Question

Ashish, Vinit and Reema were partners sharing profits and losses in the ratio of 2 : 2 : 1. Their Balance Sheet on 31st March, 2024 was as follows :

Balance Sheet of Ashish, Vinit and Reema as at 31^st March, 2024

Liabilities	Amount (₹)	Assets	Amount (₹)
Capital: Ashish	2,00,000	Patents	80,000
Capital: Vinit	2,00,000	Furniture	3,00,000
Capital: Reema	1,00,000	Stock	1,70,000
General Reserve	50,000	Debtors	80,000
Bills Payable	80,000	Less: Provision for Doubtful Debts	(8,000)
Creditors	40,000	Net Debtors	72,000
		Cash	48,000
Total	6,70,000	Total	6,70,000

(i) Goodwill of the firm was valued at ₹ 60,000 and the same was adjusted into the capital accounts of Ashish and Reema who will share profits in future in the ratio of 3 : 2.
(ii) Value of stock was to be reduced by ₹ 10,000.
(iii) Patents are found undervalued by 20%.
(iv) Vinit was paid ₹ 20,000 immediately on retirement and the balance was transferred to his loan account carrying interest @ 8% p.a.
Pass necessary journal entries on Vinit’s retirement.

Hint:

Always adjust goodwill through partners’ capital accounts in the sacrificing ratio unless stated otherwise. Also, remember to settle retiring partner’s dues partly in cash and partly as loan if specified.

Answer 1

Step 1: Revaluation of Assets

• Decrease in value of Stock = ₹10,000
• Increase in value of Patents = ₹80,000 × 20% = ₹16,000

\[ \text{Net Profit on Revaluation} = ₹16,000 - ₹10,000 = ₹6,000 \]

Distributed among partners in ratio 2 : 2 : 1:

• Ashish = ₹6,000 × 2/5 = ₹2,400
• Vinit = ₹6,000 × 2/5 = ₹2,400
• Reema = ₹6,000 × 1/5 = ₹1,200

---

Step 2: Goodwill Adjustment

\[ \text{Goodwill of the firm} = ₹60,000 \\ \text{Vinit’s share} = \frac{2}{5} × ₹60,000 = ₹24,000 \]

Sacrificing ratio between Ashish and Reema = 3 : 2

Journal Entry:

Ashish’s Capital A/c Dr. ₹14,400
Reema’s Capital A/c Dr. ₹9,600
    To Vinit’s Capital A/c ₹24,000
(Being goodwill adjusted in sacrificing ratio)

---

Step 3: Payment to Vinit

\[ \text{Capital (given)} = ₹2,00,000 \\ \text{Add: Revaluation Profit} = ₹2,400 \\ \text{Add: Goodwill Credited} = ₹24,000 \\ \text{Total Due} = ₹2,26,400 \]

\[ \text{Less: Cash Paid} = ₹20,000 \\ \text{Transferred to Vinit’s Loan A/c} = ₹2,06,400 \]