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On 31st March, 2019, the Balance Sheet Of A, B And C Who Were Sharing Profits and Losses in Proportion to Their Capitals Stood As: - Accountancy

Numerical

On 31st March, 2019, the Balance Sheet of A, B and C who were sharing profits and losses in proportion to their capitals stood as:

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Creditors

10,800

Cash at Bank 13,000
Bills Payable

5,000

Debtors

10,000

 

Capital A/cs:

 

Less: Provision for Doubtful Debts

200

9,800

A 45,000   Stock 9,000
B

30,000

 

Machinery 24,000
C

15,000

90,000

Freehold Premises

50,000

 

1,05,800

 

1,05,800


B retired and following adjustments were agreed to determine the amount payable to B:
(a) Out of the amount of insurance premium debited to Profit and Loss Account, ₹ 1,000 be carried forward as prepaid Insurance.
(b) Freehold Premises be appreciated by 10%.
(c) Provision for Doubtful Debts is brought up to 5% on Debtors.
(d) Machinery be reduced by 5%.
(e) Liability for Workmen Compensation to the extent of ₹ 1,500 would be created.
(f) Goodwill of the firm be fixed at ₹ 18,000 and B's share of the same be adjusted into the accounts of A and C who will share future profits in the ratio of 3/4th and 1/4th.
(g) Total capital of the firm as newly constituted be fixed at ₹ 60,000 between A and C in the proportion of 3/4th and 1/4th after passing entries in their accounts for adjustments, i.e., actual cash to be paid or to be brought in by continuing partners as the case may be.
(h) B be paid ₹ 5,000 in cash and the balance be transferred to his Loan Account.
Prepare Capital Accounts of Partners and the Balance Sheet of the firm of A and C. 

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Solution

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

(₹)

Particulars

Amount

(₹)

Provision for Douibtful Debts (500 – 200)

300

Prepaid Insurance

1,000

Machinery (24,000 × 5%)

1,200

Freehold Premises

5,000

Outstanding Workmen’s Compensation

1,500

(50,000 × 10%)

 

Profit transferred to:

 

 

 

A’s Capital A/c

1,500

 

 

 

B’s Capital A/c

1,000

 

 

 

C’s Capital A/c

500

3,000

 

 

 

6,000

 

6,000

 

Partners’ Capital Account

Dr.

 

Cr.

Particulars

A

B

C

Particulars

A

B

C

B’s Capital A/c (Goodwill)

4,500

 

1,500

Balance b/d

45,000

30,000

15,000

Bank A/c

 

5,000

 

Revaluation A/c (Profit)

1,500

1,000

500

B’s Loan A/c

 

32,000

 

A’s Capital A/c (Goodwill)

 

4,500

 

Balance c/d

42,000

 

14,000

C’s Capital A/c (Goodwill)

 

1,500

 

 

46,500

37,000

15,500

 

46,500

37,000

15,500

 

 

 

 

Balance b/d

42,000

 

14,000

Balance c/d (WN 3)

45,000

 

15,000

Cash A/c

3,000

 

1,000

 

45,000

 

15,000

 

45,000

 

15,000

 

 Balance Sheet

as on March 31, 2019 (after B’s retirement)

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Creditors

10,800

Cash at Bank

12,000

Bills Payable

5,000

Debtors

10,000

 

Outstanding Workmen Compensation

1,500

Less: Provision for Doubtful Debts

 

(500)

 

9,500

B’s Loan

32,000

Stock

9,000

Capital A/cs:

 

Machinery (24,000 – 1,200)

22,800

A

45,000

 

Freehold Premises (50,000 + 5,000)

55,000

C

15,000

60,000

Prepaid Insurance

1,000

 

1,09,300

 

1,09,300

 

Bank Account

Dr.

 

Cr.

Particulars

Amount

(₹)

Particulars

Amount

(₹)

Balance b/d

13,000

B’s Capital A/c

5,000

A’s Capital A/c

3,000

Balance c/d

12,000

C’s Capital A/c

1,000

 

 

 

17,000

 

17,000

Working Notes

WN 1 Calculation of Profit Sharing Ratio

`"Capital"    "A"                             "B"                          "C"`    

              `45,000   :   30,000  :  15,000`

`"Old Ratio"   3       :       2      :       1`

B retires from the firm.

∴ New Ratio (A and C) = 3 : 1 and

Gaining Ratio = 3 : 1

WN 2 Adjustment of Goodwill

Goodwill of the firm = Rs 18,000

B’s Share of Goodwill = `18,000 xx 2/6 = "Rs" 6,000`

This share of goodwill is to be distributed between A and C in their gaining ratio (i.e. 3 : 1).

`"A's share" = 6,000 xx 3/4 = "Rs" 4,500`

`"C's share" = 6,000 xx 1/4 = "Rs" 1,500`

WN 3 Adjustment of Partners’ Capital after B’s Retirement

Total Capital of the New Firm (after B’s retirement) = Rs 60,000

New Ratio = 3 : 1

`"A's New Capital" = 60,000 xx 3/4 = "Rs" 45,000`

`"C's New Capital" = 60,000 xx 1/4 = "Rs" 15,000`

Concept: Retirement and Death of a Partner - Calculation of New Profit Sharing Ratio
  Is there an error in this question or solution?
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APPEARS IN

TS Grewal Class 12 Accountancy - Double Entry Book Keeping Volume 1
Chapter 6 Retirement/Death of a Partner
Exercise | Q 44 | Page 88
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