Question

Ratan, Anmol and Heera are partners with equal share in profits. Ratan retires on 1st April, 2026. Anmol and Heera agreed to share future profits in the ratio of 5 : 4. Following is the Balance Sheet extract on that date.

BALANCE SHEET (EXTRACT) OF RATAN, ANMOL AND HEERA as at 1st April, 2026
Liabilities	₹	₹	Assets	₹	₹
Workmen Compensation Reserve		40,000	Stock		44,000
Employees Provident Fund		10,000	Debtors	8,000
Capital A/cs:			Less: Provision for Doubtful Debts	5,000	75,000
Ratan	1,56,000		Investments		1,50,000
Anmol	1,70,000
Heera	1,60,000	4,86,000

Additional Information:

1. There was a claim of Workmen Compensation for ₹ 46,000
2. Stock was found overvalued by 10%.
3. Bad debts amounted to ₹ 7,000 and remaining debtors are good.
4. Ratan was given Investments and 50% of the stock in full settlement.

Pass necessary journal entries on the date of Ratan's retirement.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2026
Apr 1	Workmen Compensation Reserve A/c   ...Dr.		40,000
	Revaluation A/c   ...Dr.		6,000
	To Provision for Workmen Compensation Claim A/c			46,000
	(Being claim provision created and excess liability charged to revaluation)
Apr 1	Revaluation A/c   ...Dr.		6,000
	To Stock A/c			4,000
	To Provision for Doubtful Debts A/c			2,000
	(Being decrease in stock value and additional provision for bad debts recorded)
Apr 1	Provision for Doubtful Debts A/c   ...Dr.		7,000
	To Debtors A/c			7,000
	(Being bad debts of ₹7,000 written off using total accumulated provision)
Apr 1	Ratan's Capital A/c   ...Dr.		4,000
	Anmol's Capital A/c   ...Dr.		4,000
	Heera's Capital A/c   ...Dr.		4,000
	To Revaluation A/c			12,000
	(Being loss on revaluation distributed equally among partners)
Apr 1	Anmol's Capital A/c   ...Dr.		12,000
	Heera's Capital A/c   ...Dr.		6,000
	To Ratan's Capital A/c			18,000
	(Being Ratan's share of hidden goodwill compensated by continuing partners in 2 : 1)
Apr 1	Ratan's Capital A/c   ...Dr		1,70,000
	To Investments A/c			1,50,000
	To Stock A/c			20,000
	(Being Ratan's final balance of ₹ 1,70,000 settled by transferring investments and 50% stock)

Working Note:

A. Revaluation of Assets and Liabilities

Workmen Compensation Claim: Excess claim over reserve = ₹ 46,000 − ₹ 40,000 = ₹ 6,000 (Loss)

Stock Overvaluation: Correct Value = `(44,000)/(110%) = 40,000` Decrease in value = ₹ 4,000 (Loss)

Bad Debts: Total bad debts = ₹ 7,000. Adjusted against old provision of ₹ 5,000, leaving an excess loss of ₹ 2,000 (Loss)

Total Revaluation Loss: ₹ 6,000 + ₹ 4,000 + ₹ 2,000 = ₹ 12,000

Share of Revaluation Loss (Equal ratio): ₹ 4,000 each to Ratan, Anmol, and Heera.

B. Calculation of Ratan's Hidden Goodwill

Ratan's Opening Capital: ₹ 1,56,000

Less: Share of Revaluation Loss: (₹ 4,000)

Ratan's Adjusted Capital: ₹ 1,52,000

Value of Assets given in full settlement:

Investments: ₹ 1,50,000 

50% of Stock (at revised value of ₹ 40,000): ₹ 20,000

Total Settlement Value: ₹ 1,70,000

Ratan's Share of Hidden Goodwill: ₹ 1,70,000 − ₹ 1,52,000 = ₹ 18,000

C. Gaining Ratio Adjustment

Gaining Share = New Share − Old Share

Anmol's Gain: `5/9 - 1/3 = 2/9`

Heera's Gain: `4/9 - 1/3 = 1/9`

Gaining Ratio: 2 : 1

Goodwill Contribution:

Anmol's pays: `18,000 xx 2/3 = ₹ 12,000`

Heera pays: `18,000 xx 1/3 = ₹ 6,000`