DK Goel Solutions Chapter 5 Retirement or Death of a Partner

Read below DK Goel Solutions Class 12 Chapter 5 Retirement or Death of a Partner. These solutions have been designed based on the latest Class 12 DK Goel Accountancy book used by commerce stream students issued for the current year and the questions given in each chapter.

Whenever there is a retirement or death of a partner there can be an accounting impact of this change. students should be able to understand how to account for such kind of events in a partnership form and correctly pass the accounting entries so that the statements reflect the correct position of the partnership firm.

The chapter contains a lot of questions which can be very helpful for Class 12 commerce students of Accountancy and will also help build strong concepts which will be really helpful in your career.

These solutions are free and will help you to prepare for Class 12 Accountancy. Just scroll down and read through the answers provided below

Retirement or Death of a Partner DK Goel Class 12 Accountancy Solutions

Short Answer Questions

Question 1. Why a retiring or deceased partner is entitled to a share of goodwill of the firm?

Solution 1
The product of the contributions of all current collaborators in the past is goodwill received by the organization. A percentage of potential gains will accrue regardless of the current goodwill and future earnings will not be shared by the retired or deceased partner. The surviving partners should then reward the retired or deceased partner by entitling him or her to a share of the goodwill of the company.

Question 2. Discuss the method of treatment of goodwill at the time of retirement of a partner.

Solution 2
The handling of a partner’s goodwill at the time of retirement can be achieved in the capital account of the partner. The capital account of the retired or dead partner will be paid with his share of goodwill and the capital account of the continuing partner will be debited into their earnings ratio.
Journal Entry
Continuing Partner’s Capital A/cs Dr. (Gaining ratio)
To Retiring/ Deceased Partner’s Capital A/c (Share of goodwill)
(Retirement/deceased partner’s goodwill share
In the acquiring percentage, tailored to on going partners)

Question 3. What are the adjustments require on retirement of a partner from the firm?

Solution 3
The following modifications include the retirement of a partner from the company:
(i) Calculate the current percentage of gains for all other partners.
(ii) The new ratio of the remaining partners is determined.
(iii) Measurement of the firm’s goodwill and accounting care.
iv) Asset and obligation revaluation.
(v) Sharing between all partners of combined gains and losses and reserves.
(vi) Shared Life Strategy Treatment.
(vii) Settlement of the balance due to the spouse retiring.
(iii) Transfer of the remaining partners’ capital accounts to a current profit-sharing ratio.

Question 4. What is gaining ratio? How is it calculated at the time of the retirement of a partner?

Solution 4
The gaining ratio is the ratio in which the on-going partners receive the share of the withdrawing partner. It is determined by deducting the old proportion from the current proportion.
Formula for Calculating Gaining Ratio:
Gaining ratio = New ratio – Old ratio.

Question 5. Give any three points of distinction between sacrificing ratio and gaining ratio.

Solution 5

Class 12 Chapter 5 Retirement or Death of a Partner 1

Question 6. How would you calculate the amount payable to the representative of a deceased partner?

Solution 6
The deceased partner’s legal executive is entitled to the balance number of the capital account of the deceased partner.
The following things are posted in the deceased partner’s capital account on the debit side:
(a) Credit balance in a capital account or current account of the deceased spouse.
(b) The profit share of the deceased spouse up to the date of his or her death.
(c) The share of goodwill of the deceased partner.
(d) The share of the deceased spouse in the net reserves and the taxable account.
(e) The share of the deceased partner in the gains from the revaluation of assets and liabilities.
(f) The share of the deceased partner in the shared life policy.
(g) Capital interest and salary or commission, if any, before the date of death.

The following things are posted on the credit side of the deceased partner’s capital account:
(a) Debit balance for the capital account and current account of the deceased partner.
(b) The sum withheld in the form of drawings before the day of the partner’s death.
(c) Curiosity in paintings up to the date of death, if any.
(d) The proportion of losses of the deceased partner in the revaluation of assets and liabilities.
(e) The share of the loss of the deceased spouse up to the date of death.
(f) The dead partner’s share of the company’s cumulative damages.

Question 7. If a partner dies during the year, how will you find out the share of profit of the deceased partner?

Solution 7
The executors of the deceased partner shall now be entitled to the share of earnings gained by the company from the beginning of the year until the day of his death if the death of the partner occurred on any day during the year. From any of the following methods, such benefit can be determined:
(a) Dependent on Time.
(b) On a revenue or turnaround basis.

Question 8. Name five items which are credited to the account of a deceased partner while calculating the amount due to his legal representatives.

Solution 8
The products that are attributed to a deceased partner’s account when determining the balance owed to his legal representatives:-
1.) His share of the increase in the appreciation of the company’s goodwill.
2.) The sum that is attributable to his capital account credit.
3.) If given in the partnership deed, interest on money.
4.) His share of gains on asset and obligation revaluation.
5.) His share of the benefit or reserves that are undistributed.

Practical Questions:-

Question 1. (A)
A, B and C are partners sharing profit in the ratio of 6:5:4. Calculate new profit sharing ratios if (i) A retires; (ii) B retires; (iii) C retires.

