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Debashish, Jaspal, Sudhir and Vinay were partners in a firm sharing profits and losses in the ratio of 4 : 3 : 2 : 1. Balance Sheet of the firm as at 31st March, 2022 is given below:

Liabilities Assets

Debashish’s Capital

Jaspal’s Capital

Sudhir’s Capital

Vinay’s Capital

General Reserve

Sundry Creditors

8,00,000

6,00,000

4,00,000

2,00,000

50,000

25,000

Building

Machinery

Furniture

Stock

Sundry Debtors

Cash at Bank

Fixed Deposit with Bank

13,40,000

4,50,000

1,20,000

35,000

36,000

14,000

80,000

  20,75,000   20,75,000

On 31st December, 2022, Debashish retired from the firm. Partnership Deed of the firm had the following provisions regarding retirement of a partner:

(i) Retiring partner will be entitled to his share of profit in proportion to the number of months he served as a partner in the year of his retirement. Profit of the year immediately preceding the year of his retirement will be taken as the basis for calculating his share of profit.

(ii) Retiring partner will be entitled to a share of goodwill on the basis of two year’s purchase of the average profit of three years preceding the year of his retirement.

(iii) Retiring partner’s share of goodwill is to be adjusted to the Capital Accounts of the Continuing Partners.

(iv) The profits of last three years are given below:

Year Profit (₹)
2019 – 20 70,000
2020 – 21 83,000
2021 – 22 72,000

Jaspal, Sudhir and Vinay decided to share future profits and losses equally and to maintain a fixed capital of ₹ 4,00,000 each, making necessary addition or withdrawal of cash immediately without affecting the bank overdraft balance. Total amount due to Debashish will remain in the business of the firm as loan, earning 10% interest per annum.

Show Journal entries and the Capital Accounts of the Partners on the basis of the above-mentioned conditions, which were duly complied with.

Anurag Pathak Changed status to publish March 3, 2024
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