,000		4,46,000

Q retired on this date and the following was agreed upon:

1. Inventory is overvalued by ₹ 5,000.
2. Land and Buildings are undervalued by ₹ 30,000.
3. Machinery be depreciated by 20%.
4. Provision for doubtful debts be made at 5%.
5. Old credit balances of Sundry Creditors ₹ 5,000 be written back.
6. Some investments of the firm (not mentioned in the Balance Sheet) are taken over by P for ₹ 35,000.
7. Goodwill of the firm is valued at 63,000.

P and R decided to share the future profits and losses in the ratio of 3 : 2. It was further agreed that the amount due to Q in his Current Account be paid in cash and the remaining balance should be transferred to his Loan Account.

Prepare Revaluation Account, Capital and Current Accounts of the partners (assuming all adjustments to be made through Current Accounts) and the Balance Sheet of P and R after Q’s retirement.

Answer 1

Dr.	Revaluation A/c				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Machinery A/c		34,000	By Land & Building A/c		30,000
To Inventory A/c		5,000	By Sundry Creditors A/c		5,000
To Provision for Doubtful Debts A/c		3,000	By Investment		35,000
To Gain t/f to Current A/c’s:
P	8,000
Q	12,000
R	8,000	28,000
		70,000			70,000

 

Dr.	Partner’s Capital A/c						Cr.
Particulars	P	Q	R	Particulars	P	Q	R
To Q’s loan A/c	-	1,50,000	-	By balance b/d	1,00,000	1,50,000	1,00,000
To balance c/d	1,00,000	-	1,00,000
	1,00,000	1,50,000	1,00,000		1,00,000	1,50,000	1,00,000

 

Dr.	Partner’s Current A/c						Cr.
Particulars	P	Q	R	Particulars	P	Q	R
To balance b/d	-	-	10,000	By balance b/d	20,000	6,000	-
To Q’s Current A/c (Goodwill)	19,800	-	7,200	By Revaluation A/c	8,000	12,000	8,000
To Investment	35,000			By P’s Current A/c (Goodwill)	-	19,800	-
To Cash A/c		45,000		By R’s Current A/c (Goodwill)		7,200	-
				By Balance c/d	26,800	-	9,200
	54,800	45,000	17,200		54,800	45,000	17,200

 

Balance sheet
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Capital A/c’s		2,00,000	Land and Buildings		1,30,000
P	1,00,000		Machinery	1,70,000	1,36,000
R	1,00,000		Less: Depreciation	34,000
Q’s Loan		1,50,000	Inventory		45,000
Sundry Creditors		65,000	Sundry Debtors	60,000	57,000
			Less: Provision for Doubtful Debts	3,000
			Cash		11,000
			Current A/c’s:		36,000
			P	26,800
			R	9,200
		4,15,000			4,15,000

Working Notes:

Calculation of Gaining Ratio

Gaining Ratio = New Ratio – Old Ratio

P’s Gaining ratio = `3/5 - 2/7`

= `(21-10)/35`

= `11/35`

R’s Gaining ratio = `2/5 - 2/7`

= `(14 - 10)/35`

= `4/35`

Gaining Ratio between P and R = 11 : 4

Q’s share of Goodwill = 27,000

`27,000xx 11/15` = 19,800

`27,000 xx4/15` = 7,200