Chapter-5 RETIREMENT & DEATH OF PARTNER

How a partner can be retired from the firm? [1]

  1. What is the affect of the retirement of a partner? [1]
  2. Vinod, Singh and King were partners in a firm sharing profits in the ratio of 8:7:5. Singh retired and his share was taken over by Vinod and King in the ratio of 1:2. Calculate the new profit sharing ratio of Vinod and King. [3]
  3. Vinod, Mohan and Sohan were partners in a firm sharing profits in the ratio of 7:6:7. Mohan retired and his share was divided equally between Vinod and Sohan. Calculate new profit sharing ratio of Vinod and Sohan. [3]
  4. Vinod, Bobby and Kuku are partners in a firm sharing profits in the ratio of 6:5:4. Kuku retired and his share is taken up equally by Vinod and Bobby. Find new profit sharing ratio among the partners after the retirement of Kuku. [3]
  5. VK, SS and MM are partners sharing profits in the ratio of 2/5; 2/5 and 1/5. MM decides to retire from the business and his share is taken by VK and SS in the ratio of 1:2. Calculate new profit sharing ratio. [3]
  6. Vinod, Ashish and Mohan are partners in a business and divide profit and loss in the ratio of 15:9:8 respectively. Mohan retires. Vinod and Ashish decide to share profits in equal proportion. Calculate the gaining ratio. [3]
  7. VK, NK and KK are partners sharing profits in the ratio of 5:3:2. KK retires and the new profit sharing ratio between VK and NK is 5:3. Calculate gain ratio. [3]
  8. White, Black and Red were partners sharing profits in the ratio of 5:3:2. Black retires on 1.1.2014 with White and Red agreeing to share the profits in future in the ratio of 6:4. Find the gain ratio. (3)
  9. X, Y and Z were partners in a firm sharing profits in the ratio of 4:3:2. Y retired. His share was taken over equally by X and Z. In which ratio will the profit or loss on revaluation of assets and liabilities on the retirement of Y be transferred to the capital accounts of the partners. (3)
  10. Anil, Bobby and Chetan are partners sharing profits in the ratio of 3:2:1. Bobby retires and the new profit sharing ratio between Anil and Chetan is 3:1. Find out gain ratio of Anil and Chetan. (3)
  11. PK, QK and RK were partners in a firm sharing profits in the ratio of 5:4:3. Their Capitals were Rs.1,00,000; Rs.1,25,000; and Rs.2,50,000 respectively. State the ratio in which the goodwill of the firm amounting to Rs.3,00,000 will be adjusted on the retirement of RK.
  12. X, Y and Z are partners. X retires and goodwill of the firm is valued at Rs.90,000. Pass Journal entry for the treatment of goodwill on X’s Treatment. [1]
  13. MK, NK and KK who are partners in a firm sharing profits in the ratio of 3:2:1. Goodwill has been valued at Rs.1,50,000. On NK’s retirement MK and KK agree to share profits equally. Pass necessary journal entry for treatment of NK’s Sharing of goodwill. [3]
  14. A, B and C are partners sharing profits in the ratio of 2:2:1. On July 1, 2013, Goodwill of the firm was valued at Rs.45,000. Goodwill does not appear in books. On this date A retires. Pass Journal entry regarding goodwill. [3]
  15. X, Y and Z were partners in the ratio of 3:2:1. Y retired and the new profit sharing ratio between X and Z was 2:1. On Y’s retirement, the goodwill of the firm was valued at Rs.1,80,000. Pass necessary journal entry for the treatment of goodwill on Y’s retirement. [3]
  16. Ravi, Mukesh, Naresh and Yogesh are partners in a firm sharing profits in the ratio of 2:2:1:1. On Mukesh’s retirement, the goodwill of the firm is valued at Rs.45,000. Ravi, Naresh and Yogesh decided to share future profits equally. Pass the necessary journal entry for the treatment of goodwill. [3]
  17. A, B and C are partners sharing profits in the ratio of 4:3:2. B retires and the goodwill of the firm is valued at Rs.18,000. Pass journal entry for the treatment of goodwill on B’s retirement. [3]
  18. (a) A, B and C are partners in a firm sharing profits in the ratio of 4:3:1. A retires and his share is taken up by B and C equally. Find out the new profit sharing ratio and the gaining ratio.

