P, Q and R were partners in a firm sharing profits in the ration of 2:3:5. On 31-03-2004, thier balance sheet was as follows

LIABILITIES

Creditors - 70,000

Capital Accounts:

P: 80,000

Q: 70,000

R: 60,000

Total : 2,80,000

ASSETS

Bank: 45000

Debtor: 40,000

Less 5000 = 35000

Stock: 50,000

Building 1,40,000

Profit And Loss A/c: 10,000

Total 2,80,000

On the above date, R retired from the firm due to illness on the following terms:

  1. Building to be deprecidated by 40,000
  2. Provision for doubtful debts was to be maintained at 20% on debtors
  3. Salary outstanding Rs 5,000 was to be recorded and creditors of Rs 4,000 will not be claimed.
  4. Goodwill of the firm was valued at Rs 72,000 and the same was to be treated without opeining a goodwill account.
  5. R was to be paid Rs 15,000 in cash, through Bank and the balance was to be transferred to his Loan account.

Prepare Revaluation Account, Partners Capital Accounts and the Balance Sheet of P and Q after R's Retirement.

Revaluation Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Building

40,000

Creditors

4,000

Provision for Doubtful Debts (8,000 – 5,000)

3,000

Loss on Revaluation transferred to:

 

Salary Outstanding

5,000

P

8,800

 

 

 

Q

13,200

 

 

 

R

22,000

44,000

 

48,000

 

48,000

 

 

 

 

 

Partners’ Capital Account

Dr.

Cr.

Particulars

P

Q

R

Particulars

P

Q

R

Profit and Loss A/c

5,000

3,000

2,000

Balance b/d

80,000

70,000

60,000

Revaluation A/c (Loss)

8,800

13,200

22,000

P’s Capital A/c

 

 

14,400

R’s Capital A/c

14,400

21,600

 

Q’s Capital A/c

 

 

21,600

Bank A/c

 

 

15,000

 

 

 

 

R’s Loan A/c

 

 

57,000

 

 

 

 

Balance c/d

51,800

32,200

 

 

 

 

 

 

80,000

70,000

96,000

 

80,000

70,000

96,000

 

 

 

 

 

 

 

 

 

Balance Sheet

as at March 31, 2004

Liabilities

Amount

Rs

Assets

Amount

Rs

Salary Outstanding

5,000

Bank (45,000 – 15,000)

30,000

Creditors

66,000

Debtors

40,000

 

R’s Loan A/c

57,000

Less: Provision for Doubtful Debt

(8,000)

32,000

Capital A/c :

 

Stock

50,000

P

51,800

 

Building (1,40,000 – 40,000)

1,00,000

Q

32,200

84,000

 

 

 

2,12,000

 

2,12,000

 

 

 

 

 

Working Notes

WN1 Adjustment of Goodwill

Total Goodwill of the Firm = 72,000

It is to be adjusted by the Gaining partners i.e. by P and Q in the gaining ratio 2:3

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