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Do It Yourself · Q2
Q.

R, S and M were carrying on business in partnership sharing profits in the ratio of 3 : 2 : 1 respectively. On March 31, 2017, the Balance Sheet of the firm stood as follows:

LiabilitiesAmount (₹)AssetsAmount (₹)
Sundry Creditors16,000Building23,000
Capitals:Debtors7,000
R20,000Stock12,000
S7,500Patents8,000
M12,500Bank6,000
Total56,000Total56,000

S retired on the above date on the following terms:

  1. Buildings to be appreciated by ₹8,800.
  2. Provision for doubtful debts to be made @ 5% on debtors.
  3. Goodwill of the firm to be valued at ₹9,000.
  4. ₹5,000 to be paid to S immediately and the balance due to him to be treated as a loan carrying interest @ 6% per annum. Prepare the Balance Sheet of the reconstituted firm.
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A ₹8,450 revaluation profit is shared 3 : 2 : 1; S's ₹3,000 goodwill is borne by R (₹2,250) and M (₹750). S's ₹13,316.67 due is settled ₹5,000 in cash and ₹8,316.67 as a loan. R and M close at ₹21,975 and ₹13,158.33, and the Balance Sheet totals ₹59,450.

Working Notes

1. Gaining ratio (R : M) = old mutual 3 : 1 (no new ratio specified). S's goodwill ₹3,000 → R ₹2,250, M ₹750.

2. Revaluation: Building +₹8,800; Provision for doubtful debts 5% × ₹7,000 = ₹350 (loss). Net profit = ₹8,450 (R ₹4,225, S ₹2,816.67, M ₹1,408.33).

3. Amount due to S = capital ₹7,500 + revaluation ₹2,816.67 + goodwill ₹3,000 = ₹13,316.67; less ₹5,000 cash = ₹8,316.67 to S's Loan Account.

Balance Sheet of the reconstituted firm as on March 31, 2017

LiabilitiesAmount (₹)AssetsAmount (₹)
Sundry Creditors16,000Building (23,000 + 8,800)31,800
S's Loan8,316.67Debtors 7,000 − Provision 3506,650
Capitals:Stock12,000
R (20,000 + 4,225 − 2,250)21,975Patents8,000

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