Q. 3. OR
The Balance Sheet of Mac, Paul and Sam is as follows:
Balance Sheet as on 31st March, 2016
| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---|---|---|
| Capital accounts: | Cash | 12,000 | |
| Mac | 32,000 | Debtors | 16,000 |
| Paul | 18,000 | Stock | 10,000 |
| Sam | 16,000 | Plant and Machinery | 50,000 |
| Creditors | 18,400 | ||
| Bills payable | 3,600 | ||
| 88,000 | 88,000 |
Sam retires from the business on the above date on the following terms:
(1) Stock to be depreciated by 6% and plant and machinery by 10%.
(2) Provision for doubtful debts to be created at 5% on debtors.
(3) Provision of ₹ 1,600 to be made for outstanding rent.
(4) Goodwill of the firm is raised to the extent of retiring partner's share of ₹ 18,000 and remaining partners decided that goodwill should not appear in the books of accounts.
(5) Their profit sharing ratio is 2 : 2 : 1.
(6) The amount payable to the retiring partner be transferred to his loan account.
Prepare:
- Profit and Loss Adjustment Account.
- Partners' Capital Accounts.
- Balance Sheet of Mac and Paul.
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Start your 14-day free trial to unlock the full solution →Revaluation losses (stock 600, plant 5,000, R.D.D. 800, outstanding rent 1,600 = ₹ 8,000) are shared 2 : 2 : 1. Sam's goodwill share ₹ 18,000 is credited to him and debited to Mac and Paul (gaining ratio 1 : 1, ₹ 9,000 each) so goodwill does not appear in the books. Sam's balance ₹ 32,400 goes to his Loan Account; Mac ₹ 19,800 and Paul ₹ 5,800 remain; the Balance Sheet of Mac and Paul ties at ₹ 81,600.
Working notes:
- Old ratio Mac : Paul : Sam = 2 : 2 : 1. Sam retires; Mac and Paul continue in their old mutual ratio 2 : 2 = 1 : 1. Gaining ratio = 1 : 1.
- Depreciation: Stock 10,000 x 6% = 600; Plant and machinery 50,000 x 10% = 5,000.
- R.D.D. = 16,000 x 5% = 800; Outstanding rent = 1,600.
- Sam's share of goodwill = ₹ 18,000 credited to Sam and debited to gaining partners Mac and Paul in 1 : 1, i.e. ₹ 9,000 each (goodwill is not shown in the books).
(a) Profit and Loss Adjustment Account:
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Stock A/c | 600 | By Loss transferred to Capital A/cs: | |
| To Plant and Machinery A/c | 5,000 | Mac 3,200 | |
| To R.D.D. A/c | 800 | Paul 3,200 | |
| To Outstanding Rent A/c | 1,600 | Sam 1,600 | 8,000 |
| 8,000 | 8,000 |
(b) Partners' Capital Accounts:
| Particulars | Mac (₹) | Paul (₹) | Sam (₹) | Particulars | Mac (₹) | Paul (₹) | Sam (₹) |
|---|---|---|---|---|---|---|---|
| To P&L Adjustment A/c (loss) | 3,200 | 3,200 | 1,600 | By Balance b/d | 32,000 | 18,000 | 16,000 |
| To Sam's Capital A/c (goodwill) | 9,000 | 9,000 | - | By Mac & Paul (goodwill) | - | - | 18,000 |
| To Sam's Loan A/c | - | - | 32,400 |
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