Solution 1 (A)
It is given that old Ratio = 6 : 5 : 4.
By striking out the share of the withdrawing partner, the current percentage of the remaining partners is determined.
The current ratio between B and C will be 5:4 as A retires.
The current ratio between A and C will be 6:4 after B retires.
The current ratio between A and B will be 6:5 after C retires.

Question 1. (B)
A, B, C and D are partners sharing profits in the ratio of 5:3:1:2. Calculate the new profit sharing ratio if B and C retire from the firm.

Solution 1 (B)
It is given that old Ratio = 5:3:1:2.
The new ratio between A and D would be 5:2 if B and C are excluded.

Question 2. X, Y and Z are partners sharing profits in the ratio of 2/3 : 1/4 : 1/12. Calculate the new ratio if X retires.

Solution 2
It is given that the old ratio of X, Y and Z is 2/3:1/4:1/12
Take LCM of Denominator 3, 4 and 12 is 12.
New ratio is (8 ∶ 3 ∶ 1)/12
New ratio = 8:3:1
The current ratio between Y and Z would be 3:1 after X is removed.

Question 3. L, M and O were partners in a firm sharing profit in the ratio of 3:2:2. M retired and his share was divide equally between L and O. Calculate the new profit sharing ratio of L and O.

Solution 3
It is given that the old Ratio of L, M and O are 3:2:2.
M’s Share will be divided into L and O equally.
L’s Gaining and New Ratio:-
Gaining Ration of L = 2/7 of 1/2 = 2/14 or 1/7

New Ratio of L = 3/7+1/7=(3+1)/7= 4/7

O’s Gaining and New Ratio:-
Gaining Ratio of O = 2/7 of 1/2 = 2/14 or 1/7
New Ratio is O = 2/7+1/7=(2+1)/7= 3/7
Hence, the New Ratio of L and O = 4/7:3/7 or 4 : 3

Question 4. A, B and C are partners sharing profits in the ratio 4:3:2. B retires and his share was taken up by A and C in the ratio of 3:2. Find out the new ratio.

bIt is given that old Ratio of A, B and C = 4:3:2
We can write it as old Ratio of A, B and C = 4/9:3/9:2/9
The share of B would be split between A and C at a ratio of 3:2.

Gaining Ratio of A = 3/5 of 3/9= 9/45
New Ratio of A = 4/9+9/45=(20+9)/45=29/45

Gaining Ratio of C = 2/5 of 3/9= 6/45
New Ratio of C = 2/9+6/45=(10 + 6)/45=16/45
Hence, the new ratio of A and C = 29/45:16/45 or 29 : 16

Question 5. (A)
A, B and C are partners sharing profits in the ratio of 4:3:1. A retires and his share is taken over by B and C equally. Calculate the new ratio.

Solution 5 (A)
It is given that old ratio of A, B and C = 4:3:1
We can write is as old ratio of A, B and C = 4/8:3/8:2/8
A’s share would be split evenly between B and C.

Gaining Ratio of B = 1/2 of 4/8= 1/4
New Ratio B = 3/8+1/4=(3+2)/8=5/8
Gaining Ratio of C = 1/2 of 4/8= 1/4
New Ratio C = 1/8+1/4=(1 + 2)/8=3/8
Hence, the new ratio of B and C = 5/8:3/8 or 5 : 3

Question 5. (B)
A, B and C are partners sharing profits in the ratio of 1/2 : 1/3 : 1/6. B retires and his share is taken by A and C in the ratio of 5:3. Calculate the new ratio.

Solution 5 (B)
It is given that old ratio of A, B and C = 1/2:1/3:1/6
B’s share will be split in a 5:3 ratio between A and C.
Gaining Ratio of A = 5/8 of 1/3= 5/24
New Ratio of A = 1/2+5/24=(12+5)/24=17/24
Gaining Ratio of C = 3/8 of 1/3= 3/24
New Ratio of C = 1/6+3/24=(4 + 3)/24=7/24
Hence, the new ratio of A and C = 17/24:7/24 or 17 : 7

Question 6. X, Y and Z are partners sharing in the ratio of 2:2:1. Y retires and his share is entirely taken by X. Calculate the new ratio.

Solution 6
It is given that old ratio = 2:2:1
We can write it is as old ratio = 2/5:2/5:1/5
Z has fully taken over Y’s share.
New Share of X = 2/5
New Share of Y = 1/5+ 2/5=3/5
Hence, the new ratio of X and Z = 2/5:3/5 or 2:3

Question 7. P, Q and R are in partnership sharing profits and losses as ½, 2/6 and 1/6 respectively. R retires and his share is taken by P and Q in the ratio of 2:1. Immediately, S is admitted for 1/4th share of profit, 1/3rd of which was given by P and the remaining share was taken equally from P and Q. Calculate new profit sharing ratio after S’s admission.

Solution 7
It is given that the existing ratio of P and Q = 1/2 and 2/6
P’s acquired from R = 1/6×2/3=2/18
Q’s acquired form R = 1/6×1/3=1/18
New Share of P = 1/2+2/18=11/18
New Share of Q = 2/6+1/18=7/18
Share given by P and S = 1/4×1/3=1/12
Remaining share = 1/4-1/12=(3-1)/12=2/12 = 1/6
S gets it from both P and Q in equal amounts.
P and Q each give S 1/2 of 1/6 = 1/12 each.

