Q.Radha, Prisca and Villy are partners in a firm. Their Balance Sheet as on 31-03-2023 is as under :
Liabilities | (₹) | Assets | (₹)
Radha's capital | 3,58,000 | Machinery | 1,74,000
Prisca's Capital | 3,00,000 | Stock in trade | 1,13,000
Villy's Capital | 2,00,000 | Debtors | 86,000
Profit and Loss A/c | 48,000 | Premises | 5,42,000
Creditors | 98,000 | Cash at Bank | 89,000
Total | 10,04,000 | Total | 10,04,000
On that date Villy decided to retire from the firm subject to the following :
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Start your 14-day free trial to unlock the full solution →Revaluation profit ₹90,600 (shared equally, as no profit-sharing ratio was given); goodwill ₹30,000 credited to Villy by Radha and Prisca equally; Villy's final capital ₹2,76,200 transferred to his Loan Account, repaid over 2 years with 10% interest.
(Note: the question does not state the partners' profit-sharing ratio. In the absence of this information, an Equal ratio (1:1:1) among Radha, Prisca and Villy is assumed — the standard default when a ratio is not specified — and so the continuing partners' gaining ratio also works out equal (1:1) since their new ratio becomes 1:1.)
Step 1 — Revaluation Account (assets/liabilities revalued on Villy's retirement):
| Dr. | Amount (₹) | Cr. | Amount (₹) |
|---|---|---|---|
| To Stock A/c (1,13,000 − 98,000) | 15,000 | By Premises A/c (6,45,600 − 5,42,000) | 1,03,600 |
| To Profit transferred to: | By Creditors A/c (98,000 − 96,000) | 2,000 | |
| Radha's Capital 30,200 | |||
| Prisca's Capital 30,200 | |||
| Villy's Capital 30,200 | 90,600 | ||
| Total | 1,05,600 | Total | 1,05,600 |
Revaluation Profit = (1,03,600 + 2,000) − 15,000 = ₹90,600, shared equally = ₹30,200 each (this profit belongs to ALL THREE partners, since it relates to the period before Villy's retirement).
Step 2 — Goodwill adjustment: Goodwill of the firm = ₹90,000; Villy's share (1/3) = ₹30,000, to be compensated by the continuing partners (Radha and Prisca) in their gaining ratio. Since the new ratio between Radha and Prisca becomes equal (1:1) and their old ratio was also equal (1:1 of the remaining two), the gaining ratio is 1:1 — so each of Radha and Prisca bears ₹15,000.
Radha's Capital A/c Dr. 15,000
Prisca's Capital A/c Dr. 15,000
To Villy's Capital A/c 30,000
Step 3 — Partners' Capital Account:
| Dr. | Radha (₹) | Prisca (₹) | Villy (₹) | Cr. | Radha (₹) | Prisca (₹) | Villy (₹) |
|---|---|---|---|---|---|---|---|
| To Villy's Capital A/c (goodwill) | 15,000 | 15,000 | — | By Balance b/d | 3,58,000 | 3,00,000 | 2,00,000 |
| To Villy's Loan A/c (transfer) | — | — | 2,76,200 | By P&L A/c (48,000 ÷ 3) | 16,000 | 16,000 | 16,000 |
| To Balance c/d | 3,89,200 | 3,31,200 | — | By Revaluation A/c (profit) | 30,200 | 30,200 | 30,200 |
| By Radha's & Prisca's Capital A/c (goodwill) | — | — | 30,000 | ||||
| Total | 4,04,200 | 3,46,200 | 2,76,200 | Total | 4,04,200 | 3,46,200 | 2,76,200 |
Villy's final capital balance = 2,00,000 + 16,000 + 30,200 + 30,000 = ₹2,76,200, transferred entirely to his Loan Account (as per the terms).
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