Question

Saran, Arun, and Karan are partners in firms sharing profits and losses in the ratio of 4:3:3. The balance sheet as of 31.12.2016 was as follows:

Liabilities		₹	Assets		₹
Capital accounts:			Buildings		60,000
Saran	60,000	1,50,000	Machinery		40,000
Arun	50,000		Investment		20,000
Karan	40,000		Stock		12,000
Creditors		35,000	Debtors	25,000	24,000
General reserve		15,000	Less: Provision for bad debts	1000
			Cash at bank		44,000
		2,00,000			2,70,000

Karan retires on 1.1.2017, subject to the following conditions:

1. Goodwill of the firm is valued at ₹ 21,000 %
2. Machinery to be appreciated by 10%
3. Building to be valued at ₹ 80,000
4. provision for bad debts to be raised to ₹ 2,000
5. Stock to be depreciated by ₹ 2,000
6. The final amount due to Karan is not paid immediately.

Prepare the necessary ledger accounts and show the balance sheet of the firm after retirement.

Answer 1

Dr.	Revaluation Account			Cr.
Particulars		₹	Particulars	₹
To Stock A/c		2,000	By Buildings A/c	20,000
To Provision for doubtful debts A/c		1,000	By Machinery A/c	4,000
By Profit on Revaluation transferred to
Saran	8,400	21,000
Arun	6,300
Karan	6,300
		24,000		24,000

 

Dr.	Capital Account						Cr.
Particulars	Saran ₹	Arun ₹	Karan ₹	Particulars	Saran ₹	Arun ₹	Karan ₹
To Karan's capital A/c	3,600	2,700	-	By Balance b/d	60,000	50,000	40,000
To karan's loan A/c (bal. fig) transferred	-	-	57,100	By Revaluation A/c	8,400	6,300	6,300
				By general reserve	6,000	4,500	4,500
				By saran's capital A/c	-	-	3,600
To Balance c/d	70,800	58,100	-	By Arun's capital A/c	-	-	2,700
	1,02,500	89,500	83,000		1,02,500	89,500	83,000
				By Balance b/d			-

 

Balance Sheet as on 31.12.2017
Liabilities	Rs	Assets	Rs	Rs
Capital A/c		Building	60,000	80,000
Saran	70,800	Add: Appreciation	20,000
Arun	58,100	Machinery	40,000	44,000
Karan Loan A/c	57,100	Add: Appreciation	4,000
Creditors	35,000	Debtors	25,000	23,000
		Less: Provision for Bad debts	2,000
		Stock	12,000	10,000
		Less: Depreciation	2,000
		Cash at Bank		44,000
		Investment		20,000
	2,21,000			2,21,000

Working note-

Gaining ratio

Old ratio = 4:3:3

New ratio = 4:3

Gaining ratio = New ratio – old ratio

Saran - `4/7 - 4/10 = (40 - 28)/70 = 12/70`

Arun - `3/7 - 3/10 = (30 - 21)/70 = 9/70`

Gain Ratio = 12 : 9 or 4 : 3

Karan’s share of Goodwill = `21,000 xx 3/10` = RS 6,300

Saran’s share = `6300 xx 3/10` = Rs 3,600

Aruns share = `6,300 xx 3/7` = Rs 2,700