Question

A, B and C are partners in a firm, sharing profits and losses as A 1/3, B 1/2 and C 1/6 respectively. The Balance Sheet of the firm as at 31st March, 2018 was:
C retires on 1st April, 2018 subject to the following adjustments:
(a) Goodwill of the firm be valued at ₹ 24,000. C’s share of goodwill be adjusted into the account of A and B who are going to share in future in the ratio of 3 : 2.
(b) Plant and Machinery to be depreciated by 10% and Furniture by 5%.
(c) Stock to be appreciated by 15% and Factory Building by 10%.
(d) Provision for Doubtful Debts to be raised to ₹ 2,000.
You are required to pass journal entries to record the above transactions in the books of the firm and show the Profit and Loss Adjustment Account, Capital Account of C and the Balance Sheet of the firm after C’s retirement.

Answer 1

be done by opening Current Accounts.

Prepare Revaluation Account, Partners Capital Accounts and Balance Sheet of the new firm.

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Answer 2

Working Notes:

1. Calculation of Gaining Ratio

               A   B   C

$\text { Old Ratio } \frac{1}{3}: \frac{1}{2}: \frac{1}{6}=2: 3: 1$

C's retired on the firm.

A : B = 3 : 2 (New Ratio)

Gaining Ratio = New Ratio - Old Ratio

$A^{\prime} s=\frac{3}{5}-\frac{2}{6}-\frac{18}{30}-\frac{10}{30}=\frac{8}{30}(\text { Gain })$

$B^{\prime} s=\frac{2}{5}-\frac{3}{6}=\frac{12}{30}-\frac{15}{30}=\frac{-3}{30}(\text { Sacrifice })$

2 . Adjustment of Goodwill

Goodwill on the firm = Rs. 24,000

$\text{C's Share of Goodwill} =24,000 \times \frac{1}{6}= Rs.4,000$

$\text { A's Share }=24,000 \times \frac{8}{30}(\text { Gain })= Rs. 6,400$

$\text { B's Share }=24,000 \times \frac{3}{30} \text { (Sacrifice) }= Rs.2,400$

3. Calculation of Gaining Ratio

$A: B: C=\frac{1}{3}: \frac{1}{2}: \frac{1}{6}=2: 3: 1( \text { Old Ratio) }$

C retired from the firm.

A : B = 2 : 3 (New Ratio)

Gaining Ratio = New Ratio - Old Ratio

$A^{\prime} s=\frac{2}{5}-\frac{2}{6}=\frac{12}{30}-\frac{10}{30}=\frac{2}{30}$

$B^{\prime} s=\frac{3}{5}-\frac{3}{6}=\frac{18}{30}-\frac{15}{30}=\frac{3}{30}$

Gaining Ratio = 2 : 3

4 . Adjustment of Goodwill

$\text{Goodwill of the firm} = Rs.24,000$

$\text { C's of Goodwill }=24,000 \times \frac{1}{6}=4,000$

C's share of goodwill is to be distributed between $A$ and $B$ in 2: 3

$\text { A's Goodwill }=4,000 \times \frac{2}{5}= Rs.1,600 \text { (Sacrifice) }$

$\text { B's Goodwill }=4,000 \times \frac{3}{5}= Rs.2,400 \text { (Sacrifice) }$