Question

Inder, Jonny and Kapil were partners in a firm sharing profits and losses in the ratio of \( 9 : 3 : 4 \). Their Balance Sheet as at 31\textsuperscript{st March, 2023 was as follows:} Balance Sheet of Inder, Jonny and Kapil as at 31\textsuperscript{st March, 2023:} \begin{center} \begin{tabular}{|l|c|c|} \hline Liabilities & Amount (₹) & Assets & Amount (₹)
\hline Capital: & & Fixed Assets & 1,20,000
Inder & 90,000 & Stock & 60,000
Jonny & 75,000 & Debtors & 1,00,000
Kapil & 60,000 & Cash & 35,000
\hline General Reserve & 80,000 & &
Creditors & 10,000 & &
\hline Total & 3,15,000 & Total & 3,15,000
\hline \end{tabular} \end{center} Adjustments on Kapil’s Retirement: Bad debts amounting to ₹ 5,000 were written off. Fixed Assets were revalued at ₹ 96,000. Stock was undervalued by ₹ 29,000. Creditors were paid off. Goodwill of the firm was valued at ₹ 80,000, and Kapil’s share of goodwill was adjusted in the accounts of Inder and Jonny. New profit-sharing ratio between Inder and Jonny = \( 3 : 2 \).

Hint:

On a partner’s retirement, always adjust revaluation, reserves, and goodwill based on the agreed terms and settle the retiring partner’s capital account accordingly.

Answer 1

Journal Entries of the Firm: \begin{center} \begin{tabular}{|l|c|c|} \hline Particulars & Debit Amount (₹) & Credit Amount (₹)
\hline Revaluation Account Dr & 58,000 &
To Fixed Assets Account & & 24,000
To Stock Account & & 29,000
To Debtors Account & & 5,000
\hline Fixed Assets Account Dr & 24,000 &
Stock Account Dr & 29,000 &
To Revaluation Account & & 58,000
\hline General Reserve Account Dr & 80,000 &
To Inder’s Capital Account & & 45,000
To Jonny’s Capital Account & & 15,000
To Kapil’s Capital Account & & 20,000
\hline Inder’s Capital Account Dr & 24,000 &
Jonny’s Capital Account Dr & 16,000 &
To Kapil’s Capital Account & & 40,000
\hline Creditors Account Dr & 10,000 &
To Cash Account & & 10,000
\hline Kapil’s Capital Account Dr & 1,20,000 &
To Cash Account & & 1,20,000
\hline \end{tabular}\end{center} Explanation of Adjustments: Revaluation Account: Records changes in asset and liability values. General Reserve: Distributed among partners according to their old profit-sharing ratio \( 9 : 3 : 4 \). Goodwill Adjustment: Kapil's share of goodwill amounting to \( 80,000 \times \frac{4}{16} = ₹ 20,000 \) is adjusted in the gaining ratio of Inder and Jonny, which is \( 3 : 2 \). Settlement of Creditors and Capital: Creditors and Kapil's capital were paid in cash.