Question

Ratan, Singh and Sharma were partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1. Their Balance Sheet on 31^st March, 2024 was as follows:Balance Sheet of Ratan, Singh and Sharma as at 31^st March, 2024

Liabilities	Amount (₹)	Assets	Amount (₹)
Creditors	90,000	Bank	65,000
Outstanding Wages	10,000	Stock	1,50,000
General Reserve	3,00,000	Debtors	90,000
		Less: Provision for Doubtful Debts	(5,000)
			85,000
Capital A/cs:		Plant and Machinery	2,50,000
Ratan	3,60,000	Land and Building	4,50,000
Singh	2,40,000	Profit and Loss A/c	1,00,000
Sharma	1,00,000
Total	11,00,000	Total	11,00,000

On 1st April, 2024 Sharma retired from the firm on the following terms :

(i) Plant and Machinery is revalued at ₹2,00,000.

(ii) Land and Building was to be appreciated by ₹49,500 and provision for bad debts will be maintained at 5% of the debtors.

(iii) Sharma's share in the goodwill of the firm was valued at ₹60,000 and the retiring partner's share was adjusted through the capital accounts of remaining partners.

(iv) Sharma was paid in cash brought by Ratan and Singh in such a way so as to make their capitals proportionate to their new profit sharing ratio.

Prepare Revaluation Account and Partners' Capitals Accounts.

Hint:

Always adjust goodwill directly through capital accounts when there is no goodwill account in the books. Revaluation profits or losses must be shared in the old ratio and general reserves distributed among all partners before retirement.

Answer 1

Revaluation Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Plant & Machinery A/c (Decrease in Value)	₹50,000	By Land & Building A/c (Appreciation)	₹49,500
To Provision for Doubtful Debts A/c (5% of ₹90,000)	₹4,500	By Loss transferred to Capital A/cs:
		Ratan’s Capital (2/5 of ₹5,000)	₹2,000
		Singh’s Capital (2/5 of ₹5,000)	₹2,000
		Sharma’s Capital (1/5 of ₹5,000)	₹1,000
Total	₹54,500	Total	₹54,500

Partners’ Capital Accounts

Particulars	Ratan (₹)	Singh (₹)	Sharma (₹)
To Sharma’s Capital (Goodwill Adjustment)	₹2,000	₹2,000	₹1,000
To Bank A/c (Settlement)	₹24,000	₹16,000	–
By Balance b/d	₹3,60,000	₹2,40,000	₹1,20,000
By General Reserve	₹1,20,000	₹40,000	–
By Profit and Loss A/c	₹40,000	–	–
By Ratan’s Capital A/c (Goodwill)	–	₹1,19,000	–
By Singh’s Capital A/c (Goodwill)	–	₹1,00,000	–
By Sharma’s Capital A/c (Goodwill)	₹60,000	₹20,000	₹24,000
Total	₹5,42,000	₹3,98,000	₹2,00,000