Question

The balance sheet of X, Y, and Z on 31^st December, 2003, the date of X’s retirement was as follows: 

Balance Sheet

The following terms have been agreed upon:

• Goodwill was valued at Rs. 18,000. 
• The value of land and buildings should be appreciated by Rs. 10,000 
• Plant and Machinery should be reduced to Rs. 23,000. 
• Create provision @ 5% on debtors for bad and doubtful debts and Rs. 700 on creditors. 
• The entire sum payable to X is to be brought by Y and Z in such a manner that their capital accounts are in proportion to their profit sharing ratio which is to be equal. 

Prepare: 

• Revaluation account. 
• Partner’s capital accounts 
• Bank account, and 
• Balance sheet after X’s retirement.

Answer 1

Capital Accounts

Balance sheet of Y and Z as on 1^st January 2004

Notes: Calculation of goodwill Total goodwill ‘ = 18,000 

X’s share 1/3 = 18,000 × 1/3 = Rs. 6,000 

Working Notes: 

(i) Gaining Ratio: 

X: 3/4 – 3/6 = 9 – 6/12 = 3/12 

Z: 1/4 – 1/6 = 3 – 2/12 = 1/12 

Y’s share of goodwill of Rs. 12,000 (Rs. 36,000 × 2/6) will be contributed by X Rs. 9,000 and Z Rs. 3,000

(ii) Since the new profit sharing ratio between X and Z being 3:1, they will have to maintain their capitals at Rs. 90,000 and Rs. 30,000 respectively.