Question

P, Q and R are in partnership sharing profits in the ratio of 3 : 2 : 1. R retires. Following balances appeared in their books:

	₹	₹
Goodwill	12,000
Bank	10,000
Other Assets	70,000
Creditors		14,000
Capitals: P		40,000
Q		20,000
R		18,000
	92,000	92,000

Goodwill is agreed at ₹ 30,000. Sufficient money is to be introduced so that R is paid off and leave ₹ 4,000 in cash at bank. P and Q are to provide such sum as will make their capitals proportionate to their share of profits.

Prepare necessary entries and the new balance sheet.

Answer 1

Journal
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
(i)	P’s Capital A/c       ...Dr.		6,000	-
	Q’s Capital A/c       ...Dr.		4,000	-
	R’s Capital A/c       ...Dr.		2,000	-
	To Goodwill A/c		-	12,000
	(Being goodwill write off in old ratio i.e, 3 : 2)
(ii)	P’s Capital A/c       ...Dr.		3,000	-
	Q’s Capital A/c       ...Dr.		2,000	-
	To R’s Capital A/c		-	5,000
	(Being R’s share of goodwill debited to the gaining partners in their gaining ratio of 3 : 2)
(iii)	Bank A/c     ...Dr.		15,000	-
	To P’s Capital A/c		-	5,000
	To Q’s Capital A/c		-	10,000
	(Being amount brought in by continuing partners)
(iv)	R’s Capital A/c       ...Dr.		21,000	-
	To Bank A/c		-	21,000

 

Balance sheet
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)
Creditors		14,000	Bank	4,000
Capitals A/cs:			Other Assets	70,000
P	36,000
Q	24,000	60,000
		74,000		74,000

Working Notes:

1. Old ratio of P, Q & R = 3 : 2 : 1

R retired, 

New Ratio of P & Q = 3 : 2

Gaining ratio =  New Ratio (i.e., 3 : 2)

Goodwill = ₹ 30,000 

R’s share of goodwill = `30,000xx1/6`

= ₹ 5,000

2. 

Adjustment of capitals:	₹	₹
Capital Balance (after all Adjustment)
P	31,000
Q	14,000	45,000
Amount brought by P & Q in cash
Amount payable to R	21,000
Less: Cash utilised (10,000 – 4,000)	(6,000)	(15,000)
Total Capital of new firm		60,000

P’s Capital = `60,000xx3/5` = ₹ 36,000

Q’s Capital = `60,000xx2/5` = ₹ 24,000

3.

Dr.	Partner’s Capital A/c						Cr.
Particulars	P	Q	R	Particulars	P	Q	R
To Goodwill A/c	6,000	4,000	2,000	By Balance b/d	40,000	20,000	18,000
To R’s capital A/c	3,000	2,000	-	By P’s capital A/c	-	-	3,000
To Balance c/d	31,000	14,000	21,000	By R’s capital A/c	-	-	2,000
	40,000	20,000	23,000		40,000	20,000	23,000
				By Balance b/d	31,000	14,000	21,000
				By Bank A/c	5,000	10,000	-
	23,500	17,800	9,400		23,500	17,800	9,400