Question

N, S and G were partners in a firm sharing profits and losses in the ratio of 2 : 3 : 5. On 31st March, 2016 their Balance Sheet was as under:
G retired on the above ate and it was agreed that:
(a) Debtors of ₹ 6,000 will be written off as bad debts and a provision of 5% on debtors for bad and doubtful debts will be maintained.
(b) Patents will be completely written off and stock, machinery and building will be depreciated by 5%.
(c) An unrecorded creditor of ₹ 30,000 will be taken into account.
(d) N and S will share the future profits in 2 : 3 ratio.
(e) Goodwill of the firm on G’s retirement was valued at ₹ 90,000.
Pass necessary journal entries for the above transactions in the books of the firm on G’s retirement.

Answer 1

Working Notes:

WN1: Calculation of G's Share of Goodwill

$\text{G's share} = \text{Firm's Goodwill} \times {G} 's Profit Share$

$\text { G's share }=90,000 \times \frac{5}{10}=45,000$

(to be borne by gaining partners in gaining ratio)

WN1: Calculation of Gaining Ratio

Gaining Ratio = New Ratio - Old Ratio

$\text {N's {gain}}=\frac{2}{5}-\frac{2}{10}=\frac{2}{10}$

$\text{S's gain} =\frac{3}{5}-\frac{3}{10}=\frac{3}{10}\\ \\\text{Gaining Ratio} =2.3$

$\begin{array}{l}\text { N's share }=45,000 \times \frac{2}{5}=18,000 \\ \\\text { S's share }-45,000 \times \frac{3}{5}=27,000\end{array}$

WN2: Calculation of Excess/Deficit Provision for Doubtful Debts

$\text { Required Provision }(@ 5 \%)=(1,35,000-6,000) \times \frac{5}{100}=6,450$

$\text{Existing Provision (after writing bad-debts)} =9,000 \\ \\Excess Provision (to be written back) =2,550(9,000-6,450)$

WN3: Calculation of G's Loan Balance

Amount due to G = Opening Capital + Credits - Debits

$=4,50,000+(45,000+45,000)-(37,500+81,225)={Rs}, 4,21,275$