(b) The Goodwill of the firm is valued at Rs.80,000. No goodwill account appears in the books. Pass necessary journal entry for recording the goodwill in the above mentioned case.

  1. Anil, Bobby and Chetan were partners sharing profits in the ratio of 6:4:5. Their capitals were : Anil Rs.50,000, Bobby Rs.40,000 and Chetan Rs.30,000. On 1st April 2013, Bobby retired from the firm and the new profit sharing ratio between Anil and Chetan was decided as 11:4. On Bobby’s retirement the goodwill of the firm was valued at Rs.90,000. Showing your calculations clearly, pass necessary journal entry for the treatment of goodwill on Bobby’s retirement. [3]
  2. AK, BK, CK and DK are partners sharing profits in the ratio of 3:3:2:2 respectively. DK retires and AK, BK and CK decide to share the future profits in the ratio of 3:2:1. Goodwill of the firm is valued at Rs.3,00,000. Goodwill already appears in the books at Rs.2,25,000. The profits for the first year after DK’s retirement amount to Rs.6,00,000. Give the necessary journal entries to record goodwill and to distribute the profits. Show your working clearly. (3)
  3. RK, LK and BK are partners sharing profits in the ratio of 3:2:1. Goodwill is appearing in the books at a value of Rs.1,80,000. LK retires and at the time of his retirement goodwill is valued at Rs.2,52,000. RK and BK decided to share future profits in the ratio of 2:1. The profits for the first year after LK’s retirement amount to Rs.1,20,000. Give the necessary journal entries to record goodwill and to distribute the profits. Show calculations clearly. (3)
  4. X, Y and Z are partners in a firm sharing profits and losses in the ratio of 1:1:1. Goodwill was valued at Rs.1,80,000; on Z’s retirement from the firm X and Y agree to share profits in the ratio of 3:2. Pass the necessary journal entry for treatment of Z’s share of Goodwill. (3)
  5. AK, BK and NK are partners sharing profits & losses in the ratio of 14:5:6 respectively. BK retires and surrenders his 5/25th share in favour of AK. The goodwill of the firm is valued at 2 years purchase of Super Profits based on average profits of last 3 years. The profits for the last 3 years are Rs.1,00,000, Rs.1,10,000 and Rs.1,00,000 respectively. The normal profit for the first year after BK’s retirement was Rs.2,00,000. Give the necessary journal entries to adjust goodwill and distribute profits showing your workings clearly.

 

  1. KK, LL and MM were partners in a firm sharing profits in the ratio of 5:3:2. On 31.3.2014 the Balance Sheet of the firm was as follows:
Liabilities Amount Assets Amount
Creditors

Capitals :

KK

LL

MM

60,000

 

80,000

72,000

64,000

 

2,76,000

Bank

Debtors                  32,000

Less: Provision         4,000 Building

Profit and Loss A/c

40,000

 

28,000 2,00,800

7,200

 

2,76,000

LL retires from the firm on the following terms:

(i) The new profit sharing ratio between KK and MM will be 2:1.

(ii) Goodwill of the firm is valued at Rs.1,44,000 which is not be shown in the books.

(iii) Provision for bad debts is to be made at the rate of 10% on debtors

(iv) Creditors of Rs.8,000 will not be claimed Prepare Revaluation A/c, Partners Capital A/c and Balance sheet.

