Ts grewal practical problems of Retirement of A Partner (2023-2024)

 Retirement of A Partner Ts grewal solution volume-1(2023-2024):part-2

Question 31:

X, Y and Z were partners in a firm sharing profits in the ratio of 2 : 2 : 1. Their Balance Sheet as at 31st March, 2022 was:

Liabilities		( `)	Assets	( `)
Creditors		49,000	Cash	8,000
Reserve		18,500	Debtors	19,000
Capital A/cs:   X	82,000		Stock	42,000
Y	60,000		Building	2,07,000
Z	75,500	2,17,500	Patents	9,000
		2,85,000		2,85,000

Y retired on 1st April, 2022 on the following terms:
(a) Goodwill of the firm was valued at  ` 70,000 and was not to appear in the books.
(b) Bad Debts amounted to  ` 2,000 were to be written off.
(c) Patents were considered as valueless.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of X and Z after Y's retirement.

 

Answer:

Revaluation Account
Dr.						Cr.
Particulars		( `)	Particulars		( `)
Bad Debts		2,000	Loss transferred to:
Patents		9,000	X’s Capital A/c	4,400
			Y’s Capital A/c	4,400
			Z’s Capital A/c	2,200	11,000
		11,000			11,000

 

Partners’ Capital Accounts
Dr.								Cr.
Particulars		X	Y	Z	Particulars	X	Y	Z
Revaluation A/c (Loss)		4,400	4,400	2,200	Balance b/d	82,000	60,000	75,500
Y’s Capital A/c (Goodwill)		18,667	–	9,333	Reserve (Old Ratio)	7,400	7,400	3,700
Y’s Loan A/c		–	91,000	–	X’s Capital A/c  (Goodwill)	–	18,667	–
Balance c/d		66,333	–	67,667	Z’s Capital A/c (Goodwill)	–	9,333	–
		89,400	95,400	79,200		89,400	95,400	79,200

 

Balance Sheet as on March 31, 2022 (after Y’s Retirement)
Liabilities		( `)	Assets	( `)
Creditors		49,000	Cash	8,000
Y’s Loan		91,000	Debtors (19000-2000)	17,000
Capital A/cs:			Stock	42,000
X	66,333		Building	2,07,000
Z	67,667	1,34,000
		2,74,000		2,74,000

 

Working Notes:

WN 1 Calculation of Gaining Ratio

Old Ratio (X, Y and Z) = 2 : 2 : 1

Y retires from the firm.

∴Gaining Ratio = 2 : 1

 

WN 2 Adjustment of Goodwill

Goodwill of the firm = ` 70,000

Y’s Share of Goodwill = 70,000×2/5=28,000

This share of goodwill is to be distributed between X and Z in their gaining ratio (i.e. 2 : 1).

X‘s share= 28,000×2/3=18,667

Z‘s share= 28,000×1/3=9,333

	Journal
Date	Particulars		L.F.	Debit  ( `)	Credit  ( `)
2022 April 1	X’s Capital A/c	Dr.		18,667
	Z’s Capital A/c	Dr.		9,333
	To Y’s Capital A/c				28,000
	(Adjustment of goodwill made on Y’s retirement)

 

Question 32:

Kanika, Disha and Kabir were partners sharing profits in the ratio of 2 : 1 : 1. On 31st March, 2016, their Balance Sheet was as under:

Liabilities		( `)	Assets	( `)
Trade creditors		53,000	Bank	60,000
Employees' Provident Fund		47,000	Debtors	60,000
Kanika's Capital		2,00,000	Stock	1,00,000
Disha's Capital		1,00,000	Fixed assets	2,40,000
Kabir's Capital		80,000	Profit and Loss A/c	20,000
		4,80,000		4,80,000

Kanika retired on 1st April, 2016. For this purpose, the following adjustments were agreed upon:
(a) Goodwill of the firm was valued at 2 years' purchase of average profits of three completed years preceding the date of retirement. The profits for the year:
      2013-14 were  ` 1,00,000 and for 2014-15 were  ` 1,30,000.
(b) Fixed Assets were to be increased to  ` 3,00,000.
(c) Stock was to be valued at 120%.
(d) The amount payable to Kanika was transferred to her Loan Account.
Prepare Revaluation Account, Capital Accounts of the partners and the Balance Sheet of the reconstituted firm.  

(AI 2017 C)

 

Answer:

Revaluation Account
Dr.	Cr.
Particulars			`	Particulars	`
Revaluation Profit				Fixed Assets	60,000
Kanika’s Capital		40,000		Stock	20,000
Disha’s Capital		20,000
Kabir’s Capital		20,000	80,000
			80,000		80,000

 

Partners’ Capital Account
Dr.					Cr.
Particulars	Kanika	Disha	Kabir	Particulars		Kanika	Disha	Kabir
Profit & Loss A/c	10,000	5,000	5,000	Balance b/d		2,00,000	1,00,000	80,000
Kanika’s Capital A/c		35,000	35,000	Disha’s Capital A/c		35,000
Kanika’s Loan A/c	3,00,000			Kabir’s Capital A/c		35,000
Balance c/d		80,000	60,000	Revaluation		40,000	20,000	20,000
	3,10,000	1,20,000	1,00,000			3,10,000	1,20,000	1,00,000

 

Balance Sheet as on March 31, 2016
Liabilities		( `)	Assets	( `)
Employees’ Provident Fund		47,000	Bank	60,000
Trade Creditors		53,000	Sundry Debtors	60,000
Kanika’s Loan A/c		3,00,000	Stock	1,20,000
Capitals			Fixed Assets	3,00,000
Disha	80,000
Kabir	60,000	1,40,000
		5,40,000		5,40,000

Working Notes:
WN1: Calculation of Goodwill

Goodwill=Average Profits×Number of Years' Purchase

Average Profits=Total ProfitsNumber of Years=1,00,000+1,30,000−20,000/3=2,10,000/3=` 70,000

Goodwill=70,000×2=` 1,40,000

Kanika's share=1,40,000×2/4=70,000 (to be borne by gaining partners in gaining ratio)

Note: Since no information is given about the share of gain, it is assumed that the old partners are gaining in their old profit sharing ratio.

 

Question 33:

N, S and G were partners in a firm sharing profits and losses in the ratio of 2 : 3 : 5. On 31st March, 2016 their Balance Sheet was as under:

Liabilities		( `)	Assets		( `)
Creditors		1,65,000	Cash		1,20,000
General Reserve		90,000	Debtors	1,35,000
Capitals:			Less: Provision	15,000	1,20,000
N	2,25,000		Stock		1,50,000
S	3,75,000		Machinery		4,50,000
G	4,50,000	10,50,000	Patents		90,000
			Building		3,00,000
			Profit and Loss Account		75,000
		13,05,000			13,05,000

G retired on the above date and it was agreed that:
(a) Debtors of  ` 6,000 will be written off as bad debts and a provision of 5% on debtors for bad and doubtful debts will be maintained.
(b) Patents will be completely written off and stock, machinery and building will be depreciated by 5%.
(c) An unrecorded creditor of  ` 30,000 will be taken into account.
(d) N and S will share the future profits in 2 : 3 ratio.
(e) Goodwill of the firm on G's retirement was valued at  ` 90,000.
Pass necessary Journal entries for the above transactions in the books of the firm on G's retirement. (Foreign 2017)

Answer:

Journal
Date	Particulars		L.F.	Debit  ( `)	Credit  ( `)
	General Reserve A/c	Dr.		90,000
	To N’s Capital A/c				18,000
	To S’s Capital A/c				27,000
	To G’s Capital A/c				45,000
	(Balance in reserve distributed among all partners in old ratio)
	N’s Capital A/c	Dr.		15,000
	S’s Capital A/c	Dr.		22,500
	G’s Capital A/c	Dr.		37,500
	To Profit & Loss A/c				75,000
	(Debit balance P&L A/c written off among all partners in old ratio)
	N’s Capital A/c	Dr.		18,000
	S’s Capital A/c	Dr.		27,000
	To G’s Capital A/c				45,000
	(Goodwill adjusted in gaining ratio)
	Revaluation A/c	Dr.		1,65,000
	To Patent A/c				90,000
	To Stock A/c				7,500
	To Machinery  A/c				22,500
	To Building A/c				15,000
	To Creditors A/c				30,000
	(Decrease in assets and increase in liabilities debited to Revaluation A/c)
	Provision for Doubtful Debts A/c	Dr.		2,550
	To Revaluation A/c				2,550
	(Excess provision written back)
	N’s Capital A/c	Dr.		32,490
	S’s Capital A/c	Dr.		48,735
	G’s Capital A/c	Dr.		81,225
	To Revaluation A/c				1,62,450
	(Loss on revaluation debited to partners’ capital accounts in old ratio)
	G’s Capital A/c	Dr.		4,21,275
	To G’s Loan A/c				4,21,275
	(Amount due to G transferred to his loan A/c)

Working Notes:

WN1: Calculation of G’s Share of Goodwill

G's share=Firm's Goodwill×G's Profit Share

G's share=90,000×5/10=45,000 (to be borne by gaining partners in gaining ratio)

WN2: Calculation of Gaining Ratio
Gaining Ratio = New Ratio − Old Ratio
N's gain=2/5−2/10=2/10

S's gain=3/5−3/10=3/10Gaining Ratio=2:3

N's share=45,000×2/5=18,000

S's share=45,000×3/5=27,000

WN2: Calculation of Excess/Deficit Provision for Doubtful Debts

Required Provision @5%=1,35,000−6,000×5100=6,450

Existing Provision after writing bad-debts= 9,000

Excess Provision to be written back=2,550 9,000−6,450

WN3: Calculation of G’s Loan Balance
Amount due to G = Opening Capital + Credits – Debits

= 4,50,000 + (45,000 + 45,000) – (37,500 + 81,225)
= ` 4,21,275

 

Question 34: Ashok, Bhaskar and Chaman are partners in a firm, sharing profits and losses as Ashok 1/3, Bhaskar 1/2, and Chaman 1/6 respectively. The Balance Sheet of the firm as at 31st March, 2022 was

Liabilities		`	Assets		`
Capital A/cs:			Building		5,00,000
Ashok	3,00,000		Plant and Machinery		4,00,000
Bhaskar	4,00,000		Furniture		1,00,000
Chaman	2,50,000	9,50,000	Stock		2,50,000
General Reserve		2,20,000	Debtors	1,80,000
Sundry Creditors		2,50,000	Less: Provision for Doubtful Debts	5,000	1,75,000
Loan Payable		1,50,000	Cash in Hand		85,000
			Advertisement Suspense Account		60,000
		15,70,000			15,70,000

Chaman retired on 1st April, 2022 subject to the following adjustments:

(a) Goodwill of the firm be valued at `2,40,000. Chaman's share of goodwill be adjusted into the Capital Accounts of Ashok and Bhaskar who will share future profits in the ratio of 3:2.