New Share of P = 11/18-1/12-1/12=(22-3-3)/36=16/36
New Share of Q = 7/18-1/12=(14-3)/36=11/36
P, Q, and S have a new profit-sharing ratio = 16/36:11/36:1/4
P, Q, and S have a new profit-sharing ratio = 16 : 11 : 9.

Question 8.
(A)
A, B and C were partners sharing profit in the ratio of 7:5:3. Find out the gaining ratio and new ratio when (i) A retires, (ii) B retires or (iii) C retires.

Solution 8
(A)
It is given that old Ratio of A, B and C = 7:5:3
(i) As A retires, B and C have a 5:3 gaining ratio. A retires, resulting in a new 5:3 ratio between B and C.
(ii) As B retires, A and C will have a 7:3 benefit ratio. B retires, resulting in a new 7:3 ratio between A and C.
(iii) After C retires, A and B will have a 7:5 benefit ratio. C retires, resulting in a new 7:5 ratio between A and B.

Question 8.
(B)
X, Y and Z share profits in the ratio of 1/2, 3/10, 1/5. Calculate the gaining ratio and new ratios when:
(i) X dies (ii) Y dies or (iii) Z dies.

Solution 8
(B)
It is given that old ratio of X, Y and Z is 1/2:3/10:1/5
We can write it as old ratio of X, Y and Z is 5:3:2
(i) The gaining ratio between Y and Z when X dies is 3:2. When X dies, the new Y:Z ratio is 3:2.
(ii) The gaining ratio between X and Z is 5:2 when Y dies. When Y dies, the new X:Z ratio is 5:2.
(iii) The gaining ratio between X and Y is 3:2 when Z dies. When Z dies, the new X:Y ratio is 5:3.

Question 8.
(C)
P, Q, R and S were partners sharing profits in the ratio of 5:4:3:1. P and S retire from the firm. Calculate the gaining ratio and new profit sharing ratio of Q and R.

Solution 8
(C)
It is given that old ratio of P, Q, R and S is 5:4:3:1
P and S retire:
Q and R’s Gaining Ratio is 4 : 3
Q and R’s New Ratio is 4 : 3

Question 9.
(A)
On 1st April, 2018 Ashish, Namish and Aman were partners sharing profits and losses in the ratio 2/5, 2/5 and 1/5 respectively. On this date Namish retires. The new profit sharing ratio of Ashish and Aman will be ¾ and ¼ respectively. Calculate gaining ratio.

Solution 9
(A)
Gaining Ratio = New Ratio – Old Ratio
Gaining Ratio of Ashish = 3/4-2/5=(15 – 8)/20=7/20
Gaining Ratio of Aman = 1/4-1/5=(5 – 4)/20=1/20
Hence, the gaining ratio of Ashish and Aman of 7 : 1

Question 9.
(B)
On 1st April, 2018 A, B and C were partners sharing profits and losses in the ratio of A 5/10, B 3/10 and C 2/10 respectively. On this date B retires. The new profit sharing ratio of A and C will be A 3/5 and C 2/5. Calculate gaining ratio.

Solution 9
(B)
Gaining Ratio = New Ratio – Old Ratio
Gaining Ratio of A = 3/5-5/10=(6 – 5)/10=1/10
Gaining Ratio of B = 2/5-2/10=(4 – 2)/10=2/20
Hence, the gaining ratio of A and B of 1 : 2

Question 10. (A)
A, B and C are partners sharing profits in the ratio of ½: 1/3: 1/6. C retires and A and B decide to share future profits equally. Calculate the gaining ratio.

Solution 10
(A)
Gaining Ratio = New Ratio – Old Ratio
Gaining Ratio of A = 1/2-1/2=0
Gaining Ratio of B = 1/2-1/3=(3 – 2)/6=1/6
Hence, the gaining ratio B of 1/6

Question 10. (B)
A, B, C and D are partners sharing profits in the ratio of 5:4:3:2. A retires and B, C and D decide to share the profits and losses equally in future. Calculate the gaining ratio.

Solution 10
(B)
Gaining Ratio = New Ratio – Old Ratio
Gaining Ratio of B = 1/3-4/14=(14 – 12)/42=2/42
Gaining Ratio of C = 1/2-3/14=(14 – 9)/42=5/42
Gaining Ratio of D = 1/3-2/14=(14 – 6)/42=8/42
Gaining Ratio of B, C and D = 2/42 ∶ 5/42 ∶8/42
Hence, the gaining ratio of B, C and D = 2 : 5 : 8

Question 11. Rekha, Ruchi and Suruchi are partners. Ruchi retires. Calculate new ratio if continuing partners acquired her share in the ratio of 2 : 3. Also mention the gaining ratio.

