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Retirement of a Partner 4.25

Unsolved Questions

1. A, B and C are partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. Their Balance Sheet
as at 31st March, 2018 is as under:
Liabilities ` Assets `
Creditors 30,000 Cash in Hand 18,000
Bills Payable 16,000 Debtors 25,000
General Reserve 12,000 Less: Provision for Doubtful Debts 3,000 22,000
Capital A/cs: Stock 18,000
A 40,000 Furniture 30,000
B 40,000 Machinery 70,000
C 30,000 1,10,000 Goodwill 10,000
1,68,000 1,68,000

B retires on 1st April, 2018 on the following terms:
(i) Provision for Doubtful Debts be raised by ` 1,000.
(ii) Stock to be depreciated by 10% and Furniture by 5%.
(iii) There is an outstanding claim of damages of ` 1,100 and it is to be provided for.
(iv) Creditors will be written back by ` 6,000.
(v) Goodwill of the firm is valued at ` 22,000.
(vi) B is paid in full with the cash brought in by A and C in such a manner that their capitals are in
proportion to their profit-sharing ratio and Cash in Hand remains at ` 10,000.
Prepare Revaluation Account, Partners’ Capital Accounts and Balance Sheet of A and C.
2. Balance Sheet of X, Y and Z who were sharing profits in the ratio of 4 : 3 : 2 stood as follows as at
31st March, 2018:
Liabilities ` Assets `
Sundry Creditors 82,800 Cash at Bank 66,000
Capital A/cs: Sundry Debtors 60,900
X 2,40,000 Less: Provision for Doubtful Debts 2,100 58,800
Y 1,80,000 Stock 96,000
Z 1,20,000 5,40,000 Plant and Machinery 1,02,000
Land and Building 3,00,000
6,22,800 6,22,800

Y having given notice to retire from the firm, the following adjustments in the books of the firm were
agreed upon:
(i) That Land and Building be appreciated by 10%.
(ii) Provision for Doubtful Debts is no longer necessary.
(iii) Stock be appreciated by 20%.
(iv) Adjustment be made in the accounts to rectify a mistake previously made whereby Y was credited
in excess by ` 16,200 while X and Z were debited in excess by ` 8,400 and by ` 7,800 respectively.
(v) Goodwill of the firm be fixed at ` 1,08,000 and Y’s share of the same be adjusted to the Capital
Accounts of X and Z who are going to share future profits in the ratio of 2 : 1.
(vi) The entire capital of the firm, as newly constituted, will be readjusted by bringing in or paying
cash so that the future capitals of X and Z be in the ratio of 2 : 1.
Prepare Revaluation Account, Capital Accounts of Partners, and Balance Sheet of the new firm showing
Y’s balance as loan.
[Hint: For Rectification: Dr. Y’s Capital A/c—` 16,200 and Cr. X’s Capital A/c—` 8,400 and Z’s Capital A/c—
` 7,800.]