(6) Plant and Machinery to be reduced by 10% and Furniture by 5%.

(c) Stock to be increased by 15% and Building by 10%.

(d) Provision for Doubtful Debts to be raised to `20,000.

Prepare Revaluation Account, Capital Account of Chaman and the Balance Sheet of the firm after Chaman's retirement.

 

Answer:

Profit and loss adjustment a/c
Dr.			Cr.
Particulars	`	Particulars	`
To  Plan and machinery To Furniture To Prov. for doubtful debts To capital a/c (profit transferred to) Ashok =27,500×2/6= 9,167 Bhaskar=27,500×3/6=13,750 Chaman =27,500×1/6=4,583	40,000 5,000 15,000         27,500	By stock By factory building	37,500 50,000
	87,500		87,500

1

Partners’ Capital Account
Dr.					Cr.
Particulars	Ashok	Bhaskar	Chaman	Particulars		Ashok	Bhaskar	Chaman
B’s Capital A/c	24,000			Balance b/d		3,00,000	4,00,000	2,50,000
C’s Capital A/c	40,000			A’s Capital A/c			24,000	40,000
Advertisement sus. a/c C’s loan a/c	20,000	30,000	10,000   3,21,250	Profit and loss adjustment a/c General reserve a/c		9,167   73,333	13,750   1,10,000	4,583   36,667
Balance c/d	2,98,500	5,17,750
	3,82,500	5,47,750	3,31,250			3,82,500	5,47,750	3,31,250

 

	Balance Sheet
	as on April 01, 2022 (after C’s Retirement)
	Liabilities			Amount ( `)	Assets				Amount ( `)
	Sundry Creditors			2,50,000	Factory building				5,50,000
	Loan Payable			1,50,000	Plant and machinery				3,60,000
	C’s Loan			3,21,250	Furniture				95,000
					Stock				2,87,500
	Capital A/c				Debtors     1,80,000
	Ashok		2,98,500		Less; prov.           20,000				1,60,000
	Bhaskar		5,17,750	3,54,000	Cash				85,000
				15,37,500					15,37,500
Journal
Date		Particulars					L.F.	Debit  ( `)		Credit  ( `)
		Ashok’s Capital A/c				Dr.		64,000
		To Bhaskar’s Capital A/c								24,000
		To Chaman’s Capital A/c								40,000
		(Being goodwill adjusted for compensating bhaskar, Chaman)
		Profit and loss adjustment a/c				Dr.		60,000
		To Plant and machinery A/c								40,000
		To  Furniture A/c								5,000
		To Prov. for doubtful debts  A/c								15,000
		(Decrease in assets and increase in liabilities debited to Revaluation A/c)
		N’s Capital A/c				Dr.		18,000
		S’s Capital A/c				Dr.		27,000
		To G’s Capital A/c								45,000
		(Goodwill adjusted in gaining ratio)
		Stock A/c				Dr.		37,500
		Factory building  A/c				Dr.		50,000
		To P&L adjustment  A/c								87,500
		(Decrease in assets debited to Revaluation A/c)

 

Working notes;

Old ratio of Ashok : Bhaskar : chaman=1/3:1/2:1/6

=1/3×2/2:1/2×3/3=1/6

=2/6:3/6:1/6

=2:3:1

New ratio of Ashok and Bhaskar= 3:2

Gaining ratio= New ratio – old ratio

Ashok = 3/5-2/6=18-10/30=8/30

Bhaskar= 2/5-3/6=12-15/30= -3/30

Goodwill of firm= 2,40,000

Bhaskar will get =2,40,000×3/30=24,000

Chaman’s share of goodwill = 2,40,000×1/6=40,000

Ashok will give Bhaskar and  chaman 24,000, 40,000 respectively.

 

Question 35: Chintan, Ayush and Sudha were partners in a firm sharing profits and losses in the ratio of 5: 3:2. On 31st March, 2019, their Balance Sheet was as follows:

BALANCE SHEET OF CHINTAN, AYUSH AND SUDHA as at 31st March, 2019
Liabilities		`	Assets		`
Capitals:			Plant and Machinery		90,000
Chintan	90,000		Furniture		60,000
Ayush	60,000		Stock		30,000
Sudha	40,000	1,90,000	Debtors	60,000
Provident Fund		30,000	Less: Provision for Doubtful Debts	5,000	55,000
General Reserve		20,000	Cash at Bank		15,000
Creditors		10,000
		2,50,000			2,50,000

Chintan retired on the above date and it was agreed that:

(a) Debtors of `5,000 were to be written off as bad debts and a provision of 5% on debtors for bad and doubtful debts was to be created.

(b) Goodwill of the firm on Chintan's retirement was valued at `1,00,000 and Chintan's share of the same will be adjusted by debiting the Capital Accounts of Ayush and Sudha.

(c) Stock was revalued at `36,000.

(d) Furniture was undervalued by `9,000.

(e) Liability for Workmen's Compensation of `2,000 was to be created.

(f) Chintan was to be paid `20,000 by cheque and the balance was to be transferred to his loan account.

Pass the necessary Journal entries in the books of the firm on Chintan's retirement.

(CBSE 2020)

Answer:

Date	Particulars		L.F.	Dr. (`)	Cr. (`)
	Stock A/c Furniture A/c Provision A/c   To Revolution  A/c (Being Decrease in the Value of Liabilities and increase in the value of Assets)	Dr. Dr. Dr.		6,000 9,000 2,250	17,250
	Revaluation A/c   To Bad debts A/c   To Liabilities for Worker compensation A/c (Being Decrease in the Value of Assets and increase in the value of Liabilities)	Dr.		7,000	5,000 2,000
	Revaluation A/c   To Chintan’s Capital A/c   To Ayush’s Capital A/c   To Sudha’s Capital A/c (being gain of revaluation Account transferred to Capital accounts)	Dr.		10,250	5,125 3,075 2,050
	General Reserve A/c   To Chintan’s Capital A/c   To Ayush’s Capital A/c   To Sudha’s Capital A/c (being gain of General Reserves transferred to Capital accounts)	Dr.		20,000	10,000 6,000 4,000
	Ayush’s Capital A/c Sudha’s Capital A/c   To Chintan’s Capital A/c (Being Retiring Partner compensated)	Dr. Dr.		30,000 20,000	50,000
	Chintan’s Capital A/c   To Bank A/c (Being Chintan was paid `20,000 through cheque)	Dr.		20,000	20,000
	Chintan’s Capital A/c   To  Chintan’s  Loan A/c (Being balance of Capital transferred to His loan Account)	Dr.		1,35,125	1,35,125

Question 36:

Pankaj, Naresh and Saurabh are partners sharing profits in the ratio of 3 : 2 : 1. On 1st April, 2022, Naresh retired on that date, Balance Sheet of the firm was as follows:
 

Liabilities		( `)	Assets		( `)
General Reserve		12,000	Bank		7,600
Sundry Creditors		15,000	Debtors	6,000
Bills Payable		12,000	Less: Provision for Doubtful Debts	400	5,600
Outstanding Salary		2,200	Stock		9,000
Provision for Legal Damages		6,000	Furniture		41,000
Capital A/cs:			Premises		80,000
Pankaj	46,000
Naresh	30,000
Saurabh	20,000	96,000
		1,43,200			1,43,200

Additional Information:
(a) Premises have appreciated by 20%, stock depreciated by 10% and provision for doubtful debts was to be made 5% on debtors. Further, provision for legal damages is to be made for  ` 1,200 and furniture to be brought up to  ` 45,000.
(b) Goodwill of the firm be valued at  ` 42,000.
(c)  ` 26,000 from Naresh's Capital Account be transferred to his Loan Account and balance be paid through bank: if required, necessary loan may be obtained from bank.
(d) New profit-sharing ratio of Pankaj and Saurabh is decided to be 5 : 1.
Give the necessary Ledger Accounts and Balance Sheet of the firm after Naresh's retirement. (NCERT Modified)

 

Answer:

Revaluation Account
Dr.	Cr.
Particulars			( `)	Particulars	( `)
Stock			900	Premises	16,000
Provision for Legal Damages			1,200	Provision for Doubtful Debts	100
Revaluation Profit				Furniture	4,000
Pankaj’s Capital A/c		9,000
Naresh’s Capital A/c		6,000
Saurabh’s Capital A/c		3,000	18,000
			20,100		20,100

 

Partners’ Capital Accounts
Dr.					Cr.
Particulars	Pankaj	Naresh	Saurabh	Particulars		Pankaj	Naresh	Saurabh
Naresh’s Capital A/c	14,000	-	-	Balance b/d		46,000	30,000	20,000
Naresh’s Loan A/c	-	26,000	-	General Reserve		6,000	4,000	2,000
Bank	-	28,000	-	Revaluation (Profit)		9,000	6,000	3,000
Balance c/d	47,000	-	25,000	Pankaj’s Capital A/c		-	14,000	-
	61,000	54,000	25,000			61,000	54,000	25,000

 

Bank Account
Dr.				Cr.
Particulars	( `)	Particulars	( `)
Balance b/d	7,600	Naresh’s Capital A/c	28,000
Bank Loan (Balancing Figure)	20,400
	28,000		28,000

 

Balance Sheet as on March 31, 2022
Liabilities		( `)	Assets		( `)
Sundry Creditors		15,000	Debtors	6,000
Bills Payable		12,000	Less: Provision for Doubtful Debts	300	5,700
Bank Loan		20,400	Stock		8,100
Outstanding Salaries		2,200	Furniture		45,000
Provision for Legal Damages		7,200	Premises		96,000
Naresh’s Loan		26,000
Capitals:
Pankaj	47,000
Saurabh	25,000	72,000
		1,54,800			1,54,800

 

         
                                             

Question 37:

A, B and C are partners sharing profits and losses in the ratio of 4 : 3 : 3. Their Balance Sheet as at 31st March, 2022 is:

Liabilities		( `)	Assets		( `)
Creditors		7,000	Land and Building		36,000
Bills Payable		3,000	Plant and Machinery		28,000
Reserves		20,000	Computer Printer		8,000
Capital A/cs:			Stock		20,000
A	32,000		Sundry Debtors	14,000
B	24,000		Less: Provision for Doubtful Debts	2,000	12,000
C	20,000	76,000	Bank		2,000
		1,06,000			1,06,000

On 1st April, 2022, B retired from the firm on the following terms:
(a) Goodwill of the firm is to be valued at  ` 14,000.
(b) Stock, Land and Building are to be appreciated by 10%.
(c) Plant and Machinery and Computer Printer are to be reduced by 10%.
(d) Sundry Debtors are considered to be good.
(e) There is a liability of  ` 2,000 for the payment of outstanding salary to the employees of the firm. This liability was not provided in the Balance Sheet but the same is to be recorded now.
(f) Amount payable to B is to be transferred to his Loan Account.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of A and C after B's retirement.

