Arti, Bharti and Gayatri were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. Their Balance Sheet as at 31st March, 2024 was as follows :
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Revaluation and goodwill adjustments are necessary before retirement of a partner. Always allocate accumulated profits/losses and reserves before settling the retiring partner’s dues.
On 31st March, 2024, Arti retired from the firm. Revaluation Account and Partners’ Capital Accounts will be prepared after incorporating the following adjustments: (i) Goodwill of the firm was valued at ₹~3,00,000. (ii) Provision of 5% for doubtful debts on ₹~70,000 = ₹~3,500 (iii) Machinery depreciation 10% on ₹~1,40,000 = ₹~14,000 Appreciation in Building by ₹~22,500 (iv) Patents ₹~5,000 written off (v) Claim admitted for workmen compensation ₹~15,000
Revaluation Account: To Machinery Depreciation ............................ ₹~14,000 To Provision for Doubtful Debts .................... ₹~3,500 To Patents Written Off ................................. ₹~5,000 To Workmen Compensation Claim ........... ₹~15,000 Total Losses ........................................... ₹~37,500 By Building Appreciation ............................ ₹~22,500 Net Loss Transferred to Partners (5:3:2): Arti ........................ ₹~7,500 Bharti .................... ₹~4,500 Gayatri .................. ₹~3,000
Goodwill Adjustment: Arti’s share of goodwill = ₹~3,00,000 × $ \dfrac{5}{10} $ = ₹~1,50,000 Gaining Ratio of Bharti and Gayatri (3:2): Bharti = ₹~90,000, Gayatri = ₹~60,000
Partners’ Capital Accounts (Summary Effects): Arti: Opening Capital = ₹~2,00,000 (+) General Reserve = ₹~65,000 ($ \dfrac{5}{10} $ of ₹~1,30,000) (+) Employees’ PF = ₹~12,500 ($ \dfrac{5}{10} $ of ₹~25,000) (+) Workmen Compensation Fund = ₹~37,500 ($ \dfrac{5}{10} $ of ₹~75,000) (–) Revaluation Loss = ₹~7,500 (–) Share of P&L Loss = ₹~40,000 ($ \dfrac{5}{10} $ of ₹~80,000) (–) Goodwill Adjustment = ₹~1,50,000 Closing Capital = Sum of above adjustments = Final Settlement Due
