Question

Question 4. A, B and C were partners sharing profits in the ratio of 8:4:5. They were doing the business
of manufacturing school bags. Their balance sheet as at 314 March 2019 was as under:
Liabilities
Amount
Assets
Amount
A's capital
40,000
Buildings
20,000
B's capital
30,000
Motor car
18,000
C's capital
20,000
Stock
20,000
General reserve
17,000
Investments
1,20,000
Sundry creditors
1,23,000
Debtors
40,000
Patents
12,000
2,30,000
2,30,000
On 1" April 2019 C retires from the firm on the following terms and conditions:
a) 20% of general reserve is to remain as a reserve for bad and doubtful debts.
b) Motor car is to be decreased by 5%.
c) Stock is to be revalued at 17,500.
d) Goodwill is to be valued at two and a half years purchase of the average profits of last three
years. Profits of the last 3 years were 11,000; 16,000 and 24.000.
c was paid in full A and B borrowed the necessary amount from the bank on the security of motor car
and stock to pay off

Answer 1

Answer:

They were doing the business

of manufacturing school bags. Their balance sheet as at 314 March 2019 was as under:

Liabilities

Amount

Assets

Amount

A's capital

40,000

Buildings

20,000

B's capital

30,000

Motor car

18,000

C's capital

20,000

Stock

20,000