Question

The Balance Sheet of Snehal, Samir and Shera is as follows and the partners are sharing profits and losses in the proportion of 2 : 2 : 1 respectively.

Balance Sheet as on 31st March, 2023
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Creditors		12,000	Bank		7,500
Bills Payable		3,000	Debtors	30,000	28,500
General Reserve		7,500	Less: R.D.D.	1,500
Capital Accounts:			Furniture		22,500
Snehal		60,000	Machinery		6,000
Samir		45,000	Freehold Property		40,500
Shera		22,500	Goodwill		45,000
		1,50,000			1,50,000

Shera retires from the firms on 1st April, 2023 on the following terms:

(1) The assets are to be revalued as: Freehold Property ₹ 45,000, Machinery ₹ 7,500  Furniture ₹ 18,000, All debtors are good.

(2) Goodwill of the firm be valued at thrice the average profit of given below : Profits of the firm for five years.

2018-19	₹ 1,500
2019 - 20	₹ 15,750
2020-21	₹ 15,000
2021-22	₹ 24,000
2022-23	₹ 15,000

(3) Shera should be paid ₹ 4,500 by cheque.

(4) The Balance of Shera's Capital Ale should be kept in the business as his loan.

Prepare Profit and Loss Adjustment A/c, Capital Accounts of Partners, Balance Sheet of the new firm.

Answer 1

Dr.	In the books of Partnership Firm Profit and Loss Adjustment Account				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Furniture A/c		4,500	By Freehold Property A/c		4,500
To Goodwill – Loss		2,250	By Machinery A/c		1,500
To Partner's Capital A/cs : (Profit)			By R.D.D. A/c		1,500
Snehal	300
Samir	300
Shera	150	750
		7,500			7,500

 

Dr.	Partner's Capital Accounts						Cr.
Particulars	Snehal (₹)	Samir (₹)	Shera (₹)	Particulars	Snehal (₹)	Samir (₹)	Shera (₹)
To Bank A/c	-	-	4,500	By Balance b/d	60,000	45,000	22,500
To Shera’s Loan A/c	-	-	19,650	By General Reserve A/c	3,000	3,000	1,500
To Balance c/d	63,300	48,300	-	By Profit and Loss Adjustment A/c (Profit)	300	300	150
	63,300	48,300	24,150		63,300	48,300	24,150

 

Balance Sheet as on 1st April, 2023
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)	Amount (₹)
Partners’ Capital A/cs:			Bank		3,000
Snehal	63,300	1,11,600	Debtors		30,000
Samir	48,300		Furniture	22,500	18,000
Shera’s Loan A/c		19,650	Less: Depreciation	4,500
Creditors		12,000	Machinery	6,000
Bills Payable		3,000	Add: Appreciation	1,500	45,000
			Freehold Property	40,500
			Add: Appreciation
			Goodwill	4,500	42,750
		1,46,250			1,46,250

Working Notes:

(1) Average profit = `"Total profit of given no. of years"/"No. of years given"`

`= (1,500 + 15,750 + 15,000 + 24,000 + 15,000)/5`

`= (71,200)/5 = ₹14,250` 

Goodwill = Average profit × No. of years given = 14,250 × 3 years = ₹ 42,750

Goodwill value given in the Balance Sheet	₹ 45,000
New value arrived at	₹ 42,750
Loss due to revaluation	₹ 2,250

To be recorded in Profit and Loss Adjustment A/c – Dr. Side.

In Assets side of Balance sheet, write ₹ 42,750 for Goodwill.

(2) Balance of Bank A/c = Opening Balance – Cheque given to Dinu = 7,500 – 4,500 = ₹ 3,000.