Partners M, N and O share profits in the ratio . The firm’s net assets before retirement are Rs. and goodwill is Rs. . Partner N retires. The remaining partners M and O agree to write off goodwill in their sacrificing ratio . During retirement the assets are revalued as follows: machinery increases by Rs. , building increases by Rs. and stock decreases by Rs. . Calculate the total amount that should be paid to retiring partner N, including his share of goodwill and his share of the net revaluation surplus.
Answer
Rs. 45,300
The correct answer is Rs. 45,300 — Total amount payable to N = goodwill share + revaluation share .
Step-by-step solution
- Total profit‑sharing parts = . N’s profit share = .
- N’s share of goodwill = .
- Net revaluation surplus = .
- N’s share of the surplus (using his original profit share) = .
- Total amount payable to N = goodwill share + revaluation share .
Common mistake: Assuming the retiring partner does not receive any part of the revaluation surplus.
Concept tested: Retirement – goodwill and revaluation allocation
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