Acme & Co. is a partnership firm with partners Mr. X, Mr. Y and Mr. Z, sharing profits and losses in the ratio of 10:6:4. The balance sheet of…

CA Foundation · Accounting · RTP · January 2025
Acme & Co. is a partnership firm with partners Mr. X, Mr. Y and Mr. Z, sharing profits and losses in the ratio of 10:6:4. The balance sheet of the firm as at 31 st March, 2024 is as under: Liabilities ₹ Assets ₹ Capitals: Land 30,000 Mr. X 2,40,000 Buildings 6,00,000 Mr. Y 60,000 Plant and machinery 3,90,000 Mr. Z 90,000 3,90,000 Furniture 1,29,000 Reserves (un-appropriated profit) 60,000 Investments 36,000 Long Term Debt 9,00,000 Inventories 3,90,000 Bank Overdraft 1,32,000 Trade receivables 4,17,000 Trade payables 5,10,000 19,92,000 19,92,000 It was mutually agreed that Mr. Y will retire from partnership and in his place Mr. P will be admitted as a partner with effect from 1 st April, 2024. For this purpose, the following adjustments are to be made: (a) Goodwill is to be valued at 3 lakh but the same will not appear as an asset in the books of the reconstituted firm. (b) Buildings and plant and machinery are to be depreciated by 5% and 20% respectively. Investments are to be taken over by the retiring partner at 45,000. Provision of 20% is to be made on Trade receivables to cover doubtful debts. (c) In the reconstituted firm, the total capital will be 6 lakhs which will be contributed by Mr. X, Mr. Z and Mr. P 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; (c) Bank account; and (d) Balance sheet of the reconstituted firm as on 1st April, 2024.

Suggested Answer and Working Notes:

Revaluation Account Particulars Amount (₹) Particulars Amount (₹) To Buildings A/c 30,000 By Investments A/c 9,000 To Plant and Machinery A/c 78,000 By Loss to Partners: To Provision for Doubtful Debts A/c 83,400 X 91,200 Y 54,720 Z 36,480 1,82,400 1,91,400 1,91,400 Partners’ Capital A/c Particulars X ₹ Y ₹ Z ₹ P ₹ Particulars X ₹ Y ₹ Z ₹ P ₹ To Revaluation A/c 91,200 54,720 36,480 - By Balance b/d 2,40,000 60,000 90,000 - To Investments A/c - 45,000 - - By Reserves A/c 30,000 18,000 12,000 - To X and Y’s Capital A/c - 60,000 60,000 By Z and P’s Capital A/c 30,000 90,000 - - To Y’s Loan A/c 68,280 - - By Bank A/c (balancing figure) 31,200 - 2,34,480 1,80,000 To Balance c/d 2,40,000 - 2,40,000 1,20,000 3,31,200 1,68,000 3,36,480 1,80,000 3,31,200 1,68,000 3,36,480 1,80,000 Bank Account Particulars Amount ₹ Particulars Amount ₹ To X’s capital A/c 31,200 By Bank overdraft A/c 1,32,000 To Z’s capital A/c 2,34,480 By Balance c/d 3,13,680 To P’s capital A/c 1,80,000 4,45,680 4,45,680 Balance Sheet of Acme & Co. as at 1st April, 2024 Liabilities ₹ Assets ₹ Capital Accounts: Land 30,000 X 2,40,000 Buildings 5,70,000 Z 2,40,000 Plant and Machinery 3,12,000 P 1,20,000 6,00,000 Furniture 1,29,000 Long Term Debts 9,00,000 Inventories 3,90,000 Trade payables 5,10,000 Trade receivables 4,17,000 Y’s Loan Account 68,280 Less: Provision for Doubtful Debts (83, 400) 3,33,600 Balance at Bank 3,13,680 20,78,280 20,78,280

Topics: Retirement of a Partner

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