 

Answer:

Revaluation Account
Dr.					Cr.
Particulars			( `)	Particulars	( `)
Plant and Machinery (28,000 × 10%)			2,800	Stock (20,000 × 10%)	2,000
Electronic Typewriter (8,000 × 10%)			800	Land and Building (36,000 × 10%)	3,600
Outstanding Salary			2,000	Provision for Doubtful Debts	2,000
Profit transferred to:
A’s Capital A/c		800
B’s Capital A/c		600
C’s Capital A/c		600	2,000
			7,600		7,600

 

Partners’ Capital Accounts
Dr.							Cr.
Particulars	A	B	C	Particulars	A	B	C
B’s Capital A/c	2,400		1,800	Balance b/d	32,000	24,000	20,000
B’s Loan A/c		34,800		Reserves	8,000	6,000	6,000
Balance c/d	38,400		24,800	Revaluation A/c	800	600	600
				A’s Capital A/c		2,400
				C’s Capital A/c		1,800
	40,800	34,800	26,600		40,800	34,800	26,600

 

Balance Sheet
an on April 01, 2022 (after B’s Retirement)
Liabilities	( `)	Assets	( `)
Creditors	7,000	Land and Building (36,000 + 3,600)	39,600
Bills Payable	3,000	Plant and Machinery (28,000 – 2,800)	25,200
B’s Loan	34,800	Electronic Typewriter 8000 – 800)	7,200
Capital A/c:		Stock (20,000 + 2,000)	22,000
A	38,400	Sundry Debtors	14,000
C	24,800	Bank	2000
Outstanding Salary	2,000
	1,10,000		1,10,000

 

Working Note:

Adjustment of Goodwill
Old Ratio (A, B and C) = 4 : 3 : 3
B retires from the firm.
∴ Gaining Ratio = 4 : 3

Goodwill of the firm = ` 14,000
B’s Share of Goodwill = 14,000×3/10=42,000

 

This share of goodwill is to be distributed between A and C in their gaining ratio (i.e. 4 : 3).
A‘s share= 4,200×4/7=2,400

C‘s share= 4,200×3/7=1,800

 

Question 38:

X, Y and Z are partners sharing profits and losses in the ratio of 3 : 2 : 1. Balance Sheet of the firm as at 31st March, 2022 was as follows:

Liabilities		( `)	Assets		( `)
Creditors		21,000	Cash at Bank		5,750
Workmen Compensation Reserve		12,000	Debtors	40,000
Investments Fluctuation Reserve		6,000	Less: Provision for Doubtful Debts	2,000	38,000
Capital A/cs:			Stock		30,000
X	68,000		Investment (Market Value  ` 17,600)		15,000
Y	32,000		Patents		10,000
Z	21,000	1,21,000	Machinery		50,000
			Goodwill		6,000
			Advertisement Expenditure		5,250
		1,60,000			1,60,000

Z retired on 1st April, 2022 on the following terms:
(a) Goodwill of the firm is to be valued at  ` 34,800.
(b) Value of Patents is to be reduced by 20% and that of machinery to 90%.
(c) Provision for doubtful debts is to be created @ 6% on debtors.
(d) Z took over the investment at market value.
(e) Liability for Workmen Compensation to the extent of  ` 750 is to be created.
(f) A liability of  ` 4,000 included in creditors is not to be paid.
(g) Amount due to Z to be paid as follows:  ` 5,067 immediately, 50% of the balance within one year and the balance by a draft for 3 Months.
Give necessary Journal entries for the treatment of goodwill, prepare Revaluation Account, Capital Accounts and the Balance Sheet of the new firm.

 

Answer:

Journal
Date	Particulars		L.F.	Debit  ( `)	Credit  ( `)
2022
April 01	X’s Capital A/c	Dr.		3,000
	Y’s Capital A/c	Dr.		2,000
	Z’s Capital A/c	Dr.		1,000
	To Goodwill A/c				6,000
	(Existing goodwill written off)
April 01	X’s Capital A/c	Dr.		3,480
	Y’s Capital A/c	Dr.		2,320
	To Z’s Capital A/c				5,800
	(Z’s share of goodwill credited to him and gaining partners debited in gaining ratio)

 

 

Revaluation Account
Dr.						Cr.
Particulars		Amount ( `)	Particulars		Amount ( `)
Patents		2,000	Investments (17,600 – 15,000)		2,600
Machinery		5,000	Creditors		4,000
Prov. for Doubtful Debts		400	Loss on Revaluation transferred
			X’s Capital A/c	400
			Y’s Capital A/c	267
			Z’s Capital A/c	133	800
		7,400			7,400

  

Partners’ Capital Accounts
Dr.									Cr.
Particulars		X	Y	Z	Particulars	X	Y	Z
Goodwill A/c		3,000	2,000	1,000	Balance b/d	68,000	32,000	21,000
Revaluation A/c		400	267	133	X’s Capital A/c	-	-	3,480
Z’s Capital A/c		3,480	2,320	-	Y’s Capital A/c	-	-	2,320
Advertisement Expenditure A/c		2,625	1,750	875	Workmen Compensation Reserve A/c*	5,625	3,750	1,875
Investments A/c		-	-	17,600	Investment Fluctuation Reserve A/c*	3,000	2,000	1,000
Bank A/c		-	-	5,067
Z’s Loan A/c		-	-	2,500
Bills Payable A/c		-	-	2,500
Balance c/d		67,120	31,413	-
		76,625	37,750	29,625		76,625	37,750	29,625

 

 

Balance Sheet as on April 01, 2022 after Z’s retirement
Liabilities		Amount ( `)	Assets		Amount ( `)
Creditors		17,000	Cash at Bank (5,750 – 5,067)		683
Workmen Compensation Claim		750	Stock		30,000
Bills Payable		2,500	Patents		8,000
Capital A/c’s:			Debtors A/c	40,000
X	67,120		Less: Prov. for D/D	2,400	37,600
Y	31,413	98,533	Machinery		45,000
Z’s Loan		2,500
		1,21,283			1,21,283

Working Note:

Amount due to Z = (21,000+3,480+2,320+1,875+1,000) - (1,000+133+875+17,600) =10,067

Amout paid on Retirement immediately: ` 5,067

Amount paid within one year: 50% of 5,000 = ` 2,500

Amount payable by Bills of Exchange: ` 2,500 (balance 50%)

 

Question 39:

Ashok, Bhaskar and Chaman were in partnership sharing profits and losses equally. ‘Chaman' retires from the firm. After adjustments, his Capital Account shows a credit balance of  ` 3,00,000 as on 1st April, 2019. Balance due to 'Chaman' is to be paid in three equal annual instalments along with interest @ 10% p.a. Prepare Chaman's Loan Account until he is paid the amount due to him. The firm closes its books on 31st March every year.

 

Answer:

Dr.	Chaman’s Loan A/c						Cr.
Date		Particulars	( `)	Date	Particulars	( `)
2020				2019
March 31		To Bank A/c (1,00,000 + 30,000)	1,30,000	April 01	By Chaman’s Capital A/c	3,00,000
March 31		To balance c/d	2,00,000	2020
				March 31	By Interest on Loan A/c	30,000
					(3,00,000 × 10/100)
			3,30,000			3,30,000
2021				2020
March 31		To Bank A/c (1,00,000 + 20,000)	1,20,000	April 01	By balance b/d	2,00,000
March 31		To balance c/d	1,00,000	2021
				March 31	By Interest on Loan A/c	20,000
					(2,00,000 × 10/100)
			2,20,000			2,20,000
2022				2021
March 31		To Bank A/c (1,00,000 + 10,000)	1,10,000	April 01	By balance b/d	1,00,000
				2022
				March 31	By Interest on Loan A/c	10,000
					(1,00,000 × 10/100)
			1,10,000			1,10,000

Working Notes:   Amount payable per Installment =  ` (3,00,000/3) =  ` 1,00,000

 

Question 40:

Rakesh retired from the firm. The amount due to him was determined at  ` 90,000. It was decided to pay the due amount as follows:
On the date of retirement −  ` 30,000
Balance in three yearly instalments − First two instalments being of  ` 26,000, including interest; and Balance amount as last instalment.
Interest was payable @ 10 p.a. Prepare retiring Partners' Loan Account.

 

Answer:

Dr.	Rakesh’s Loan A/c					Cr.
Date	Particulars	( `)	Date	Particulars	( `)
Year I	To Bank A/c (20,000 + 6,000)	26,000	Year I	By Y’s Capital A/c	60,000
	To balance c/d	40,000
				By Interest on Loan A/c	6,000
				(60,000 × 10/100)
		66,000			66,000
Year II	To Bank A/c (22,000 + 4,000)	26,000	Year II	By balance b/d	40,000
	To balance c/d	18,000
				By Interest on Loan A/c	4,000
				(40,000 × 10/100)
		44,000			44,000
Year III	To Bank A/c (18,000 + 1,800)	19,800	Year III	By balance b/d	18,000
				By Interest on Loan A/c	1,800
				(18,000 × 10/100)
		19,800			19,800

 

Question 41: Ram, Manohar and Joshi were partners in a firm. Manohar retired and his claim including his capital and share of goodwill was `1,80,000. There was an unrecorded furniture estimated at ` 9,000, half of which was given for an unrecorded liability of `18,000 in settlement of claim of `9,000 and remaining half was taken by Manohar at a discount of 10% in part satisfaction of his claim. Balance of Manohar's claim was discharged by bank draft. Pass necessary Journal entries to record the above transactions.

 

Answer:

Date	Particulars		L.F.	Dr. `	Cr. `
	B’s capital a/c	Dr.		4,050
	To Revaluation a/c				4,050
	(Being unrecorded furniture taken over by partner B)
	Revaluation a/c	Dr.		9,000
	To unrecorded liabilities a/c				9,000
	(Being remaining unrecorded Liabilities  paid by partner)
	B’s capital a/c	Dr.		1,650
	To Revaluation a/c				1,650
	(Being loss on revaluation debited to B’s capital)
	B’s capital a/c	Dr.		1,74,300
	To Bank a/c				1,74,300
	(Being final amount paid to B’s capital on his retirement by bank draft)
	Total			1,89,000	1,89,000

 

Question 42:

X, Y and Z are partners in a firm sharing profits in the ratio of 3 : 2 : 1. On 1st April, 2009, Y retires from the firm. X and Z agree that the capital of the new firm shall be fixed at  ` 2,10,000 in the profit-sharing ratio. The Capital Accounts of X and Z after all adjustments on the date of retirement showed balance of  ` 1,45,000 and  ` 63,000 respectively. State the amount of actual cash to be brought in or to be paid to the partners.

 

Answer:

Old Ratio (X, Y, and Z) = 3 : 2 : 1

Y retires from the firm.  

