Question

Mohit, Ali and John were partners in a firm, sharing profits and losses in the ratio of 3 : 1 : 1. Their Balance Sheet as at 31st March, 2018, was as follows:

Balance Sheet of Mohit, Ali and John as at 31st March, 2018
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Trade Creditors		15,000	Cash at Bank		40,000
General Reserve		6,000	Sundry Debtors	30,000
Investment Fluctuation Fund		9,000	Less: Provision for Doubtful Debts	(5,000)	25,000
Capital A/cs:			Investments (Market Value 40,000)		35,000
Mohit	70,000		Plant & Machinery		88,000
Ali	50,000		Goodwill		12,000
John	50,000	1,70,000
		2,00,000			2,00,000

Mohit retired on 1st April, 2018, subject to the following adjustments:

1. Goodwill of the firm to be valued at ₹ 20,000.
2. Mohit to take over the investments at the market value.
3. 25% of the General Reserve to be transferred to Provision for Doubtful Debts and the balance to be distributed amongst all the partners.
4. Creditors to be paid ₹ 3,000 less.
5. Investment Fluctuation Fund not to be distributed. For this, it was decided that the remaining partners would compensate the retiring partner through their capital accounts.
6. Mohit to be paid ₹ 20,000 immediately on retirement and the balance to be transferred to his loan account.

You are required to:

1. Pass journal entries on the date of Mohit’s retirement.
2. Prepare the Balance Sheet of the reconstituted firm.

Answer 1

In the Books of Mohit, Ali & John
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
2018
April 1	Mohit’s Capital A/c       ...Dr.		7,2000
	Ali’s Capital A/c          ...Dr.		2,400
	John’s Capital A/c     ...Dr.		2,400
	To Goodwill A/c			12,000
	(Goodwill existing in the books written off)
	Ali’s Capital A/c       ...Dr.		6,000
	John’s Capital A/c     ...Dr.		6,000
	To Mohit’s Capital A/c			12,000
	(Adjustment for goodwill in the gaining ratio of 1 : 1)
	General Reserve A/c         ...Dr.		6,000
	To Prov. for Doubtful Debts A/c			1,500
	To Mohit’s Capital A/c			2,700
	To Ali’s Capital A/c			900
	To John’s Capital A/c			900
	(Adjustment for general reserve)
	Investments A/c     ...Dr.		5,000
	Trade Creditors      ...Dr.		3,000
	To Revaluation A/c			8,000
	(Gain on revaluation of assets and liabilities)
	Revaluation A/c          ...Dr.		8,000
	To Mohit’s Capital A/c			4,800
	To Ali’s Capital A/c			1,600
	To John’s Capital A/c			1,600
	(Gain on revaluation transferred to capital accounts)
	Ali’s Capital A/c     ...Dr.		2,700
	John’s Capital A/c      ...Dr.		2,700
	To Mohit’s Capital A/c			5,400
	(Adjustment for Mohit’s share of Investment Fluctuation Fund)
	Mohit’s Capital A/c           ...Dr.		40,000
	To Investments A/c			40,000
	(Investments taken over by Mohit)
	Mohit’s Capital A/c         ...Dr.		47,700
	To Bank A/c			20,000
	To Mohit’s Loan A/c			27,700
	(Mohit's Capital A/c closed)

 

Balance Sheet of Ali & John as at 1st April, 2018
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Trade Creditors		12,000	Cash at Bank		20,000
Investment Fluctuation Fund		9,000	Sundry Debtors	30,000
Mohit's Loan A/c		27,700	Less: Provision for Doubtful Debts	6,500	23,500
Capital A/cs:			Plant & Machinery		88,000
Ali	41,400
John	41,400	82,800
		1,31,500			1,31,500

Working Notes:

Dr.	Partner’s Capital A/c						Cr.
Particulars	Mohit	Ali	John	Particulars	Mohit	Ali	John
To Goodwill A/c	7,200	2,400	2,400	By Bal. b/d	70,000	50,000	50,000
To Mohit’s Capital A/c		6,000	6,000	By General Reserve A/c	2,700	900	900
To Mohit’s Capital A/c		2,700	2,700	By Revaluation A/c	4,800	1,600	1,600
To Investments A/c	40,000			By Ali’s Capital A/c	6,000
To Bank A/c	20,000			By John Capital A/c	6,000
To Mohit’s Loan A/c	27,700			By Ali’s Capital A/c	2,700
To Bal. c/d		41,400	41,400	By John Capital A/c	2,700
	94,900	52,500	52,500		94,900	52,500	52,500