Question

Shubh, Mangal and Anand were partners sharing profits and losses in the ratio of 5: 2: 3. Their Balance Sheet was as follows:

Balance Sheet as on 31st March 2020

Liabilities	Amount  (₹)	Amount  (₹)	Assets	Amount  (₹)	Amount  (₹)
Capital A/cs:			Machinery		50,000
Shubh		70,000	Building		1,00,000
Mangal		80,000	Furniture		20,000
Anand		50,000	Stock		30,000
Creditors		25,000	Debtors	36,000
Bill Payable		12,000	Less: R.D.D.	2,000	34,000
General Reserve		25,000	Bank		28,000
		2,62,0000			2,62,000

Mangal retired on 1st April 2020 on the following terms:

(1) Machinery is to be depreciated by 10% and furniture by 20%.

(2) Stock is to be appreciated by 10% and Building by 20%.

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

(4) Provision is to be made for ₹ 8000 being compensation to workers.

(5) The goodwill of the firm is to be valued at ₹ 40,000 and Mangal's share in it should be raised.

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

(7) Amount payable to Mangal is to be kept as his Loan.

Prepare: (1) Profit and Loss Adjustment Account (2) PArtner's Capital Accounts (3) New Balance Sheet.

Answer 1

In the books of partnership firm

Dr.	Profit and Loss Adjustment Account						Cr.
Particulars		Amount  (₹)	Amount  (₹)	Particulars	Amount  (₹)	Amount  (₹)
To Machinery A/c			5,000	By Stock A/c		3,000
To Furniture A/c			4,000	By Building A/c		20,000
To Provision for compensation to worker's A/c			8,000	By R.D.D. A/c (Cancelled)		2,000
To Partner's Capital A/cs: (Profit)
Shubh		4,000
Mangal		1,600
Anand		2,400	8,000
			25,000			25,000

 

Dr.	Partner's Capital Accounts								Cr.
Particulars		Shubh (₹)	Mangal (₹)	Anand (₹)	Particulars	Shubh (₹)	Mangal (₹)	Anand (₹)
To Goodwill A/c (Written off)		5,000	-	3,000	By Balance b/d	70,000	80,000	50,000
To Mangal's Loan A/c		-	94,600	-	By General Reserve A/c	12,500	5,000	7,500
To Balance c/d		81,500	-	56,900	By Profit and Loss Adjustment A/c	4,000	1,600	2,400
					By Goodwill A/c (raised)	-	8,000	-
		86,500	94,600	59,900		86,500	94,600	59,900

 

Balance Sheet as on 1st April 2020
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Partner's Capital A/cs:			Building	1,00,000
Shubh	81,500		Add: Appreciation @ 20%	20,000	1,20,000
Anand	56,900	1,38,400	Machinery	50,000
Mangal's Loan A/c		94,600	Less: Depreciation @ 10%	5,000	45,000
Creditors		25,000	Furniture	20,000
Bills Payable		12,000	Less: Depreciation @ 20%	4,000	16,000
Provision for compensation to workers		8,000	Stock	30,000
			Add: Appreciation @ 10%	3,000	33,000
			Debtors		36,000
			Bank		28,000
		2,78,000			2,78,000

Working Notes:

(1) Mangal's share in firm's Goodwill = `2/10` × 40,000 = ₹ 8,000

Goodwill to the extent of ₹ 8,000 is credited to Mangal's A/c and then debited to Shubh's Capital A/c and Anand's Capital A/c in their gain ratio which is equal to the new ratio i.e, 5: 3. Hence, Goodwill debited to Shubh's Capital A/c = `5/8` × 8,000 = ₹ 5,000 and Anand's Capital A/c = `3/8` × 8,000 = ₹ 3,000.

(2) Provision for compensation to workers ₹ 8,000 is first debited to Profit and Loss Adjustment A/c and then it is shown on the liabilities side of new Balance Sheet.

(3) The cancelled R.D.D. ₹ 2,000 is credited to profit and Loss Adjustment A/c and Debtors to the extent of ₹ 36,000 are shown on the Asset side of Balance Sheet.