Question

Ashish, Vinit, and Reema were partners sharing profits and losses in the ratio of 2 : 2 : 1. Their Balance Sheet on 31st March, 2024, was as follows:

Balance sheet of Ashish, Vinit, and Reema as at 31st March, 2024
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Capitals:		5,00,000	Patents		80,000
Ashish	2,00,000		Furniture		3,00,000
Vinit	2,00,000		Stock		1,70,000
Reema	1,00,000		Debtors	80,000	72,000
General Reserve		50,000	Less: Provision for Doubtful Debts	8,000
Bills Payable		80,000	Cash		48,000
Creditors		40,000
		6,70,000			6,70,000

On the above date, Vinit retired on the following terms:

1. Goodwill of the firm was valued at ₹ 60,000, and the same was adjusted into the capital accounts of Ashish and Reema, who will share profits in the future in the ratio of 3 : 2.
2. The value of the stock was to be reduced by ₹ 10,000.
3. Patents are found undervalued by 20%.
4. Vinit was paid ₹ 20,000 immediately on retirement, and the balance was transferred to his loan account carrying interest @ 8% p.a.

Pass the necessary journal entries on Vinit’s retirement.

Answer 1

Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
i.	General Reserve A/с   ...Dr.		50,000	−
	To Ashish’s Capital A/с		−	20,000
	To Vinit’s Capital A/c		−	20,000
	To Reema’s Capital A/с		−	10,000
	(Being general reserve distributed among partners)
	Revaluation A/c   ...Dr.		10,000	−
	To Stock A/c		−	10,000
	(Being decrease in the value of the stock is recorded)
ii.	Patents А/с   ...Dr.		20,000	−
	To Revaluation A/с		−	20,000
	(Being undervalued Patents, now adjusted)
iii.	Revaluation A/c   ...Dr.		10,000	−
	To Ashish’s Capital A/с		−	4,000
	To Vinit’s Capital A/с		−	4,000
	To Reema’s Capital A/с		−	2,000
	(Being profit on revaluation transferred to partners’ capital account)
iv.	Ashish’s Capital A/c   ...Dr.		12,000	−
	Reema’s Capital A/c   ...Dr.		12,000	−
	To Vinit’s Capital A/c		−	24,000
	(Being Vinit’s share of goodwill adjusted)
v.	Vinit’s Capital A/c   ....Dr.		2,48,000	−
	To Bank A/c		−	20,000
	To Vinit’s Loan A/c		−	2,28,000
	(Being the net amount due to Vinit was paid ₹ 20,000 immediately, and the balance was transferred to his loan account)

Working Notes:
1. Calculation of Gaining ratio: Old ratio of Ashish, Vinit, and Reema = 2 : 2 : 1

New Ratio of Ashish and Reema = 3 : 2

Gaining Ratio = New share − old share

Ashish's gain = `3/5 - 2/5`

= `1/5`

Reema's gain = `2/5 - 1/5`

= `1/5`

Gaining Ratio = 1 : 1

2. Calculation of Vinit's share of goodwill:

Goodwill of Firm = ₹ 60,000

Vinit's share of Goodwill = `60,000 xx 2/5`

= ₹ 24,000

Which will be compensated by Ashish and Reema in their gaining ratio, i.e., 1 : 1.