Advertisements
Advertisements
Question
Manoj, Hari and Karan are partners in a firm sharing profits and losses in the ratio 4:2:1. Their Balance Sheet as at 31st March, 2019, was as follows:
| Balance Sheet of Manoj, Hari and Karan As at 31st March, 2019 | ||||
| Liabilities | Amount (₹) | Amount (₹) | Assets | Amount (₹) |
| Sundry Creditors | 32,600 | Plant and Machinery | 20,000 | |
| Bills Payable | 4,000 | Goodwill | 7,000 | |
| General Reserve | 8,400 | Stock | 38,000 | |
| Capital Accounts: | Bank | 20,000 | ||
| Manoj | 16,000 | 40,000 | ||
| Hari | 14,000 | |||
| Karan | 10,000 | |||
| 85,000 | 85,000 | |||
Hari retired from the business on 1st April, 2019. The remaining partners decided to carry on the business. The terms of retirement provided the following:
- Out of the total insurance premium paid, ₹ 7,000 to be treated as prepaid insurance. The amount was earlier debited to Profit & Loss Account.
- General Reserve not to be distributed.
- Hari to be paid ₹ 24,400 in full settlement.
You are required to prepare Partners’ Capital Accounts.
Advertisements
Solution
| Dr. | Partners’ Capital Accounts | Cr. | |||||
| Particulars | Manoj (₹) | Hari (₹) | Karan (₹) | Particulars | Manoj (₹) | Hari (₹) | Karan (₹) |
| To Hari’s Capital A/c | 1,920 | - | 480 | By Balance b/d | 16,000 | 14,000 | 10,000 |
| To Goodwill A/c | 4,000 | 2,000 | 1,000 | By Revaluation A/c | 4,000 | 2,000 | 1,000 |
| To Bank A/c | - | 24,400 | - | By Manoj’s Capital A/c W.N. 1 (ii) | - | 1,920 | - |
| To Hari (W.N. 2) | 6,400 | - | 1,600 | By Karan’s Capital A/c W.N. 1 (ii) | - | 480 | - |
| To Balance c/d (B.F.) | 7,680 | - | 7,920 | By Manoj (W.N. 2) | - | 6,400 | - |
| By Karan (W.N. 2) | - | 1,600 | - | ||||
| 20,000 | 26,400 | 11,000 | 20,000 | 26,400 | 11,000 | ||
Working Notes:
(1) Old Ratio = 4 : 2 : 1
New Ratio = 4 : 1
Calculation of Gaining Ratio = New Ratio – Old Ratio
(i) Manoj’s Ratio = `4/5-4/7=(28-20)/35=8/35`
(ii) Karan’s Ratio = `1/5-1/7=(7-5)/35=2/35`
Gaining Ratio = 4 : 1
Distribution of General Reserve in Gaining Ratio
Share = `8,400xx2/7` = ₹ 2,400
Manoj’s = `2,400xx4/5` = ₹ 1,920
Karan’s = `2,400xx1/5` = ₹ 480
Note: Amount of General Reserve shall be distributed in gaining ratio.
(2)
Calculation of Hidden Goodwill:
Total of debit side of Hari’s A/c = 26,400
Less: Total of credit side of Hari’s A/c = 18,400
Amount of hidden goodwill at the time of retirement = 8,000
Amount of hidden goodwill shall be paid existing partner to retiring partner in gaining ratio
Manoj’s Share = `8,000xx4/5` = ₹ 6,400
Karan’s Share = `8,000xx1/5` = ₹ 1,600
