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✦ FREE LEARNING — CLASS 11 & 12 — CBSE · PSEB — ACCOUNTS · ECONOMICS · BST ✦
X, Y and Z are partners sharing profits and losses in the ratio of 3 : 2 : 1. Their Balance Sheet as at 31st March, 2025 showed Creditors ₹21,000, Workmen Compensation Reserve ₹12,000, Investments Fluctuation Reserve ₹6,000, Capitals – X ₹68,000, Y ₹32,000, Z ₹21,000; Cash at Bank ₹5,750, Debtors ₹40,000 less Provision ₹2,000, Stock ₹30,000, Investments (Market Value ₹17,600) ₹15,000, Patents ₹10,000, Machinery ₹50,000, Goodwill ₹6,000, Advertisement Expenditure ₹5,250. Z retired on 1st April, 2025 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 investments 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 is to be paid as follows: ₹5,067 immediately, 50% of the balance within one year, and the remaining balance by a bill of exchange for 3 months. Give the necessary Journal entries for the treatment of goodwill, and prepare the Revaluation Account, Capital Accounts and the Balance Sheet of the new firm.
JOURNAL (Goodwill)
| Date | Particulars | L.F. | Dr. (₹) | Cr. (₹) |
|---|---|---|---|---|
| 2025 Apr 1 | 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 in old ratio 3 : 2 : 1) | ||||
| Apr 1 | 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, ₹34,800 × 1/6 = ₹5,800, credited to him and debited to the gaining partners X and Y in 3 : 2) |
REVALUATION ACCOUNT
| Particulars | ₹ | Particulars | ₹ |
|---|---|---|---|
| To Patents A/c | 2,000 | By Investments A/c (17,600 – 15,000) | 2,600 |
| To Machinery A/c | 5,000 | By Creditors A/c | 4,000 |
| To Provision for Doubtful Debts A/c | 400 | ||
| By Loss transferred to: | |||
| X’s Capital A/c 400 | |||
| Y’s Capital A/c 267 | |||
| Z’s Capital A/c 133 | 800 | ||
| Total | 7,400 | Total | 7,400 |
PARTNERS’ CAPITAL ACCOUNTS
| Particulars | X | Y | Z | Particulars | X | Y | Z |
|---|---|---|---|---|---|---|---|
| To Goodwill A/c | 3,000 | 2,000 | 1,000 | By Balance b/d | 68,000 | 32,000 | 21,000 |
| To Revaluation A/c | 400 | 267 | 133 | By X’s & Y’s Capital A/cs (Goodwill) | – | – | 5,800 |
| To Z’s Capital A/c (Goodwill) | 3,480 | 2,320 | – | By Workmen Compensation Reserve A/c | 5,625 | 3,750 | 1,875 |
| To Advertisement Expenditure A/c | 2,625 | 1,750 | 875 | By Investments Fluctuation Reserve A/c | 3,000 | 2,000 | 1,000 |
| To Investments A/c (taken over) | – | – | 17,600 | ||||
| To Bank A/c | – | – | 5,067 | ||||
| To Z’s Loan A/c | – | – | 2,500 | ||||
| To Bills Payable A/c | – | – | 2,500 | ||||
| To Balance c/d | 67,120 | 31,413 | – | ||||
| Total | 76,625 | 37,750 | 29,675 | Total | 76,625 | 37,750 | 29,675 |
BALANCE SHEET as at 1st April, 2025 (after Z’s Retirement)
| 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 |
| Z’s Loan A/c | 2,500 | Debtors 40,000 less Provision 2,400 | 37,600 |
| Capitals: X 67,120; Y 31,413 | 98,533 | Machinery | 45,000 |
| Total | 1,21,283 | Total | 1,21,283 |
Working Note: Amount due to Z = ₹29,675 (per Capital A/c above, after adjusting Investments taken over) – paid ₹5,067 immediately; balance ₹5,000 split equally into Z’s Loan A/c (₹2,500, payable within one year) and Bills Payable (₹2,500, by a 3-month bill).
Accounting & Commerce Educator
Sarbjit Singh holds a B.Com and M.Com degree and has over 12 years of teaching experience in double entry bookkeeping, financial accounting, and business studies.
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