Question

X, Y and Z are partners sharing profits and losses in the ratio of 3 : 2 : 1. Their Balance Sheet as at 31st March, 2024 was as follows:

Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Sundry Creditors		51,000	Buildings		2,00,000
Employees Provident Fund		9,000	Machinery		80,000
Capital A/cs:		3,84,000	Sundry Debtors	1,00,000	90,000
X	1,52,000		Less: Provision	10,000
Y	1,48,000		Stock		40,000
Z	84,000		Cash at Bank		22,000
			Profit & Loss A/c		12,000
		4,44,000			4,44,000

X retired on that date and it was decided to make the following adjustments:

1. Stock to be depreciated by 40% and sale of old papers and materials realised ₹ 1,000.
2. Provision for doubtful debts to be increased to 17% of Sundry Debtors.
3. Machinery be depreciated by 40% and buildings be appreciated by 20%.
4. Partners paid ₹ 10,000 to the family of an employee who died of an heart-attack.
5. Goodwill is valued at ₹ 30,000.
6. Y and Z decided to share future profits in the ratio of 3 : 2 and not to show goodwill in the books.
7. Y and Z would introduce sufficient capital to pay off X and have thereafter a sum of ₹ 25,000 as Working Capital in a manner that their Capitals would be in proportion of their new profit sharing ratio.

Pass journal entries and prepare the Balance Sheet of the new firm.

Answer 1

Journal Entries
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
	Revaluation A/c       ...Dr.		16,000
	To Stock A/c			16,000
	(Being record the depreciation on stock)
	Bank A/c     ...Dr.		1,000
	To Revaluation A/c			1,000
	(Being record the sale of old papers/materials)
	Revaluation A/c     ...Dr.		7,000
	To Provision for Doubtful Debts A/c			7,000
	(Being increase the provision for doubtful debts)
	Revaluation A/c     ...Dr.		32,000
	To Machinery A/c			32,000
	(Being record depreciation on machinery)
	Buildings A/c     ...Dr.		40,000
	To Revaluation A/c			40,000
	(Being record appreciation on buildings)
	Revaluation A/c     ...Dr.		10,000
	To Bank A/c			10,000
	(Being Payment to the family of the deceased employee)
	X’s Capital A/c       ...Dr.		12,000
	Y’s Capital A/c        ...Dr.		8,000
	Z’s Capital A/c       ...Dr.		4,000
	To Revaluation A/c			24,000
	(Being Loss on revaluation transferred to capital accounts)
	Y’s Capital A/c        ...Dr.		8,000
	Z’s Capital A/c       ...Dr.		7,000
	To X’s Capital A/c			15,000
	(Being Adjustment for goodwill in the gaining ratio of 8 : 7)
	Bank A/c        ...Dr.		25,000
	To Y’s Capital A/c			15,000
	To Z’s Capital A/c			10,000
	(Being Adjustment for sufficient capital)
	X’s Capital A/c         ...Dr.		1,49,000
	To Cash A/c			1,49,000
	(Being X’s Capital A/c closed)

 

Balance Sheet
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Sundry Creditors		51,000	Sundry Debtors	1,00,000
Employees Provident Fund		9,000	Less: Provision for Doubtful Debts	(17,000)	83,000
Capitals		3,60,000	Stock		24,000
Y	2,16,000		Machinery		48,000
Z	1,44,000		Buildings		2,40,000
			Cash at Bank		25,000
		4,20,000			4,20,000

Working Note:

Gaining Ratio = New Ratio – Old Ratio 

Y = `3/5-2/6=(18-10)/30=8/10`

Z = `2/5-1/6=(12-5)/30=7/30`

Gaining ratio = 8 : 7

Goodwill of the firm = ₹ 30,000

X’s share of Goodwill = `30,000xx3/6` = ₹ 15,000

Y = `15,000xx8/15` = ₹ 8,000

Z = `15,000xx7/15` = ₹ 7,000