A, B and C were partners in a firm sharing profits and losses in the ratio of 3 : 1 : 1. On 31st March, 2018 their Balance Sheet was as follows:
| Liabilities | ₹ | Assets | ₹ |
|---|---|---|---|
| Creditors | 1,00,000 | Bank | 32,000 |
| Bills Payable | 50,000 | Debtors 70,000 | |
| Capital A/cs : | Less: Provision for Doubtful Debt 2,000 | 68,000 | |
| A 1,50,000 | Stock | 80,000 | |
| B 1,00,000 | Building | 3,00,000 | |
| C 1,00,000 | 3,50,000 | Profit and Loss Account | 20,000 |
| 5,00,000 | 5,00,000 |
On the above date B retired on the following terms:
- Building was to be appreciated by 10%.
- Provision for Doubtful Debts was to be raised to 10% of debtors.
- Creditors ₹ 10,000 would not be claimed.
- There was an outstanding bill of ₹ 2,000 for repair.
- Goodwill of the firm was valued at ₹ 75,000 and no goodwill account was to be opened in the new Balance Sheet.
- B was to be paid ₹ 20,000 in cash and the balance was to be transferred to his loan account. Prepare Revaluation Account, Partners’ Capital Accounts and New Balance Sheet of A and C after B’s retirement.
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Start your 14-day free trial to unlock the full solution →Revaluation: Building +30,000, Creditors written back +10,000, extra Provision -5,000, outstanding repair -2,000 → net profit 33,000 (3:1:1). P&L debit balance 20,000 written off in old ratio. Goodwill 75,000; B's share 15,000 borne by A and C in gaining ratio 3:1 (A 11,250, C 3,750). B's capital 1,17,600: 20,000 cash + 97,600 loan. New Balance Sheet balances at 4,85,000.
Working notes (West Bengal HS Accountancy — retirement of a partner):
- Building 3,00,000 + 10% = +30,000 (gain).
- Provision for doubtful debts to 10% of 70,000 = 7,000; existing 2,000; extra = -5,000 (loss).
- Creditors 10,000 not claimed = +10,000 (gain).
- Outstanding repair bill = -2,000 (loss).
- Net Revaluation Profit = 30,000 + 10,000 - 5,000 - 2,000 = 33,000 → A 19,800, B 6,600, C 6,600 (3:1:1).
- P&L A/c (Dr balance) 20,000 written off → A 12,000, B 4,000, C 4,000.
- Goodwill 75,000; B's share = 75,000 x 1/5 = 15,000. New ratio of A:C = 3:1, gaining ratio = 3:1 → A bears 11,250, C bears 3,750 (adjusted through capitals, no goodwill account opened).
Revaluation Account
| Dr. Particulars | Amount | Cr. Particulars | Amount |
|---|---|---|---|
| To Provision for Doubtful Debts A/c | 5,000 | By Building A/c | 30,000 |
| To Outstanding Repair Bill A/c | 2,000 | By Creditors A/c | 10,000 |
| To Profit: A 19,800; B 6,600; C 6,600 | 33,000 | ||
| Total | 40,000 | Total | 40,000 |
Partners' Capital Accounts
| Particulars | A | B | C | Particulars | A | B | C |
|---|---|---|---|---|---|---|---|
| To P&L A/c | 12,000 | 4,000 | 4,000 | By Balance b/d | 1,50,000 | 1,00,000 | 1,00,000 |
| To B's Capital (goodwill) | 11,250 | - | 3,750 | By Revaluation A/c | 19,800 | 6,600 | 6,600 |
| To Bank A/c | - | 20,000 | - | By A's & C's Capital (goodwill) | - | 15,000 | - |
| To B's Loan A/c | - | 97,600 | - |
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