P, Q and R are partners in a firm sharing profits and losses in 3 : 2 : 1. On 31st March, 2015, their Balance Sheet was as under:

| Liabilities | ₹ | Assets | ₹ |
| --- | --- | --- | --- |
| Capital A/cs : | | Buildings | 90,000 |
| P 80,000 | | Machinery | 40,000 |
| Q 50,000 |

Question

P, Q and R are partners in a firm sharing profits and losses in 3 : 2 : 1. On 31st March, 2015, their Balance Sheet was as under:

| Liabilities | ₹ | Assets | ₹ |
| --- | --- | --- | --- |
| Capital A/cs : | | Buildings | 90,000 |
| P 80,000 | | Machinery | 40,000 |
| Q 50,000 | | Furniture | 20,000 |
| R 45,000 | 1,75,000 | Stock | 30,000 |
| Reserve | 30,000 | Debtors | 40,000 |
| Creditors | 25,000 | Cash | 10,000 |
| | 2,30,000 | | 2,30,000 |

R died on 31st July, 2015. Under the terms of Partnership Deed R is entitled to:

(i) Capital including interest on capital @ 10% p.a.
(ii) Salary per month ₹ 1,000.
(iii) Share of profit on the basis of profit of the last year. Profit of the last year was ₹ 90,000.

Show R’s Capital Account by showing working notes clearly.

**Or**

What is internal reconstruction of a partnership? Show the difference between admission of a new partner and retirement of a partner.

Accepted Answer

>

> [!TLDR]
> For the 4 months to R's death credit his capital with interest on capital 1,500, salary 4,000, share of reserve 5,000 and share of last year's profit 5,000; on top of his 45,000 balance this makes 60,500, carried to R's Executor's A/c.
>
> This is a death-of-a-partner problem from the WBCHSE HS (West Bengal Class-12) Accountancy reconstitution syllabus; the period from the last Balance Sheet date (1 Apr 2015) to death (31 Jul 2015) is 4 months.
>
> **Working notes**
> - Interest on capital = 45,000 x 10% x 4/12 = 1,500.
> - Salary = 1,000 x 4 = 4,000.
> - Share of General Reserve = 30,000 x 1/6 = 5,000 (R's share in 3:2:1 is 1/6).
> - Share of profit (on last year's profit basis) = 90,000 x 1/6 x 4/12 = 5,000.
>
> **R's Capital Account**
>
> | Particulars (Dr.) | ₹ | Particulars (Cr.) | ₹ |
> | --- | --- | --- | --- |
> | To R's Executor's A/c | 60,500 | By Balance b/d | 45,000 |
> | | | By Interest on Capital A/c | 1,500 |
> | | | By Salary A/c | 4,000 |
> | | | By General Reserve A/c | 5,000 |
> | | | By Profit & Loss Suspense A/c (share of profit) | 5,000 |
> | | 60,500 | | 60,500 |
> …

Dr.	Retiring Partner's Capital Account	Cr.
Particulars	Amount (₹)	Particulars
To Revaluation A/c (loss)	xxx	By Balance b/d
To Goodwill A/c (if written off)	xxx	By Revaluation A/c (gain)
To Retiring Partner's Loan A/c	xxx	By General Reserve A/c
To Bank A/c (final payment)	xxx	By Profit & Loss A/c
		By Goodwill A/c (remaining partners)
		By Interest on Capital (if any)
Total	xxx	Total

Concept understanding — Partner Retirement Methods

Partner Retirement Methods – A First Look

What Does "Retirement of a Partner" Mean?

Why Does This Matter?

The Accounting Treatment – Step by Step

Step 1: Revalue Assets and Reassess Liabilities

Step 2: Adjust for Goodwill

Step 3: Transfer Reserves and Accumulated Profits

Step 4: Settle the Retiring Partner's Account

The Capital Account Format (as per NCERT)

Liabilities	₹	Assets	₹
Capital A/cs :		Buildings	90,000
P 80,000		Machinery	40,000
Q 50,000		Furniture	20,000
R 45,000	1,75,000	Stock	30,000
Reserve	30,000	Debtors	40,000
Creditors	25,000	Cash	10,000
	2,30,000		2,30,000

Particulars (Dr.)	₹	Particulars (Cr.)	₹
To R's Executor's A/c	60,500	By Balance b/d	45,000
		By Interest on Capital A/c	1,500
		By Salary A/c	4,000
		By General Reserve A/c	5,000
		By Profit & Loss Suspense A/c (share of profit)	5,000
	60,500		60,500
…

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