Question

X, Y and Z were partners in a firm sharing profits in the ratio of 2 : 2 : 1. Their Balance Sheet as at 31st March, 2019 was:

Liabilities	Amount (₹)	Amount (₹)	Assets	Amount ​(₹)	Amount (₹)
Creditors		49,000	Cash		8,000
Reserve		18,500	Debtors		19,000
Capital A/cs:			Stock		42,000
X	82,000	2,17,500	Building		2,07,000
Y	60,000		Patents		9,000
Z	75,500
		2,85,000			2,85,000

Y retired on 1st April, 2019 on the following terms:

1. Goodwill of the firm was valued at ₹ 70,000 and was not to appear in the books.
2. Bad Debts amounted to ₹ 2,000 were to be written off.
3. Patents were considered as valueless.

Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of X and Z after Y's retirement.

Answer 1

Dr.	Revaluation Account				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Bad Debts		2,000	By Loss transferred to:
To Patents		9,000	X’s Capital A/c `(11000 xx 2/5)`	4,400	11,000
			Y’s Capital A/c `(11000 xx 2/5)`	4,400
			Z’s Capital A/c `(11000 xx 1/5)`	2,200
		11,000			11,000

 

Dr.	Partners’ Capital Accounts						Cr.
Particulars	X	Y	Z	Particulars	X	Y	Z
To Revaluation A/c (Loss)	4,400	4,400	2,200	By Balance b/d	82,000	60,000	75,500
To Y’s Capital A/c (Goodwill)	18,667	–	9,333	By Reserve (Old Ratio)	7,400	7,400	3,700
To Y’s Loan A/c	–	91,000	–	By X’s Capital A/c (Goodwill)	–	18,667	–
To Balance c/d	66,333	–	67,667	By Z’s Capital A/c (Goodwill)	–	9,333	–
	89,400	95,400	79,200		89,400	95,400	79,200

 

Balance Sheet as on March 31, 2019 (after Y’s Retirement)
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Creditors		49,000	Cash		8,000
Y’s Loan		91,000	Debtors (19000 − 2000)		17,000
Capital A/cs:		1,34,000	Stock		42,000
X	66,333		Building		2,07,000
Z	67,667
		2,74,000			2,74,000

Working Notes:

(1) Calculation of Gaining Ratio:

Old Ratio (X, Y and Z) = 2 : 2 : 1

Y retires from the firm.

∴ Gaining Ratio = 2 : 1

(2) Adjustment of Goodwill

Goodwill of the firm = Rs 70,000

Y’s Share of Goodwill = `70,000 xx 2/5` = Rs 28,000

This share of goodwill is to be distributed between X and Z in their gaining ratio (i.e. 2 : 1).

`"X's Share" = 28,000 xx 2/3` = Rs 18,667

`"Z's Share" = 28,000 xx 1/3` = Rs 9,333

Journal Entry
Date	Particulars	L.F.	Debit Amount (₹)	Credit Amount (₹)
2019 April 1	X’s Capital A/c   ...Dr.		18,667
	Z’s Capital A/c   ...Dr.		9,333
	To Y’s Capital A/c			28,000
	(Adjustment of goodwill made on Y’s retirement)