Solution 11
Gain from Rekha = 2/5 of 1/3= 2/15

New share Rekha = 1/3+2/15=(5 + 2)/15=7/15

Gain from Suruchi = 3/5 of 1/3= 3/15

New share Suruchi = 1/3+3/15=(5 + 3)/15=8/15
New Ratio of Rekha and Suruchi = 7/15 and 8/15
Hence, the new ratio of Rekha and Suruchi = 7 : 8

Question 12. X, Y and Z are partners sharing profits in the ratio of 1/9: 1/3 and 5/9. Z retires and surrenders 3/4th of this share in favour of X and remaining in favour of Y. Calculate new ratio and gaining ratio.

Solution 12
Z’s share will be split between X and Y in the following ratio 3/4 ∶ 1/4
Gaining Ratio of X = 3/4 of 5/9= 15/36
New Share of X = 1/9+15/36=(4 + 15)/36=19/36
Gaining Ratio of Y = 1/4 of 5/9= 5/36
New Share of Y = 1/3+5/36=(12 + 5)/36=17/36
New Ratio of X and Y = 19/36 : 17/36
New Ratio of Rekha and Suruchi = 19 : 17
Hence, the gaining ratio of X and Y is 3 : 1

Question 13. P, Q, R and S were partners sharing profits in the ratio of 2 : 3 : 5 : 2. S retires and his share is acquired by Q and R in the ratio of 3: 2. Calculate new ratio and gaining ratio.

Solution 13
S’s share will be split between Q and R in the following ratio 3 : 2.
Gaining Ratio of Q = 3/5 of 2/12= 6/60
New Share of Q = 3/12+6/60=(15 + 6)/60=21/60
Gaining Ratio of R = 2/5 of 2/12= 4/60
New Share of R = 5/12+4/60=(25 + 4)/60=29/60
P’s share will not change 2/12
New Ratio of P, Q and R = 2/12 : 21/60:29/60
New Ratio of P, Q and R = (10 ∶ 21 ∶ 29)/60
Hence, the new ratio of P, Q and R is 10 : 21 : 29 and Gaining Ratio of Q and R = 3 : 2

Question 14. A and B were partners sharing profits in the ratio of 5:3. On 1st April, 2014 they admitted C as a new partner for 1/4th share which he acquired from A and B in the ratio of 3 : 2. On 1st April 2015, another new partner D was admitted for 1/6th share which he acquires 1/10 from A and 1/15 from C. On 1st April, 2016 A dies and his share was taken over by B, C and D equally.
Calculate :
(i) New profit sharing ratio of A, B and C on C’s admission.
(ii) New profit sharing ratio of A, B, C and D on D’s admission.
(ii) New profit sharing ratio of B, C and D on A’s death.

Solution 14:
Computation of Sacrificing Ratio:-
Sacrificing Ratio of A = 3/5 of 1/4 = 3/20

Sacrificing Ratio B = 2/5 of 1/4 = 2/20

Computation of New Profit Ratio of A, B and C:-
New Profit Sharing Ratio of A = 5/8-3/20=(25-6)/40=19/40
New Profit Sharing Ratio of B = 3/8-2/20=(15-4)/40=11/40
New Profit Sharing Ratio of C = 1/4
New Profit Sharing of A, B and C = 19/40:11/40:1/4
New Profit Sharing A, B and C = (19 ∶ 11 ∶ 10)/40
Hence, The New Profit Sharing of A, B and C = 19 : 11 : 10

(ii) New Profit Sharing Ratio of A, B, C and D:-

New Profit Ratio of A = 19/40-1/10=(19-4)/40=15/40
New Profit Ratio of B = 11/40
New Profit Ratio of C = 10/40-1/15=(30-8)/120=20/120
New Profit Ratio of D = 1/6
New Ratio of A, B, C and D = 15/40:11/40:22/120:1/6
New Ratio of A, B, C and D = (45 ∶ 33 ∶ 22 ∶ 20)/120
Hence, The New Ratio of A, B, C and D = 45 : 33 : 22 : 20

(iii) New Profit Sharing Ratio on A’s death:-
Equally share divided in between B, C and D of A’s Share = 45/120×1/3=15/120
New Profit Sharing Ratio B = 33/120+15/120=48/120
New Profit Sharing Ratio C = 22/120+15/120=37/120
New Profit Sharing Ratio D = 20/120+15/120=35/120
New Ratio of B, C and D = 48 : 37 : 35

Question 15. X, Y and Z are partners sharing profits in the ratio of 5 : 4 : 3. X retires from the firm and it is decided that new prom-sharing ratio between Y and Z will be same as existing between X and Y. Calculate new ratio and gaining ratio.

Solution 15
New Ratio of Y and Z will also be 5 : 4
Gaining Ratio = New Ratio – Old Ratio
Gaining Ratio of Y = 5/9-4/12=(20 – 12)/36=8/36
Gaining Ratio of Z = 4/9-3/12=(16 – 9)/36=7/36
Gaining Ratio of Y and Z = 8/36:7/36
Hence, the gaining ratio of Y and Z = 8 : 7

Question 16. (A)
L, M and N are three partners sharing profits in the ratio of 4:3:2 respectively. M retires and the goodwill is valued at Rs. 1,08,000. No goodwill account appears as yet in the books of the firm. L and N will share profits in future in the ratio 5:3 respectively. Pass Journal Entry for goodwill.

