Revaluation of Assets & Liabilities, Adjustment of accumulated profit & losses, Payment in installment

1. RETIREMENT OF A PARTNER:-
REVALUATION OF ASSETS & LIABILITIES
Prepared By
Ms.Jissy.C
Assistant professor

2. Revaluation Of Assets &Liabilities
1..A ,B&C are partners in a firm sharing P/&L in the ratio of
1/3,1/2,1/6 respectively. Their B/S as on 31.12.90 was as
follows
Liabilities Amount Assets Amount
Capital-A 30000 Plant & Machinery 40000
B 40000 Building 50000
C 25000 Furniture 10000
Reserve fund 16000 Debtors 18000
Less Provision 500 17500
Loan payable 15000 Stock 25000
Creditors 25000 Cash 8500
151000 151000

3.  C reties on 31.12.90 subject to the following conditions:
 a)A goodwill account is created in the books for Rs24000.
 b)Machinery to be depreciated by 10%
 c) Furniture to be depreciated by 5%
 Stock to be appreciated by 15% & building is to be
appreciated by10%
 e) Reserve for doubtful debts to be raised to Rs 2000

4.  Revaluation account
Particulrs Amount Particulars Amount
By Building 5000To Machinery 4000
By Stock 3750To Furniture 500
To Provision 1500
To Profit
A’s Capital 2750 x 2/6 =917
B’s Capital 2750 x 3/6
=1375
C’s Capital 2750 X 1/6=458
2750
8750 8750

5. Particulars A B C Particulars A B C
By Bal b/d 30000 40000 25000
By G.R 5333 8000 2667
To C,s Loan - - 32125
By Goodwill 8000 12000 4000
By Revala.P 917 1375 458
To Bal C/d 44250 61375
44250 61375 3212544250 61375 32125

6. Balance sheet
Liabilities Amount Assets Amount
Goodwill 24000
Building 50000
Add 10% App 5000 55000
Machinery 40000
Less 10% Dep 4000 36000
Furniture 10000
Less 5% Dep 500 9500
Stock 25000
Add 15% App 3750 28750
Capital:
A,s Capital
B,s Capital
44250
61375
Debtors 18000
Less Provision 2000 16000
Cash 8500
C,s Loan 32125
Sundry Creditors 25000
Loan Payable 15000
177750 177750

7. TREATMENT OF UNDISTRIBUTED PROFIT /LOSSES
I)All accumulated profit & losses are distributed among all
partners in the old ratio
For Distribution of accumulated Profits
General reserve/Reserve Fund/P&L Dr
To Partners Capital(Including Retiring Partner)
For writing off accumulated losses
All the partners a/c
To Profit & loss a/c(Including Retiring Partner)

8. II)Only Retiring Partners share of accumulated profit /Loss
transferred
For Transferring Retiring partners share of accumulated
profit only
General reserve/Reserve fund/P& L a/c Dr
To Retiring Partners Capital a/c
For Transferring Retiring partners share of accumulated loss
only
Retiring Partners Capital a/c Dr
To Profit &Loss

9. 2.Sunil ,Devan &Rajan are equal partners in firm & their B/S as on
31.12.90 is given below.
 Ravi retired on 31.12.90 and assets were valued as under:
Ravi retired on 31.12.90 and assets were valued as under:
Machinery Rs51000.Furniture Rs 1200, Debtors Rs28500, Stock
Rs14700.Goodwill of the firm valued at Rs 9000 and Ravi s share
goodwill is to be adjusted to continuing partner’s capital without
raising goodwill account.
Prepare the necessary accounts
Liabilities Amount Assets Amount
Capital-S 15000 Machinery 43500
D 12000 Furniture 1500
R 18000 Stock 15000
Creditors 40500 Sundry Debtors 30000
Reserve 4500
90000 90000

10. Particulars Amount Particulars Amount
REVALUATION ACCOUNT
By Machinery 7500To Furniture 300
To Provision for bad
debts
1500
To Stock 300
To Profit 5400
7500 7500

11. Particulars Sunil Devan Ravi Particulars Sunil Devan Ravi
By Balan b/d 15000 12000 18000
By Reserve 1500 1500 1500
By Sunil Ca - - 1500
By Deva Ca - - 1500
By Revalu 1800 1800 1800
To Ravi Cap 1500 1500
To Ravi,s loan - - 24300
To Balan c/d 16800 13800 -
18300 15300 2430018300 15300 24300

