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4.18 Double Entry Book Keeping (Section A)—ISC XII

Illustration 11 (Wigh GST).
A, B and C are partners sharing profits in the ratio of 4 : 3 : 1. Their Balance Sheet as at
31st March, 2018 is given below:

Liabilities ` Assets `

Creditors 1,40,000 Cash in Hand 20,000
Bills Payable 30,000 Cash at Bank 1,50,000
Workmen Compensation Reserve 20,000 Stock 75,000
General Reserve 80,000 Debtors 1,30,000
Capital A/cs: Less: Provision for Doubtful Debts 5,000 1,25,000
A 2,00,000 Car 2,50,000
B 3,00,000 Plant and Machinery 1,20,000
C 2,00,000 7,00,000 Building 2,30,000
9,70,000 9,70,000

On 1st April, 2018, B retired from the firm selling his share of profit to A for ` 36,000 and
to C for ` 45,000. For the purpose of B’s retirement, it was agreed that:
(i) Stock is to be appreciated by 20% and Building by 10%.
(ii) Provision for Doubtful Debts is increased to 10%.
(iii) Claim on account of Workmen Compensation is ` 12,000.

(iv) Revaluation Expenses were ` 5,000 plus CGST and SGST @ 9% each and were paid.
(v) Car was valued at ` 3,05,000 and was given to B in part settlement of his dues. CGST
and SGST were charged @ 9% each.
(vi) Amount due to B is to be settled on the following basis:
50% on retirement and the balance 50% within one year.
(vii) Capital of the newly constituted firm is fixed at ` 6,00,000 to be divided between
A and C in new profit-sharing ratio. Adjustment is to be made in cash.
Calculate New Profit-sharing Ratio and prepare Revaluation Account, Partners’ Capital
Accounts and Balance Sheet of the new firm.

Solution:

Calculation of New Profit-sharing Ratio:
B’s share is 3/8 which he is surrendering in favour of A and C in the ratio of ` 36,000: ` 45,000
or 4 : 5.
Therefore A will get 4/9 of 3/8 = 1/6 and C will get 5/9 of 3/8 = 5/24.
Total share of A in the new firm will be: 4/8 + 1/6 = 16/24 or 2/3.
Total share of C in the new firm will be: 1/8 + 5/24 = 8/24 or 1/3.
New Profit-sharing Ratio of A and C = 2 : 1.