Question

Ravi, Ali and Siya are partners in a firm sharing profits and losses in the ratio of 4 : 3 : 2.
Ali retired from the firm on 31^st March 2024, when the capitals of the partners before the following necessary adjustments stood at:

Ravi ₹ 23,000
Ali ₹ 12,000
Siya ₹ 9,000

Adjustments:

1. The firm’s goodwill to be valued at ₹ 21,600.
2. Loss on revaluation of assets and liabilities to be ₹ 2,700.

On the date of Ali’s retirement, the firm had:

General Reserve of ₹ 6,300
Cash & Bank Balance of ₹ 18,600

It was decided that Ali be paid through cash brought in by Ravi and Siya in such a manner so as to make their capitals proportionate to their new profit sharing ratio and a minimum Cash & Bank Balance of ₹ 10,000 to be maintained in the reconstituted firm.

You are required to pass journal entries to record the above transactions.

Answer 1

Dr.	Partner’s Capital A/c						Cr.
Particulars	Ravi	Ali	Siya	Particulars	Ravi	Ali	Siya
To Revaluation A/c	1,200	900	600	By Balance b/d	23,000	12,000	9,000
To Ali’s Capital A/c	4,800	-	2,400	By General Reserve	2,800	2,100	1,400
To Balance c/d	19,800	20,400	7,400	By Ravi’s Capital A/c	-	4,800	-
				By Siya’s Capital A/c	-	2,400	-
	25,800	21,300	10,400		25,800	21,300	10,400
To Bank A/c	-	20,400	-	By Balance b/d	19,800	20,400	7,400
To Balance c/d	26,000	-	13,000	By Bank A/c	6,200	-	5,600
	26,000	20,400	13,000		26,000	20,400	13,000

Working Note:

Amount to be paid = ₹ 20,400 and cash balance to maintained = 10,000

= 30,400

Available cash = 18,600

Remaining cash to be brought in = 30,400 – 18,600

= ₹ 11,800

Combined capital of Ravi and Siya = 19,800 + 7,400

= 27,200

+ Cash to be brought in = 11,800

= 39,000

Capital of New Firm = 27,200 + 11,800

= 39,000

Capital of Ravi as new ratio = `39000xx4/6`

= ₹ 26,000

Existing capital = 19,800

Capital of Siya as new ratio = `39000xx2/6`

= ₹ 13,000

Existing capital = 7,400

Cash to be brought in by Siya = 13,000 – 7,400

= ₹ 5,600