Question

X, Y and Z are partners in a firm sharing profits in the ratio of 3 : 1 : 2. On 31st March, 2019, their Balance Sheet was:
 

Liabilities		Amount (₹)	Assets		Amount (₹)
Bills Payable		12,000	Freehold Premises		40,000
Sundry Creditors		28,000	Machinery		30,000
General Reserve		12,000	Furniture		12,000
Capital A/cs:			Stock		22,000
X	30,000		Sundry Debtors	20,000
Y	20,000		Less: Provision for Doubtful Debts	1,000	19,000
Z	28,000	78,000	Cash		7,000
		1,30,000			1,30,000

 
Z retired on 1st April, 2019 from the business and the partners agree to the following:
(a) Freehold Premises and Stock are to be appreciated by 20% and 15% respectively.
(b) Machinery and Furniture are to be reduced by 10% and 7% respectively.
(c) Provision for Doubtful Debts is to be increased to ₹ 1,500.
(d) Goodwill of the firm is valued at ₹ 21,000 on Z's retirement.
(e) Continuing partners to adjust their capitals in their new profit-sharing ratio after retirement of Z. Surplus/deficit, if any, in their Capital Accounts will be adjusted through Current Accounts.
Prepare necessary Ledger Accounts and draw the Balance Sheet of the reconstituted firm.

Answer 1

Revaluation Account

Dr.				Cr.
Particulars		Amount (₹)	Particulars	Amount (₹)
Machinery (30,000 × 10%)		3,000	Freehold Premises (40,000 × 20%)	8,000
Furniture (12,000 × 7%)		840	Stock (22,000 × 15%)	3,300
Provision for Doubtful Debts (1,500 – 1,000)		500
Profit transferred to:
X’s Capital A/c	3,480
Y’s Capital A/c	1,160
Z’s Capital A/c	2,320	6,960
		11,300		11,300

 

Partner’s Capital Accounts

Dr.							Cr.
Particulars	X	Y	Z	Particulars	X	Y	Z
Z’s Capital A/c	5,250	1,750		Balance b/d	30,000	20,000	28,000
				General Reserve	6,000	2,000	4,000
Z’s Loan A/c			41,320	X’s Capital A/c (Goodwill)			5,250
				Y’s Capital A/c (Goodwill)			1,750
Balance c/d	34,230	21,410		Revaluation A/c (Profit)	3,480	1,160	2,320
	39,480	23,160	41,320		39,480	23,160	41,320
Y’s Current A/c		7,500		Balance b/d	34,230	21,410
Balance c/d (WN 3)	41,730	13,910		X’s Current A/c	7,500
	41,730	21,410			41,730	21,410

 

Balance Sheet
as on 1st April, 2019

Liabilities		Amount (₹)	Assets		Amount (₹)
Bills Payable		12,000	Freehold Premises (40,000 + 8,000)		48,000
Sundry Creditors		28,000	Machinery (30,000 – 3,000)		27,000
Z’s Loan		41,320	Furniture (12,000 – 840)		11,160
Capital A/cs:			Stock (22,000 + 3,300)		25,300
X	41,730		Sundry Debtors	20,000
Y	13,910	55,640	Less: Provision for Doubtful Debts	(1,500)	18,500
Y’s Current A/c		7,500	Cash		7,000
			X’s Current A/c		7,500
		1,44,460			1,44,460

Working Notes: 

WN 1 Calculation of Profit Sharing Ratio

Old Ratio (X, Y and Z) = 3 : 1 : 2

Z retires from the firm.

∴ New Ratio (X and Y) = 3 : 1 and

Gaining Ratio = 3 : 1

WN 2 Adjustment of Goodwill

Goodwill of the firm = Rs 21,000

Z’s Share of Goodwill = `21,000 xx 2/6 = "Rs" 7,000`

This share of goodwill is to be distributed between X and Y in their gaining ratio (i.e. 3 : 1).

`"X's share" = 7,000 xx 3/4 = "Rs" 5,250`

`"Y's share" = 7,000 xx 1/4 = "Rs" 1,750` 

WN 3 Adjustment of Partners’ Capital after Z’s Retirement

Combined Capital of X and Y after all adjustments = 34,230 + 21,410 = Rs. 55,640

New Ratio = 3 : 1

`"X's New Capital" = 55,640 xx 3/4 = "Rs" 41,730`

`"Y's New Capital" = 55,640 xx 1/4 = "Rs" 13,910`