Thomson & Associates. is a partnership firm with partners Tim, Sam and Ben, sharing profits and losses in the ratio of 10:6:4. The balance sheet…

CA Foundation · Accounting · MTP · April 2025
Thomson & Associates. is a partnership firm with partners Tim, Sam and Ben, sharing profits and losses in the ratio of 10:6:4. The balance sheet of the firm as at 31st March, 2025 is as under: Liabilities ₹ Assets ₹ Capitals: Land 90,000 Tim 7,20,000 Buildings 18,00,000 Sam 1,80,000 Machinery 11,70,000 Ben 2,70,000 11,70,000 Furniture 3,87,000 Reserves (un-appropriated profit) 1,80,000 Investments 1,08,000 Long Term Debt 27,00,000 Inventories 11,70,000 Bank Overdraft 3,96,000 Trade receivables 12,51,000 Trade payables 15,30,000 59,76,000 59,76,000 It was mutually agreed that Sam will retire from partnership and in his place Dan will be admitted as a partner with effect from 1st April, 2025. For this purpose, the following adjustments are to be made: (a) Goodwill is to be valued at 9 lakh but the same will not appear as an asset in the books of the reconstituted firm. (b) Buildings and Machinery are to be depreciated by 5% and 20% respectively. Investments are to be taken over by the retiring partner at 1,35,000. Provision of 20% is to be made on Trade receivables to cover doubtful debts. (c) In the reconstituted firm, the total capital will be 18 lakhs which will be contributed by Tim, Ben and Dan in their new profit sharing ratio, which is 2:2:1. (i) The surplus funds, if any, will be used for repaying bank overdraft. (ii) The amount due to retiring partner shall be transferred to his loan account. You are required to prepare (a) Revaluation account; (b) Partners’ capital accounts; and (c) Bank account;

Suggested Answer and Working Notes:

Revaluation Account Particulars ₹ ₹ To Buildings A/c 90,000 By Investments A/c 27,000 To Machinery A/c 2,34,000 By Loss to Partners: To Provision for Doubtful Debts A/c 2,50,200 Tim 2,73,600 Sam 1,64,160 Ben 1,09,440 5,47,200 5,74,200 5,74,200 Partners’ Capital Account Particulars Tim ₹ Sam ₹ Ben ₹ Dan ₹ Particulars Tim ₹ Sam ₹ Ben ₹ Dan ₹ To Revaluation A/c 2,73,600 1,64,160 1,09,440 - By Balance b/d 7,20,000 1,80,000 2,70,000 To Investments A/c 1,35,000 - By Reserves A/c 90,000 54,000 36,000 To Sam Loan A/c 2,04,840 By Ben and Dan Capital A/c 90,000 2,70,000 To Tim and Sam’s Capital A/c 1,80,000 1,80,000 By Bank A/c (balancing figure) 93,600 7,03,440 5,40,000 To Balance c/d 7,20,000 7,20,000 3,60,000 9,93,600 5,04,000 10,09,440 5,40,000 9,93,600 5,04,000 10,09,440 5,40,000 Bank Account Particulars ₹ ₹ To Tim’s capital A/c 93,600 By Bank Overdraft A/c 3,96,000 To Ben’s capital A/c 7,03,440 By Balance c/d 9,41,040 To Dan’s capital A/c 5,40,000 13,37,040 13,37,040 Calculation for adjustment of Amount of Goodwill Partner Old share New share Gain Sacrifice Tim 5/10 4/10 1/10 Sam 3/10 3/10 Ben 2/10 4/10 2/10 Dan 2/10 2/10 Ben's capital Dr.1,80,000 Dan's capital Dr.1,80,000 To Tim 's capital - 90,000 To Sam's capital - 2,70,000

Topics: Retirement of a Partner

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