∴New Ratio (X and Z) = 3 : 1 

Total capital of the New Firm = ` 2,10,000

X‘s new capital = 2,10,000×3/4=1,57,500

Z‘s new capital = 2,10,000×1/4=52,500

 

Ascertainment of Actual Cash to be brought in or to be paid to the partners

 

Particulars	X	Z
New Capital	1,57,500	52,500
Existing Capital	1,45,000	63,000
Cash Paid/Brought in	(12,500) (Brought in)	10,500 (Paid)

 

Question 43: Lisa, Monika and Nisha were partners in a firm sharing profits and losses in the ratio of 2: 2: 1. On 31st March, 2019, their Balance Sheet was as follows:

BALANCE SHEET OF LISA, MONIKA and NISHA as at 31st March, 2019
Liabilities		`	Assets	`
Trade Creditors		1,60,000	Land and Building	10,00,000
Bills Payable		2,44,000	Machinery	12,00,000
Employees' Provident Fund		76,000	Stock	10,00,000
Capitals:			Sundry Debtors	4,00,000
Lisa 14,00,000	14,00,000		Bank	40,000
Monika	3,60,000	31,60,000
Nisha
		36,40,000		36,40,000

On 31st March, 2019, Monika retired from the firm and the remaining partners decided to carry on the business. It was agreed that:

(I) Land and building be appreciated by `2,40,000 and machinery be depreciated by 10%

(ii) 50% of the stock was taken over by the retiring partner at book value.

(iii) Provision for doubtful debts was to be made at 5% on debtors

(iv) Goodwill of the firm be valued at `3,00,000 and Monika's share of goodwill be adjusted in the accounts of Lisa and Nisha.

(v) The total capital of the new firm be fixed at `27,00,000 which will be in the proportion of the new profit Sharing ratio of Lisa and Nisha. For this purpose, Current Accounts of the partners were to be opened.

Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of the reconstituted firm on Monika's retirement. (CBSE 2019)

 

Answer:

Revaluation Account
Dr.						Cr.
Particulars		( `)	Particulars		( `)
To provision for doubtful debts		20,000	By land and building		2,40,000
To Machinery a/c		1,20,000
To capital a/c Lisa’s =1,00,000×2/5=40,000 Monika’s =1,00,000×2/5=40,000 Nisha’s =1,00,000×1/5=20,000 (In old ratio)		1,00,000
		2,40,000			2,40,000

 

Partners’ Capital Accounts
Dr.										Cr.
Particulars		Lisa	Monika	Nisha		Particulars			Lisa					Monika		Nisha
To Monika’s capital a/c To stock To Monika’s loan a/c To balance c/d		80,000     13,60,000	5,00,000 10,60,000	40,000     3,40,000		By Balance b/d By Lisa’s capital a/c By Nisha’s capital a/c By revaluation a/c			14,00,000     40,000					14,00,000 80,000 40,000 40,000		3,60,000     20,000
		14,40,000	15,60,000	3,80,000					14,40,000					15,60,000		3,80,000
To balance c/d		18,00,000		9,00,000		By Balance b/d By current a/c			13,60,000 4,40,000							3,40,000  5,60,000
		18,00,000		9,00,000					18,00,000							9,00,000

 

Balance Sheet as on April 01, 2019 after Monika’s retirement
Liabilities		( `)	Assets		( `)
Trade creditors Bills payables Employees provident fund Capital a/c Lisa= 18,00,000 Nisha= 9,00,000		1,60,000 2,44,000 76,000     27,00,000	Land and building Machinery Stock Sundry debtors     4,00,000 Less; Provision           20,000 for Doubtful debts Bank Lisa’s current a/c Nisha’s current a/c		12,40,000 10,80,000 5,00,000   3,80,000   40,000 4,40,000 5,60,000
Monika’s loan		10.,60,000
		42,40,000			42,40,000

Working notes;

WN -1

Calculation of gaining and sacrificing ratio

	Lisa		Monika		Nisha
Old ratio =	2	:	2	:	1
New ratio =	2		:		1

Gaining ratio = New ratio – Old ratio

Lisa’s gain = 2/3-2/5=10-6/15=4/15

Nisha’s gain = 1/3-1/5=5-3/15=2/15

Gaining ratio of Lisa and Nisha = 4:2=2:1

 

WN-2 Treatment of goodwill;

Firm’s goodwill =3,00,000

Monika will be compensated = 1,20,000×2/5=1,20,000

Lisa will compensate =1,20,000×2/3 = 80,000

Nisha will compensate =1,20,000×1/3 = 40,000

Condition for goodwill remaining partner to retiring partner

 

WN -3

Lisa’s capital = 27,00,000×2/3=18,00,000

Nisha’s capital = 27,00,000×1/3=9,00,000

 

Question 44:  On 31st March, 2022, the Balance Sheet of A, B and C who were sharing profits and losses in proportion to their capitals stood as:

Liabilities		`	Assets		`
Creditors		10,800	Cash at Bank		13,000
Bills Payable		5,000	Debtors	10,000
Capital A/cs:			Less: Provision for Doubtful Debts	200	9,800
A	45,000		Stock		9,000
B	15,000		Machinery		24,000
C	30,000	90,000	Freehold Premises		50,000
		1,05,800			1,05,800

B retired on 1st April, 2022 and following adjustments were agreed to determine the amount payable to B:

(a) Out of the amount of insurance premium debited to Profit and Loss Account, `1,000 be carried forward as prepaid Insurance.

(b) Freehold Premises be appreciated by 10%.

(c) Provision for Doubtful Debts is brought up to 5% on Debtors.

(d) Machinery be reduced by 5%.

(e) Liability for Workmen Compensation to the extent of `1,500 would be created.

(f) Goodwill of the firm be fixed at `18,000 and B's share of the same be adjusted into the Capital Accounts of A and C, who will share future profits in the ratio of 3/4th and 1/4th.

(g)Total capital of the firm as newly constituted be fixed at `60,000 between A and C in the proportion of 3/4th and 1/4th after passing entries in their accounts for adjustments, i.e., actual cash to be paid or to be brought in by continuing partners as the case may be.

(h) B be paid `5,000 in cash and the balance be transferred to his Loan Account.

Prepare Capital Accounts of Partners and the Balance Sheet of the firm of A and C.

 

Answer:

Revaluation a/c Dr.                                                                                                                                                Cr.
Particulars	`	Particulars	`
To provision for doubtful debts	300	By unexpired insurance	1,000
To Machinery	1,200	By freehold premises	5,000
To workers’ compensation liabilities	1,500
To capital a/c -profit transferred to :
A=3,000×3/6=1,500
B=3,000×2/6=1,000
C=3,000×1/6=500	3,000
	6,000		6,000

 

 

Partners’ Capital Accounts
Dr.									Cr.
Particulars		A	B	C	Particulars	A	B	C
To B’s capital a/c		4,500		1,500	By Balance b/d	45,000	30,000	15,000
To cash a/c			5,000		By A’s capital		4,500
To B’s loan a/c			32,000		By C’s Capital		1,500
To balance c/d		42,000		14,000	By Revaluation a/c	1,500	1,000	500
		46,500	37,000	15,500		46,500	37,000	15,500
To balance c/d		45,000		15,000	By Balance b/d	42,000		14,000
					By Bank a/c	3,000		1,000
		45,000		15,000		45,000		15,000

 

 

Balance Sheet as on April 01, 2022 after Z’s retirement
Liabilities		( `)	Assets		( `)
Creditors		10,800	Cash at bank		12,000
Bills payables		5,000	Debtors                      10,000
Workers’ Compensation liabilities		1,5000	Less; prov. For D.D.      500		9,500
Capital a/c
A	45,000
C	15,000	60,000	Stock		9,000
B’s loan		32,000	Unexpired insurance		1,000
			Machinery		22,800
			Freehold premises		55,000
		1,,09,300			1,,09,300

Working notes;

WN-1 Calculation of new and gaining ratio

Old ratio of A,B and C =45,0000:30,000:15,000=3:2:1

New ratio of A and C= 3:1

Gaining ratio= New ratio- Old ratio

A’s gain = ¾- 3/6 =18-12/24=6/24

C’s gain =1/4-1/6=6-4/24=2/24

Gaining ratio of A:C = 6:2=3:1

WN-2 treatment of Goodwill

Goodwill of the firm= 18,000

B will be compensated for 18,000×2/6=6,000

A will compensate =6,000×3/4=4,500

C will compensate =6,000×3/4=1,500

Condition for goodwill treatment: Remaining partner to retiring partner

WN-3 Capital adjustment

A’s capital = 60,000×3/4=45,000

C’s capital = 60,000×1/4=15,000

WN-4

Closing bank balance= 13,000-5,000+3,000+1,000=12,000

 

Question 45:  X, Y and Z were in partnership sharing profits in proportion to their capitals. Their Balance Sheet as on

31st March, 2018 was as follows:

Liabilities		`	Assets		`
Sundry Creditors		16,600	Cash		15,000
Workmen's Compensation Fund		9,000	Debtors	21,000
General Reserve		6,000	Less: Provision for Doubtful Debts	(1,400)	19,600
Capitals:			Stock		19,000
X Y Z	90,000 60,000 30,000	1,80,000	Machinery Building		58,000 1,00,000
		2,11,600			2,11,600

On the above date, Y retired owing to ill health. The following adjustments were agreed upon for calculation of amount due to Y:

(a) Provision for Doubtful Debts to be increased to 10% of Debtors.

(b) Goodwill of the firm be valued at 36,000 and be adjusted into the Capital Accounts of X and Z, who will share profits in future in the ratio of 3 :1.

(c)Included in the value of Sundry Creditors was `2,500 for an outstanding legal claim, which will not arise.

(d) X and Z also decided that the total capital of the new firm will be `1,20,000 in their profit-sharing ratio. Actual cash to be brought in or to be paid off as the case may be.

(e) Y to be paid `9,000 immediately and balance to be transferred to his Loan Account.

Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the new firm after Y's retirement.