Solution 16 (A)

Working Note:-
Calculation of Gaining Ratio:-
Gaining Ratio = New Ratio – Old Ratio
Gaining Ratio of L = 5/8-4/9=(45-32)/72=13/72

Gaining Ratio of N = 3/8-2/9=(27 – 16)/72=11/72

Hence, the gaining ratio = 13 : 11

Point for Students:-
It is calculated when a partner retires or dies. When a partner retires or dies, his share of profit is taken over by the remaining partners. The ratio in which the remaining partners share increase is called the gaining ratio. Gaining Ratio is the ratio in which the remaining partners will pay the amount of goodwill to the retiring partner.

Question 16. (B)
Ashok, Rakesh and Mukesh were partners sharing profits and losses in the ratio of 2:2:1. On 1st April, 2018, their goodwill was valued at Rs. 3,00,000; there bring no account for it in the books. On this date Rakesh retired. Pass the Journal Entry to record goodwill.

Solution 16 (B)

Point for Students:-
The retiring or decreased partner is entitled to his share of goodwill at the time of retirement or death because the goodwill earned by the firm is the result of the efforts of all the existing partners in the past. Since a part of the future profits will be accruing because of the present goodwill and the retiring of deceased partner will not be sharing future profits, it will be fair to compensate the retiring or decreased partner for the same.

Question 17. A, B and C are sharing profits in the ratio of 4:3:2. Goodwill is appearing In the book value of Rs. 42,000. C retires and on the day of C’s retirement Goodwill Rs. 63,000. Pass the necessary journal entries.

Solution 17

Question 18.(A)
P, Q and R are equal partners. Goodwill is appearing in their books at Rs. 4,00,000. R retire and on the day of R’s retirement Goodwill is valued at Rs. 2,50.000. Pass the necessary journal entries.

Solution 18

Points for Students:-
The following modifications include the retirement of a partner from the company:
(i) Calculate the current percentage of gains for all other partners.
(ii) The new ratio of the remaining partners is determined.
(iii) Measurement of the firm’s goodwill and accounting care.
iv) Asset and obligation revaluation.
(v) Sharing between all partners of combined gains and losses and reserves.
(vi) Shared Life Strategy Treatment.
(vii) Settlement of the balance due to the spouse retiring.
(iii) Transfer of the remaining partners’ capital accounts to a current profit-sharing ratio.

Question 18.(B)
A, B and C are partners sharing profits and losses in the ratio of 2:2:1. C decided to retire and on this date goodwill of the firm is valued at Rs. 2,00,000. Pass entries when goodwill account is already appearing in the books at Rs. 1,50,000.

Solution 18 (B)

Question 19.(A)
P, R and S are in partnership sharing profits 4/8, 3/8 and 1/8 respectively. It is provided under the partnership deed that on the death of any partner his share of goodwill is to be valued at one-half of the net profits credited to his account during the last 4 completed years (books of accounts are closed on 31st March).
R died on 1st April, 2018. The firm’s profits for the last 4 years were as follows: 2015 (Profits Rs. 1,20,000); 2016 (Profits Rs. 60,000); 2017 (Losses Rs. 20,000) and 2018 (Profits Rs. 80,000).

Determine the amount that should be credited to R in respect of his share of goodwill.
Pass journal entry for the adjustment of goodwill, assuming that profit sharing ratio between P and S in future will be 3 : 2. Show your working clearly.

Solution 19
(A)

Valuation of Goodwill:-
Total Profit for 4 Years = Rs. 1,20,000 + Rs. 60,000 – Rs. 20,000 + Rs. 80,000 = Rs. 2,40,000
Profit to R’s Capital A/c = Rs. 2,40,000 × 3/8 = Rs. 90,000
R’s share of Goodwill = Rs. 90,000 × 1/2 = Rs. 45,000

Working Note:-
Computation of Gaining Ratio :-
Gaining Ratio = New Ratio – Old Ratio

Gaining Ratio of P = 3/5-4/8=(24-20)/40=4/40

Gaining Ratio of S = 2/5-1/8=(16 – 5)/40=11/40

Hence, Gaining ratio = 4 : 11

Question 19.(B)
A, B, C and D are partners in a firm sharing profits and losses in the ratio of 2:2:1:1. A and C decided to retire from the firm. The goodwill of the firm was valued at Rs. 90,000. B and D decided to share future profits in the ratio of 5:3.
Pass necessary journal entry for the treatment of goodwill.

Solution 19
(B)

Working Note:-
Computation of Gaining Ratio:-
Gaining Ratio = New Ratio – Old Ratio

Gaining Ratio of B = 2/6-5/8=(8-15)/24=7/24

Gaining Ratio of D’s gaining = 1/6-3/8=(4 – 9)/24=5/24

Gaining ratio of B and D = 7 : 5

A’s Share of Goodwill = Rs. 90,000 × 2/6 = Rs. 30,000

C’s Share of Goodwill = Rs. 90,000 × 1/6 = Rs. 15,000

Total Goodwill = Rs. 30,000 + Rs. 15,000 = Rs. 45,000

Point for Students:-
The product of the contributions of all current collaborators in the past is goodwill received by the organization. A percentage of potential gains will accrue regardless of the current goodwill and future earnings will not be shared by the retired or deceased partner. The surviving partners should then reward the retired or deceased partner by entitling him or her to a share of the goodwill of the company.

