Question

On 31st March, 2018 , The Balance Sheet of A, B and C who were sharing profits and losses in proportion to their capitals stood as:
B retires and following readjustments of assets and liabilities have been agreed upon before ascertainment of the amount payable to B:
(a) Out of the amount of insurance premium which was debited to Profit and Loss Account, ₹ 1,000 be carried forward for Unexpired insurance.
(b) Freehold Premises be appreciated by 10%.
(c) Provision for Doubtful Debts is brought up to 5% on Debtors.
(d) Machinery be depreciated by 5%.
(e) Liability for Workmen Compensation to the extent of ₹ 1,500 would be created.
(f) That the goodwill of the entire firm be fixed at ₹ 18,000 and B’s share of the same be adjusted into the accounts of A and C who are going to share future profits in the proportion of 3/4th and 1/4th respectively.
(g) Total capital of the firm as newly constituted be fixed at ₹ 60,000 between A and C in the proportion of 3/4th and 1/4th after passing entries in their accounts for adjustments, i.e., actual cash to be paid or to be brought in by continuing partners as the case may be.
(h) B be paid ₹ 5,000 in cash and the balance be transferred to his Loan Account.
Prepare Capital Accounts of Partners and the Balance Sheet of the firm of A and C.

Answer 1

B's share of goodwill is to be distributed between X and Z in their =3 : 1(Gaining Ratio)

Explanation:

1) Calculation of Profit Sharing Ratio

Capital ratio(A ,B and C) =45,000 :30,000: 15,000

Old ratio(A,B and C ) =3:2:1

B retires from the firm.

New Gaining ratio (A:C) =3:1

2)Adjustment of goodwill

Goodwill of the firm =Rs.18,000

B's share of goodwill =18,000×$\frac{2}{6}$ = 6,000

B's share of goodwill is to be distributed between X and Z in their =3 : 1(Gaining Ratio)

A's  6,000 ×$\frac{3}{4}$ = 4,500 rs.

C's  = 6,000 ×$\frac{1}{4}$ = 1,500 rs.

3) Adjustment of partner's Capital after B's retirement  (Old ratio)

Total capital of the new Firm (After B's Retirement ) =Rs.60,000

New Ratio =3:1

A's capital =60,000×$\frac{3}{4}$ =Rs.45,000

C's Capital 60,000×$\frac{1}{4}$ = Rs.15,000