Question

The Balance Sheet of Kiran, Suraj and Dhiraj, sharing profit and losses 3:2:1 respectively.

Balance Sheet as on 31st March, 2020
Liabilities	Amt. (₹)	Assets	Amt. (₹)
Capital:	2,40,000	Bank	1,08,000
Kiran		Debtors	1,80,000
Suraj	1,80,000	Building	1,20,000
Dhiraj	1,20,000	Investment	3,00,000
Creditors	44,000
Bills Payable	24,000
Loan	1,00,000
	7,08,000		7,08,000

Dhiraj has taken retirement on 1st April, 2020 on the following terms:

1. Building and investment to be appreciated by 5% and 10% respectively.
2. Provision for doubtful debts to be created at 5% on debtors.
3. The provision of ₹6,000 to be made in respect of outstanding salary.
4. Goodwill of the firm is valued at ₹1,80,000 and partner (Dhiraj) decided that his share of goodwill should be written back immediately.
5. The amount payable to the retiring partner is to be transferred to his loan account.

Prepare:

1. Profit and Loss Adjustment Account
2. Partners' Capital Account
3. Balance Sheet of the New firm.

Answer 1

In the books of Partnership Firm
Dr.	Profit and Loss Adjustment A/c				Cr.
Particulars	Amt. (₹)	Amt. (₹)	Particulars	Amt. (₹)	Amt. (₹)
To R.D.D. A/c (Created)		9,000	By Building A/c (5% appreciation)		6,000
To Provision for Outstanding Salary A/c		6,000	By Investment A/c (10% appreciation)		30,000
To Partners' Capital A/c: (Profit)
Kiran	10,500	21,000
Suraj	7,000
Dhiraj	3,500
		36,000			36,000

 

Dr.	Partners' Capital Accounts						Cr.
Particulars	Kiran (₹)	Suraj (₹)	Dhiraj (₹)	Particulars	Kiran (₹)	Suraj (₹)	Dhiraj (₹)
To Goodwill A/c (Adjustment)	18,000	12,000	-	By Balance b/d	2,40,000	1,80,000	1,20,000
To Dhiraj's Loan A/c	-	-	1,53,500	By Goodwill A/c (Transfer)	-	-	30,000
To Balance c/d	2,32,500	1,75,000	-	By P & L Adjustment A/c (Profit transferred)	10,500	7,000	3,500
	2,50,500	1,87,000	-		2,50,500	1,87,000	1,53,500
				By Balance b/d	2,32,500	1,75,000	-

 

New Balance Sheet as on 1st April, 2020
Liabilities	Amt. (₹)	Amt. (₹)	Assets	Amt. (₹)	Amt. (₹)
Partners' Capital Accounts:	2,32,500	4,07,500	Building	1,20,000	1,26,000
Kiran			Add: 5% appreciation	6,000
Suraj	1,75,000		Investments	3,00,000	3,30,000
Dhiraj's Loan A/c		1,53,000	Add: 10% appreciation	30,000
Provision for Outstanding Salary		6,000	Debtors	1,80,000	1,71,000
Creditors		44,000	Less: 5% R.D.D.	9,000
Bills Payable		24,000	Bank		1,08,000
Loan		1,00,000
		7,35,000			7,35,000

Working Notes:

(1) Dhiraj's share in Goodwill = `1/6 xx`(Value of Goodwill of the firm) = `1/6xx` 1,80,000 = ₹30,000

(2) Goodwill is written off between old partners (Kiran and Suraj) in their gain ratio which is 3:2 respectively.
Kiran = `3/(3+2)xx30,000 = 3/5 xx 30,000` = ₹18,000 and Suraj = `2/(3+2)xx30,000 = 2/5xx30,000 = ₹12,000`

(3) Increase in the value of building = 5% on book value = `5/100xx`1,20,000 = ₹12,000

(4) Increase in the value of Investments = 10% on 3,00,000 = ₹30,000