Question 20. Surender, Ramesh, Naresh and Mohan are partners in a firm sharing profits in 2:1:2:1 ratio. On the retirement of Naresh, the Goodwill was valued at Rs. 72,000. Surender, Ramesh and Mohan decided to share future profits equally. Pass the necessary journal entry for the treatment of goodwill.

Solution 20

Working Note:-
Computation of Gaining Ratio:-
Gaining Ratio = New Ratio – Old Ratio

Gaining Ratio of Surender = 1/3-2/6=(2-2)/6=0

Gaining Ratio of Ramesh = 1/3-1/6=(2 – 1)/6=1/6

Gaining Ratio of Mohan = 1/3-1/6=(2 – 1)/6=1/6

Gaining Ratio of Ramesh and Mohan is 1:1.

Question 21. Arjun, Bhim and Nakul are partners sharing profits and losses in the ratio of 14 : 5: 6 respectively. Bhim retires and surrenders his 5/25th share favour of Arjun. The goodwill of the firm is valued at 2 years purchase of super profits based on average profits of last 3 years. The profits for the last 3 years are Rs. 50,000, Rs. 60,000 and Rs. 55,000 respectively. The normal profits for the similar firm are Rs. 30,000. Goodwill already appears in the books of the firm at Rs. 75,000. The profit for the first year after Bhim’s retirement was Rs. 1,00,000. Give the necessary journal entries to adjust Goodwill and to distribute profits showing your workings clearly.

Solution 21

Working Note:-
Valuation of Goodwill:-
Total Profit for 3 Years = (Rs. 50,000 + Rs. 60,000 + Rs. 55,000)/3 = Rs. 55,000

Super Profit = Average Profit – Normal Profits
Super Profit = Rs. 55,000 – Rs. 30,000
Super Profit = Rs. 25,000
Goodwill = Rs. 50,000 × 5/25 = Rs. 10,000

Computation of New Ratio:-
A Gaining Ratio of rjun = 14/25+5/25=(14 + 5)/25=19/25
A Gaining Ratio of rjun Nakul = 6/25+0=6/25
Gaining ratio = 19 : 6

Question 22 (A).
A, B and C were partners sharing profits in the ratio of 6:4.5 Their capitals were A – Rs. 1,00,000, B – Rs. 80,000 and C – Rs. 60,000. On 1st April 2018, B retired from the firm and the new profit sharing ratio between A and C was decided as 11:4. On B’s retirement the goodwill of the firm was valued at Rs. 1,80,000. Showing your Computations clearly pass necessary journal entry for the treatment of goodwill on B’s retirement.

Solution 22
(A)

Working Note:-
Computation of Gaining Ratio :-
Gaining Ratio = New Ratio – Old Ratio
A’s gaining Ratio = 11/15-6/15=(11 – 6)/15=5/15 (Gain)
B’s gaining Ratio = 0-4/15= (-4)/15 (Sacrifice)
C’s gaining Ratio = 4/15-5/15=(4 – 5)/15=(-1)/15 (Sacrifice)
A’s has gained 5/15 and B and C will sacrificed in the ratio of 4:1.

Question 22. (B)
X, Y and Z were partners in a firm sharing profits in the ratio of 3:2:1. Z retired and the new profit sharing ratio between X and Y was 1 : 2. On Z’s retirement the goodwill of the firm was valued at Rs. 30,000. Pass necessary journal entry for the treatment of goodwill on Z’s retirement.

Solution 22 (B)

Working Note:-
1.) Z’s Share in goodwill = Rs. 30,000 × 1/6 = Rs. 5,000

2.) Computation of Gaining Ratio :-
Gaining Ratio = New Ratio – Old Ratio

X’s Sacrifice Ratio = 1/3-3/6=(2 – 3)/6=1/6 (Sacrifice)
Y’s gaining Ratio = 2/3-2/6= (4 – 2)/6=2/6 (Gain)
Y’s will gained 2/6 and X will sacrificed 1/6 in favour of Y.

Question 23. A, B, C and D are partners sharing profits in the ratio of 5:3:3:1. On the retirement of C, goodwill was valued at Rs. 3,60,000. C’s share of goodwill will be adjusted into the capital accounts of A,B and D. Pass necessary entry for the treatment of goodwill when new profit sharing ratio is decided at 9:2:1.

Solution 23

Working Note:-
1.) C’s Share in goodwill = Rs. 3,60,000 × 3/12 = Rs. 90,000

2.) Computation of Gaining Ratio :-
Gaining Ratio = New Ratio – Old Ratio
A’s Sacrifice Ratio = 9/12-5/12=(9 – 5)/12=4/12 (Gain)
B’s gaining Ratio = 2/12-3/12= (2 – 3)/12=(-1)/12 (Sacrifice)
C’s Sacrifice Ratio = 0-3/6=(0 – 3)/6=(-3)/6 (Sacrifice)
D’s Sacrifice Ratio = 1/12-1/12=(1 – 1)/12=0
A’s will gained 4/12.

