Question

Rishi, Shashi, and Trishi were partners in a firm sharing profits and losses in proportion of \( \frac{1}{2}, \frac{1}{6}, \frac{1}{3} \) respectively. Their Balance Sheet as at 31st March, 2023 was as follows: \[ \begin{array}{|l|r|l|r|} \hline Liabilities & Amount (\rupee) & Assets & Amount (\rupee)
\hline \text{Capitals:} & & \text{Fixed Assets} & 80,000
\quad \text{Rishi} & 36,000 & \text{Stock} & 20,000
\quad \text{Shashi} & 30,000 & \text{Debtors} & 30,000
\quad \text{Trishi} & 20,000 & \text{Cash} & 40,000
\text{General Reserve} & 30,000 & &
\text{Creditors} & 54,000 & &
\hline Total & 1,70,000 & Total & 1,70,000
\hline \end{array} \] \vspace{0.5cm} Adjustments: Fixed assets were valued at \rupee56,000. Stock was taken over by Shashi at \rupee26,000. Goodwill of the firm was valued at \rupee18,000 on Shashi’s retirement. The balance in Shashi’s Capital Account was transferred to her loan account. \vspace{0.5cm}

Hint:

In cases of retirement, always prepare the Revaluation Account first, followed by the adjustment for goodwill and the final settlement of the retiring partner’s capital.

Answer 1

Revaluation Account: \[ \begin{array}{|l|r|l|r|} \hline Particulars & Amount (\rupee) & Particulars & Amount (\rupee)
\hline \text{To Fixed Assets (Reduction)} & 24,000 & \text{By Stock (Increase)} & 6,000
\hline \text{To Profit transferred to:} & & &
\quad \text{Rishi (1/2)} & 10,000 & &
\quad \text{Shashi (1/6)} & 3,000 & &
\quad \text{Trishi (1/3)} & 6,000 & &
\hline Total & 40,000 & Total & 40,000
\hline \end{array} \] \vspace{0.5cm} Partners’ Capital Accounts: \[ \begin{array}{|l|r|r|r|} \hline Particulars & Rishi (\rupee) & Shashi (\rupee) & Trishi (\rupee)
\hline \text{To Shashi’s Loan A/c} & - & 47,000 & -
\text{To Balance c/d} & 53,000 & - & 33,000
\hline \text{By Balance b/d} & 36,000 & 30,000 & 20,000
\text{By General Reserve} & 15,000 & 5,000 & 10,000
\text{By Revaluation Profit} & 10,000 & 3,000 & 6,000
\text{By Goodwill (Adjustment)} & 12,000 & 9,000 & 6,000
\hline Total & 73,000 & 47,000 & 42,000
\hline \end{array} \] \vspace{0.5cm} Working Notes:
1. Revaluation Account: - Decrease in fixed assets = \( 80,000 - 56,000 = 24,000 \). - Increase in stock value = \( 26,000 - 20,000 = 6,000 \). - Net revaluation profit = \( 6,000 - 24,000 = -18,000 \), shared in the ratio \( 1/2 : 1/6 : 1/3 \).
2. Goodwill Adjustment: - Total goodwill = \rupee18,000. - Shashi’s share = \( 18,000 \times 1/6 = \rupee3,000 \). - Rishi and Trishi compensate Shashi: - Rishi’s share = \( 3,000 \times (1/2)/(1/2 + 1/3) = \rupee12,000 \). - Trishi’s share = \( 3,000 \times (1/3)/(1/2 + 1/3) = \rupee6,000 \).
3. Capital Adjustment: - The balance in Shashi’s capital is transferred to her loan account. \vspace{0.5cm}