B is paid in full with the cash brought in by A and C in such a manner that their capitals are in proportion to their profit sharing ratio and Cash in Hand remains at rupees 10,000.
what does it mean???

On the retirement of a partner, sometimes, the remaining partners may decide to maintain the minimum cash or bank balance after making payment to the retiring partner.

In the given question, B is retiring from the firm and the remaining partners i.e. A and C decided to adjust their capital in their new profit sharing ratio after leaving cash balance of Rs 10,000. This implies that A and C are required to bring the sufficient amount so that after paying B, the firm is left with the desired amount i.e. with Rs 10,000.


In this case, capital of the new firm (i.e. after retirement) is calculated after considering the minimum cash/bank balance. In this situation, the total of the capital balances of the remaining partners plus the extra amount required to discharge the payment due to the retiring partner plus desired cash balance minus existing cash balance is taken as the total new capital of the newly reconstituted firm.

Total Capital of New Firm = Total Capital of Remaining Partners + Amount Payable to Retiring Partner + Desired Cash Balance – Existing Cash Balance


In addition to this, you can go through this topic in detail, in Lesson 7 of Chapter 3 (Book 1) under Case 4 in our study material.

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