Question 24. A, B, C and D are partners sharing profits in the ratio of 4:3:2:1. On the retirement of B, Goodwill was valued at Rs. 3,00, 000. A, C and D decide to Continue the firm sharing profits equally. Pass the necessary journal entry.

Solution 24

Working Note:-
1.) B’s share of Goodwill = Rs. 3,00,000 × 3/10 = Rs. 90,000

2.) Computation of Gaining Ratio :-
Gaining Ratio = New Ratio – Old Ratio

Sacrifice Ratio A = 1/3-4/10=(10 – 12)/30=(-2)/30 (Sacrifice)

Sacrifice Ratio B = 0-3/10= (0 – 3)/10=(-3)/10 (Sacrifice)

Sacrifice Ratio C = 1/3-2/10=(10 – 6)/30=4/30 (Gain)

Sacrifice Ratio D = 1/3-1/10=(10 – 3)/30=7/30 (Gain)

C and D will be debited for their gains, while A and B will be awarded for their sacrifices in the ratio of 2:9.

Point for Students:-
The products that are attributed to a deceased partner’s account when determining the balance owed to his legal representatives:-
1.) His share of the increase in the appreciation of the company’s goodwill.
2.) The sum that is attributable to his capital account credit.
3.) If given in the partnership deed, interest on money.
4.) His share of gains on asset and obligation revaluation.
5.) His share of the benefit or reserves that are undistributed.

Question 25. X, Y and Z are partners sharing profits and losses in the ratio of 3:2:1. Y retires selling his share to X and Z for Rs. 1,60,000, Rs. 1,00,000 paid by X and Rs. 60,000 by Z. The profit for the year after Y’s retirement is Rs. 2,40,000.
Pass entries to (a) record the sale of Y’s share to X and Z, and (b) distribute the profit between X and Z.

Solution 25
(i) Record the sale of Y’s share to X and Z:-

(ii) X and Z purchased Y‘s share for Rs. 1,60,000, out of which X pays 1,00,000 and Z pays Rs. 60,000, i.e., X and Z will share Y’s shale of profit in the ratio of 1,00,000 : 60,000 = 5 : 3.
New Profit sharing ratios of X and Z will be:
X gets 5/8th of Y’s share of 2/6 = 5/8 ×2/6=5/24

X’s old share = 3/6

X’s New share = 3/6+5/24=(12 + 5)/24=17/24

Z gets 3/8th of Y’s share of 2/6 = 3/8 ×2/6=3/24

X’s old share = 1/6

X’s New share = 1/6+3/24=(4 + 3)/24=7/24

New Ratio between X and Z = 17/24:7/24=17:7

(iii) Division of Profit between X and Z:
Profit = Rs. 2,40,000
X’s Share = Rs. 2,40,000 × 17/24 = Rs. 1,70,000

Z’s Share = Rs. 2,40,000 × 7/24 = Rs. 70,000

Question 26 (new). A, B and C were partners sharing profits and losses in the ratio of 5:3:2. Following was their Balance Sheet as at 31^st March, 2020:

A retires on this date and the following adjustments were agreed upon:
(i) Bad debts amounting to Rs. 10,000 were to be written off and provision for doubtful debts be maintained at existing rate.
(ii) An unrecorded creditor of Rs. 20,000 will be taken into account.
(iii) Provision is to be made for legal damages amounting to Rs. 25,000.
(iv) There is a liability for Rs. 15,000 for outstanding salaries.
(v) Sundry creditors be reduced by Rs. 8,000 being a liability not payable.
(vi) Stock be increase by Rs. 15,000 and plant is to be reduced to Rs. 1,80,000.
Pass journal entries to give effect to above adjustments and prepare Revaluation Account.
Solution 26 (new).

Question 26. A, B, C and D are partners sharing profits in the ratio of 2 : 4 : 3 : 1. C retires and for this purpose goodwill is valued at two year’s purchase of average super profits of last four years, which are as under:

1^st Year	Rs. 40,000
2^nd Year	Rs. 10,000 (Loss)
3^rd Year	Rs. 1,00,000
4^th Year	Rs. 1,50,000

The normal profits for similar firms is Rs. 56,000. Record necessary entry for goodwill on retirement of C.

Solution 26

Working Note:-
Average Profit :- (Rs.40,000 – Rs.10,000 + Rs.1,00,000 + Rs.1,50,000)/4 = Rs. 70,000

Super Profit = Average Profit – Normal Profits
Super Profit = Rs. 70,000 – Rs. 56,000
Super Profit = Rs. 14,000

Goodwill = Rs. Super Profit × Number of year Purchases
Goodwill = Rs. 14,000 × 2
Goodwill = Rs. 28,000

C’s Share of goodwill = Rs. 28,000 × 3/10 = Rs. 8,400

Point for Students:-
The handling of a partner’s goodwill at the time of retirement can be achieved in the capital account of the partner. The capital account of the retired or dead partner will be paid with his share of goodwill and the capital account of the continuing partner will be debited into their earnings ratio.

