Question

P, Q and R were partners sharing profits and losses in the ratio of 5 : 3 : 2 respectively. On 31st March, 2024 the Balance Sheet of the firm stood as follows:

Liabilities	Amount (₹)	₹	Assets	Amount (₹)
Sundry Creditors		5,300	Fixed Assets	25,000
Expenses Outstanding		700	Stock	11,000
Reserve		3,000	Book Debts	9,000
Capitals		38,000	Cash at Bank	2,000
P	20,000
Q	10,000
R	8,000
		47,000		47,000

On this date Q decided to retire and for this purpose:

1. Goodwill was valued at ₹ 19,000;
2. Fixed assets were valued at ₹ 30,000;
3. Stock was considered as worth 10,000.

Q was to be paid through cash, brought in by P and R, in such a way as to make their capitals proportionate to their new profit sharing ratio which was to be P 3/5 and R 2/5.

Record these matters in the journal of the firm and prepare the resultant Balance Sheet.

Answer 1

Journal
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
(i)	Revaluation A/c      ...Dr.		1,000
	To Stock A/c			1,000
	(Being value of asset decreased)
(ii)	Fixed Assets A/c      ..Dr.		5,000
	To Revaluation A/c			5,000
	(Being value of asset increased)
(iii)	Revaluation A/c         ..Dr.		4,000
	To P’s Capital A/c			2,000
	To Q’s Capital A/c			1,200
	To Q’s Capital A/c			800
	(Being profit on revaluation distributed among partners in their old ratio, i.e. 5 : 3 : 2)
(iv)	Q’s Capital A/c         ..Dr.		17,800
	To Bank A/c			17,800
	(Being final cash paid to Q)
(v)	Bank A/c          ..Dr.		5,400
	To P’s Capital A/c			5,400
	(Being cash brought in by P for adjustment of his capital)
(vi)	Bank A/c         ..Dr.		12,400
	To R’s Capital A/c			12,400
	(Being cash brought in by R for adjustment of his capital)

 

Dr.	Revaluation A/c			Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)
To Stock A/c		1,000	By Fixed Assets A/c	5,000
To profit t/f to Capital A/cs:
P	2,000
Q	1,200
R	800	4,000
		5,000		5,000

 

Dr.	Partner’s Capital A/c						Cr.
Particulars	P	Q	R	Particulars	P	Q	R
To S’s capital A/c	1,900	-	3,800	By Balance b/d	20,000	10,000	8,000
To Bank A/c	-	17,800	-	By Reserve A/c	1,500	900	600
To Balance c/d	21,600	-	5,600	By Revaluation A/c	2,000	1,200	800
				By P’s capital A/c	-	1,900	-
				By R’s capital A/c	-	3,800	-
	23,500	17,800	9,400		23,500	17,800	9,400
To Balance c/d	27,000	-	18,000	By Balance b/d	21,600	-	5,600
				By Bank A/c	5,400	-	12,400
	27,000	-	18,000		27,000	-	18,000

 

Dr.	Bank A/c		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Balance b/d	2,000	By Q’s capital A/c	17,800
To P’s capital A/c	5,400	By Balance c/d	2,000
To R’s capital A/c	12,400
	19,800		19,800

 

Balance Sheet
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Sundry Creditors		5,300	Fixed Assets	25,000	30,000
Expenses Outstanding		700	Add: increased	5,000
Capital A/cs:		45,000	Stock	11,000	10,000
P	27,000		Less: decreased	1,000
Q	18,000		Book debts		9,000
			Cash at bank		2,000
		51,000			51,000

Working notes:

1. Old ratio of P, Q & R

Q retired, 

New ratio of P & R = 3 : 2

Gaining ratio = New share - Old share

P gains = `3/5-5/10`

= `(6-5)/10`

= `1/10`

R gains = `2/5-2/10`

= `(4-2)/10`

= `2/10`

Gaining ratio of P & Q = 1 : 2

2. Goodwill = ₹ 19,000 

Q’s share of goodwill = `19,000xx3/10`

= ₹ 5,700

3. New ratio = 3 : 2

P’s Capital in new firm = `45,000xx3/5`

= ₹ 27,000

R’s Capital in new firm = `45,000xx2/5`

= ₹ 18,000