Asha, Deepa and Lata are partners in a firm sharing profits in the ratio of 3 : 2 : 1. Deepa retires. After making all adjustments relating to revaluation, goodwill and accumulated profit etc., the capital accounts of Asha and Lata showed a credit balance of Rs. 1,60,000 and Rs. 80,000 respectively. It was decided to adjust the capitals of Asha and Lata in their new profit sharing ratio. You are required to calculate the new capitals of the partners and record necessary journal entries for bringing in or withdrawal of the necessary amounts involved.

Explanation

a. Calculation of new capitals of the existinging partners
Balance in Asha’s Capital (after all adjustments) = 1,60,000
Balance in Lata’s Capital = 80,000
Total Capital of the New Firm = 2,40,000
Based on the new profit sharing ratio of 3:1
Asha’s New Capital = Rs. 2,40,000 ` xx (3)/(4)` = 1,80,000

Lata's New Capital = Rs. 2,40,000 `xx(1)/(4)` = 60,000
Note :The total capital of the new firm is based on the sum of the balance in the capital accounts of the continuing partners.
b. Calculation of cash to be brought in or withdrawn by the continuing partners :
`" Asha Lata"`
`" (Rs.) (Rs.)"`
`"New Capital 1,80,000 60,000"`
`"Existing Capitals 1,60,000 80,0000"`
c. Cash to be brought in on (paid off) `" 20,000 20,000"`

3. When the amount payable to retiring partner will be contributed by continuing partners in such a way that their capitals are adjusted proportionate to their new profit sharing ratio: