Ram, Laxman and Bharat were in a partnership firm sharing profit and loss in the ratio of 3: 2: 1. Their Balance Sheet on 31st March, 2026 was as…
CA Foundation · Accounting · MTP · September 2026
Ram, Laxman and Bharat were in a partnership firm sharing profit and loss in the ratio of 3: 2: 1. Their Balance Sheet on 31st March, 2026 was as follows: Liabilities Amount (₹) Assets Amount (₹) Ram's Capital 78,000 Patents 30,000 Laxman's Capital 42,000 Machinery 60,000 Bharat's Capital 31,000 Investment (Market value ₹ 27,500) 25,000 General Reserve 6,000 Stock 42,650 Workmen's Compensation 12,000 Debtors 50,000 Trade Creditors 43,000 Less: Provision for doubtful debts 4,000 46,000 Cash at Bank 8,350 2,12,000 2,12,000 Bharat retired on the above date on the following terms: (1) Goodwill of the firm was valued at ₹ 60,000. (2) Value of patents was to be reduced by 20% and that of machinery to 90%. (3) Provision for doubtful debts was to be raised to 10%. (4) Trade creditors were reduced by ₹ 6,000. (5) Additional liability for workmen compensation to the extent of ₹ 6,000 is to be created. (6) Bharat took over the investment at market value. (7) Amount due to Bharat is to be settled on the following basis: - 50% on retirement, 50% of the balance within one year and the balance by a bill of exchange (without interest) at 3 months. You are required the following: (i) Show entry for the treatment of goodwill, (ii) Prepare Revaluation Account, (iii) Partner Capital Account and Balance Sheet.
Suggested Answer and Working Notes:
(i) Journal Entry for the treatment of goodwill Particulars Dr. (₹) Cr. (₹) Ram's Capital A/c Dr. 6,000 Laxman's Capital A/c Dr. 4,000 To Bharat's Capital A/c 10,000 (Being Bharat's share of goodwill adjusted through the gaining partners in gaining ratio) (ii) Revaluation A/c Particulars ₹ Particulars ₹ To Patents A/c 6,000 By Trade creditors A/c 6,000 To Machinery A/c 6,000 By Investments A/c 2,500 To Provision for Doubtful Debts A/c 1,000 By Revaluation Loss To workmen's compensation 6,000 Partners' Capital A/c's – Ram 5,250 Laxman 3,500 Bharat 1,750 10,500 19,000 19,000 Partners' Capital Account Particulars Ram (₹) Laxman (₹) Bharat (₹) Particulars Ram (₹) Laxman (₹) Bharat (₹) To Revaluation A/c 5,250 3,500 1,750 By Balance b/d 78,000 42,000 31,000 To Investments 27,500 By General Reserve 3,000 2,000 1,000 To Bharat's Capital A/c 6,000 4,000 By Ram's Capital A/c 6,000 To Bank A/c 6,375 By Laxman's Capital A/c 4,000 To Bharat's Loan A/c 3,187 To Bills Payable A/c 3,188 To Balance c/d 69,750 36,500 81,000 44,000 42,000 81,000 44,000 42,000 Balance Sheet as at 31st March, 2026 Liabilities ₹ Assets ₹ ₹ Capital accounts: Patent 24,000 Ram 69,750 Machinery 54,000 Laxman 36,500 1,06,250 Closing stock 42,650 Bharat's loan A/c 3,187 Sundry debtors 50,000 Trade creditors 37,000 Less: Provision for doubtful debts (5,000) 45,000 Bills payable 3,188 Cash and bank balances (8,350 - 6,375) 1,975 Workman compensation 18,000 1,67,625 1,67,625 Working Notes: 1. Gaining ratio of existing partners: Ram 3/5 - 3/6 = 3/30 Laxman 2/5 - 2/6 = 2/30
Topics: Retirement of a Partner
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