T.S. Grewal Class 12 Chapter 5 Q.33 - Retirement of a Partner

Question 33

N, S and G were partners sharing profits and losses in the ratio of 2 : 3 : 5. On 31st March, 2016, their Balance Sheet showed Creditors ₹1,65,000, General Reserve ₹90,000, Capitals – N ₹2,25,000, S ₹3,75,000, G ₹4,50,000; Cash ₹1,20,000, Debtors ₹1,35,000 less Provision ₹15,000, Stock ₹1,50,000, Machinery ₹4,50,000, Patents ₹90,000, Building ₹3,00,000, Profit and Loss A/c (Dr.) ₹75,000. G retired on the above date and it was agreed that: (a) Debtors of ₹6,000 will be written off as bad debts and a provision of 5% for doubtful debts will be maintained. (b) Patents will be completely written off and Stock, Machinery and Building will be depreciated by 5%. (c) An unrecorded creditor of ₹30,000 will be taken into account. (d) N and S will share future profits in 2 : 3. (e) Goodwill of the firm on G’s retirement was valued at ₹90,000. Pass the necessary Journal entries. (Foreign 2017)

Solution

JOURNAL

Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
	General Reserve A/c    Dr.		90,000
	To N’s Capital A/c			18,000
	To S’s Capital A/c			27,000
	To G’s Capital A/c			45,000
	(General Reserve distributed among all partners in old ratio 2 : 3 : 5)
	N’s Capital A/c    Dr.		15,000
	S’s Capital A/c    Dr.		22,500
	G’s Capital A/c    Dr.		37,500
	To Profit and Loss A/c			75,000
	(Debit balance of Profit and Loss A/c written off among all partners in old ratio 2 : 3 : 5)
	N’s Capital A/c    Dr. (45,000 × 2/5)		18,000
	S’s Capital A/c    Dr. (45,000 × 3/5)		27,000
	To G’s Capital A/c			45,000
	(G’s share of goodwill, ₹90,000 × 5/10 = ₹45,000, adjusted in the gaining ratio 2 : 3)
	Revaluation A/c    Dr.		1,65,000
	To Patents A/c			90,000
	To Stock A/c			7,500
	To Machinery A/c			22,500
	To Building A/c			15,000
	To Creditors A/c			30,000
	(Decrease in assets and an unrecorded creditor debited to Revaluation A/c)
	Provision for Doubtful Debts A/c    Dr.		2,550
	To Revaluation A/c			2,550
	(Excess provision, after writing off bad debts of ₹6,000 and creating 5% provision on remaining debtors of ₹1,29,000, written back)
	N’s Capital A/c    Dr. (1,62,450 × 2/10)		32,490
	S’s Capital A/c    Dr. (1,62,450 × 3/10)		48,735
	G’s Capital A/c    Dr. (1,62,450 × 5/10)		81,225
	To Revaluation A/c			1,62,450
	(Net loss on revaluation of ₹1,62,450 debited to all partners’ capitals in old ratio 2 : 3 : 5)
	G’s Capital A/c    Dr.		4,21,275
	To G’s Loan A/c			4,21,275
	(Amount due to G transferred to his Loan Account)

Working Note: G’s Capital = 4,50,000 + 45,000 (Reserve) + 45,000 (Goodwill) – 37,500 (P&L) – 81,225 (Revaluation loss) = ₹4,21,275.