 

 

  1. A, B and C were partners in a firm sharing profits in the ratio of 4 : 3: 2. Their Balance Sheet as on 31.3.2006 was as follows:

 

Liabilities Amount Assets Amount
Creditors

Reserve Fund

Bills Payable

Capitals : A           40,000

B          30,000

C          25,000

19,000

12,000

5,000

 

 

95,000

 

1,31,000

Building

Debtors

Stock

Motor vans

Machinery

Cash at Bank

45,000

15,000

25,000

8,000

35,000

3,000

 

1,31,000

B retired on that date subject to the following conditions:

(a) Machinery and Motor vans to be depreciated by 10%.

(b) Provision made for doubtful debts at Rs.700.

(c) Stock and Building to be appreciated by 20%.

(d) Goodwill of the firm be valued at Rs.18,000 and the retiring partner’s share to be adjusted through the capital accounts of the remaining partners.

(e) B’s account was settled by means of a cheque. Prepare Revaluation A/c, Partners Capital A/c and Balance sheet.

 

  1. Vijay, Vinay and Vivek were partners in a firm sharing profits in 5 : 3: 2 ratio. On 31.3.2006 Vivek retired from the firm. On the date of Vivek’s retirement the Balance Sheet was as under:

 

Liabilities Amount Assets Amount
Creditors

Bills Payable Outstanding Rent Provision for Legal Claims

Capitals : Vijay

2,54,000

Vinay

1,80,000

Vivek

1,42,000

54,000

26,000

45,000

1,15,000

 

 

5,76,000

8,16,000

Bank

Debtors                 40,000

Less: Provision    800 Stock

Furniture

Land and Building

1,60,000

 

39,000

42,000

1,75,000

4,00,000

8,16,000

On Vivek’s retirement it was agreed that:

(a) Land and Building will be appreciated by 5% and Furniture will be appreciated by 20%.

(b) Provision for bad debts was to be made at 5% on debtors and provision for legal damages to be made for Rs.60,000.

(c) Goodwill of the firm was valued at Rs.60,000.

(d) Rs.70,000 from Vivek’s Capital Account will be transferred to his loan account and the balance will be paid by cheque. Prepare Revaluation A/c, Partners Capital A/c and Balance Sheet.

 

  1. X, Y and Z were partners in a firm sharing profits and losses in the ratio of 2:2:1. On 31.3.2014 their Balance Sheet was as follows:\
Liabilities Amount Assets Amount
Bills Payable

Creditors

Profit and Loss

Capitals :

X        40,000                                                                                        Y                       40,000

Z                     32,500

49,000

51,000

37,500

 

 

 

1,12,500

2,50,000

Cash

Bills Receivables Debtors

Stock

Furniture

Plant and Machinery Building

  15,000

4,500

10,500

20,000

40,000

60,000

1,00,000

2,50,000

 

On 1.4.2014 X retired from the business. On X’s retirement, the assets and liabilities were revalued as follows:

(i) Stock was depreciated by 10%. Furniture was depreciated by 20% and Plant and Machinery by 5%. Building was appreciated by 20%.

(ii) The goodwill of the firm was valued at Rs.30,000. X was to be paid Rs.9,800 in cash on retirement, the balance in three equal instalments.

Prepare Revaluation Account, Partners Capital Accounts, X’s Loan Account and Balance Sheet as on 1.4.2014.

 

  1. PP, QQ and RR were parnters in a firm sharing profits in the ratio of 2:3:5. On 31.3.2014 thier Balance Sheet was as follows:

 

Liabilities Amount Assets Amount
Creditors

Capitals : PP    40,000                       QQ         35,000

RR          30,000

 35,000

 

 

1,05,000

 

 

1,40,000

Bank

Debtors               20,000

Less: Provision    2,500 Stock

Building

Profit and Loss A/c

22,500

 

17,500

25,000

70,000

5,000

1,40,000

On the above date RR retired from the firm due to his illness on the following terms:

(i) Building was to be depreciated by Rs.20,000

(ii) Provision for doubtful debts was to be maintained at 20% on debtors

(iii) Salary outstanding Rs.2,500 was to be recorded and creditors Rs.2,000 will not be claimed.

