Question

Following is the Balance Sheet of G, K & W as at 31st March, 2019 who share profits in the ratio of 3 : 2 : 1.

Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)
Capitals Accounts:		44,000	Goodwill	7,500
G	22,000		Stock	12,500
K	13,000		Sundry Debtors	12,000
W	9,000		Land and Buildings	15,000
Sundry Creditors		10,000	Plant and Machinery	18,000
Bills Payable		4,000	Motor Vehicle	5,000
General Reserve		12,000
		70,000		70,000

On 1st April, 2019, G retired and the following arrangements were agreed upon:

1. Goodwill of the firm is to be valued at ₹ 15,000.
2. The assets and liabilities are to be valued as under: Stock ₹ 10,000; Sundry Debtors ₹ 11,500; Land and Buildings ₹ 18,000; Plant and Machinery ₹ 16,500; and Sundry Creditors ₹ 9,200.
3. Liability for Workmen’s Compensation amounting to ₹ 500 is to be brought into the books.
4. K and W were to introduce ₹ 12,000 and ₹ 6,000 respectively into the business and ₹ 13,150 were paid to G. The balance due to him was to be paid in three equal instalments annually together with interest @ 12% per annum.

Give necessary ledger accounts, the Balance Sheet of the firm after G’s retirement and G’s Loan Account till it is finally paid off.

Answer 1

Dr.	Revaluation A/c			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Stock A/c	2,500	By Land and Buildings		3,000
To Provision for Doubtful Debts A/c	500	By Sundry Creditors		800
To Plant and Machinery A/c	1,500	By Loss t/f to capital A/cs:		1,200
To Workmen’s Compensation A/c	500	G	600
		K	400
		W	200
	5,000			5,000

 

Dr.	Partners’ Capital A/c						Cr.
Particulars	G	K	W	Particulars	G	K	W
To Revaluation A/c	600	400	200	By Balance b/d	22,000	13,000	9,000
To Goodwill A/c	3,750	2,500	1,250	By General Reserve A/c	6,000	4,000	2,000
To G’s Capital A/c		5,000	2,500	By K’s Capital A/c	5,000	-	-
To Balance c/d	31,150	9,100	7,050	By W’s Capital A/c	2,500	-	-
	35,500	17,000	11,000		35,500	17,000	11,000
To Bank A/c	13,150	-	-	By Balance b/d	31,150	9,100	7,050
To G’s Loan A/c	18,000	-	-	By Bank A/c	-	12,000	6,000
To Balance c/d	-	21,100	13,050
	31,150	21,100	13,050		31,150	21,100	13,050

 

Balance Sheet
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Workmen’s Compensation		500	Bank		4,850
Bills Payable		4,000	Debtors	12,000	11,500
Sundry Creditors		9,200	Less: Provision for doubtful debts	(500)
G’s Loan A/c		18,000	Stock		10,000
Capitals A/cs:		34,150	Motor Vehicle		5,000
K	21,100		Plant and Machinery		16,500
W	13,050		Land and Building		18,000
		65,850			65,850

 

G’s Loan Account
Date	Particulars	₹	Date	Particulars	₹
31.3.2020	To Bank A/c	8,160	1.4.2019	By G’s Capital A/c	18,000
31.3.2020	To Balance c/d	12,000	31.3.2020	By Interest A/c	2,160
	Total	20,160		Total	20,160
31.3.2021	To Bank A/c	7,440	1.4.2020	By Balance b/d	12,000
31.3.2021	To Balance c/d	6,000	31.3.2021	By Interest A/c	1,440
	Total	13,440		Total	13,440
31.3.2022	To Bank A/c	6,720	1.4.2021	By Balance b/d	6,000
			31.3.2022	By Interest A/c	720
	Total	6,720		Total	6,720

Working Notes:

(i) Gaining Ratio = New Ratio – Old Ratio

Old Ratio = 3 : 2 : 1

New ratio = 12,000 : 6,000

= 2 : 1

K = `2/3-2/6=(12-6)/18=6/18`

W = `1/3-1/6=(6-3)/18=3/18`

Gaining Ratio = 6 : 3 = 2 : 1

(ii) Goodwill of the firm = ₹ 15,000

G’s share of Goodwill = `15000xx3/6` = ₹ 7,500

K = `7,500xx2/3` = ₹ 5,000

W = `7,500xx1/3` = ₹ 2,500