A, B and C were in partnership sharing profits and losses in the ratio 3 : 2

Question:

A, B and C were in partnership sharing profits and losses in the ratio 3 : 2 : 1 respectively. The summarized Balance Sheet of the firm as on 31.3.2018 stood as follows :

A retired on March 31, 2018 to commence business individually, and B and C continued in partnership sharing profits and losses equally. It was agreed that A should take over certain plant and machinery valued at ₹7,500 and one of the firm’s cars at the book value of ₹5,000. It was further agreed that for the purpose of both of the dissolution and continuation of partnership, the following adjustments should be made in the Balance Sheet as on March 31, 2018 :

1. Freehold Land and Buildings should be revalued at ₹1,00,000 and Plant and Machinery (inclusive of that taken by A) at ₹25,000.

2. The provision for doubtful debts should be increased by ₹1,500.

3. A provision of ₹2,500 included in creditors for a possible claim for damages was no longer required.

4. The stock should be reduced by ₹4,000 in respect of obsolete and damaged items. In accordance with the terms of the partnership deed, the total value of goodwill on March 31,2018 was agreed at ₹1,80,000. In view of the fact that A intended to retain some of the customers of the firm, it was agreed that the value of the proportion of goodwill to be purchased by him was ₹60,000. The continuing partners B and C decided that goodwill should not appear in the books of the new partnership as an asset and the necessary adjustments should be made through the Capital Accounts of the partners. Pending the introduction of further capital in cash by the continuing partners, the amount due to A was agreed to be transferred to Loan Account. You are required to prepare the Revaluation Account, the Partners’ Capital Accounts and the Balance Sheet of the new firm.

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