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Retirement of a Partner 4.23
(iii) Furniture was to be reduced to ` 600.
(iv) Provision for Doubtful Debts to be increased by ` 1,000.
(v) A Provision of ` 300 was to be created for Outstanding Expenses.
The partnership agreement provided that on the retirement of a partner, goodwill was to be valued at
` 24,000 and Vansh’s share of the same was to be adjusted into the accounts of Ansh and Dev. The profits up
to the date of retirement from the date of last Balance Sheet was estimated at ` 45,000. All the partners
are to be credited with their respective share of profit earned till the date of retirement of Vansh.
Vansh was to be paid in full. Ansh and Dev were to bring sufficient amount so as to make their capitals in
proportion to the new profit-sharing ratio, subject to the condition that a cash balance of ` 30,000 was to be
maintained as working capital. Before making this adjustment the cash balance was ` 68,000 on 30th June, 2019.
Pass necessary Journal entries to give effect to the above arrangements and prepare Partners’ Capital
Accounts as on 30th June, 2019.
Solution: JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
2019 Ansh’s Capital A/c ...Dr. 2,400
June 30 Dev’s Capital A/c ...Dr. 5,600
To Vansh’s Capital A/c 8,000
(Being Vansh’s share of goodwill adjusted in the Capital Accounts of
Ansh and Dev in the gaining ratio of 3 : 7) (WN 1 and 2)
Revaluation A/c ...Dr. 2,700
To Stock A/c 1,000
To Provision for Doubtful Debts A/c 1,000
To Furniture A/c 400
To Provision for Outstanding Expenses A/c 300
(Being the decrease in assets and increase in liabilities)
Machinery A/c ...Dr. 3,000
To Revaluation A/c 3,000
(Being the increase in the value of machinery)
Revaluation A/c ...Dr. 300
To Ansh’s Capital A/c 150
To Vansh’s Capital A/c 100
To Dev’s Capital A/c 50
(Being the gain (profit) on revaluation divided in the old ratio)
Reserve A/c ...Dr. 24,000
Workmen Compensation Reserve A/c ...Dr. 6,000
To Ansh’s Capital A/c 15,000
To Vansh’s Capital A/c 10,000
To Dev’s Capital A/c 5,000
(Being the transfer of free Reserves to the Partners’ Capital Accounts in the old ratio)
Profit and Loss Suspense A/c ...Dr. 45,000
To Ansh’s Capital A/c 22,500
To Vansh’s Capital A/c 15,000
To Dev’s Capital A/c 7,500
(Being the estimated profit till the date of retirement transferred
to the Capital Accounts in the old ratio)
Bank A/c ...Dr. 55,100
To Ansh’s Capital A/c 15,130
To Dev’s Capital A/c 39,970
(Being the cash brought in by Ansh and Dev as per agreement) (WN 3)
Vansh’s Capital A/c ...Dr. 93,100
To Bank A/c 93,100
(Being the payment made to Vansh on his retirement)