X, Y and Z are partners in a firm sharing profits in the ratio of 3 : 1 : 2. On 31st March, 2018, their Balance Sheet was: Z retires from the business and the partners agree to the following: (a) Freehold Premises and Stock are to be appreciated by 20% and 15% respectively. (b) Machinery and Furniture are to be depreciated by 10% and 7% respectively. (c) Provision for Doubtful Debts is to be increased to ₹ 1,500. (d) Goodwill of the firm is valued at ₹ 21,000 on Z’s retirement. (e) The continuing partners have decided to adjust their capitals in their new profit-sharing ratio after retirement of Z. Surplus/deficit, if any, in their Capital Accounts will be adjusted through Current Accounts. Prepare necessary Ledger Accounts and draw the Balance Sheet of the reconstituted firm.

X, Y and Z are partners in a firm sharing profits in the ratio of 3 :

1.	X, Y and Z are partners in a firm sharing profits in the ratio of 3 : 1 : 2. On 31st March, 2018, their Balance Sheet was: Z retires from the business and the partners agree to the following: (a) Freehold Premises and Stock are to be appreciated by 20% and 15% respectively. (b) Machinery and Furniture are to be depreciated by 10% and 7% respectively. (c) Provision for Doubtful Debts is to be increased to ₹ 1,500. (d) Goodwill of the firm is valued at ₹ 21,000 on Z’s retirement. (e) The continuing partners have decided to adjust their capitals in their new profit-sharing ratio after retirement of Z. Surplus/deficit, if any, in their Capital Accounts will be adjusted through Current Accounts. Prepare necessary Ledger Accounts and draw the Balance Sheet of the reconstituted firm.
Answer» are of goodwill is to be distributed between X and Y in their gaining ratio (i.e. 3 : 1). EXPLANATION:Calculation of Profit Sharing Ratio Old Ratio (X, Y and Z) = 3 : 1 : 2 Z retires from the firm. ∴ New Ratio (X and Y) = 3 : 1 and Gaining Ratio = 3 : 1Adjustment of Goodwill Goodwill of the firm = Rs 21,000 Z’s Share of Goodwill = 21,000 × =Rs.7,000 This share of goodwill is to be distributed between X and Y in their gaining ratio (i.e. 3 : 1). X's Share =Rs.7,000× =Rs.5,250Y's Share =Rs.7,000×=Rs.1,750Adjustment of Partners’ CAPITAL after Z’s Retirement Combined Capital of X and Y after all ADJUSTMENTS = 34,230 + 21,410 = Rs. 55,640 New Ratio = 3 : 1 X's New Capital =55,650× =Rs.41,730Y's New Capital = 55,650× =Rs.13,910

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