Question

The Balance Sheet of X, Y and Z who were sharing profits in proportion to their capitals stood as follows at 31st March, 2018:
Y retires on 1st April, 2018 and the following readjustments were agreed upon:
(a) Out of insurance premium which was debited to the Profit and Loss Account ₹ 1,500 be carried forward as Unexpired Insurance.
(b) The Provision for Doubtful Debts be brought up to 5% o Debtors.
(c) The Land and Building be appreciated by 20%.
(d) A provision of ₹ 4,000 be made in respect of outstanding bills for repairs.
(e) The goodwill of the entire firm be fixed at ₹ 21,600.
Y’s share of goodwill be adjusted to that of X and Z whoa re going to share in future profits in the ratio of 3 : 1.
Pass necessary journal entries and give the Balance Sheet after Y’s retirement.

Answer 1

up to 5% o Debtors.

(c) The Land and Building be appreciated by 20%.

(d) A provision of ₹ 4,000 be made in respect of outstanding bills for repairs.

(e) The goodwill of the entire firm be fixed at ₹ 21,600

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Answer 2

Working Notes:

Provision for Doubtful debts = New Doubtful debts - Old Doubtful debts Provision for Doubtful debts =500 - 300 = 200