12. Balance Sheet
Liabilities Amount Asset Amount
Machinery 43500
add app 7500 51000
Ravi,s Loan 24300
Creditors 40500
Capital a/c
Sunil
Devan
16800
13800
Furniture 1500
Less 300 1200
Debtors 30000
les Pr 1500 28500
Stock 15000
Less 300 14700
9540095400

13. 3. The B/S of P ,Q &R who are sharing profits &losses in the
ratio of 2:2:1 respectively was as follows on31.12.93.
Liabilities Amount Assets Amount
Capital-P 20000 Plant & Machinery 4875
Q 12500 Building 12000
R 10000 Furniture 1750
Bills payable 3200 Debtors 8900
Creditors 6250 Stock 11150
P/L 2250 Cash 12825
Bills receivable 2700
54200 54200

14. P retires from the business from 1.1.94 & his in the firm is to be
ascertained on a revaluation of the assets as follows:
Stock Rs -10000.
Furniture Rs-1500,
Machinery Rs- 4500.
Building Rs -10000 &
425 is to be provided for doubtful debts.
The goodwill of the firm is to be valued at Rs3000. P is to be
paid Rs5525 in cash on retirement and balance in 3 equal
yearly installments with interest at 5% p.a. Pass journal
entries and show the necessary ledger accounts and new
B/S of Q&R and P loan A/C for three years

15. Particulars Amount Particulars Amount
Revaluation Account
By Loss to
Capital
P:1680
Q:1680
R:840
4200
To furniture 250
To Stock 1150
To Building 2000
To provision d/d 425
42004200
To Machinery 375

16. Partners Capital Account
Particulars P Q R Particulars P Q R
By Bal b/d 20000 12500 10000
By P& L 900 900 450
By Goodwill 1200 1200 600
To Reva los 1680 1680 840
To Cash 5525 - -
ToP’s Loan 14895 - -
To Bal c/d 12920 10210
22100 14600 1105022100 14600 11050

17. Balance sheet
Liabilities Rs Assets Rs
Cash 12825
Less amt paid to p 5525 7300
Bills Receviable 2700
Debtors 8900
Less Provision 425 8475
Stock 11150
Less depreciation 1150 10000
Furniture 1750
Less depreciation 250 1500
Machinery 4875
Less depreciation 375 4500
Building 12000
Less depreciation 2000 10000
Goodwill 3000
Capital
Q
R
12920
10210
P,s Loan 14895
Bills Payable 3200
Creditors 6250
4747547475

18. PAYMENT TO THE RETIRING PARTNER
 Payment in Instalments
a)For transfer of balance of retiring partners capital
Retiring partner capital account Dr
To Retiring partner loan account
b)For Interest on loan due
Interest account Dr
To Retiring partner loan account
c)For payment of installment
Retiring partner capital account Dr
To Bank

19.  Payment in Lump sum
If the payment ha sufficient cash, it can pay the amount to be
given to the retiring partner
Retiring partner capital account Dr
To Cash
 Payment by Annuity
If the payment is made to the retiring partner by annuity in some
years an Annuity suspense account is opened
 Existing partners may purchase out the retiring partners
share for which the payment may be made by the two
following cases
If payment is made privately
Retiring partner capital account Dr
To Existing partner capital account
If payment is made through firm
Cash/Bank Dr
To Existing partner capital account
Retiring partner capital account Dr
To Cash /Bank

20.  P,s Loan Account
Year Particulars Amt Year Particulars Amount
I By Balance b/d
(P’s Capital a/c
Transfer)
By Interest
(14895 X 5/100)
14895
745
15640
I year To Bank
(4965+745)
To Balance c/d
5710
9930
15640
Amount due to P(ie 14895 )can be paid in three
installments with 5% interest amount to be paid in
each instalment=14895/3=4965

21. II
year
To Bank (4965
+497)
To Balance c/d
5462
4965
10427
III
year
To Bank
(4965+ 248)
5213
5213
II
year
By Balance b/d
By Interest 9930
X5%
9930
497
10427
III
year
By Balance b/d
By Interest
4965 X5%
4965
248
5213

22.  4)P ,Q R were equal partners .R retried on 31.3.90.The B/S
of the firm on 31.12.89 stood as follows:
Liabilities Amount Asset Amount
Capital-P 50000 Goodwill 25000
Q 30000 Building 50000
R 30000 Investment(cost) 10000
Investment Fluctuation
fund
2000 Debtors 20000
Less provision 1000 19000
Contingency reserve 6000 Stock 12000
Creditors 22000 Cash in hand 2000
Cash@ bank 22000
140000 140000

23. On that date of retirement it was found that
a) Building be valued at Rs60000
b)Investment fluctuation fund be brought to Rs1100
c)Debtors being good; no reserve is required.
d)Stock be taken at Rs11000
e)Goodwill will be valued at 2 years purchase of the
average profit of the five years
f)R’s share of profit to the date of retirement be calculated
on the basis s of average profit of the preceding three
years. The profit for the preceding five years were as
under 1985-Rs12000;1986 Rs- 13500 ;1987- Rs 8000
;1988 –Rs10000 ;1989-Rs9000 Prepare necessary
accounts.

