Alpha, Beta and Gama are partners sharing profits and losses in the ratio of 1:2:3. Their Balance Sheet as on 31st March, 2026 was as follows:…
CA Foundation · Accounting · MTP · May 2026
Alpha, Beta and Gama are partners sharing profits and losses in the ratio of 1:2:3. Their Balance Sheet as on 31st March, 2026 was as follows: Liabilities Amount (₹) Assets Amount (₹) Capitals: Building 2,50,000 Alpha 1,75,000 Machinery 3,37,500 Beta 2,50,000 Debtors 3,25,000 Gama 4,00,000 Stock 4,00,000 General Reserve 3,00,000 Bank 62,500 Trade Creditors 2,50,000 13,75,000 13,75,000 Gama retired from business on 1st April, 2026 on the following terms: (i) Building to be appreciated by 25% , Machinery to be depreciated by 10%. and stock is revalued at 3,72,250 (ii) Alpha and Beta to bring in additional capital of 5,00,000 each. (iii) Provision for Doubtful Debts to be created at 4%. (iv) Goodwill was to be valued at 3 years' purchase of average profits of past 3 years. The profits of past 3 years were - 2,75,000,2,50,000 and - 1,95,000 respectively. Goodwill was not to be raised in the books of Accounts. (v) Balance payable to Gama was to be paid immediately. Prepare Revaluation Account, Bank Account and Partners' Capital Accounts after giving effect to Gama's retirement, Also show the valuation of Goodwill and pass a Journal Entry for adjustment of Goodwill.
Suggested Answer and Working Notes:
In the Books of Alpha, Beta and Gama Revaluation A/c Particulars ₹ Particulars ₹ To Provision for Doubtful Debts 13,000 By Building 62,500 To Machinery 33,750 By Loss on revaluation To Stock 27,750 Alpha 2,000 Beta 4,000 Gama 6,000 74,500 74,500 Partners’ Capital A/c Particulars Alpha Beta Gama Particulars Alpha Beta Gama To Loss on Revaluation 2,000 4,000 6,000 By Balance b/d 1,75,000 2,50,000 4,00,000 To Bank - - 9,04,000 By General Reserve 50,000 1,00,000 1,50,000 To Gama’s Capital 1,20,000 2,40,000 - By Alpha and Beta’s Capital A/c - - 3,60,000 To Balance c/d 6,03,000 6,06,000 - By Bank 5,00,000 5,00,000 - 7,25,000 8,50,000 9,10,000 7,25,000 8,50,000 9,10,000 Bank A/c Particulars ₹ Particulars ₹ To Balance b/d 62,500 By Gama’s Capital A/c 9,04,000 To Alpha’s Capital 5,00,000 By Balance c/d 1,58,500 To Beta’s Capital 5,00,000 10,62,500 10,62,500 Valuation of Goodwill: Total Profit of past3 years = 2,75,000 +2,50,000 +1,95,000 = 7,20,000 Average profit = 7,20,000 /3 = 2,40,000 Goodwill (3 years purchase) = 2,40,000 x 3 = 7,20,000 Gama’s share = (3/6)th = 7,20,000 X 1/2 = 3,60,000 Journal entry for adjustment of goodwill Particulars Dr. Cr. Alpha’s capital A/c Dr. 1,20,000 Beta’s capital A/c Dr. 2,40,000 To Gama’s capital A/c 3,60,000 (Being Goodwill adjusted through Partners Capital account as per gaining ratio)
Topics: Retirement of a Partner
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