Question

Shah, Lodha, and Dhole were partners sharing profits and losses in the ratio of 4:3:3. Their Balance Sheet as on 31st March 2019 is a given below.

Balance Sheet as on 31st March, 2019
Liabilities		Amount (₹)	Assets	Amount (₹)	Amount (₹)
Sundry Creditors		20,000	Cash		9,000
Bills payable		4,000	Sundry Debtors	10,000	9,000
Capital Account:			(−) R.D.D.	1,000
Shah		45,000	Furniture		25,000
Lodha		35,000	Computers		43,000
Dhole		27,000	Vehicles		45,000
		1,31,000			1,31,000

On 1st April 2019, Mr. Lodha retired from the firm on the following terms.

1. Goodwill is to be valued at average Profits and Losses of the last five years which were as follows.

Years	Profit/Loss
2015	₹ 35,000
2016	₹ 20,000
2017	₹ 30,000
2018	₹ 20,000
2019	₹ 25,000

2. Computers to be depreciated by 10%

3. Furniture to be revalued at ₹ 27,500

4. Vehicles appreciated by 20%

5. R.D.D. was no longer necessary

6. Shah and Dhole will share the future profits and losses in the ratio of 2:1

7. It was decided that goodwill should not appear in the books of a new firm and amount payable to Lodha is to be transferred to his Loan A/c

Prepare: Profit and Loss adjustment A/c, Partners capital accounts, Balance sheet of new firm.

Answer 1

In the books of Partnership Firm
Dr.			Profit and Loss Adjustment A/c			Cr.
Particulars			Amount (₹)	Amount (₹)	Particulars	Amount (₹)
To Computers A/c				4,300	By Furniture A/c	2,500
To Partners’ Capital A/cs: Profit				8,200	By Vehicles A/c	9,000
Shah			3,280		By R.D.D. A/c	1,000
Lodha			2,460
Dhole			2,460
				12,500		12,500

 

Dr.	Partner’s Capital Account						Cr.
Particulars	Shah (₹)	Lodha (₹)	Dhole (₹)	Particulars	Shah (₹)	Lodha (₹)	Dhole (₹)
To Goodwill A/c	17,333	-	8,667	By Balance b/d	45,000	35,000	27,000
To Balance c/d	41,347	-	28,593	By Profit and Loss Adjustment A/c (Profit)	3,280	2,460	2,460
To Lodha’s Loan A/c	-	45,260	-	By Goodwill A/c	10,400	7,800	7,800
	58,680	45,260	37,260		58,680	45,260	37,260

 

Balance Sheet as on 1st April 2019
Liabilities	Amount (₹)	Amount (₹)	Asset	Amount (₹)	Amount (₹)
Partners’ Capital A/c:		69,940	Cash		9,000
Shah	41,347		Debtors		10,000
Dhole	28,593		Furniture	25,000	27,500
Lodha’s Loan A/c		45,260	(+) Appreciation	2,500
Sundry Creditors		20,000	Computers	43,000	38,700
Bills Payable		4,000	(-) Depreciation	4,300
			Vehicles	45,000	54,000
			(+) Appreciation	9,000
		1,39,200			1,39,200

Working Note:

Goodwill is to be valued at an average profit and losses of the last Five Years which were as follows:

Average profit = `("Total Profit")/("Number of Years")`

= `(35,000 + 20,000+ 30,000 + 20,000 + 25,000)/5`

= `(1,30,000)/5`

= ₹ 26,000

∴ Goodwill = ₹ 26,000

Goodwill should not appear in the books of accounts.

Therefore, ₹ 26,000 was credited to the Partners’ Capital Account in the partners’ old profit and loss ratio. ₹ 26,000 will be debited in Partners’ Capital Account in partners’ new profit-loss ratio.