(CBSE Sample Paper 2019)

 

Answer:

Revaluation Account
Dr.						Cr.
Particulars		( `)	Particulars		( `)
To provision for doubtful debts		700	By sundry creditors		2,500
To capital a/c – Profit transferred;  X=1800×3/6=900
y=1800×2/6=600
Z=1800×1/6=300		1,800
		2,500			2,500

  

Partners’ Capital Accounts
Dr.								Cr.
Particulars		X	Y	Z	Particulars	X	Y		Z
To Y’s capital a/c		9,000	-	3,000	By Balance b/c	90,000	60,000		30,000
To Cash a/c		-	9,000	-	By X’s Capital a/c	-	9,000		-
To Y’s loan a/c		-	68,600	-	By Z’s Capital a/c	-	3,000		-
To  Balance C/d		89,400	-	29,800	By Workers’ compensation fund	4,500	3,000		1,500
					By General reserve	3,000	2,000		1,000
					By Revaluation a/c	900	600		300
		98,400	77,600	32,800		98,400	77,600		32,800
To  Balance C/d		90,000	-	30,000	By Balance b/d	89,400	-		29,800
					By Cash a/c	600	-		200
		90,000	-	30,000		90,000	-		30,000

 

 

Balance Sheet as on April 01, 2018 after Z’s retirement
Liabilities		( `)	Assets		( `)
Sundry creditors		14,100	Cash a/c (15,000-9000+600+200)		6,800
Capital a/c			Debtors                            21,000 Less; Prov. For D.D.        2,100		18,900
X= 90,000 Z= 30,000		1,20,000	Stock Machinery		19,000 58,000
Y’s loan a/c		68,600	Buildings		1,00,000
		2,02,700			2,02,700

Working notes;

WN-1 Calculation of new and gaining ratio

Old ratio of X,Y and Z =90,0000:60,000:30,000=3:2:1

New ratio of X and Z= 3:1

Gaining ratio= New ratio- Old ratio

X’s gain = ¾- 3/6 =18-12/24=6/24

Z’s gain =1/4-1/6=6-4/24=2/24

Gaining ratio of A:C = 6:2=3:1

WN-2 treatment of Goodwill

Goodwill of the firm= 36,000

Y will be compensated for 36,000×2/6=12,000

X will compensate =12,000×3/4=9,000

Z will compensate =12,000×1/4=3,000

 

Condition for goodwill treatment: Remaining partner to retiring partner

X’s capital     a/c	Dr.	9,000
Z’s capital     a/c	Dr.	3,000
To Y’s capital a/c			12,000

WN-3 Capital adjustment

X’s capital = 1,20,000×3/4=90,000

Z’s capital = 1,20,000×1/4=30,000

Question 46:

Amit, Balan and Chander were partners in a firm sharing profits in the proportion of 1/2, 1/3 and 1/6 respectively. Chander retired on 1st April, 2014. The Balance Sheet of the firm on the date of Chander's retirement was as follows:
 

Liabilities		( `)	Assets		( `)
Sundry Creditors		12,600	Bank		4,100
Provident Fund		3,000	Debtors	30,000
General Reserve		9,000	Less: Provision	1,000	29,000
Capital A/cs:
Amit	40,000		Stock		25,000
Balan	36,500		Investments		10,000
Chander	20,000	96,500	Patents		5,000
			Machinery		48,000
		1,21,100			1,21,100

It was agreed that:
(i)  Goodwill will  be valued at  ` 27,000.
(ii) Depreciation of 10% was to be provided on Machinery.
(iii) Patents were to be reduced by 20%.
(iv) Liability on account of Provident Fund was estimated at  ` 2,400.
(v) Chander took over Investments for  ` 15,800.
(vi) Amit and Balan decided to adjust their capitals in proportion of their profit-sharing ratio by opening Current Accounts.
Prepare Revaluation Account and Partners' Capital Accounts on Chander's retirement. 

 

Answer:

Revaluation Account
Dr.						Cr.
Particulars			`	Particulars	`
Machinery			4,800	Investments A/c	5,800
Patents			1,000	Provident Fund A/c	600
Profit transferred to:
Amit’s Capital A/c		300
Balan’s Capital A/c		200
Chander’s Capital A/c		100	600
			6,400		6,400

 

Partners’ Capital Account
Dr.				Cr.
Particulars	Amit	Balan	Chander	Particulars	Amit	Balan	Chander
Investments A/c			15,800	Balance b/d	40,000	36,500	20,000
Chander’s Capital A/c	2,700	1,800		Revaluation A/c (Profit)	300	200	100
Loan A/c			10,300	General Reserve	4,500	3,000	1,500
Current A/c		5,900		Amit’s Capital A/c			2,700
Balance c/d	48,000	32,000		Balan’s Capital A/c			1,800
				Current A/c	5,900
	50,700	39,700	26,100		50,700	39,700	26,100

 

Working Notes:

WN1: Adjustment of Goodwill

Chander’s share of Goodwill =27,000 ×1/6=4,500

Amit wil pay=4,500×3/5=2,700

Balan wil pay=4,500×2/5=1,800

 

WN2 Adjustment of Capital
Adjusted Old Capital of Amit=44,800 (40,000+4,500+300)-2,700=` 42,100

Adjusted Old Capital of Balan=39,700 (36,500+3,000+200)-1,800=` 37,900

Total Adjusted Capital=42,100+37,900=` 80,000

New Profit Sharing Ratio=3:2

Amit's New Capital=80,000×3/5=` 48,000

Balan's New Capital=80,000×2/5=` 32,000

Note: Since, here no information is given regarding the share acquired by Amit and Balan, therefore, their gaining ratio is same as their new profit sharing ratio i.e. 3 : 2.

  

Question 47:

N, S and B are partners in a firm sharing profits and losses in the proportion of 1/2 : 1/6 : 1/3 respectively. The Balance Sheet of the firm as at On 31st March, 2017,was as follow:
 

BALANCE SHEET OF N,S AND B as at 31st march, 2017
Liabilities		( `)	Assets		( `)
Bills Payable		12,000	Freehold Premises		40,000
Sundry Creditors		18,000	Machinery		30,000
General Reserve		12,000	Furniture		12,000
Capital A/cs:			Stock		22,000
N	30,000		Sundry Debtors	20,000
S	30,000		Less: Provision for Doubtful Debts	1,000	19,000
B	28,000	88,000	Cash		7,000
		1,30,000			1,30,000

B retired from the business on the above date and the partners agree to the following:
(a) Freehold Premises and Stock are to be appreciated by 20% and 15% respectively.
(b) Machinery and Furniture are to be reduced by 10% and 7% respectively.
(c) Provision for Doubtful Debts is to be increased to ` 1,500.
(d) Goodwill of the firm is valued at ` 21,000 on B's retirement.
(e) Continuing partners to adjust their capitals in their new profit-sharing ratio after retirement of B. Surplus/deficit, if any, in their Capital Accounts will be adjusted through Current Accounts.
Prepare necessary Ledger Accounts and draw the Balance Sheet of the reconstituted firm.

 

Answer:

Revaluation Account
Dr.					Cr.
Particulars			( `)	Particulars	( `)
Machinery (30,000 × 10%) Furniture (12,000 × 7%)			3,000 840	Freehold Premises (40,000 × 20%)	8,000
Provision for Doubtful Debts			1,500	Stock (22,000 × 15%)	3,300
Profit transferred to:
N’s Capital A/c		2,980
S’s Capital A/c		993
B’s Capital A/c		1,987	6,960
			11,300		11,300

 

Partner’s Capital Accounts
Dr.							Cr.
Particulars	N	S	B	Particulars	N	S	B
B’s Capital A/c	5,250	1,750	-	Balance b/d	30,000	30,000	28,000
B’s Loan A/c	-	-	40,987	General Reserve	6,000	2,000	4,000
Balance c/d	33,730	31,243	40,987	N’s Capital A/c (Goodwill)	-	-	5,250
				B’s Capital A/c (Goodwill)	-	-	1,750
				Revaluation A/c (Profit)	2,980	993	1,987
	38,980	32,993	40,987		38,980	32,993	40,987
Y’s Current A/c	-	7,500	-	Balance b/d	33,730	31,243	-
Balance c/d	48,730	16,243	-	X’s Current A/c	15,000	-	-
	48,730	31,243	-		48,730	31,243	-

 

Balance Sheet as on 1st April, 2017
Liabilities		( `)	Assets		( `)
Bills Payable		12,000	Freehold Premises (40,000 + 8,000)		48,000
Sundry Creditors		18,000	Machinery (30,000 – 3,000)		27,000
B’s Loan		40,987	Furniture (12,000 – 840)		11,160
Capital A/cs:			Stock (22,000 + 3,300)		25,300
N	48,730		Sundry Debtors	20,000
S	16,243	64,973	Less: Provision for Doubtful Debts	(2,500)	18,500
S’s Current A/c		15,000	Cash		7,000
			N’s Current A/c		15,000
		1,50,960			1,50,960

Working Notes:

WN 1 Calculation of Profit Sharing Ratio
Old Ratio (N, S and B) = 3 : 1 : 2
B retires from the firm.
∴ New Ratio (N and S) = 3 : 1 and
Gaining Ratio = 3 : 1

WN 2 Adjustment of Goodwill
Goodwill of the firm = ` 21,000
B’s Share of Goodwill = = 21,000×2/6=7,000

 

This share of goodwill is to be distributed between N and S in their gaining ratio (i.e. 3 : 1).
N‘s share= 7,000×3/4=5,250

S‘s share= 7,000×1/4=1,750

 

Condition for goodwill treatment; gaining partner to retiring partner

N’s capital a/c	Dr.	5,250	-
S’s Capital a/c	Dr.	1,750	-
To B’s Capital a/c		-	7,000

 

WN 3 Adjustment of Partners’ Capital after B’s Retirement
Combined Capital of N and S after all adjustments = 33,730 + 31243 = `. 64,973

New Ratio = 3 : 1

N‘s new capital = 64,973×3/4=48,730

S‘s new capital = 64,973×1/4=16,243

 

Question 48: Leena, Madan and Naresh were partners in a firm sharing profits and losses in the ratio of 2:2 :3. On 31st March, 2015, their Balance Sheet was as follows:

BALANCE SHEET as at 31st March, 2015
Liabilities		`	Assets	`
Trade Creditors		1,60,000	Land and Building	10,00,000
Bank Overdraft		44,000	Machinery	5,00,000
Long-term Debts		4,00,000	Furniture	7,00,000
Employees' Provident Fund		76,000	Investments	2,00,000
Capitals:			Closing Stock	8,00,000
Leena	12,50,000
Madan	8,00,000		Sundry Debtors	4,00,000
Naresh	10,50,000	31,00,000	Bank	80,000
			Deferred Advertisement Expenditure	1,00,000
		37,80,000		37,80,000

On 31st March, 2015, Madan retired from the firm and the remaining partners decided to carry on the

business. It was decided to revalue assets and liabilities as under:

(i) Land and Building be appreciated by `2,40,000 and Machinery be depreciated by 10%.

(ii) 50% of Investments were taken over by the retiring partner at book value.

(iii) An old customer Mohit whose account was written off as bad debt had promised to pay `7,000 in settlement of his full debt of `10,000.

(iv) Provision for Doubtful Debts was to be made at 5% on debtors.

(v) Closing Stock will be valued at market price which is `1,00,000 less than the book value.

(vi) Goodwill of the firm be valued at `5,60,000 and Madan's share of goodwill be adjusted in the accounts of Leena and Naresh. Leena and Naresh decided to share future profits and losses in the ratio of 3:2.

(vii) The total capital of the new firm will be `32,00,000 which will be in the proportion of the profit sharing ratio of Leena and Naresh.

(vii) Amount due to Madan was settled by accepting a Bill of Exchange in his favour payable after 4 months.

Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the firm after Madan's retirement.

(AI 2016 C)

Answer:

Revaluation Account
Dr.					Cr.
Particulars			( `)	Particulars	( `)
Machinery Provision for D.D. Capital – profit transferred to; Leena = 70,000×2/7=20,000 Madan = 70,000×2/7=20,000 Naresh = 70,000×3/7=30,000			50,000 1,00,000       70,000	Land and building	2,40,000
			2,40,000		2,40,000

 

Partner’s Capital Accounts
Dr.							Cr.
Particulars	Leena	Madan	Naresh	Particulars	Leena	Madan	Naresh
To Madan’s capital a/c To Naresh’s capital a/c To Def. Adv. exp. A/c	1,60,000 16,000 28,571	28,571	42,858	By Balance b/d By Leena’s capital a/c By Revaluation a/c	12,50,000   20,000	8,00,000 160,000 20,000	10,50,000 16,000 30,000
To Investment a/c		1,00,000
To bills payables a/c		8,51,429
To Balance C/d	10,65,429		10,53,142
	12,70,000	9,80,000	10,96,000		12,70,000	9,80,000	10,96,000
To Balance C/d	19,20,000		12,80,000	By Balance b/d By Cash a/c	10,65,429 8,54,571		10,53,142 2,26,858
	19,20,000		12,80,000		19,20,000		12,80,000

 

Balance Sheet as on 1st April, 2015
Liabilities		( `)	Assets		( `)
Trade creditors Bank overdraft Long-term Debts Employees provident fund		160,000 44,000 4,00,000 76,000	Land and building Machinery Furniture Investment Closing Stock		12,40,000 4,50,000 7,00,000 1,00,000 7,00,000
Capital Leena = 1920,000 Naresh= 12,80,000		32,00,000	Debtors                                  4,00,000 Less; prov. For D.D.                20,000 Cash (80,000+8,54,571+2,26,858)		3,80,000 11,61,429
Bills payables		8,51,429
		47,31,429			47,31,429

Working Notes:

WN 1 Calculation of Profit Sharing Ratio

Old Ratio (Leena , Madan and Naresh) = 2 : 2 : 3
New Ratio (Leena and Naresh) = 3 : 2 and

Madan retires from the firm.

Gaining ratio= new ratio- old ratio

Leena’s = 3/5-2/7=21-10/35=11/35 (gain)
Naresh’s =2/5- 3/7=14-15/35= -1/35 (Sacrifice)

WN 2 Adjustment of Goodwill

Goodwill of the firm = ` 5,60,000

Madan will be compensated =5,60,000×2/7=1,60,000

Naresh will be compensated =5,60,000×1/35=16,000

Leena will compensate =5,60,000×11/35=1,76,000

 

Condition for goodwill treatment; gaining partner to retiring partner

Leena’s capital a/c            Dr.                176,000

   To Madan’s Capital a/c                                   1,60,000

   To Naresh’s Capital a/c                                      16,000

WN 3 Adjustment of Partners’ Capital after Madan’s Retirement

leena’s capital= 32,00,000×3/5=19,20,000

Naresh’s capital= 32,00,000×2/5=12,80,000

 

Question 49:

Following is the Balance Sheet of Kusum, Sneh and Usha as on 31st March, 2022, who have agreed to share profits and losses in proportion of their capitals:

Liabilities		`	Assets		`
Capital A/cs:			Land and Building		4,00,000
Kusum	4,00,000		Machinery		6,00,000
Sneh	6,00,000		Closing Stock		2,00,000
Usha	4,00,000	14,00,000	Sundry Debtors	2,20,000
Employees' Provident Fund		70,000	Less: Provision for Doubtful Debts	20,000
Workmen Compensation Reserve		30,000	Cash at Bank		2,00,000
Sundry Creditors		1,00,000			2,00,000
		16,00,000			16,00,000

On 1st April, 2022, Kusum retired from the firm and the remaining partners decided to carry on the business. It was agreed to revalue the assets and reassess the liabilities on that date, on the following basis:
(a) Land and Building be appreciated by 30%.
(b) Machinery be depreciated by 30%.
(c) There were Bad Debts of  ` 35,000.
(d) The claim against Workmen Compensation Reserve was estimated at  ` 15,000.
(e) Goodwill of the firm was valued at  ` 2,80,000 and Kusum's share of goodwill was adjusted against the Capital Accounts of the continuing partners Sneh and Usha who have decided to share future profits in the ratio of 3 : 4 respectively.
(f) Capital of the new firm in total will be the same as before the retirement of Kusum and will be in the new profit-sharing ratio of the continuing partners.
(g) Amount due to Kusum be settled by paying  ` 1,00,000 in cash and balance by transferring to her Loan Account which will be paid later on.
Prepare Revaluation Account, Capital Accounts of Partners and Balance Sheet of the new firm after Kusum's retirement.

 

Answer:

Revaluation Account
Dr.		Cr.
Particulars	( `)	Particulars		( `)
Machinery A/c	1,80,000	Land and Building A/c		1,20,000
Bad Debts A/c (35,000 – 20,000)	15,000	Loss on Revaluation transferred to:
		Kusum	21,429
		Sneh	32,142
		Usha	21,429	75,000
	1,95,000			1,95,000

 

Partners’ Capital Account
Dr.				Cr.
Particulars	Kusum	Sneh	Usha	Particulars	Kusum	Sneh	Usha
Revaluation A/c (Loss)	21,429	32,142	21,429	Balance b/d	4,00,000	6,00,000	4,00,000
Usha’s Capital A/c	–	–	80,000	Workmen Compensation Fund	4,286	6,428	4,286
Bank A/c	1,00,000	–	–	Usha’s Capital A/c	80,000	–	–
Kusum’s Loan A/c	3,62,857	–	–
Balance c/d	–	5,74,286	3,02,857
	4,84,286	6,06,428	4,04,286		4,84,286	6,06,428	4,04,286
Balance c/d	–	6,00,000	8,00,000	Balance b/d	–	5,74,286	3,02,857
				Bank A/c (WN3)	–	25,714	4,97,143
	–	6,00,000	8,00,000		–	6,00,000	8,00,000

 

Balance Sheet as at March 31, 2022
Liabilities		( `)	Assets	( `)
Creditors		1,00,000	Land & Building	5,20,000
Employee’s Provident Fund		70,000	Machinery (6,00,000 – 1,80,000)	4,20,000
Workmen’s Compensation Claim		15,000	Stock	2,00,000
Kusum’s Loan		3,62,857	Sundry Debtors (2,20,000 – 35,000)	1,85,000
Capital A/c :			Bank	6,22,857
Sneh	6,00,000
Usha	8,00,000	14,00,000
		19,47,857		19,47,857

 

Working Notes

 

WN 1 Calculation of Gaining Ratio 

Old Ratio (Kusum, Sneh and Usha) = 2:3:2

New Ratio (Sneh and Usha) = 3:4

Gaining Ratio = New Ratio – Old Ratio

Sneh‘s share= 3/7-3/7=nil

Usha‘s share= 4/7-2/7=2/7

WN2 Adjustment of Goodwill

Total Goodwill of the Firm = 2,80,000

Kusum’s Share of Goodwill = 2,80,000×2/7=80,000

It is to be adjusted by the Gaining partners i.e. only by Usha

 

WN3 Adjustment of Capital

Tatal capital of the firm before kusum’s retirement =14,00,000

New Ratio (Sneh and Usha) = 3:4

Sneha‘s new captial= 14,00,000×3/7=6,00,000

Usha‘s new capital= 14,00,000×4/7=8,00,000

 

Particulars	Sneh	Usha
New Capital Balance	6,00,000	8,00,000
Adjusted Old Capital Balance	5,74,286	3,02,857
Cash brought in by the Partner	25,714	4,97,143

 

WN4

Cash at Bank A/c
Dr.		Cr.
Particulars	( `)	Particulars	( `)
Balance b/d	2,00,000	Kusum’s Capital A/c	1,00,000
Sneh’s Capital A/c	25,714	Balance c/d	6,22,857
Usha’s Capital A/c	4,97,143
	7,22,857		7,22,857

 

Question 50:

Lal, Bal and Pal are partners sharing profits in the ratio of 5 : 3 : 7. Lal retired from the firm. Bal and Pal decided to share future profits in the ratio of 2 : 3. The adjusted Capital Accounts of Bal and Pal showed balance of ` 49,500 and ` 1,05,750 respectively. The total amount to be paid to X is  ` 1,35,750. This amount is to be paid by Bal and Pal in a manner that their capitals become proportionate to their new profit-sharing ratio. Calculate the amount to be brought in or to be paid to partners. 

 

Answer:

New Capital = 49,500 + 1,05,750 + 1,35,750 = ` 2,91,000

Bal's New Capital=2,91,000×2/5=1,16,400

Pal's New Capital=2,91,000×3/5=1,74,600

Bal brings in ` 66,900 (1,16,400 – 49,500)

Pal brings in ` 68,850 (1,74,600 – 1,05,750)

Question 51:

Balance Sheet of X, Y and Z who shared profits in the ratio of 5 : 3 : 2, as on 31st March, 2022 was as follows:

Liabilities			`	Assets	`
Sundry Creditors			39,750	Bank (Minimum Balance)	15,000
Employees' Provident Fund			5,250	Debtors	97,500
Workmen Compensation Reserve			22,500	Stock	82,500
Capital A/cs:				Fixed Assets	1,87,500
X		1,65,000
Y		84,000
Z		66,000	3,15,000
			3,82,500		3,82,500

   
Y retired on 1st April, 2022 and it was agreed that:
(i) Goodwill of the firm is valued at  ` 1,12,500 and Y's share of it be adjusted into the accounts of X and Z who are going to share future profits in the ratio of 3 : 2.
(ii) Fixed Assets be appreciated by 20%.
(iii) Stock be reduced to  ` 75,000.
(iv) Y be paid amount brought in by X and Z so as to make their capitals proportionate to their new profit-sharing ratio.
Prepare Revaluation Account, Capital Accounts of all partners and the Balance Sheet of the New Firm.

