Question

X, Y and Z are partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. Z retires from the firm on 31st March, 2018. On the date of Z’s retirement, the following balances appeared in the books of the firm:
General Reserve – ₹ 1,80,000
Profit and Loss Account (Dr.) – ₹ 30,000
Workmen Compensation Reserve – ₹ 24,000, which was no more required
Employees Provident Fund – ₹ 20,000.
Pass necessary journal entries for the adjustment of these items on Z’s retirement.

Answer 1

Answer:

eneral Reserve A/c Dr.

1,80,000

Workmen Compensation Reserve A/c Dr.

24,000

To X’s Capital A/c

1,02,000

To Y’s Capital A/c

68,000

To Z’s Capital A/c

34,000

(Being accumulated profit distributed among partners in old ratio)

X’s Capital A/c Dr.

15,000

Y’s Capital A/c Dr.

10,000

Z’s Capital A/c Dr.

5,000

To Profit and Loss A/c

30,000

(Being debit balance in profit and loss A/c distributed among partners in old ratio)

Working note:

1. Calculation of share in credit balance of Reserve

Total credit balance of Reserves = General Reserve + WCF

= 1,80,000 + 24,000

= 2,04,000

X’s share = 2,04,000 X 3/6 = Rs. 1,02,000

Y’s share = 2,04,000 X 2/6 = Rs. 68,000

Z’s share = 2,04,000 X 1/6 = Rs. 34,000

2. Calculation of share in debit balance of Profit and Loss A/c

X’s share = 30,00 X 3/6 = Rs. 15,000

Y’s share = 30,000 X 2/6 = Rs. 10,000

Z’s share = 30,000 X 1/6 = Rs. 5,000

Note: Employer Provident Fund will not be distributed as it is a liability and not accumulated profit.

Answer 2

Working Notes:

1. Total Credit Balance of Reserves = General Reserve + Workmen Compensation Reserve

= 1,80,000 + 24,000 = 2,04,000

Distribution of Reserves

$\mathrm{X}^{\prime} \mathrm{s} \text { share Reserve }=2,04,000 \times \frac{3}{6}=1,02,000$

$Y^{\prime} \text { s share Reserve }=2,04,000 \times \frac{2}{6}=68,000$

$Z^{\prime} s \text { share Reserve }=2,04,000 \times \frac{1}{6}=34,000$

2. Distribution of Debit Balance of Profit and Loss A/c

$\begin{aligned}&x^{\prime} s=30,000 \times \frac{3}{6}=15,000\\&Y^{\prime} s=30,000 \times \frac{2}{6}=10,000\\&z^{\prime} s=30,000 \times \frac{1}{6}=5,000\end{aligned}$

Note: Employees' Provident fund being a liability will not be distributed.