X, Y and Z are partners sharing profits and losses in the ratio of 3 : 2 : 1. Their Balance Sheet as on 31st December, 2020 is as follows:
BALANCE SHEET as at 31st December, 2020
| Liabilities | ₹ | Assets | ₹ |
|---|---|---|---|
| Capital A/cs : | Building | 20,000 | |
| X 18,000 | Furniture | 2,000 | |
| Y 12,000 | Stock | 15,000 | |
| Z 10,000 | 40,000 | Debtors | 15,000 |
| Creditors | 15,000 | Bills Receivable | 5,000 |
| Bills Payable | 10,000 | Cash-in-Hand | 8,000 |
| 65,000 | 65,000 |
On the aforesaid date, X retires on the following terms:
- Value of Building is to be appreciated by 20%.
- Furniture is to be depreciated by 10%.
- 5% provision is to be created on Debtors.
- Goodwill is to be valued at ₹ 9,000 but no goodwill account is to be raised in the new balance sheet. It is agreed that Y and Z will share profits equally after X's retirement and they bring in further capital of ₹ 5,000 each. X is paid off except ₹ 10,000 which he leaves to the firm as loan. Prepare: Revaluation Account, Partners' Capital Accounts and New Balance Sheet.
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Start your 14-day free trial to unlock the full solution →Revaluation: Building +4,000, Furniture −200, Provision on Debtors −750 → profit ₹3,050 (old 3:2:1). Goodwill ₹9,000; X's share 4,500 borne by Y and Z in gaining ratio 1:2 (Y 1,500, Z 3,000). X's capital 24,025 → ₹10,000 loan + ₹14,025 paid. New Balance Sheet total ₹64,025.
Revaluation Account
| Dr. Particulars | ₹ | Cr. Particulars | ₹ |
|---|---|---|---|
| To Furniture A/c (10% of 2,000) | 200 | By Building A/c (20% of 20,000) | 4,000 |
| To Provision for Doubtful Debts (5% of 15,000) | 750 | ||
| To Profit: X 1,525; Y 1,016.67; Z 508.33 | 3,050 | ||
| Total | 4,000 | Total | 4,000 |
Goodwill (gaining ratio): Old ratio 3:2:1. After X retires, Y and Z share equally (1:1). Gain of Y = 1/2 − 2/6 = 1/6; gain of Z = 1/2 − 1/6 = 2/6; gaining ratio Y:Z = 1:2. X's share of goodwill = 9,000 × 3/6 = ₹4,500, borne by Y ₹1,500 and Z ₹3,000.
Partners' Capital Accounts
| Particulars | X (₹) | Y (₹) | Z (₹) |
|---|---|---|---|
| By Balance b/d | 18,000 | 12,000 | 10,000 |
| By Revaluation Profit | 1,525 | 1,016.67 | 508.33 |
| By Y & Z Capitals (goodwill) | 4,500 | — | — |
| By Bank (further capital) | — | 5,000 | 5,000 |
| To X's Capital (goodwill, 1:2) | — | 1,500 | 3,000 |
| To X's Loan A/c | 10,000 | — | — |
| To Bank (amount paid off) | 14,025 | — | — |
| To Balance c/d | — | 16,516.67 | 12,508.33 |
New Balance Sheet as at 1st January, 2021
| Liabilities | ₹ | Assets | ₹ |
|---|---|---|---|
| Capital A/cs: Y 16,516.67; Z 12,508.33 | 29,025.00 | Building (20,000 + 4,000) | 24,000.00 |
| X's Loan A/c | 10,000.00 | Furniture (2,000 − 200) | 1,800.00 |
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