The balance sheet of A,B and C who were sharing profits and losses in the ratio fo therir capitals stood as follows on 31st December, 2005

LIABILITIES

Sundry Creditors: 6,900

Capital Accounts:

A= 20,000

B=15,000

C= 10,000

Total: 51,900

ASSETS

Cash at Banks: 5,500

Sundry Debtors: 5,000

less: provison: 100 =4,900

Stock 8,000

Plant and Machinery: 8,500

Land and Building: 25,000

Total: 51,900

B retires on the above date and the following was agreed upon:

• That stock be depreciated by 6%
• That the provision on doubtful debts be brought up to 5% on Debtors.
• That land and building be appreciated by 20%
• That a provision of Rs 770 be made in respect of outstanding legal charges.
• That the goodwill of the entire firm be fised at Rs 10,800 and B's share of goodwill be adjusted into the accounts of A and C who are going to share future pprofits in the ratio of 5:3 (No goodwill account is to be raised)
• That the entire capital of the firm as newly constituted be fixed at Rs 28,000 between A and C in the proportion of 5:3 (actual cash to be brought in or paid off, as the case may be)

Pass necessary journal entries and show capital Accounts of the partners after transferring B's share to a separate loan account in his name and prepare a Balance Sheet of A and C.

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit Amount

Rs

Revaluation A/c

Dr.

1,400

To Stock A/c

480

To Provision for doubtful debt A/c (250 - 100)

150

To Provision for Outstanding Legal Charges A/c

770

(Stock depreciated @6% ; Provision for doubtful debt increased by Rs 150 and Liability of Provision for Outstanding legal charges was created)

Land and Building A/c

Dr.

5,000

To Revaluation A/c

5,000

(Land and Building appreciated @ 20%)

Revaluation A/c

Dr.

3,600

To A’s Capital A/c

1,600

To B’s Capital A/c

1,200

To C’s Capital A/c

800

(Being profits on revaluation distributed in old ratio 4:3:2)

A’s Capital A/c

Dr.

1,950

C’s Capital A/c

Dr.

1,650

To B’s Capital A/c

3,600

(Being goodwill adjusted)

Bank A/c

Dr.

1,350

To C’s Capital A/c

1,350

(Being Cash brought in by the Partner)

A’s Capital A/c

Dr.

2,150

To Bank A/c

2,150

(Being payment made to the Partner)

Revaluation Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Stock A/c

480

Land and Building A/c

5,000

Provision for Doubtful Debts A/c

150

Provision for Outstanding Legal Charges A/c

770

To Profit on Revaluation transferred to:

A

1,600

B

1,200

C

800

3,600

5,000

5,000

Partners’ Capital Account

Dr.

Cr.

Particulars

A

B

C

Particulars

A

B

C

B’s Loan A/c

19,800

Balance b/d

20,000

15,000

10,000

B’s Capital A/c

1,950

1,650

Revaluation A/c (Profit)

1,600

1,200

800

Balance c/d

19,650

9,150

A’s Capital A/c

1,950

C’s Capital A/c

1,650

21,600

19,800

10,800

21,600

19,800

10,800

Bank A/c

2,150

Balance b/d

19,650

9,150

Balance c/d

17,500

10,500

Bank A/c

1,350

19,650

10,500

19,650

10,500

Balance Sheet (after B’s retirement)

as at 31st December, 2005

Liabilities

Amount

Rs

Assets

Amount

Rs

Creditors

6,900

Land and Building (25,000 + 5,000)

30,000

Provision for Outstanding Legal Charges

770

Plant and Machinery

8,500

B’s Loan

19,800

Debtors

5,000

Capital A/c :

Less: Provision for doubtful debt

(250)

4,750

A

17,500

Stock

7,520

C

10,500

28,000

Cash at Bank (5,500 + 1,350 – 2,150)

4,700

55,470

55,470