Question

X, Y and Z are partners sharing profits and losses in the ratio of 3 : 2 : 1. The Balance Sheet of the firm as at 31st March, 2018 stood as follows:

Z retired on the above date on the following terms: 

(a) Goodwill of the firm is to be valued at Rs. 34,800. 

(b) Value of Patents is to be reduced by 20% and that of machinery to 90%. 

(c) Provision for Doubtful Debts is to be created @ 6% on debtors. 

(d) Z took over the investment at market value. 

(e) Liability for Workmen Compensation to the extent of Rs. 750 is to be created. 

(f) A liability of Rs. 4,000 included in creditors is not to be paid. 

(g) Amount due to Z to be settled on the following basis: Rs. 5,067 to be paid immediately, 50% of the balance within one year and the balance by a Bill of Exchange (without interest) at 3 Months. Give necessary journal entries for the treatment of goodwill, prepare Revaluation Account, Capital Accounts and the Balance Sheet of the new firm.

Answer 1

Journal

Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019
April 01	X’s Capital A/c	Dr.		3,000
	Y’s Capital A/c	Dr.		2,000
	Z’s Capital A/c	Dr.		1,000
	To Goodwill A/c				6,000
	(Existing goodwill written off)
April 01	X’s Capital A/c	Dr.		3,480
	Y’s Capital A/c	Dr.		2,320
	To Z’s Capital A/c				5,800
	(Z’s share of goodwill credited to him and gaining partners debited in gaining ratio)

Revaluation Account

Dr.						Cr.
Particulars		Amount (₹)	Particulars		Amount (₹)
Patents		2,000	Investments (17,600 – 15,000)		2,600
Machinery		5,000	Creditors		4,000
Prov. for Doubtful Debts		400	Loss on Revaluation transferred
			X’s Capital A/c	400
			Y’s Capital A/c	267
			Z’s Capital A/c	133	800
		7,400			7,400

Partners’ Capital Accounts

Dr.									Cr.
Particulars		X	Y	Z	Particulars	X	Y	Z
Goodwill A/c		3,000	2,000	1,000	Balance b/d	68,000	32,000	21,000
Revaluation A/c		400	267	133	X’s Capital A/c			3,480
Z’s Capital A/c		3,480	2,320		Y’s Capital A/c			2,320
Advertisement Expenditure A/c		2,625	1,750	875	Workmen Compensation Reserve A/c*	5,625	3,750	1,875
Investments A/c				17,600	Investment Fluctuation Reserve A/c*	3,000	2,000	1,000
Bank A/c				5,067
Z’s Loan A/c				2,500
Bills Payable A/c				2,500
Balance c/d		67,120	31,413
		76,625	37,750	29,625		76,625	37,750	29,625

Answer 2

Working Note:

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Answer 3

Balance Sheet
as on April 01, 2019 after Z’s retirement

Liabilities		Amount (₹)	Assets		Amount (₹)
Creditors		17,000	Cash at Bank (5,750 – 5,067)		683
Workmen Compensation Claim		750	Stock		30,000
Bills Payable		2,500	Patents		8,000
Capital A/c’s:			Debtors A/c	40,000
X	67,120		Less: Prov. for D/ful Debts	2,400	37,600
Y	31,413	98,533	Machinery		45,000
Z’s Loan		2,500
		1,21,283			1,21,283

Working Notes:

Amount due to Z = (21,000 + 3,480 + 2,320 + 1,875 + 1,000)  - (1,000 + 133 + 875 + 17,600) = 10,067

Amount paid on Retirement immediately : Rs 5,067

Amount paid within one year : 50% of 5,000 = Rs 2,500

Amount payable by bills of exchange : Rs 2,500 (balance 50%)