Question

Kanika, Disha and Kabir were partners sharing profits in the ratio of 2 : 1 : 1. On 31st March, 2016, their Balance Sheet was as under:
Kanika retired on 1st April, 2016. For this purpose, the following adjustments were agreed upon:
(a) Goodwill of the firm was valued at 2 years purchase of average profits of three completed years preceding the date of retirement. The profits for the year:
2013-14 were ₹ 1,00,000 and for 2014-15 were ₹ 1,30,000.
(b) Fixed Assets were to be increased to ₹ 3,00,000.
(c) Stock was to be valued at 120%.
(d) The amount payable to Kanika was transferred to her Loan Account.
​Prepare Revaluation Account, Capital Accounts of the partners and the Balance Sheet of the reconstituted firm.

Answer 1

Working Notes:

WN1: Calculation of Goodwill

$\text {Goodwill} = \text{Average Profits} \times \text{Number of Years' Purchase Average Profits}$

$\text{Average Profits} =\frac{\text { Total Profits }}{\text { Number of Years }}$

$\begin{aligned}&=\frac{1,00,000+1,30,000-20,000}{3}\\&=\frac{2,10,000}{3}=\mathrm{Rs} 70,000\end{aligned}$

$\text { Goodwill }=70,000 \times 2=\mathrm{Rs} 1,40,000$

$\text { Kanika's share }=1,40,000 \times \frac{2}{4}=70,000$

(to be borne by gaining partners in gaining ratio)