Question

Prina, Qadir, and Kian were partners in a firm sharing profits in the ratio of 7:2:1. On 31\textsuperscript{st March, 2023, their Balance Sheet was as follows:} \begin{center} Balance Sheet of Prina, Qadir, and Kian as on 31\textsuperscript{st March, 2023} \end{center} \begin{center} \begin{tabular}{|p{8cm}|p{6cm}|} Liabilities & Amount (\rupee)
Capitals: &
{0.5cm} Prina & 9,60,000
{0.5cm} Qadir & 8,40,000
{0.5cm} Kian & 9,00,000
General Reserve & 3,00,000
Workmen’s Compensation Reserve & 5,40,000
Creditors & 3,60,000
Total Liabilities & 39,00,000
Assets &
Land & 12,00,000
Building & 9,00,000
Furniture & 3,60,000
Stock & 6,00,000
Debtors & 6,00,000
Less: Provision for doubtful debts & (30,000)
Cash at Bank & 2,10,000
Total Assets & 39,00,000
\end{tabular} \end{center} On the above date Qadir retired on the following terms: Goodwill of the firm was valued at \rupee12,00,000. Land was to be appreciated by 30\% and building was to be depreciated by \rupee3,54,000. A provision of 6\% is to be maintained on debtors. Liability for workmen’s compensation was determined at \rupee1,40,000. Amount payable to Qadir was transferred to his loan account. Total capital of the new firm was fixed at \rupee16,00,000, which will be adjusted according to their new profit ratio by opening current accounts. Pass necessary Journal Entries for the above transactions in the books of the firm.

Hint:

In retirement adjustments, always account for goodwill, revaluation, reserves, and final capital adjustments accurately.

Answer 1

% Journal Entries \begin{center} \begin{tabular}{|p{3cm}|p{8cm}|p{2.5cm}|p{2.5cm}|} Date & Particulars & Debit (\rupee) & Credit (\rupee)
31-Mar-2023 & Land A/c & 3,60,000 &
& {0.5cm} To Revaluation A/c & & 3,60,000
& (Appreciation of land by 30\%) & &
31-Mar-2023 & Revaluation A/c & 3,54,000 &
& {0.5cm} To Building A/c & & 3,54,000
& (Depreciation of building) & &
31-Mar-2023 & Revaluation A/c & 36,000 &
& {0.5cm} To Provision for Doubtful Debts A/c & & 36,000
& (Provision for doubtful debts maintained at 6\%) & &
31-Mar-2023 & Workmen’s Compensation Reserve A/c & 5,40,000 &
& {0.5cm} To Liability for Compensation A/c & & 1,40,000
& {0.5cm} To Revaluation A/c & & 4,00,000
& (Adjustment of workmen's compensation liability) & &
31-Mar-2023 & Revaluation A/c & 1,30,000 &
& {0.5cm} To Prina’s Capital A/c & & 91,000
& {0.5cm} To Qadir’s Capital A/c & & 26,000
& {0.5cm} To Kian’s Capital A/c & & 13,000
& (Distribution of revaluation loss in old profit-sharing ratio) & &
31-Mar-2023 & Prina’s Capital A/c & 2,10,000 &
& Kian’s Capital A/c & 30,000 &
& {0.5cm} To Qadir’s Capital A/c & & 2,40,000
& (Goodwill adjustment on Qadir’s retirement) & &
31-Mar-2023 & Qadir’s Capital A/c & 6,50,000 &
& {0.5cm} To Qadir’s Loan A/c & & 6,50,000
& (Transfer of Qadir’s final amount to loan account) & &
31-Mar-2023 & Capital Accounts (New Ratio) & 3,00,000 &
& {0.5cm} To Current Accounts & & 3,00,000
& (Adjustment of total capital to \rupee16,00,000) & &
\end{tabular} \end{center}