Answer:

Revaluation Account
Dr.					Cr.
Particulars			( `)	Particulars	( `)
Stock			7,500	Fixed Assets	37,500
Revaluation Profit
X’s Capital A/c		15,000
Y’s Capital A/c		9,000
Z’s Capital A/c		6,000	30,000
			37,500		37,500

 

Partners’ Capital Accounts
Dr.								Cr.
Particulars	X	Y	Z	Particulars	X	Y	Z
Y’s Capital A/c	11,250	-	22,500	Balance b/d	1,65,000	84,000	66,000
Bank	-	1,33,500	-	General Reserve	11,250	6,750	4500
Balance c/d	2,20,500	-	1,47,000	Revaluation (Profit)	15,000	9,000	6,000
				X’s Capital A/c	-	11,250	-
				Z’s Capital A/c	-	22,500	-
				Bank A/c	40,500	-	93,000
	2,31,750	1,33,500	1,69,500		2,31,750	1,33,500	1,69,500

 

Balance Sheet as on March 31, 2022
Liabilities		( `)	Assets	( `)
Sundry Creditors		39,750	Bank	15,000
Employees Provident Fund		5,250	Debtors	97,500
Capitals:			Stock	75,000
X	2,20,500		Fixed Assets	2,25,000
Z	1,47,000	72,000
		4,12,500		4,12,500

Working Notes:
New Capital = 1,80,000 + 54,000 + 1,33,500 = ` 3,67,500

X's New Capital=3,67,500×3/5=2,20,500

Z's New Capital=3,67,500×2/5=1,47,500

X brings in ` 40,500 (2,20,500 – 1,80,000)

Z brings in ` ` 93,000 (1,47,500 – 54,000)

 

Question 52:

Sushil, Satish and Samir are partners sharing profits in the ratio of 5 : 3 : 2. Satish retires on 1st April, 2022 from the firm, on which date capitals of Sushil, Satish and Samir after all adjustments are  ` 1,03,680,  ` 87,840 and  ` 26,880 respectively. The Cash and Bank Balance on that date was  ` 9,600. Satish is to be paid through amount brought in by Sushil and Samir in such a way as to make their capitals proportionate to their new profit-sharing ratio which will be Sushil 3/5 and Samir 2/5. Calculate the amount to be paid or to be brought in by the continuing partners assuming that a minimum Cash and Bank balance of  ` 7,200 was to be maintained and pass the necessary Journal entries.

 

Answer:

Total capital of firm before retirement = 1,03,680+87,840+26,880 = ` 2,18,400

Availability of cash = 9,600-7,200 (Minimum Balance) = ` 2,400

Combined new capital of Sushil and Samir =` 2,16,000

Sushil's new capital = 2,16,000×3/5=` 1,29,600

Existing capital of Sushil= ` 1,03,680

So, Sushil has to bring = 1,29,600−1,03,680= ` 25,920

Samir's new capital = 2,16,000×2/5=` 86,400

Existing capital of Samir = ` 26,880

So, Samir has to bring = 86,400−26,880=` 59,520  

 

Question 53:

A, B and C are partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. Their Balance Sheet as at 31st March, 2022 is:
 

Liabilities		( `)	Assets		( `)
Creditors		30,000	Cash in Hand		18,000
Bills Payable		16,000	Debtors	25,000
General Reserve		12,000	Less: Provision for Doubtful Debts	3,000	22,000
Capital A/cs:			Stock		18,000
A	40,000		Furniture		30,000
B	40,000		Machinery		70,000
C	30,000	1,10,000	Goodwill		10,000
		1,68,000			1,68,000

B retires on 1st April, 2022 on the following terms:
(a) Provision for Doubtful Debts be raised by  ` 1,000.
(b) Stock to be reduced by 10% and Furniture by 5%.
(c) There is an outstanding claim of damages of ` 1,100 and it is to be provided for.
(d) Creditors will be written back by ` 6,000.
(e) Goodwill of the firm is valued at ` 22,000.
(f) 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 ` 10,000.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of A and C.

 

Answer:

Revaluation Account
Dr.		Cr.
Particulars	( `)	Particulars		( `)
Provision for doubtful debts	1,000	Creditors		6,000
Stock Furniture	1,800 1,500
Outstanding claim of damage Capital a/c; A=600×3/6=300 B=600×2/6=200 C=600×1/6=100	1,100          600
	6,000			6,000

 

Partners’ Capital Account
Dr.				Cr.
Particulars	Kusum	Sneh	Usha	Particulars	Kusum	Sneh	Usha
B’s Capital A/c	5,500	–	1,833	Balance b/d	40,000	40,000	30,000
Goodwill a/c	5,000	3,333	1,667	A’s capital a/c	4,286	5,500	4,286
Cash A/c	–	48,200	–	C’s Capital A/c	80,000	1,833	–
Balance c/d	35,800	–	28,600	Revaluation a/c	300	200	100
				General Reserve	6,000	4,000	2,000
	46,300	51,533	32,100		46,300	51,533	32,100
Cash A/c	–	–	2,450	Balance b/d	35,800	–	28,600
Balance c/d	78,450	–	26,150	Cash A/c	42,650	–
	78,450		28,600		78,450		28,600

 

Balance Sheet as at March 31, 2022
Liabilities		( `)	Assets	( `)
Creditors		24,000	Cash in hand	10,000
Bills payables		16,000	Debtors          25,000
Outstanding claim of damage		1,100	Less; prov.       4,000 Stock	21,000 16,000
Capital A/c :			Furniture	28,500
A	78,450		Machinery	70,000
C	26,150	1,04,600
		1,45,700		1,45,700

 

Working Notes

 

WN 1 Calculation of New and Gaining Ratio 

Old Ratio (A,B and C) = 3:2:1
New Ratio (A, C) = 3:1                                                 
Gaining Ratio = New Ratio – Old Ratio
A‘s share= 3/4-3/6=18-12/24=6/24

C‘s share= 1/4-1/6=6-4/24=2/24

Therefore gaining Ratio (A, C) = 3:1 

WN2 Adjustment of Goodwill

Total Goodwill of the Firm = 22,000
B’s Share of Goodwill = 22,000×2/6  =7,333

A will compensate =7,333×3/4=5,500

C will compensate =7,333×1/4=1,833

WN3 Adjustment of Capital

Total capital of the firm =35,800+48,200+28,600-(18,000-10,000)=1,04,600

A‘s new capital= 1,04,600×3/4=78,450
C‘s new capital= 1,04,600×1/4=26,150       

 

WN4

Closing bank balance =18,000+42,650-48,200-2,450=10,000

 

Question 54:

The Balance Sheet of Asha, Deepa and Leta who were sharing profits in the ratio of 5 : 3 : 2 as at 31st March, 2022 is as follows:

Liabilities		`	Assets	`
Creditors		50,000	Cash at Bank	40,000
Employees' Provident Fund		10,000	Sundry Debtors	1,00,000
Profit and Loss A/c		85,000	Stock	80,000
Capital A/cs:			Fixed Assets	60,000
Asha	40,000
Deepa	62,000
Leta	33,000	1,35,000
		2,80,000		2,80,000

Asha retired on 1st April, 2022 and Deepa and Leta decided to share profits in future in the ratio of 3 : 2 respectively.
The other terms on retirement were:
(a) Goodwill of the firm is to be valued at  ` 80,000.
(b) Fixed Assets are to be depreciated to  ` 57,500.
(c) Make a Provision for Doubtful Debts at 5% on Debtors.
(d) A liability for claim, included in Creditors for  ` 10,000, is settled at  ` 8,000.
The amount to be paid to Asha by Deepa and Leta in such a way that their Capitals are proportionate to their profit-sharing ratio and leave a balance of  ` 15,000 in the Bank Account.
Prepare Profit and Loss Adjustment Account and Partners' Capital Accounts.

 

Answer:

Revaluation Account
Dr.		Cr.
Particulars	( `)	Particulars		( `)
Fixed Assets A/c (60,000 – 57,500)	2,500	Creditors (10,000 – 8,000)		2,000
Provision for Doubtful Debts	5,000	Loss on Revaluation transferred to:
		Asha’s Capital a/c	2,750
		Deepa’s Capital a/c	1,650
		Leta’s Capital a/c	1,100	5,500
	7,500			7,500

 

Partners’ Capital Accounts
Dr.					Cr.
Particulars	Asha	Deepa	Leta	Particulars		Asha	Deepa	Leta
Revaluation A/c (Loss)	2,750	1,650	1,100	Balance b/d		40,000	62,000	33,000
Asha’s Capital A/c	–	24,000	16,000	Profit & Loss A/c		42,500	25,500	17,000
Balance c/d	1,19,750	61,850	32,900	Deepa’s Capital A/c		24,000	–	–
				Leta’s Capital A/c		16,000	–	–
	1,22,500	87,500	50,000			1,22,500	87,500	50,000
Bank A/c	1,19,750	–	–	Balance b/d		1,19,750	61,850	32,900
Balance c/d	–	1,18,500	79,000	Bank A/c		–	56,650	46,100
	1,19,750	1,18,500	79,000			1,19,750	1,18,500	79,000

 

Working Notes

 WN 1 Calculation of Gaining Ratio 

Old Ratio (Asha, Deepa and Leta) = 5:3:2

New Ratio (Deepa and Leta) = 3:2

Gaining Ratio = New Ratio – Old Ratio

Deepa’s	=3/5-3/10
	=3/10
Leta’s	=2/5-2/10
	=2/10

Hence, gaining ratio is 3: 2.

 

WN2 Adjustment of Goodwill

Total Goodwill of the Firm = 80,000

Asha’s Share of Goodwill = 80,000×5/10=40,000

To be borne by Gaining partners in their Gaining Ratio i.e. 3:2
Deepa’s Share = 40,000×3/5=24,000
Leta’s Share = 40,000×2/5=16,000

WN3 Adjustment of Capital

Asha’s Capital before adjustment = 1,19,750

Deepa’s Capital before adjustment = 61,850

Leta’s Capital before adjustment = 32,900

Total Capital of New Firm= Asha's Capital+Deepa's Capital+Leta's Capital+Closing balance of Bank Account-Available Bank Balance=1,19,750+61,850+32,900+15,000-32,000=`1,97,500

New profit sharing ratio=3:2

Deepa’s Share of Goodwill =1,97,500×3/5=1,18,500

Leta’s Share of Goodwill =1,97,500×2/5=79,000
 

Particulars	Deepa	Leta
New Capital Balance	1,18,500	79,000
Adjusted Old Capital Balance	61,850	32,900
Cash brought in by the Partner	56,650	46,100

WN4

Cash at Bank A/c
Dr.		Cr.
Particulars	( `)	Particulars	( `)
Balance b/d	40,000	Creditors	8,000
Deepa’s Capital A/c	56,650	Asha’s Capital A/c	1,19,750
Leta’s Capital A/c	46,100	Balance c/d	15,000
	1,42,750		1,42,750

 

Question 55:

Amrit, Bhanu and Charu were partners in a firm sharing profits equally. Bhanu retired on 30th September, 2021. Profit till the date of retirement was to be estimated based on last year's profit. Profit for the year ended 31st March, 2021, was ` 3,60,000.

Calculate Bhanu's share of profit till his retirement and pass Journal entry/entries for the same when:

(i) The profit-sharing ratio between Amrit and Charu does not change; and

(ii) The new profit-sharing ratio between Amrit and Charu changes to 3:2.

