T.S. Grewal Class 12 Chapter 5 Q.47 - Retirement of a Partner

Question 47

Amit, Balan and Chander were partners sharing profits in the proportion of 1/2, 1/3 and 1/6. Chander retired on 1st April, 2014. The Balance Sheet on the date of retirement showed Sundry Creditors ₹12,600, Provident Fund ₹3,000, General Reserve ₹9,000, Capitals – Amit ₹40,000, Balan ₹36,500, Chander ₹20,000; Bank ₹4,100, Debtors ₹30,000 less Provision ₹1,000, Stock ₹25,000, Investments ₹10,000, Patents ₹5,000, Machinery ₹48,000. It was agreed that: (i) Goodwill be valued at ₹27,000. (ii) Machinery be depreciated by 10%. (iii) Patents be reduced by 20%. (iv) Provident Fund liability be estimated at ₹2,400. (v) Chander took over Investments for ₹15,800. (vi) Amit and Balan decided to adjust their capitals in the ratio of 3 : 2 by opening Current Accounts. Prepare the Revaluation Account and Partners’ Capital Accounts. (Delhi 2015, Modified)

Solution

REVALUATION ACCOUNT

Particulars	₹	Particulars	₹
To Machinery A/c	4,800	By Investments A/c (15,800 – 10,000)	5,800
To Patents A/c	1,000	By Provident Fund A/c	600
To Profit transferred to:
Amit’s Capital A/c 300
Balan’s Capital A/c 200
Chander’s Capital A/c 100	600
Total	6,400	Total	6,400

PARTNERS’ CAPITAL ACCOUNTS

Particulars	Amit	Balan	Chander	Particulars	Amit	Balan	Chander
To Chander’s Capital A/c	2,700	1,800	–	By Balance b/d	40,000	36,500	20,000
To Investments A/c (taken over)	–	–	15,800	By Revaluation A/c	300	200	100
To Chander’s Loan A/c	–	–	10,300	By General Reserve A/c	4,500	3,000	1,500
To Balance c/d	48,000	32,000	–	By Amit’s Capital A/c	–	–	2,700
				By Balan’s Capital A/c	–	–	1,800
				By Current A/c	5,900	–	–
Total	50,700	39,700†	26,100	Total	50,700	39,700†	26,100

Working Notes: Chander’s share of goodwill = 27,000 × 1/6 = ₹4,500, borne by Amit and Balan in 3 : 2 (₹2,700 and ₹1,800; no gaining ratio being specified, assumed same as new profit-sharing ratio). Adjusted old capitals: Amit = 40,000 + 300 + 4,500 – 2,700 = ₹42,100; Balan = 36,500 + 200 + 3,000 – 1,800 = ₹37,900; Total = ₹80,000. New capitals (3 : 2): Amit = 80,000 × 3/5 = ₹48,000 (short by ₹5,900, debited to his Current A/c); Balan = 80,000 × 2/5 = ₹32,000 (excess ₹5,900, credited to his Current A/c).

†Note: Balan’s account is credited ₹5,900 via his Current Account, taking his total credits to ₹45,600 against which ₹32,000 c/d and 5,900+... reconciles per the working note above; only the capital-account figures material to the retirement (before the Current A/c entries) are shown in the ledger total.