Q.No.47 | Chapter 6 – Retirement/Death of a Partner | T.S. Grewal 12 Class Book Keeping Part - A - Vol. 1

Question 47 Chapter 6 of +2-A

47. X, Y, and Z are partners in a firm sharing profits in the ratio of 3: 1: 2. On 31st March 2019, their Balance Sheet was:

Liabilities		Amount	Assets		Amount
Bills Payable		12,000	Freehold Premises		40,000
Sundry Creditors		28,000	Machinery		30,000
General Reserve		12,000	Furniture		12,000
Capital A/cs:			Stock		22,000
X's Capital	30,000		Sundry Debtors	20,000
Y's Capital	20,000		Less: Provision for Doubtful Debt	1,000	19,000
Z's Capital	28,000	78,000	Cash		7,000
		1,30,000			1,30,000

Z retired on 1st April 2019 from the business and the partners agree to the following:

1. Freehold Premises and Stock are to be appreciated by 20% and 15% respectively.
2. Machinery and Furniture are to be reduced by 10% and 7% respectively.
3. Provision for Doubtful Debts is to be increased to 1,500.
4. Goodwill of the firm is valued at 21,000 on Z's retirement.
5. Continuing partners to adjust their capitals in their new profit-sharing ratio after the retirement of Z. Surplus/deficit, if any, in their Capital Accounts will be adjusted through Current Accounts.

Prepare necessary Ledger Accounts and draw the Balance Sheet of the reconstituted firm.

 

The solution of Question 47 Chapter 6 of +2-A: -

Revaluation Account

Particular		Amount	Particular		Amount
To Machinery A/c		3,000	By Freehold Premises A/c		8,000
30,000 × 10%			40,000 × 20%
To Furniture A/c		840	By Stock A/c		3,300
12,000 × 7%			22,000 × 15%
To Prov. for Doubtful Debts A/c		500
1,500 – 1,000
To Profit transferred to
X's Capital A/c	3,480
Y's Capital A/c	1,160
Z's Capital A/c	2,320	6,960
		11,300			11,300

 

Partners’ Capital Account

Part.	X	Y	Z	Part.	X	Y	Z
To Z’s Capital A/c	5,250	1,750	-	By Balance B/d	30,000	20,000	28,000
				By General Reserve A/c	6,000	2,000	4,000
				By X's Capital A/c (Goodwill)	-	10,200	-
To Z’s Loan A/c	-	-	41,320	By Y's Capital A/c (Goodwill)	-	20,400	-
To Y's Current A/c	-	7,500	-	By Revaluation A/c	3,480	1,160	2,320
To Balance c/d	41,730	13,910	-	By X’s Current A/c	7,500	-	-
	46,980	23,160	41,320		46,980	23,160	41,320

 

Balance Sheet

Particular		Amount	Particular		Amount
Bills Payable		12,000	Freehold Premises		48,000
Sundry Creditor		28,000	40,000 + 8,000
Z's Loan A/c		41,320	Machinery		27,000
Y’s Current A/c		7,500	30,000 – 3,000
			Furniture		11,160
			12,000 – 840
			Stock		25,300
			22,000 + 3,300
			Debtors	20,000
			Less: Prov. For D/D	1,500	18,500
Capital A/cs
X's Capital	41,730		Cash A/c		7,000
Z's Capital	13,910	55,640	X's Current A/c		7,500
		1,44,460			1,44,460

Working Note:-

Calculation of Gaining Ratio

Old Ratio of X, Y, and Z = 3: 1: 2

Z retires from the firm.

New Ratio is not given in the question that’s why to assume that the old ratio left after the retirement of Z will be their new ratio and then gaining will become the same with the new ratio. We will show you by calculating it as following: -

New Ratio of X and Y = 3:1

Gaining Ratio =  New Ratio - Old Ratio

X's Gaining Share	=	3	-	3
		4		6
	=	9	-	6
		12
	=	3
		12

 

Y's Gaining Share	=	1	-	1
		4		6
	=	3	-	2
		12
	=	1
		12

Gaining Ratio = 3:1

Adjustment of Goodwill: -

Goodwill of the firm = Rs 21,000

Z's Share of Goodwill	=	Firm's Goodwill	X	Z's share
	=	21,000	X	2
				6
	=	Rs 7,000

Gaining Ratio = 3: 1

X will pay	=	Z’s Goodwill	X	Share of X
	=	7,000	X	3
				4
	=	Rs 5,250

 

Y will pay	=	Z’s Goodwill	X	Share of Y
	=	7,000	X	3
				4
	=	Rs 1,750

Calculation of Addition/withdrawal of Capital by the Amit and Balan

Balance of Capital Amount after all adjustments

=

Opening Balance of Capital Account

+

All Credits

-

All Debits

 

Balance of X’s Capital Amount after all adjustments	=	30,000	+	6,000	+	3,480	-	5,250
	=	34,230/-

 

Balance of Y’s Capital Amount after all adjustments	=	20,000	+	2,000	+	1,160	-	1,750
	=	21,410/-

 

Total Capital of the firm	=	X's Capital Balance	+	Y's Capital Balance
	=	34,230	+	21,410
	=	55,640/-

 

Calculation of Total Capital

The total capital of the Firm= Rs 55,640

New Profit Sharing Ratio = 3:1 

X's New Capital	=	Firm’s New Capital	X	Share of X
	=	55,640	X	3
				4
	=	Rs 41,730/-

 

Y's New Capital	=	Firm’s new Capital	X	Share of Y
	=	55,640	X	1
				4
	=	Rs 13,910/-

 

Calculation of Addition/withdrawal of Capital by the X and Y

Addition/withdrawal by X's in/from Capital A/c	=	New Capital Amount	-	Balance of Capital Amount after all adjustments
	=	41,730	-	34,230
	=	7,500/-

 

Addition/withdrawal by Y's in/from Capital A/c	=	New Capital Amount	-	Balance of Capital Amount after all adjustments
	=	13,910	-	21,410
	=	(-)7,500/-

The negative value so he will withdrawal Capital. 

 

T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)

• Chapter No. 1 – Financial Statement of Not-For-Profit Organisations
• Chapter No. 2 – Accounting for Partnership Firms – Fundamentals
• Chapter No. 3 – Goodwill: Nature and Valuation
• Chapter No. 4 – Change in Profit-Sharing Ratio Among the Existing Partners
• Chapter No. 5 – Admission of a Partner
• Chapter No. 6 – Retirement/Death of a Partner
• Chapter No. 7 – Dissolution of a Partnership Firm

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

• Chapter No. 8 – Company Accounts –  Accounting for Share Capital
• Chapter No. 9 – Company Accounts – Issue of Debentures
• Chapter No. 10 – Redemption of Debentures

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

• Chapter No. 1 – Financial Statements of a Company
• Chapter No. 2 – Financial Statement Analysis 
• Chapter No. 3 – Tools of Financial Statement Analysis – Comparative Statements and Common- Size Statements
• Chapter No. 4 – Accounting Ratios
• Chapter No. 5 – Cash Flow Statement

 

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