Question

The Balance Sheet of X, Y and Z who were sharing profits in the ratio of 5 : 3 : 2 as at 31st March, 2018 is as follows:
X retired on 31st March, 2018 and Y and Z decided to share profits in future in the ratio of 3 : 2 respectively.
The other terms on retirement were:
(a) Goodwill of the firm is to be valued at ₹ 80,000.
(b) Fixed Assets are to be depreciated to ₹ 57,500.
(c) Make a Provision for Doubtful Debts at 5% on Debtors.
(d) A liability for claim, included in Creditors for ₹ 10,000 is settled at ₹ 8,000.
The amount to be paid to X by Y and Z in such a way that their Capitals are proportionate to their profit-sharing ratio and leave a balance of ₹ 15,000 in the Bank Account.
Prepare Profit and Loss Adjustment Account and Partners Capital Accounts.

Answer 1

Calculation of Gaining Ratio:

Old Ratio (X, Y and Z) = 5:3:2

New Ratio (Y and Z) = 3:2

Gaining Ratio = New Ratio – Old Ratio

 $\begin{aligned}&\mathrm{Y}^{\prime} \text { s share }=\frac{3}{5}-\frac{3}{10}=\frac{3}{10}\\&Z^{\prime} \text { 's share }=\frac{2}{5}-\frac{2}{10}=\frac{2}{10}\end{aligned}$

Hence, gaining ratio is 3 : 2.

Adjustment of Goodwill

Total Goodwill of the Firm = 80,000

 $\begin{aligned}\mathrm{X}^{\prime} \mathrm{s} \text { Share in Goodwill } &=\frac{5}{10} \times 80,000 \\\\&=40,000\end{aligned}$

To be borne by Gaining partners in their Gaining Ratio i.e. 3:2

$\begin{aligned}&\therefore \mathrm{Y}^{\prime} \mathrm{s} \text { share }=40,000 \times \frac{3}{5}=24,000\\&Z^{\prime} \text { s share }=40,000 \times \frac{2}{5}=16,000\end{aligned}$

Adjustment of Capital

X’s Capital before adjustment = 1,19,750

Y’s Capital before adjustment = 61,850

Z’s Capital before adjustment = 32,900

Total Capital of New Firm = X's Capital+Y's Capital+Z's Capital+Closing balance of Bank Account−Available Bank Balance

                                            = 1,19,750+61,850+32,900+15,000−32,000

                                             = Rs 1,97,500

New profit sharing ratio = 3:2

$Y's share in New Capital =\frac{3}{5} \times 1,97,500=1,18,500 \\\\Z's share in New Capital =\frac{3}{5} \times 1,97,500=1,18,500 \\\\Z's share in New Capital =\frac{2}{5} \times 1,97,500=79,000$