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Do It Yourself · Q1
Q.

The Balance Sheet of A, B and C, who were sharing profits in proportion to their capitals, stood as on March 31, 2017:

LiabilitiesAmount (₹)AssetsAmount (₹)
Bills Payable6,250Land and Building12,000
Sundry Creditors10,000Debtors 10,500 − Provision 50010,000
General Reserve2,750Bills Receivable7,000
Capitals:Stock15,500
A20,000Plant and Machinery11,500
B15,000Cash at bank13,000
C15,000
Total69,000Total69,000

B retired on the date of the Balance Sheet and the following adjustments were to be made:

  1. Stock was depreciated by 10%.
  2. Factory building was appreciated by 12%.
  3. Provision for doubtful debts to be created up to 5%.
  4. Provision for legal charges to be made at ₹265.
  5. The goodwill of the firm to be fixed at ₹10,000.
  6. The capital of the new firm to be fixed at ₹30,000, the continuing partners keeping their capitals in the new profit sharing ratio of 3 : 2. Work out the final balances in the capital accounts, and the amounts to be brought in and/or withdrawn by A and C to make their capitals proportionate to the new profit sharing ratio.
Chhattisgarh CgbseTextbookSubjectiveImportance★★★★★
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✓ Free question

Sharing in the capital ratio 4 : 3 : 3, a ₹400 revaluation loss and ₹2,750 reserve are distributed, B's ₹3,000 goodwill is borne by A and C (2 : 1), and B's ₹18,705 balance goes to his Loan Account. A and C, holding ₹18,940 and ₹14,705, withdraw ₹940 and ₹2,705 to fix capitals at ₹18,000 and ₹12,000 (₹30,000 in 3 : 2). Balance Sheet total ₹65,220.

Working Notes

1. Profit sharing ratio = capital ratio 20,000 : 15,000 : 15,000 = 4 : 3 : 3. Gaining ratio of A and C = old mutual 4 : 3? No — the new ratio is given as 3 : 2, so gaining ratio = new − old: A 3/5 − 4/10 = 6/10 − 4/10 = 2/10; C 2/5 − 3/10 = 4/10 − 3/10 = 1/10 → 2 : 1.

2. Revaluation: Stock −₹1,550 (10% of 15,500); Building +₹1,440 (12% of 12,000); Provision for doubtful debts to 5% of 10,500 = ₹525, so +₹25; Provision for legal charges ₹265. Net loss = (1,550 + 25 + 265) − 1,440 = ₹400 (A ₹160, B ₹120, C ₹120).

3. B's goodwill = 3/10 × ₹10,000 = ₹3,000, borne by A ₹2,000 and C ₹1,000 (2 : 1).

Capital adjustment

B's post-adjustment capital = 15,000 + reserve 825 − reval 120 + goodwill 3,000 = ₹18,705, transferred to his Loan Account. A = 20,000 + 1,100 − 160 − 2,000 = ₹18,940; C = 15,000 + 825 − 120 − 1,000 = ₹14,705. Fixed capital ₹30,000 in 3 : 2 → A ₹18,000 (withdraws ₹940), C ₹12,000 (withdraws ₹2,705).

Balance Sheet after retirement

LiabilitiesAmount (₹)AssetsAmount (₹)
Bills Payable6,250Land and Building (12,000 + 1,440)13,440
Sundry Creditors10,000Debtors 10,500 − Provision 5259,975
Provision for Legal Charges265Bills Receivable7,000
B's Loan18,705Stock (15,500 − 1,550)13,950
Capitals: A 18,000 / C 12,00030,000Plant and Machinery11,500
Cash at bank (13,000 − 940 − 2,705)9,355
Total65,220Total65,220
Note

This "Do It Yourself" box carries the same data as end-of-chapter Numerical Question 11 (Rajesh, Pramod and Nishant), whose printed NCERT answer key — Loss on Revaluation ₹400, capitals ₹18,940 and ₹14,705, Pramod's Loan ₹18,705, Balance Sheet total ₹65,220 — our solution reproduces exactly.

✓Final answer

B's Loan ₹18,705; A ₹18,000 and C ₹12,000 (after withdrawing ₹940 and ₹2,705); Balance Sheet total ₹65,220.

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