Question

Piu and Nina are partners in a firm sharing profits and losses in the ratio of 3 : 1 respectively.

Nina retires and her claim, including her capital and entitlements from the firm including her share of goodwill of the firm, is ₹ 60,000.

After this amount was determined, it was found that there was some unrecorded office equipment valued at ₹ 18,000 which had to be recorded.

Upon recording this office equipment, the revised amount due to Nina was determined and Piu settled it by giving Nina this office equipment and for the balance she drew a promissory note.

You are required to give the necessary journal entries to record the transactions on the date of Nina's retirement.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Office Equipment A/c   ...Dr.		18,000
	To Revaluation A/c			18,000
	(Being unrecorded office equipment brought into the books)
2.	Revaluation A/c   ...Dr.		18,000
	To Piu's Capital A/c			13,500
	To Nina's Capital A/c			4,500
	(Being profit on revaluation of office equipment distributed between partners in their old profit-sharing ratio of 3 : 1)
3.	Nina's Capital A/c   ...Dr.		64,500
	To Office Equipment A/c			18,000
	To Bills Payable A/c			46,500
	(Being the revised final claim of Nina settled by giving her the office equipment and accepting a promissory note for the balance)

Working note:

1. Distribution of Revaluation Gain on Office Equipment

The discovery of unrecorded office equipment worth ₹ 18,000 is a gain for the firm. This profit must be shared between the old partners in their old profit-sharing ratio (3 : 1):

Piu's Share of Profit: `18,000 xx 3/4 = 13,500`

Nina's Share of Profit: `18,000 xx 1/4 = 4,500`

2. Calculation of Revised Amount Due to Nina

Nina's final balance increases because of her share in the newly recorded asset's profit:

Initial Determined Claim: ₹ 60,000

Add: Share in Revaluation Profit: ₹ 4,500

Revised Final Amount Due to Nina: 60,000 + 4,500 = 64,500

3. Settlement of Nina's Balance

Total Amount Payable: ₹ 64,500

Less: Value of Office Equipment Given: ₹ 18,000

Balance for Promissory Note (Bills Payable): 64,500 − 18,000 = 46,500