A, B and C are partners sharing profits and losses in the ratio of 4 : 3 : 3.

Their
Balance Sheet as at 31st March, 2021 is:
Amount Amount
Liabilities ( `) Assets ( `)
Creditors 7,000 Land and Building 36,000
Bills Payable 3,000 Plant and Machinery 28,000
Reserves 20,000 Computer Printer 8,000
Capital A/cs: Stock 20,000
A 32,000 Sundry Debtors 14,000
Less: Provision
for Doubtful
B 24,000 Debts 2,000 12,000
C 20,000 76,000 Bank 2,000

1,06,000 1,06,000

On 1st April, 2021, B retired from the firm on the following terms:
(a) Goodwill of the firm is to be valued at ` 14,000.
(b) Stock, Land and Building are to be appreciated by 10%.
(c) Plant and Machinery and Computer Printer are to be reduced by 10%.
(d) Sundry Debtors are considered to be good.
(e) There is a liability of ` 2,000 for the payment of outstanding salary to the
employees of the firm. This liability was not provided in the Balance Sheet but
the same is to be recorded now.
(f) Amount payable to B is to be transferred to his Loan Account.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet
of A and C after B's retirement.

Answer:
Revaluation Account
Dr. Cr.
Amount Amount
Particulars ( `) Particulars ( `)
Plant and Machinery Stock
(28,000 × 10%) 2,800 (20,000 × 10%) 2,000
Electronic Typewriter Land and Building
(8,000 × 10%) 800 (36,000 × 10%) 3,600
Outstanding Salary 2,000 Provision for Doubtful 2,000
 Debts
Profit transferred to:
A’s Capital A/c 800
B’s Capital A/c 600
C’s Capital A/c 600 2,000

7,600 7,600

Partners’ Capital Accounts

Dr. Cr.
Particulars A B C Particulars A B C
B’s Capital A/c 2,400 1,800 Balance b/d 32,000 24,000 20,000
B’s Loan A/c 34,800 Reserves 8,000 6,000 6,000
Balance c/d 38,400 24,800 Revaluation A/c 800 600 600
A’s Capital A/c 2,400
C’s Capital A/c 1,800
40,800 34,800 26,600 40,800 34,800 26,600

Balance Sheet
an on April 01, 2021 (after B’s Retirement)
Amount Amount
Liabilities ( `) Assets ( `)
Land and Building
Creditors 7,000 (36,000 + 3,600) 39,600
Plant and Machinery
Bills Payable 3,000 (28,000 – 2,800) 25,200
Electronic Typewriter
B’s Loan 34,800 8000 – 800) 7,200
Capital A/c: Stock (20,000 + 2,000) 22,000
A 38,400 Sundry Debtors 14,000
C 24,800 Bank 2000
Outstanding Salary 2,000
1,10,000 1,10,000

X, Y and Z are partners sharing profits and losses in the ratio of 3 : 2 : 1. Balance
Sheet of the firm as at 31st March, 2021 was as follows:
 Amou Amou
nt nt
Liabilities ( `) Assets ( `)
Creditors 21,000 Cash at Bank 5,750
Workmen Compensation 40,00
Reserve 12,000 Debtors 0
Investments Fluctuation Less: Provision for
Reserve 6,000 Doubtful Debts 2,000 38,000
Capital A/cs: Stock 30,000
68,00 Investment (Market
X 0 Value ` 17,600) 15,000
32,00
Y 0 Patents 10,000
21,00 1,21,00
Z 0 0 Machinery 50,000
Goodwill 6,000
Advertisement Expenditure 5,250

1,60,00 1,60,00
0 0

Z retired on 1st April, 2021 on the following terms:

(a) Goodwill of the firm is to be valued at ` 34,800.
(b) Value of Patents is to be reduced by 20% and that of machinery to 90%.
(c) Provision for doubtful debts is to be created @ 6% on debtors.
(d) Z took over the investment at market value.
(e) Liability for Workmen Compensation to the extent of ` 750 is to be created.
(f) A liability of ` 4,000 included in creditors is not to be paid.
(g) Amount due to Z to be paid as follows: ` 5,067 immediately, 50% of the
balance within one year and the balance by a draft for 3 Months.
Give necessary Journal entries for the treatment of goodwill, prepare Revaluation
Account, Capital Accounts and the Balance Sheet of the new firm.

Answer:
Journal
Debit Credit
Date Amount Amount
Particulars L.F. ( `) ( `)
 2021
April 01 X’s Capital A/c Dr. 3,000
Y’s Capital A/c Dr. 2,000
Z’s Capital A/c Dr. 1,000
To Goodwill A/c 6,000
(Existing goodwill written off)

April 01 X’s Capital A/c Dr. 3,480

Y’s Capital A/c Dr. 2,320
To Z’s Capital A/c 5,800
(Z’s share of goodwill credited to
him and gaining partners debited in
gaining ratio)

Revaluation Account
Dr. Cr.
Amount Amount
Particulars ( `) Particulars ( `)
Investments
Patents 2,000 (17,600 – 15,000) 2,600
Machinery 5,000 Creditors 4,000
Loss on Revaluation
Prov. for Doubtful Debts 400 transferred
X’s Capital A/c 400
Y’s Capital A/c 267
Z’s Capital A/c 133 800

7,400 7,400

Partners’ Capital Accounts

Dr
. Cr.
Particulars X Y Z Particulars X Y Z
Goodwill A/c 3,000 2,000 1,000 Balance b/d 68,00 32,00 21,00
 0 0 0
Revaluation X’s Capital
A/c 400 267 133 A/c 3,480
Z’s Capital Y’s Capital
A/c 3,480 2,320 A/c 2,320
Workmen
Advertisemen Compensatio
t Expenditure n Reserve
A/c 2,625 1,750 875 A/c* 5,625 3,750 1,875
Investment
Investments 17,60 Fluctuation
A/c 0 Reserve A/c* 3,000 2,000 1,000
Bank A/c 5,067
Z’s Loan A/c 2,500
Bills Payable
A/c 2,500
67,12 31,41
Balance c/d 0 3
76,62 37,75 29,62 76,62 37,75 29,62
5 0 5 5 0 5

Balance Sheet
as on April 01, 2021 after Z’s retirement
Amount Amount
Liabilities ( `) Assets ( `)
Creditors 17,000 Cash at Bank (5,750 – 5,067) 683
Workmen Compensation
Claim 750 Stock 30,000
Bills Payable 2,500 Patents 8,000
Capital A/c’s: Debtors A/c 40,000
Less: Prov. for
X 67,120 D/ful Debts 2,400 37,600
Y 31,413 98,533 Machinery 45,000
Z’s Loan 2,500
1,21,283 1,21,283
Note:
Amount due to Z = (21,000+3,480+2,320+1,875+1,000) - (1,000+133+875+17,600)
=10,067Amout paid on Retirement immediately: ` 5,067
Amount paid within one year: 50% of 5,000 = ` 2,500 Amount payable by Bills of
Exchange: ` 2,500 (balance 50%)