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Retirement of a Partner 4.11
Working Note:
Calculation of Capitals of A and C in the new firm:
(i) Amount payable to B = ` 72,200. Required Cash in Hand = ` 24,800. Cash already in Hand = ` 20,000.
Thus, the amount to be brought in by A and C (shortage of cash) = ` 77,000 (i.e., ` 72,200 + ` 24,800 – ` 20,000).
(ii) Capitals of A and C before capital brought in:
A—` (60,000 + 10,000 + 2,000 + 1,000 – 9,600) = ` 63,400
C—` (32,000 + 10,000 + 2,000 + 1,000 – 9,600) = ` 35,400
Total Capital of A and C is ` [63,400 + 35,400 + 77,000 (Shortage of cash)] = ` 1,75,800
Therefore, Capital of each partner is ½ of ` 1,75,800 = ` 87,900.
Illustration 7.
A, B and C are partners in a trading firm sharing profits in the ratio of 3 : 2 : 1. Their
Balance Sheet as at 31st March, 2018 stood as follows:
Liabilities ` Assets `
Sundry Creditors 12,500 Cash at Bank 1,500
General Reserve 18,000 Sundry Debtors 15,000
Capital A/cs: Less: Provision for Doubtful Debts 1,500 13,500
A 40,000 Stock 12,500
B 21,000 Investment 8,000
C 20,000 81,000 Office Equipments 14,000
Furniture 12,000
Building 50,000
1,11,500 1,11,500
B retired on 1st April, 2018 subject to the following conditions:
(i) A typewriter purchased on 1st October, 2017 for ` 2,000 debited to Office Expenses
Account is to be brought into account charging depreciation @ 10% p.a.
(ii) Building revalued at ` 75,000. Furniture is to written-down by ` 2,000 and stock is
reduced to ` 10,000.
(iii) Provision for Doubtful Debts is to be calculated @ 5% on Sundry Debtors.
(iv) Goodwill of the firm is to be valued at ` 18,000.
(v) Market value of Investment is ` 7,500.
(vi) Amount due to B to be transferred to his Loan Account.
(vii) A and C will share profits and losses in the ratio of 2 : 1 and their capitals are to be
adjusted in the profit-sharing ratio.
Prepare Revaluation Account, Partners’ Capital Accounts and Balance Sheet immediately
after B’s retirement.
Solution:
Dr. REVALUATION ACCOUNT Cr.
Particulars ` Particulars `
To Stock A/c 2,500 By Office Equipments A/c (WN 1) 1,900
To Furniture A/c 2,000 By Building A/c 25,000
To Investment A/c 500 By Provision for Doubtful Debts A/c 750
To Gain (Profit) transferred to: (` 1,500 – 5% of ` 15,000)
A’s Capital A/c 11,325
B’s Capital A/c 7,550
C’s Capital A/c 3,775 22,650
27,650 27,650