Page 78 - ISCDEBK-12

Retirement of a Partner 4.5
Illustration 4.
On 31st March, 2019, the Balance Sheet of Ashwin, Bijon and Nitish sharing profits and
losses in proportion to their capitals, stood as follows:

Liabilities ` Assets `
Capital A/cs: Land and Building 2,00,000
Ashwin 2,00,000 Machinery 3,00,000
Bijon 3,00,000 Closing Stock 1,00,000
Nitish 2,00,000 7,00,000 Sundry Debtors 1,00,000
Sundry Creditors 1,00,000 Cash at Bank 1,00,000
8,00,000 8,00,000

On 1st April, 2019, Ashwin retired and the remaining partners decided to carry on the
firm. It was agreed to revalue the assets and reassess the liabilities on that date as follows:
(i) Land and Building be written up by ` 60,000.
(ii) Machinery be reduced by 20%.
(iii) Closing Stock to be written down to ` 75,000.
(iv) Provision for Doubtful Debts be made at 5%.
(v) An amount of ` 20,000 included in creditors is no longer a liability.

(vi) Scrap lying in the factory was sold for ` 80,000. (Ignore GST)
(vii) Goodwill of the firm be valued at ` 1,40,000 and Ashwin’s share of the Goodwill be
adjusted in the accounts of Bijon and Nitish who will share future profits equally.
(viii) Total Capital of the firm is to be the same as before the retirement. Individual
Capitals of the remaining partners to be in their profit-sharing ratio.

(ix) Amount due to Ashwin is to be settled on the following basis:
50% on retirement and the balance 50% within one year.
Prepare Revaluation Account, Capital Accounts of Partners, Bank Account and Balance
Sheet after Ashwin’s retirement.
Solution:
Dr. REVALUATION ACCOUNT Cr.
Particulars ` Particulars `

To Machinery A/c 60,000 By Land and Building A/c 60,000
To Closing Stock A/c 25,000 By Creditors A/c 20,000
To Provision for Doubtful Debts A/c 5,000 By Bank A/c (Scrap sale) 80,000
To Gain (Profit) on Revaluation transferred to
Capital A/cs:
Ashwin (2/7) 20,000
Bijon (3/7) 30,000
Nitish (2/7) 20,000 70,000
1,60,000 1,60,000