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 in the Books of the Firm: \begin{center} \begin{tabular}{|l|c|c|} \hline Particulars & Dr Amount (₹) & Cr Amount (₹)
\hline Revaluation A/c Dr & 58,000 &
To Fixed Assets A/c & & 24,000
To Stock A/c & & 29,000
To Debtors A/c & & 5,000
\hline Fixed Assets A/c Dr & 24,000 &
Stock A/c Dr & 29,000 &
To Revaluation A/c & & 58,000
\hline General Reserve A/c Dr & 80,000 &
To Inder’s Capital A/c & & 45,000
To Jonny’s Capital A/c & & 15,000
To Kapil’s Capital A/c & & 20,000
\hline Inder’s Capital A/c Dr & 24,000 &
Jonny’s Capital A/c Dr & 16,000 &
To Kapil’s Capital A/c & & 40,000
\hline Creditors A/c Dr & 10,000 &
To Cash A/c & & 10,000
\hline Kapil’s Capital A/c Dr & 1,20,000 &
To Cash A/c & & 1,20,000
\hline \end{tabular} \end{center} Explanation of Adjustments: Revaluation Account: Reflects adjustments in the value of assets and liabilities. General Reserve: Distributed among partners in their old profit-sharing ratio \( 9 : 3 : 4 \). Goodwill Adjustment: Kapil’s share of goodwill is \( 80,000 \times \frac{4}{16} = ₹ 20,000 \), adjusted in the gaining ratio of Inder and Jonny \( 3 : 2 \). Settlement of Creditors and Capital: Creditors and Kapil’s capital were settled in cash.