Answer:

Date	Particulars		`	`
(Case)	Profit and Loss Suspense A/c	Dr.	60,000
1.	To Bhanu’s Capital A/c			60,000
	(Bhanu was compensated for his share of goodwill ) (W.N. – 1)
(Case)	Amrit’s Capital A/c	Dr.	48,000
2.	Charu’s Capital A/c	Dr.	12,000
	To Bhanu’s Capital A/c			60,000
	(Bhanu was compensated for his share of goodwill) (W.N. – 2)

 

Working notes:

 

W.N. – 1 ((i) The profit-sharing ratio between Amrit and Charu does not change)

Profit sharing ratio of Amrit, Bhanu and Charu was 1:1:1

Profit for the year ended 31st March, 2021, was ` 3,60,000

Bhanu's share of profit=3,60,000×1×6/3×12=60,000

 

W.N.-2 ((ii) The new profit-sharing ratio between Amrit and Charu changes to 3:2)

A= 1/3-3/5=5-9/15= -4/15 (Gain)

B=  1/3-2/5=5-6/15= -1/15 (Gain)

Share of A and B in 4:1

A=  60,000×4/5=48,000

A=  60,000×1/5=12,000

 

Question 56: Amar, Bhuvi and Charan were partners in a firm sharing profits equally. Bhuvi retired on 30th September, 2021. Profit or loss till the date of retirement was to be estimated based on last year's profit. Loss for the year ended 31st March, 2021 was ` 1,80,000.

Calculate Bhuvi's share of loss till her retirement and pass Journal entry / entries for the same when:

(i) The profit-sharing ratio between Amar and Charan does not change; and

(ii) The new profit-sharing ratio between Amar and Charan changes to 3: 2.

 

Answer:

 

Date	Particulars		`	`
(Case)	Bhuvi’s Capital A/c	Dr.	60,000
1.	To Profit and Loss Suspense A/c A/c			60,000
	(Bhavi was compensated for his share of goodwill ) (W.N. – 1)
(Case)	Bhuvi’s Capital A/c	Dr.	60,000
2.	To Amar’s Capital A/c			48,000
	To Charu’s Capital A/c			12,000
	(Bhavi was compensated for his share of goodwill) (W.N. – 2)

 

Working notes:

Loss for the year ended 31st March, 2021 was ` 1,80,000.

W.N. – 1 ((i) The profit-sharing ratio between Amar and Charan does not change)

Profit sharing ratio of Amrit, Bhanu and Charu was 1:1:1

Loss for the year ended 31st March, 2021 was ` 1,80,000.

Bhavi's share of profit = 1,80,000×1/3 = 60,000

 

W.N.-2 ((ii) The new profit-sharing ratio between Amar and Charan changes to 3: 2)

A= 1/3-3/5=5-9/15= -4/15 (Gain)

B=  1/3-2/5=5-6/15= -1/15 (Gain)

Share of A and B in 4:1

A=  60,000×4/5=48,000

B=  60,000×1/5=12,000

 

Question 57:

Yogesh, Naresh and Pavesh were partners in a firm sharing profits in the ratio of 2: 2: 1. Naresh retired on 1st October, 2022. In terms of the Partnership Deed, financial statements were prepared as on date of retirement and profit was determined as ` 7,20,000.

(i) Pass the Journal entries for distribution of profit for the period.

(ii) Pass the Journal entries if loss of ` 3,60,000 was incurred.

Answer:

Date	Particulars		`	`
(Case)	Profit & Loss Appropriation A/c	Dr.	7,20,000
1.	To Yogesh’s Capital A/c			2,88,000
	To Naresh’s Capital A/c			2,88,000
	To Pavesh’s Capital A/c			1,44,000
	(Bhavi was compensated for his share of goodwill ) (W.N. – 1)
(Case)	Yogesh’s Capital A/c	Dr.	1,44,000
2.	Naresh’s Capital A/c	Dr.	1,44,000
	Pavesh’s Capital A/c	Dr.	72,000
	To Profit & Loss Appropriation A/c			3,60,000
	(Bhavi was compensated for his share of goodwill) (W.N. – 2)

Working Notes:

W.N. – 1 ((i) Pass the Journal entries for distribution of profit for the period.)

Profits sharing in the ratio of 2: 2: 1

Yogeshs = 7,20,000×2/5=2,88,000

Nareshs =  7,20,000×2/5=2,88,000

Pavesh =  7,20,000×1/5=1,44,000

 

W.N. – 2 ((ii) Pass the Journal entries if loss of ` 3,60,000 was incurred)

Profits sharing in the ratio of 2: 2: 1

Yogeshs = 3,60,000 ×2/5 = 1,44,000

Nareshs =  3,60,000 ×2/5 = 1,44,000

Pavesh =  3,60,000 ×1/5 = 72,000

 

Question 58:

The Partnership Deed of Aman, Bharat and Chetan has a clause that any partner may retire from the firm on the following terms by giving six months' notice in writing. The retiring partner shall be paid:

(a) The amount standing to the credit of his Capital Account and Current Account.

(b) His share of profit to the date of retirement, calculated on the basis of the average profit of the three preceding completed years, if he retires in-between the year.

(c)His Share of Goodwill of the firm calculated on the basis of 1% times the average profit of the three preceding completed years.

(d) Assets shall be revalued and liabilities re-assessed. Retiring partner will get his share in the gain (profit and will bear loss, if any.

Chetan gave notice on 31st March, 2021 to retire with effect from 30th September, 2021. On that date, the balance of his capital was ` 1,60,000 and his Current Account (in debit)  ` 5,000. The profits for the three preceding completed years were: I- ` 45,000, II- ` 30,000 and III- ` 24,000.

Revaluation of assets and reassessment of liabilities resulted in neither gain (profit) nor loss.

What amount is due to Chetan in accordance with the partnership agreement?

Answer:

CHETAN'S CURRENT ACCOUNT
Particulars	` (Dr.)	Particulars	` (Cr.)
To Balance bld	5,000	By Profit & Loss Suspense A/c	5,500
To Chetan's Capital A/c (Balancing Figure)	17,000	By Aman's Current A/c (Share of Goodwill)	8,250
		By Bharat's Current A/c (Share of Goodwill)	8,250
	22,000		22,000

Working Notes:

W.N. – 1 (Calculation of Share of Profit)

The profits for the three preceding completed years were: I- ` 45,000, II- ` 30,000 and III- ` 24,000.

 Average Profit= 45,000+30,000+24,000/3= 33,000

Share of Chetan’s Profit= 33,000×1×6/3×12=5,500

 

W.N. – 1 (Calculation of Share of Goodwill)

Average Profit= 45,000+30,000+24,000/3= 33,000

Firm’s Goodwill= 33,000×1.5=49,500

Chetan’s Share of Goodwill=49,500×1/3=16,500

 

Chetan will be compensated by Amar and Bharat in 1:1

Amar and Bharat = 16,500×1/2=8,250

 

Question 59:

Amit, Bunty and Charan are partners sharing profits and losses in the ratio of 2: 2:1. Charan retired on 30th June, 2022. The Balance Sheet of the firm on 31st March, 2022 was as follows:

Liabilities		`	Assets	`
Capital Accounts:			Building	10,00,000
Amit	6.00,000		Investments	1,25,000
Bunty	6,00,000		Stock	2,50,000
Charan	4,00,000	16,00,000	Debtors	4,00,000
employee’s' Compensation Reserve		1,00,000	Cash at Bank	2,00,000
General Reserve		3,00,000	Cash in Hand	1,25,000
Creditors		1,00,000
		21,00,000		21,00,000

It was agreed that amount payable to Charan will be determined by making following adjustments

(a) Building be valued at ` 12,00,000.

(b) Investment be valued at ` 1,00,000.

(c) Stock to be valued at ` 3,00,000.

(d) Goodwill of the firm be valued at 2 years' purchase of average profit of last 5 years.

(e) Charans share of profit up to the date of retirement be calculated on the basis of average profit of the preceding three years.

Profits of the preceding five years were as under:

Years	2017-18 (`)	2018-19 (`)	2019-20 (`)	2020-21 (`)	2021-22 (`)
Profit	2,00,000	2,35,000	3,00,000	2,75,000	3,25,000

Prepare: (i) Revaluation Account; (ii) Partners' Capital Accounts and (ii) Balance Sheet after Charan's retirement.

Answer:

	Revaluation Account
Particulars			(`) Dr.	Particulars	(`) Cr.
Investment			25,000	Building	2,00,000
Gain transferred to:				Stock	50,000
Amit’s Capital A/c		90,000
Bunty’s Capital A/c		90,000
Charan ’s Capital A/c		45,000	2,25,000
			2,50,000		2,50,000

 

Dr.	Partners' Capital Accounts						Cr.
Particulars	Amit	Bunty	Charan	Particulars	Amit	Bunty	Charan
Charan ’s Capital A/c	53,400	53,400	-	Balance B/d	6,00,000	6,00,000	4,00,000
Charan ’s Loan A/c	-	-	6,46,800	Revaluation A/c	90,000	90,000	45,000
Balance  C/d	7,96,600	7,96,600	-	W.C.R. A/c	40,000	40,000	20,000
				G. R. A/c	1,20,000	1,20,000	60,000
				Amit’s Capital A/c	-	-	53,400
				Bunty’s Capital A/c	-	-	53,400
				P&L Suspense A/c			15,000
	8,50,000	8,50,000	6,46,800		8,50,000	8,50,000	6,46,800

 

Balance Sheet (after Charan's retirement)
Liabilities		`	Assets	`
Capital Accounts:			Building	12,00,000
Amit	7,96,600		Investments	1,00,000
Bunty	7,96,600	15,93,200	Stock	3,00,000
Charan ’s Loan		6,46,800	Debtors	4,00,000
Creditors		1,00,000	Cash at Bank	2,00,000
			Cash in Hand	1,25,000
			P&L Suspense A/c	15,000
		23,40,000		23,40,000

Working Notes:

W.N.- 1: Distribution of  employee’s' Compensation Reserve

A = 1,00,000×2/5=40,000

B = 1,00,000×2/5=40,000

C = 1,00,000×1/5=20,000

 

W.N.- 2: Distribution of General Reserve

A = 3,00,000×2/5 = 1,20,000

B = 3,00,000×2/5 = 1,20,000

C = 3,00,000×1/5 = 60,000

 

W.N.- 3: Valuation of goodwill

Average Profit = 2,00,000+2,35,000+3,00,000+2,75,000+3,25,000/5=2,67,000

Goodwill =2,67,000×2= 5,34,000

Chetan’s share of Goodwill= 5,34,000×1/5=1,06,800

Chetan will be compensated by Amit and Bunty in 2:2 or 1:1 as follow

 Amount of compensation = 1,06,800×1/2=53,400

 

W.N.- 3: Calculation of Share of Profit till the date of retirement on the basis of past three year profits

Average Profit = 3,00,000 + 2,75,000 + 3,25,000/3=3,00,000

Profit share of Chetan = 3,00,000 ×1×6/5×12= 15,000