Question

P, Q and R were partners in a firm sharing profits in the ratio of 2 : 3 : 5. On 31-3-2024 their Balance Sheet was as follows:

Liabilities	₹	₹	Assets	₹	₹
Creditors		70,000	Bank		45,000
Capital Accounts			Debtors	40,000
P	80,000		Less: Provision for Doubtful Debts	5,000	35,000
Q	70,000		Stock		50,000
R	60,000	2,10,000	Building		1,40,000
			Profit and Loss A/c		10,000
		2,80,000			2,80,000

On the above date R retired from the firm due to his illness on the following terms:

1. Building was to be depreciated by ₹ 40,000.
2. Provision for doubtful debts was to be maintained at 20% on debtors.
3. Salary outstanding ₹ 5000 was to be recorded and creditors ₹ 4,000 will not be claimed.
4. Goodwill of the firm was valued at ₹ 72 000.
5. R was to be paid ₹ 15,000 in cash, through bank and the balance was to be transferred to his loan account.

Prepare Revaluation Account, Partner’s Capital Accounts and the Balance Sheet of P and Q after R’s retirement.

Answer 1

Dr.	Revaluation A/c			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Building A/c	40,000	By Creditors A/c		4,000
To Provision for Doubtful Debts A/c	3,000	By Loss t/f to capital A/c		44,000
To outstanding Salary A/c	5,000	P	8,800
		Q	13,200
		R	22,000
	48,000			48,000

 

Dr.	Partner’s capital A/c						Cr.
Particulars	P	Q	R	Particulars	P	Q	R
To P & L A/c	2,000	3,000	5,000	By bal. b/d	80,000	70,000	60,000
To R’s Cap. A/c	14,400	21,600	-	By P’s cap. A/c	-	-	14,400
To Revaluation A/c - Loss	8,800	13,200	22,000	By Q’s cap. A/c	-	-	21,600
To Bank A/c	-	-	15,000
To R’s Loan A/c	-	-	54,000
To bal. c/d	54,800	32,200	-
	80,000	70,000	96,000		80,000	70,000	96,000

 

Balance sheet
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Creditors	70,000	66,000	Bank A/c		30,000
Less: not be claimed	4,000		Debtors	40,000	32,000
R’s Loan		54,000	Less: Provision for Doubtful Debts	8,000
Outstanding Salary		5,000	Stock		50,000
Capital A/c’s		87,000	Building	1,40,000	1,00,000
P	54,800		Less: Depreciation	40,000
Q	32,200
		2,12,000			2,12,000

Working Notes:

1. Provision for Doubtful Debts = `40,000xx20/100`

= ₹ 8,000

Provision to be made = New Provision - Old Provision

= 8,000 - 5,000

= ₹ 3,000

2. Old ratio of P, Q & R = 2 : 3 : 5

R retired, 

New ratio of P & Q = 2 : 3

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

3. Goodwill = ₹ 72,000

R’s share of goodwill = `72,000xx5/10`

= ₹ 36,000