Question

Following is the balance sheet at Sharmila, Urmila and Pramila, who shared profits and losses in the ratio of 5 : 3 : 2 respectively:

Balance Sheet as on 31st March, 2013

Liabilities	Amount	Assets	Amount
Capital accounts:		Land and buildings	250000
Sharmila	2,00,000	Plant and Machinery	70000
Urmila	1,50,000	Furniture	20000
Pramila	1,00,000	Sundry debtors	90000
Reserve fund	50,000	Stock	56500
Sundry creditors	42,800	Bills receivable	7400
Bills payable	6,000	Cash in hand	3700
		Cash at bank	51200
	5,48,800		5,48,800

Pramila retired on 31st March, 2013 on the following terms:
(1) Goodwill of the firm was valued at Rs 60,000. It was decided that ‘goodwill’ should be raised to the extent of Pramila’s share only, and to be written off immediately.
(2) Land and building to be appreciated by Rs 20,000. Stock is revalued at Rs 58,500. Furniture is to be depreciated by 10%.
(3) Amount payable to Pramila is to be transferred to her loan account.
Give Journal Entries in the books of the firm.

Answer 1

Journal of Partnership Firm

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs. )
31.3.13	Reserve Fund A/c ..... Dr.		50000
	To Sharmila’s Capital A/c			25000
	To Urmila’s Capital A/c			15000
	To Pramila’s Capital A/c			10000
	[Being reserve fund distributed and transfrred to all partners’ capital account in their old ratio)
31.3.13	Goodwill A/c ...... Dr.		12000
	To Pramila’s Capital A/c			12000
	[Being Goodwill raised and credited to Pramila’s Capital A/c ]
31.3.13	Sharmila’s Capital A/c .... Dr.		7500
	Urmila’s Capital A/c ..... Dr.		4500
	To Goodwill A/c			12000
	[Being Goodwill written off and debited to remaining partners’ capital A/c in their gain ratio]
31.3.13	Land and Building A/c .... Dr.		20000
	Stock A/c .... Dr.		2000
	To Profit and Loss Adjustment A/c			22000
	[Being appreciation in the value of Assets recorded]
31.3.13	Profit and Loss Adjustment A/c .... Dr.		2000
	To Furniture A/c			2000
	[Being the furniture depreciated in value]
31.3.13	Profit and Loss Adjustment A/c .... Dr.		20000
	To Sharmila’s Capital A/c			10000
	To Urmila’s Capital A/c			6000
	To Pramila’s Capital A/c			4000
	[Being profit on revaluation of assets and liabilities transfered to partners’ capital A/c ]
31.3.13	Pramila’s Capital A/c .......Dr.		126000
	To Pramila’s Loan A/c			126000
	[Being balance due to Pramila transferred to her Loan A/c ]

Working Note: Profit and Loss Adjustment Account & Partners Capital Accounts

Profit and Loss Adjustment Account

Particulars	Amount	Amount	Particulars	Amount	Amount
To Furniture A/c		2000	By Land and Buildings A/c		20000
To Partners’ Capital A/c			By Stock A/c		2000
Sharmila	10000
Urmila	6000
Pramila	4000	20000
		22000			22000

Partners Capital Accounts

Particulars	SHARMILA	URMILA	PRAMILA	Particulars	SHARMILA	URMILA	PRAMILA
To Goodwill A/c	7500	4500		By Balance b/d	200000	150000	100000
To Pramila’s Loan A/c			126000	By Reserve Fund	25000	15000	10000
				By Goodwill A/c	-	-	12000
				By Profit & Loass Adjustment A/c	10000	6000	4000
To Balance c/d	227500	166500	-
	235000	171000	126000		235000	171000	126000

Working Note :- 

Pramila s share in goodwill =(value of goodwill raised ) (pramilas share in profit ) 

=`60000xx12/10=12000`

Calculation of gain ratio :- 

old ratio = 5:3:2= `5/10,3/10,2/10`

new ratio = 5:3 `5/8 ,3/8`

Gain ratio = New ratio - old ratio 

Sharmila' s gain ratio =`5/5- 5/10=(50-40)/80=10/80`

urmila's gain ratio = `3/8-3/10=(30-24)/80=6/80`

`∴ "gain ratio" =10/80 : 6/80 `

= 10: 6

= 5:3