A, B and C are partners of M/s ABC LLP sharing profits and losses in the ratio of 3:2:1. The Balance Sheet of the firm as at 31 st March, 2025 stood…

CA Foundation · Accounting · PYQS · January 2026
A, B and C are partners of M/s ABC LLP sharing profits and losses in the ratio of 3:2:1. The Balance Sheet of the firm as at 31 st March, 2025 stood as under: Liabilities Amount ₹ Assets Amount ₹ Capital Accounts Building 3,20,000 A 4,80,000 Plant and Machinery 3,20,000 B 3,20,000 Inventories 1,60,000 C 1,60,000 9,60,000 Trade Receivables 3,20,000 Trade Payables 3,20,000 Cash at Bank 1,60,000 12,80,000 12,80,000 On 1 st April, 2025, A desired to retire from the firm and the remaining partners decided to carry on the business. It was agreed to revalue the assets and liabilities on that date on the following basis: (i) Goodwill of the entire firm is valued at 2,88,000 and A's share of the goodwill is adjusted in the accounts of B and C who would share the profits equally in future. (ii) Building is to be appreciated by 30%. Plant and machinery is to be depreciated by 20%. Inventories are to be written down to 80% of their carrying value as on 31 st March, 2025. (iii) Trade receivables are considered good only up to 95% of the Balance Sheet figure and the balance is to be provided for as doubtful. (iv) Old credit balances of Trade payables - 16,000 are to be written back. (v) The Joint life policy of the partners is surrendered and a sum of 96,000 is realized therefrom. (vi) The total capital of the reconstituted firm shall be the same as before the retirement of A. Individual capital of B and C shall be in their profit-sharing ratio and the same shall be brought in by them. (vii)75% of the amount due to A on his retirement shall be settled in cash and the balance shall be settled after one year. You are required to draw up the following accounts after giving effect to the above transactions: (1) Revaluation Account (2) Partners’ Capital Account (3) Bank Account

Suggested Answer and Working Notes:

In the books of M/s ABC LLP Revaluation Account Particulars Amount ₹ Particulars Amount ₹ To Plant & Machinery A/c 64,000 By Buildings A/c 96,000 To Inventory A/c 32,000 By trade payable A/c 16,000 To Provision for Bad Debts A/c 16,000 By Bank A/c – Joint Life policy surrendered ** 96,000 To Partners’ Capital A/cs: A 48,000 B 32,000 C 16,000 96,000 2,08,000 2,08,000 Partner’s Capital Account A B C A B C To A’s Capital A/c 48,000 96,000 By balance b/d 4,80,000 3,20,000 1,60,000 To A’s Loan A/c 1,68,000 By Revaluation A/c 48,000 32,000 16,000 To bank A/c 5,04,000 By B’s capital 48,000 To balance c/d 4,80,000 4,80,000 By C’s capital 96,000 By Bank A/c 1,76,000 4,00,000 6,72,000 5,28,000 5,76,000 6,72,000 5,28,000 5,76,000 Bank Account Date Particulars Amount ₹ Date Particulars Amount ₹ 1-4-2024 To Balance b/d 1,60,000 31-3-2025 By A’s capital A/c 5,04,000 31-3-2025 To Revaluation A/c joint life policy surrendered 96,000 31-3-2025 By Balance c/d 3,28,000 31-3-2025 To B’s Capital A/c 1,76,000 31-3-2025 To C’s Capital A/c 4,00,000 8,32,000 8,32,000 Working Notes: 1. Gaining ratio of existing partners: B - 1/2 -1/3 = 1/6 C - 1/2 -1/6 = 2/6 2. Total goodwill of firm is 2,88,000 A’s share (₹ 1/2 x 2,88,000) = 1,44,000 A’s share of goodwill is to be borne by B and C in their gaining ratios i.e. B = 1/3 x 1,44,000 = 48,000 C = 2/3 x 1,44,000 = 96,000 Alternatively, surrender value of JLP can also be routed through partners’ capital A/c by directly crediting partners share instead of Revaluation A/c. In such case, there will be no surplus or deficit in the Revaluation Account.

Topics: Retirement of a Partner

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