Comprehension Passage
R, S, and M were carrying on business in partnership sharing profits in the ratio 3:2:1, respectively. On March 31, 2017, the Balance Sheet of the firm stood as follows:
Balance Sheet as on March 31, 2017
| Liabilities | Amount (Rs.) |
|---|---|
| Sundry Creditors | 16,000 |
| Capitals: | |
| R | 20,000 |
| S | 7,500 |
| M | 12,500 |
| Total | 56,000 |
| Assets | Amount (Rs.) |
|---|---|
| Building | 23,000 |
| Debtors | 7,000 |
| Stock | 12,000 |
| Patents | 8,000 |
| Bank | 6,000 |
| Total | 56,000 |
Shyam retired on the above mentioned date on the following terms:
(a) Buildings to be appreciated by Rs. 8,800.
(b) Provision for doubtful debts to be made @ 5% on debtors.
(c) Goodwill of the firm to be valued at Rs. 9,000.
(d) Rs. 5,000 to be paid to S immediately and the balance due to him to be treated as a loan carrying interest @ 6% per annum.
A 5% provision for doubtful debts on debtors is made, indicating which of the following outcomes for the final balance sheet?
1
The total value of debtors is reduced by 5%
2
A separate liability account is created for doubtful debts
3
The provision is added to the creditors’ account
4
The final balance sheet will reflect no change in the total value of assets