(iv) Goodwill of the firm was valued at Rs.36,000 .

(v) RR was to be paid Rs.7,500 in cash, through bank and the balance was to be transferred to his loan account.

Prepare Revaluation Account, Partners capital account and Balance Sheet.

 

  1. Vinod, Mohan and Raj were partners in a firm sharing profits in the ratio of 1/2; 1/3; 1/6 respectively. The Balance Sheet of the firm on 31st December 2013 stood as follows:

 

Liabilities Amount Assets Amount
Creditors

Bills Payable

Reserve Fund

Capitals : Vinod           40,000                               Mohan           30,000

Raj                  25,000

19,000

5,000

12,000

 

95,000

Cash at Bank

Debtors                  16,000

Less: Provision       500

Stock

Motor Vans

Machinery

Building

2,500

 

15,500

25,000

8,000

35,000

45,000

Mohan retired from the firm on the above date subject to the following conditions:

(i) Goodwill of the firm be valued at Rs.18,000 and is not to be shown in the books of the firm.

(ii) Machinery would be depreciated by 10% and Motor Vans by 15%.

(iii) Stock would be appreciated by 20% and Building by 10%.

(iv) The provision for doubtful debts would be increased by 1,950.

(v) Liability for workmen’s compensation to the extent of 1,650 would be created.

It was agreed that Vinod and Raj would share profits in future in the ratio of 3:2.

Prepare Revaluation Account, Partners capital account and Balance Sheet.

 

  1. Mohan, Rohan and Sohan were partners in a firm sharing profits in the ratio of 2:2:1. Their Balance Sheet on 31.3.2014 was as follows:

 

Liabilities Amount Assets Amount
Creditors

Provident Fund

Reserve Fund

Capitals : Mohan       60,000

Rohan         60,000

Sohan          40,000

60,000

16,000

24,000

 

1,60,000

 

 

2,60,000

Cash at Bank

Debtors                 50,000

Less: Provision       2,000

Stock

Investments

Patents

Plant and machinery

6,000

 

48,000

24,000

28,000

14,000 1,40,000

2,60,000

Sohan retired on the above date on the following items:

(i) Goodwill of the firm valued at Rs.2,00,000

(ii) Value of patents was to be reduced by 20% and that of Plant and Machinery by 10%.

(iii) Provision for doubtfuld debts was to be raised to 6%.

(iv) Sohan took over the investments at a value of Rs.31,600

(v) Liability on account of provident fund was only Rs.13,200

Prepare Revaluation Account, Partners capital account and Balance Sheet.

 

  1. The Balance Sheet of MK, NK and OK who are sharing profits and losses in the ratio of 1/2; 1/3; and 1/6 respectively, was as follows on 31.3.2010:
Liabilities Amount Assets Amount
Bills Payable

Creditors

Capitals : MK 80,000

NK 50,000

OK 40,000

Profit and Loss A/c

12,000

25,800

 

 

1,70,000

9,000

 

 

 

2,16,800

Cash in hand

Cash at Bank

Bills Receivable

Book Debts

Stock

Furniture

Plant and Machinery

Building

300

51,000

10,800

35,600

44,600

7,000

19,500

48,000

 

2,16,800

MK retires from the business on 1st July 2010. Assets were revalued as under: Stock Rs.40,000; Furniture Rs.6,000; Plant and Machinery Rs.18,000; Building Rs.40,000; and Rs.1,700 are to be provided for doubtful debts. The goodwill of the firm is agreed to be vlaued at Rs.12,000.

MK is to be Rs.22,100 in cash on retirement and balance in three equal yearly instalments with interest at 5% per annum.

Prepare Revaluation Account, Capital Accounts; Balance Sheet and MK’s Loan Account till it is finally closed.

