Question

A, B and C were partners in a firm sharing profits in the ratio of 3:2:1. On 1.4.2014 their Balance Sheet was as follows :

Liabilities	Amount Rs	Assets	Amount Rs
Creditors  Provident Fund General Reserve Capital Accounts    A   80,000    B   73,000     C   40,000	25,200 3,000 21,000       1,93,000	Bank Debtors              60,000    Less: Provision 2,000 Stock Investment Patents Machinery	8,200   58,000 50,000 20,000 10,000 96,000
	2,42,200		2,42,200

On the above date, C retired. It was agreed that:
(i) Goodwill of the firm will be valued at Rs 5,400.
(ii) Depreciation of 10% was to be provided on machinery.
(iii) Patents were to be reduced by 20%.
(iv) Liability on account of Provident Fund was estimated at Rs 2,500.
(v) C took over investments for Rs 31,700.
(vi) A and B decided to adjust their capitals in proportion to their profit sharing ratio. For this
purpose, current accounts were opened.
Prepare Revaluation Account and Partners' Capital Accounts on C's retirement

Answer 1

Revaluation Account
Dr.			Cr.
Particulars	Rs	Particulars	Rs
To Machinery A/c To Patents A/c To Profit transferred to    A’s Capital A/c   300    B’s Capital A/c  200    C’s Capital A/c  100	9,600 2,000       600	By Investment A/c By Provident Fund A/c	11,700 500
	12,200		12,200

 

Partner’s Capital Account
Dr.							Cr.
Particulars	A	B	C	Particulars	A	B	C
To Investment A/c			31,700	By Balance b/d	80,000	73,000	40,000
To C’s Capital A/c	540	360		By General Reserve A/c	10,500	7,000	3,500
To Loan A/c			12,800	By Revaluation A/c	300	200	100
To Current A/c		11,800		By A’s Capital A/c			540
To Balance c/d	1,02,060	68,040		By B’s Capital A/c			360
				By Current A/c	11,800
	1,02,600	80,200	44,500		1,02,600	80,200	44,500

Working Notes
WN 1 Adjustment of Goodwill

C's Share of Goowill = `5400 xx 1/6 = 900`

A will pay = `900 xx 3/5 = 540`

B will pay = `900 xx 2/5 = 360`

WN 2 Adjustment of Capital
Adjusted Old Capital of A = 90,800 (80,000 + 10,500 + 300) – 540 = 90,260
Adjusted Old Capital of B = 80,200 (73,000 + 7,000 + 200) -360 = 79,840
Total Adjusted Capital = 90,260 + 79,840 = 1, 70,100
New Profit sharing Ratio = 3:2

A's New Capital = `170100 xx 3/5 = 102060`

B's New Capital = `170100 xx 2/5 = 68040`

Note: Since, here no information is given regarding the share acquired by A and B, therefore, their gaining ratio is same as their new profit sharing ratio i.e. 3:2