Question

The Balance Sheet of Messrs A, B and C showed as follows:

Liabilities	₹	₹	Assets	₹	₹
Trade Creditors		7,000	Freehold Property		49,000
Capital Accounts:		71,075	Plant		15,000
A	22,575		Stock		5,500
B	30,000		Sundry Debtors	6,250	6,150
C	18,500		Less: Bad Debt Provision	100
			Cash at Bank		2,425
		78,075			78,075

B agrees to take over the business, A and C retiring on the following terms:

1. That the goodwill of the firm be valued at ₹ 15,000
2. That plant and stock be reduced by 10%.
3. That freehold property be appreciated by ₹ 1,000.
4. That Provision for doubtful debts be brought up to ₹ 250.
5. B has to bring in sufficient cash to pay off A and C. The partners used to share profits in the proportion of 2/5, 2/5 and 1/5.

Show the necessary Journal entries, Partner’s Capital Accounts and Balance Sheet of B after the retirement of A and C.

Answer 1

Journal
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
	Revaluation A/c       ...Dr.		2,200
	To Plant A/c			1,500
	To Stock A/c			550
	To Provision for Doubtful Debts A/c			150
	(Being Decrease in the value of assets)
	Freehold Property A/c       ...Dr.		1,000
	To Revaluation A/c			1,000
	(Being Increase in the value of freehold property)
	A’s Capital A/c         ...Dr.		480
	B’s Capital A/c         ...Dr.		480
	C’s Capital A/c         ...Dr.		240
	To Revaluation A/c			1,200
	(Being Transfer of loss on revaluation)
	B’s Capital A/c     ...Dr.		9,000
	To A’s Capital A/c			6,000
	To C’s Capital A/c			3,000
	(Being A and C’s share of goodwill debited to B’s Capital Account)
	Bank A/c          ...Dr.		46,930
	To B’s Capital A/c			46,930
	(Being Amount brought in by B)
	A’s Capital A/c     ...Dr.		28,095
	C’s Capital A/c      ...Dr.		21,260
	To Bank A/c			49,355
	(Being Amount paid off to A and C)

 

Dr.	Partner’s Capital A/c						Cr.
Particulars	A	B	C	Particulars	A	B	C
To Revaluation A/c	480	480	240	By Balance b/d	22,575	30,000	18,500
To A’s Capital A/c	-	6,000	-	By B’s Capital A/c	6,000	-	3,000
To C’s Capital A/c	-	3,000	-	By Bank A/c	-	46,930	-
To Bank A/c	28,095	-	21,260
To Balance c/d	-	67,450	-
	28,575	76,930	21,500		28,575	76,930	21,500

 

Balance Sheet
Liabilities	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Trade Creditors	7,000	Sundry Debtors	6,250
B’s Capital	67,450	Less: Provision for Doubtful Debts	(250)	6,000
		Stock		4,950
		Plant		13,500
		Freehold Property		50,000
	74,450			74,450

Working Note:

Particulars	Amount (₹)
Amount required to pay off A	28,095
Amount required to pay off C	21,260
	49,355
Amount available	(2,425)
Amount required to be brought in by B	46,930