Question

Sathe, Deshpande and Madlani were partners sharing profits and losses in the ratio of 5:2:3. Their Balance Sheet was as follows:

             Balance Sheet as on 31^st March, 2012

Liabilities	Amount (Rs)	Assets		Amount (Rs)
Capitals		Plant and Machinery		50,000
Sathe	70,000	Building		1,00,000
Deshpande	80,000	Motor Van		20,000
Madlani	50,000	Stock		30,000
Creditors	25,000	Debtors	36,000	34,000
Bills Payable	12,000	Less : R.D.D	2,000
Reserve Fund	25,000	Cash		28,000
	2,62,000			2,62,000

Deshpande retired on that date on the following terms:

1) Plant to be depreciated by 10% and Motor Van by 20%.

2) Stock to be appreciated by 10% and building by 20%.

3) R.D.D. is no longer necessary

4) Provision is to be made for Rs 8,000 being compensation to worker

5) The goodwill of the firm to be valued at Rs 40,000 and Deshpande’s share in it should be raised.

6) Both the remaining partners decided to write off the goodwill

7) Amount payable to Shri. Deshpande to be kept as his Loan

Prepare:

1 ) Profit and Loss Adjustment Account

2) Partner’s Capital Accounts

3) New Balance Sheet

Answer 1

             Profit and Loss Adjustment Account 
Dr                                                                                Cr.

Particulars		Amount (Rs)	Particulars	Amount (Rs)
Plant and Machinery		5,000	Stock	3,000
Motor Van		4,000	Building	20,000
Provision for Compensation to workers		8,000	Reserve for Doubtful Debts	2,000
Profit transferred to:
Sathe’s Capital	4,000	8,000
Deshpande’s Capital	1,600
Madlani’s Capital	2,400
		25,000		25,000

                     Partners’ Capital Accounts
Dr.                                                                                 Cr.

Particulars	Sathe	Deshpande	Madlani	Particulars	Sathe	Deshpande	Madlani
Goodwill (written off)	5,000		3,000	Balance b/d	70,000	80,000	50,000
Loan A/c	81,500	94,600	56,900	Reserve Fund	12,500	5,000	7,500
				Profit and Loss Adjustment A/c (Profit)	4,000	1,600	2,400
				Goodwill		8,000
	86,500	94,600	59,900		86,500	94,600	59,900

 

 Balance Sheet

     as on April 01, 2012 after Deshpande’s retirement

Liabilities		Amount (Rs)	Assets		Amount (Rs)
Creditors		25,000	Plant	50,000
Bills Payable		12,000	Less : Depreciation	5,000	45,000
Provision for worker’s compensation		8,000	Motor Van	20,000	16,000
Loan A/c of Deshpande		94,600	Less : Depreciation	4,000
Capital A/c's			Debtors		36,000
Sathe	81,500	1,38,400	Building		1,20,000
Madlani	56,900		Stock		33,000
			Cash		28,000
		2,78,000			2,78,000

Working Notes:

Old Profit Sharing Raio = Sathe : Deshpande : Madlani
                                      = 5 : 2 : 3

New Profit Sharing Ratio of Sathe and Madlani = 5 : 3

Gaining Ratio = New Ratio - Old Ratio

Sathe's  Gain = `5/8 - 5/10 = 5/40`

Madlani's Gain = `3/8 - 3/10 = 3/40`

Gaining Ratio = 5 : 3

WN 1: Distribution of Reserve Fund: 

Sathe will get = `25000 xx 5/10 = "Rs" 12500`

Deshpande will get `= 25000 xx 2/10 = "Rs"5000`

Madlani will get`= 25000 xx 3/10 = "Rs" 7500`

WN 2: Calculation Share of Goodwill

Share of Goodwill of Deshpande =`40000 xx 2/10 = "Rs" 8000`

WN 3: Goodwill written off

Sathe's Gain = `8000 xx 5/ 8 = "Rs" 5000`

Madlani's Gain = `8000 xx 3/8 = "Rs" 3000`

Note: According to the solution provided in the book, amount paid to Deshpande is Rs 34,600 but according to our solution it is Rs 94,600.