24. Working Notes
1)Calculation of Goodwill
Total Profit =12000+13500+8000+10000+9000=52500
Average=52500/5=10500
Goodwill =10500 X 2=21000
Reduction in value of goodwill (25000-21000)=4000
2)Calculation of share of profit of R till 31.3.90
Average profit for the past 3 years
8000+10000+9000 =Rs9000
3
R,s share (1/3) for 3 month:9000 x 3/12 x 1/3 =750

25.  Revaluation Account
Particulars Amount Particulars Amount
By Provision for d/d 1000
By Invst Flu fund 900
By Building 10000
To Profit
P10900 X1/3=3633
Q10900 X1/3=3633
R10900 X 1/3=3634 10900
To Stock 1000
11900 11900

26.  Partners Capital Account
Particulars P Q R Particulars P Q R
By Bal b/d 50000 30000 30000
By Reval Pr 3633 3633 3634
By Cont Res 2000 2000 2000To bal c/d 54300 34300
To R’s Loan 35050
To Goodwill 1333 1333 1334
By P& L Sus - - 750
55633 35633 3638455633 35633 36384

27. Liabilities Amount Assets Amount
Goodwill 21000
Buildings 60000
Capital A/c
P
Q
54300
34300
Investment 10000
Stock 11000
Debtors 20000
P& L suspense a/c 750
Cash in hand 2000
Cash @ Bank 22000
Investment Flu Fud 1100
R,s Loan 35050
Creditors 22000
146750 146750

28.  7.)The B/S of A B &C who were sharing profits in the ratio
4:3:2 stood as follows
Liabilities Amount Assets Amount
Capital- A 20000 Machinery 8500
B 15000 Building 25000
C 10000 Furniture 2660
Creditors 6900 Stock 8000
Sundry debtors 5000
Less provision 100 4900
Cash @ bank 2840
51900 51900

29. B retried on the above date and the following was agreed upon:
i) Land & building be appreciated by 20%
ii) Reserve for doubtful debts be brought up to 5% On Debtors
iii) Stock be depreciated by 6%
iv) A provision or Rs 770 is made of outstanding legal charges.
v) The goodwill of the entire firm is fixed at Rs10800 & B’s share of it
adjusted into the accounts of A&C who are going to share future
profits in the ratio 5:3
vi)That the entire capital of the firm as newly constituted be fixed at
Rs28000 between A &C in the ratio of 5:3 (actual cash to be brought
in or paid off as the case may be)
vii) That the assets & liabilities (Except cash) were to appear in the
B/S at their old figures
Prepare necessary ledger accounts & show the B/S after B’s
Retirement.

30.  Memorandum Revaluation a/c
Particulars Amount Particulars Amount
To Stock 480 By L&B 5000
To Provi for D/D 150
To O/S Legal Chgs 770
To Profit
A 1600
B 1200
C 800 3600
By O/S L Chrgs 770
By Stock 480
By Pro D/D 150
5000 5000
By Loss
A=3600 X 5/8=2250
B=3600 X3/8=1350
3600
By L&B 5000
5000 5000

31. Particulars A B C Particulars A B C
By Bal B/d 20000 15000 10000
By Rev Profi 1600 1200 800
By A & C
captl
- 3600 -
By Cash (B/f) 100 - 2700
To Memor R 2250 - 1350
To B,s
Capital(G/W)
1950 - 1650
To B,s Loan 19800
To Balance c/d 17500 - 10500
21700 19800 13500 21700 19800 13500

32.  Balance sheet
Liabilities Amount Assets Amount
Land &Building 25000
Plant & Machinery 8500
Furniture & Fitting 2600
Stock 8000
Sundry Debtor 5000
Less Prov 100 4900
Cash 2840
Add A,s Capital 100
C,s Capital 2700 5640
Capital accounts
A
B
17500
10500
B,s Loan 19800
Sundry Creditors 6900
54700 54700