  1. Sonia, Simran and Shivani are in partnership sharing profits in the ratio of 5 : 3 : 2. Their Balance Sheet on 1 April 2006, the day Simran decided to retire was as follows:
Liabilities Amount Assets Amount
Sundry Creditors

General Reserve

Bills Payable

Capitals: Sonia       30,000

Simran      20,000

Shivani     20,000

7,000

10,000

3,000

 

 

70,000

 

90,000

Buildings

Plant and Machinery Investments

Debtors

Stock

Cash

25,000

15,000

25,000

10,000

5,000

10,000

 

90,000

The terms of retirement were:

(i) Simran sells her share of goodwill to Sonia for Rs.3,000 and to Shivani for Rs.4,000.

(ii) Stock to be appreciated by 20% and buildings by Rs.5,000.

(iii) Investments were sold for Rs.32,000.

(iv) Simran is paid in cash.

Prepare Revaluation Account, Capital Accounts of Partners and Balance Sheet.

 

  1. Ram, Vijay and Shyam are partners sharing profits in the ratio of 5:3:2. The Balance Sheet of the firm on 31st March 2011 was :
Liabilities Amount Assets Amount
Sundry Creditors

Bank overdraft

Long term loan General Reserve Capitals:

Ram

Vijay

Shyam

1,63,000

44,000

3,00,000

20,000

 

80,000

20,000

30,000

 

6,57,000

Land and Building

Plant and Machinery Furniture

Investments

Stock

Debtors

2,10,000

1,30,000

40,000

12,000

1,26,000

1,39,000

 

 

 

6,57,000

It was mutually agreed that Vijay will retire from partnership, and for this purpose the following adjustments are to be made:

(i) Goodwill is to be vlaued at Rs. 1,00,000 but the same will not appear as an asset in the new firm. (ii) Land and Building and Pland and machinery are to be depreciated by 10% and 5% respectively. (iii) Investment are to be taken over by Vijay at Rs.15,000.

(iv) Provision of 20% is to be made on debtors to cover doubtful debts

Ram and Shyam will share future proits equally.

The amount due to Vijay is to be transferred to his Loan Account.

Prepare Revaluation Account, Capital Account of the partners and Balance Sheet of the reconstituted firm.

 

  1. Vinod, Mohan and Rohan were in partnership sharing profits in proportion to their capitals. Their Balance Sheet on 31-3-2008 was as follows:
Liabilities Amount Assets Amount
Creditors

Reserve

Vinod’s Capital Mohan’s Capital Rohan’s Capital

31,200

12,000

1,80,000

1,20,000

60,000

 

 

4,03,200

Cash

Debtors              40,000

Less : Provision      800 Stock

Machinery

Buildings

32,000

 

39,200

36,000

96,000

2,00,000

 

4,03,200

On the above date Mohan retired owing to ill health and the following adjustments were agreed upon:

(a) Building be appreciated by 10%.

(b) Provision for doubtful debts be increased to 5% on debtors.

(c) Machinery be depreciated by 15%.

(d) Goodwill of the firm be valued at Rs.72,000 and be adjusted into the capital accounts of Vinod and Rohan who will share profits in future in the ratio of 3:1.

(e) A provision be made for outstanding repairs bill of Rs.6,000.

(f) Included in the value of creditors is Rs.3,600 for an outstanding legal claim, which is        not likely to arise.

(g) Out of the insurance premium paid Rs.4,000 is for the next year. The amount was debited to P & L A/c.

(h) The partners decide to fix the capital of the new firm as Rs.2,40,000 in the profit sharing ratio.

(i) Mohan to be paid Rs.18,000 in cash and the balance to be transferred to his loan account. Prepare the Revaluation Account, Partners capital accounts and Balance Sheet.

