Question

X,Y and Z are partners sharing profits and losses int the ratio 3:2:1. Y retires selling his share to X and Z for ₹16,000,₹10,000 being paid by X and ₹6,000 by Z. The profit for the year after Y's retirement is 48,000.
Pass entries to (a) record the sale of Y's share to X and Z and (b) distribute the profit between X and Z.​

Answer 1

Answer:

ANSWER

Particulars

L.F.

Debit (Rs.)

Credit (Rs.)

General 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

Answer:

Following are the entries:-

(a) Record the sale of Y's share to X and Z

• X's Capital A/C                                Dr.   10000

        Z's Capital A/C                                Dr.    6000

                To Y's Capital A/C                                          16000

(being Y's share sold for Rs. 16000 to X and Z for the respective amount of 10000 and 6000)

(b) distribute the profit between X and Z.​

• Profit and Loss A/c                          Dr.  48000

               To X's Capital A/C                                       34000

               To Z's Capital A/C                                        14000

(being profit distributed between X and Z in a new ratio after Y's retirement)

Working Note -

• New Ratio of X and Z

Both X and Z gained profit share by purchasing Y's share in the ratio -

5:3

For X,

• Previous share of profit = 1/2
• Purchased profit share from Y = $\frac{5}{8} * \frac{2}{6} = \frac{5}{24}$
• Total profit share of X will be = 5/24 + 1/2 = 17/24

For Z,

• Profit share = 1 - X's new profit ratio
• Z's new share of Profit = 7/24

New Profit sharing ratio of X and Z = 17: 7

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