Question

A, B and C are in partnership sharing profits in the ratio of 3 : 2 : 1. On 28th February, 2025 C retires from the firm. Their Balance Sheet as at that date was as follows:

Liabilities	₹	₹	Assets	₹
Sundry Creditors		1,20,000	Bank	25,000
Outstanding Expenses		10,000	Debtors	1,65,000
Profit & Loss Account		1,50,000	Stock	2,50,000
Capital Accounts:			Investments	3,00,000
A	5,00,000		Fixed Assets	5,40,000
B	3,00,000
C	2,00,000	10,00,000
		12,80,000		12,80,000

The following was agreed upon:

1. Goodwill of the firm is valued at ₹ 1,50,000. C sells his share of goodwill to A and B in the ratio of 4 : 1.
2. Stock is revalued at 3,00,000 and debtors are revalued at ₹ 1,50,000.
3. Outstanding expenses be brought down to 3,000.
4. Investments are sold at a loss of 10%.
5. C is paid off in full.

Prepare Revaluation Account, Capital Accounts and the Balance Sheet of the new firm.

Answer 1

Dr.	Revaluation Account			Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)
To Debtors A/c		15,000	By Stock A/c	50,000
To Investment A/c		30,000	By Outstanding Expense A/c	7,000
To Profit t/f to capital A/c		12,000
X	6,000
Y	6,000
Z	4,000
		57,000		57,000

 

Dr.	Partner’s capital A/c						Cr.
Particulars	A	B	C	Particulars	A	B	C
To C’s Capital A/c	20,000	5,000	-	By Balance b/d	5,00,000	300,000	2,00,000
To Bank A/c	-	-	2,52,000	By P & L A/c	75,000	50,000	25,000
To Balance c/d	5,61,000	3,49,000	-	By Revaluation A/c - Profit	6,000	4,000	2,000
				To A’s Capital A/c	-	-	20,000
				To B’s Capital A/c	-	-	5,000
	5,81,000	3,54,000	2,52,000		5,81,000	3,54,000	2,52,000

 

Balance sheet
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount  (₹)	Amount (₹)
Sundry Creditors		1,20,000	Bank A/c		43,000
Outstanding Expense	10,000	3,000	Debtors	1,65,000	1,50,000
Less: decreased	7,000		Less: decreased	15,000
Capital A/c’s		9,10,000	Stock	2,50,000	3,00,000
A	5,61,000		Add: increased	50,000
B	3,49,000		Fixed Assets		5,40,000
		10,33,000			10,33,000

Working Notes:

Goodwill of the firm = ₹ 1,50,000

C’s share of Goodwill = `1,50,000xx1/6`

= ₹ 25,000