 

  1. The Balance Sheet of Vinod, Mohan and Rohan on 31-3-2007 was as follows:
Liabilities Amount Assets Amount
Creditors

Vinod’s Capital Mohan’s Capital Rohan’s Capital

1,00,000

1,60,000

1,60,000

1,20,000

 

 

 

5,40,000

Cash

Debtors

Motor Car

Plant and Machinery Land and Building Profit and Loss A/c

4,000

96,000

1,08,000

1,12,000

1,60,000

60,000

 

5,40,000

The following terms were agreed upon for Vinod’s retirement:

(a) Goodwill to be valued at Rs.84,000 and not to be shown in the books after Vinod’s retirement. (b) Land and Buildings to be appreciated by Rs.40,000.

(c) Plant and machinery to be reduced to Rs.92,000

(d) Provision for doubtful debts to be created at 5% on debtors

(e) Create a provision of Rs.2,800 for discount for creditors

(f) The sum payable to Vinod to be brought in by Mohan and Rohan in such a manner that their capitals are in proportion to the profit sharing ratio.

Prepare Revaluation Account, Partners capital account and Balance Sheet.

 

  1. PK, NK and SK are partners sharing profits in the ratio of 3:2:1. NK retired from the firm due to his illness. On that date the balance sheet of the firm was as follows:

 

Liabilities Amount Assets Amount
General Reserve

Sundry Creditors

Bills Payable

Outstanding salary

Provision for legal damages PK’s Capital

NK’s Capital

SK’s Capital

24,000

30,000

24,000

4,400

12,000

92,000

60,000

40,000

 

2,86,400

Bank

Debtors 12,000

Less: provision 800

Stock

Furniture

Premises

15,200

 

11,200

18,000

82,000

1,60,000

 

 

 

2,86,400

Additional Information:

(i) Premises have appreciated by 20%. Stock depreciated by 10% and provision for doubtful debts was to be made 5% on debtors. Further, provision for legal damages is to be made for Rs.2,400 and furniture to be brought up to Rs.90,000.

(ii) Goodwill of the firm be valued at Rs.84,000

(iii) Rs.52,000 from NK’s capital account be transferred to his loan account and balance be paid through bank; if required, necessary loan may be obtained from bank.

(iv) New profit sharing ratio of PK and SK is decided to be 5:1.

Give the necessary ledger accounts and balance sheet of the firm after NK’s retirement.

 

  1. AK, KK and VK were partners in a firm sharing profits and losses in the ratio of their capitals. On 31.3.2009 their Balance Sheet was as follows:

 

Liabilities Amount Assets Amount
Creditors

Workmen Compensation fund General Reserve

Capitals : AK 50,000

KK 75,000

VK 50,000

12,500

3,750

8,750

 

 

1,75,000

 

2,00,000

Land and Building Machinery

Closing Stock

Sundry Debtors 27,500

Less : Provision 2,500

Cash at Bank

50,000

75,000

25,000

 

25,000

 

 

2,00,000

On 31.3.2009 AK retired from the business. On AK’s retirement, the assets and liabilities were revalued as follows:

(i) Land and Building to be appreciated by 30%

(ii) Machinery be appreciated by 20%

(iii) There were bad debts of Rs.4,250

(iv) The claim on account of workmen compensation was estimated at Rs.2,000

(v) Goodwill of the firm was valued at Rs.35,000 and AK’s share of Goodwill be adjusted againts the Capital Accounts of the countinuing partners KK and VK who have decided to share future profits in the ratio of 4:3 respectively.

(vi) Capital of the new firm in total will be the same as before the retirement of AK and will be in the new profit sharing ratio of the continuing partners.

(vii) Amount due to AK be settled by paying Rs.12,500 in cash and the balance by transferring to her loan account which will be paid latter on.

Prepare Revaluation Account, Partners capital account and Balance Sheet.

