Question

A, B and C are partners sharing profits and losses in the ratio of 2 : 2 : 1. The Balance Sheet of their business as at 31st March 2022 is given below:

Liabilities	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Sundry Creditors	90,000	Machinery at Cost	3,00,000	2,40,000
Capital Accounts:		Less: Provision for Depreciation	60,000
A	1,70,000	Office Equipment		50,000
B	2,30,000	Stock		1,70,000
C	1,50,000	Investments		50,000
		Debtors	1,20,000	1,14,000
		Less: Provision	6,000
		Cash at Bank		16,000
	6,40,000			6,40,000

C retired on 31st July 2022 and A and B decided to share future profits in the ratio of 2: 3.

The terms of retirement provide the following:

1. Machinery was to be revalued at ₹ 2,25,000.
2. Liability for the payment of gratuity to workers ₹ 16,000 is to be provided for.
3. Provision for bad debts is no more necessary.
4. Investments are to be taken over by the retiring partner at ₹ 60,000.
5. A provision for ₹ 5,000 be made in respect of an outstanding bill for repairs.
6. Goodwill of the firm is valued at ₹ 60,000 and profit upto the date of retirement was estimated at ₹ 40,000.
7. C was paid off in full and a bank loan of ₹ 1,00,000 is to be arranged for this purpose.
8. The capitals of A and B will be readjusted according to their new profit sharing ratio by bringing in or paying cash to the partners.

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

Answer 1

Dr.	Revaluation A/c			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Machinery A/c	15,000	By Provision for Doubtful Debts A/c		6,000
To Provision for Repairs A/c	5,000	By Investments A/c		10,000
To Payment of gratuity A/c	16,000	By Loss t/f to capital A/cs:		20,000
		A	8,000
		B	8,000
		C	4,000
	36,000			36,000

 

Dr.	Partners’ Capital A/c						Cr.
Particulars	A	B	C	Particulars	A	B	C
To Revaluation A/c - Loss	8,000	8,000	4,000	By Balance b/d	1,70,000	2,30,000	1,50,000
To C’s Capital A/c	-	12,000	-	By B’s Capital A/c	-	-	12,000
To C’s Capital A/c	-	8,000	-	By B’s Capital A/c	-	-	8,000
To Investments A/c	-	-	60,000	By Bank A/c	-	16,400	-
To Bank A/c	-	-	1,06,000
To Bank A/c	16,400	-	-
To Balance c/d	1,45,600	2,18,400	-
	1,70,000	2,46,400	1,70,000		1,70,000	2,46,400	1,70,000

 

Balance sheet of the new firm
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)
Sundry Creditors		90,000	Machinery	2,25,000
Payment of gratuity		16,000	Office Equipment	50,000
Outstanding bill for repairs		5,000	Stock	1,70,000
C’s Loan A/c		1,00,000	Debtors	1,20,000
Capitals A/cs:		3,64,000	Cash at Bank	10,000
A	1,45,600
B	2,18,400
		5,75,000		5,75,000

Working Note:

Gaining Ratio = New Ratio – Old Ratio

A = `2/5-2/5=(10-10)/25=0/25`

B = `3/5-2/5=(15-10)/25=5/10`

Gaining Ratio = 0 : 5 

Goodwill of the firm = ₹ 60,000

C’s share of Goodwill = `60,000xx1/5`

= ₹ 12,000

Only for B’s share of Goodwill = ₹ 12,000