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CMA Intermediate · Financial Accounting · Retirement of Partner

Kiran, Lalit and Manoj share profits 1/2, 3/10 and 1/5. Kiran retires. Capitals before adjustment: Kiran Rs 4,00,000, Lalit Rs 3,00,000, Manoj Rs 2,00,000. Goodwill of the firm is valued at Rs 3,00,000, not appearing in the books. Lalit and Manoj will share future profits 3:2 (the old ratio), so no gain adjustment beyond their old ratio. Kiran is paid Rs 2,00,000 in cash immediately, and the balance is transferred to a loan account. Assets are revalued with a net gain of Rs 50,000. What is the amount of Kiran's loan account?

Kiran's loan account is Rs 3,75,000: capital 4,00,000 plus revaluation gain 25,000 plus goodwill 1,50,000 less cash paid 2,00,000.

  1. ARs 3,50,000Correct
  2. BRs 2,50,000
  3. CRs 4,00,000
  4. DRs 2,00,000

Explanation

Kiran's revaluation gain = 50,000 x 1/2 = 25,000. Goodwill share = 3,00,000 x 1/2 = 1,50,000, credited to Kiran and borne by Lalit and Manoj. Total due = 4,00,000 + 25,000 + 1,50,000 = 5,75,000. Less cash 2,00,000 = 3,75,000. None of the options match this exactly; the amount is Rs 3,75,000.

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