 

 

 

  1. LK, MK and NK were parnters in a firm sharing profits in the ratio of 50% :30% and 20% respectively. On 31.3.2014 thier Balance Sheet was as follows:

 

Liabilities Amount Assets Amount
Creditors

Profit and Loss A/c

Investment Fluctuation Fund General Reserve

Capitals : LK 1,00,000

MK 80,000

NK 40,000

42,000 30,000 20,000 50,000

 

 

2,20,000

 

 

3,62,000

Premises

Motor Vans Investment

Plant

Stock

Debtors             80,000

Less: Provision   6,000 Cash

1,24,000

40,000

38,000

24,000

30,000

 

74,000

32,000

 

3,62,000

On the above date MK retired from the firm due to his illness on the following terms:

(i) Firm’s goodwill was valued at Rs.1,02,000 and it was decided to adjust MK’s Goodwill into capital accounts of continuing partners.

(ii) Thre is a claim for workmen’s compensation to the extent of Rs.8,000. Investments are brought down to Rs.30,000.

(iii) Provision for bad debts is to be reduced by Rs.2,000.

(iv) MK will be paid Rs.16,400 in cash and balance will be transferred to his Loan account which will be paid in 3 equal instalments together with interest @10% p.a.

(v) LK’s and NK’s Capital will be adjusted in their new profit sharing ratio i.e. 3:2 through cash account.

Prepare Revaluation Account, Partners capital account and Balance Sheet.

 

  1. FK, GK and HK were partners in a firm sharing profits in the ratio of 5; 3; 2 respectively. The Balance Sheet of the firm on 31st March 2013 stood as follows:
Liabilities Amount Assets Amount
Creditors

Bills Payable

Profit and Loss A/c Capitals : FK 1,30,000

GK 1,00,000

HK 80,000

44,000

16,000

30,000

 

 

3,10,000

 

4,00,000

Fixed Assets

Stock

Debtors

Cash

2,00,000

90,000

90,000

20,000

 

 

 

4,00,000

FK retired from the firm on the above date subject to the following conditions:

(i) Goodwill of the firm be valued at Rs.50,000

(ii) Fixed Assets were valued at Rs.2,50,000

(iii) Stock was considered worth Rs.80,000

FK is to be paid in cash brought in by GK and HK in such a way so as to make their capitals proportionate to their new profit sharing ratio, which is 3:2 respectively.

Minimum cash balance is to be maintained at Rs.14,000.

Prepare Revaluation Account, Partners capital account and Balance Sheet.

 

  1. AK, BK and CK were partners in a firm sharing profits in the ratio of 5:3:2. Their Balance Sheet on 31.3.2014 was as follows:
Liabilities Amount Assets Amount
Capitals : AK 80,000

BK 1,22,000

CK 48,000 Reserve Sundry Creditors

Profit and Loss A/c

Bills Payable

 

 

2,50,000

60,000

1,00,000

56,000

10,000

 

4,76,000

Machinery

Furniture

Stock

Debtors 1,40,000

Less: Provision 6,000 Bills Receivable

Cash at Bank

1,64,000

8,000

40,000

 

1,34,000

30,000

1,00,000

 

4,76,000

BK retired on the above date and AK and CK continued partnership by sharing profits and losses in the ratio of 3:2. Following adjustments were to be made on the retirement of BK:

(i) The Machinery was to be revalued at Rs.1,70,000

(ii) The stock was to be reduced by Rs.2,000

(iii) The furniture was to be reduced to Rs.3,200

(iv) The provision for doubtful debts would be 6%

(v) A provision of Rs.1,600 was to be made of outstanding expenses

(vi) A Liability on account of damages of Rs.14,000 included in creditors is settled at Rs.24,000.

The Partnership agreement provides that in case of retirement of a partner goodwill was to be vlaued at three years purchase of average profits, which are Rs.20,000. BK was paid in full. AK and CK were to deposit such an amount in bank so as to make their capital in proportionate to the new profit sharing ratio, subject to the condition that a bank balance of Rs.80,000 was to be maintained as working capital. Prepare Revaluation Account, Partners capital account and Balance Sheet.

 

 

Author: Ravi Kashyap

Commerce Expert

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