Question 27. A, B, C and D are partners sharing profits in the ratio of 1:2:3:4. D retires and his share is taken up by A and B equally. Goodwill was valued at 3 vear’s purchase of average profits which were Rs. 20,000. General Reserve showed a balance of Rs. 65,000 at the time of D’s retirement.
You are required to record necessary journal entries to record the above adjustments on D’s retirement. You are also required to prepare his capital account to find out the amount due to him when his capital balance in the balance sheet was Rs. 1,50,000 before any adjustment. Also calculate the new profit sharing ratios.

Solution 27

Working Note:-
D’s Share of Goodwill = Rs. 60,000 × 4/10 = Rs. 24,000

Computation of New Ratio:-
D’s share will be split evenly between A and B:
A’s Gain = 1/2 of 4/10=2/10

New Share of A = 1/10+2/10=3/10

B’s Gain = 1/2 of 4/10=2/10

New Share of B = 2/10+2/10=4/10

C’s share will remain the same 3/10

New Ratio of A, B and C = 3/10:4/10:3/10

Hence, the new ratio of A, B and C is 3:4:3

Question 28. A, B, C and D are partners sharing profits in the ratio of 4:3:2:2. C retires and the remaining partners decided to share future profits in 5:3:2. On the date of C’s retirement there was a debit balance of Rs. 30,800 in the profit and loss account. Show the necessary journal entry for the treatment of profit and loss account balance.

Solution 28

Question 29. A, B and C are partners sharing profits and losses in the ratio of 2:2:1. A retires and the new ratio between B and C is agreed at 3:2. Give journal entries on A’s retirement in the following cases :
(a) Workmen Compensation Reserve appears in the books at Rs. 1,20,000 and there is a claim of Rs. 1,50,000 against it.
(b) Investment Fluctuation Reserve appears in the books at Rs. 40,000, when Investments (market value Rs. 1,00,000) appear at Rs. 85,000.

Solution 29

Question 30. A, B and C are partners sharing profits in the ratio of 3 : 2:1. C retires and new profit sharing ratio is agreed at 3 : 1. They also decided to record the effect of the following without affecting their book values:
Rs.
General Reserve 1,00,000
Profit & Loss Account 45,000
Advertisement Suspense Account 25,000
You are required to pass the necessary single adjusting entry.

Solution 30

Working Note:-
Computation of Net Effect:-
Net Effect = General Reserve + Profit & Loss Account – Advertisement Suspense Account
Net Effect = Rs. 1,00,000 + Rs. 45,000 – Rs. 25,000
Net Effect = Rs. 1,20,000

Computation of Sacrifice or Gaining Ratio:-
A’s Share = 3/6-3/4=(6 – 9)/12=-3/12 (Gain)
B’s Share = 2/6-1/4=(4 – 3)/12=1/12 (Sacrifice)

Question 31. A, B and C are partners sharing profits in the ratio of 5: 3:2. C retires and A and B agree to share future profits in the ratio of 6:4. Goodwill is to be taken at two year’s purchase of the average profits of the last 5 years which were Rs. 10,000; Rs. 25,000, Rs. 15,000 (loss);Rs. 36,000 and Rs. 44,000 respectively.

You are required to record necessary journal entries in the books of the firm and prepare C’s Capital Account on his retirement.

Solution 31

Working Note:-
Valuation of Goodwill:-
Average Profit = (10,000 + 25,000 – 15,000 + 36,000 + 44,000)/5=Rs.20,000
Goodwill of 2 year Purchases = Rs. 20,000 × 2 = Rs. 40,000
C’s Share = Rs. 40,000 × 2/10 = Rs. 8,000

Computation of Gaining and Sacrificing Ratio:-
A’s Share = 6/10-5/10=1/10
B’s Share = 4/10-3/10=1/10
Gaining Ratio = 1 : 1

Question 32. (A)
X, Y and Z are partners in a firm sharing profits and losses equally. The Balance Sheet of the firm as at 31st March, 2020 stood as follows:

Z retires on lst April, 2018 subject to the following adjustments :
(i) Freehold Property be valued at Rs. 5,80,000.
(ii) Investments be valued at Rs. 47,000; and stocks be valued at Rs. 94,000.
(iii) A provision of 5% be made for doubtful debts.
(iv) Trade Marks are valueless.
(v) An item of 12,000 included in creditors is not likely to be claimed.
(vi) Goodwill be valued at one year’s purchase of the average profit of the past three years. Profits ending 31st March were: 2016 Rs. 1,20,000; 2017 Rs. 1,30,000 and 2018 Rs. 95,000.
Pass journal entries, give capital accounts and the balance sheet of the remaining partners.

Solution 32
(A)

Working Note:-
Goodwill = (Rs. 1,20,000+Rs. 1,00,000+Rs.95,000)/3 = Rs. 1,05,000
Z’s Share of goodwill = Rs. 1,05,000 × 1/3 = Rs. 35,000

Question 32. (B)
The Balance Sheet of A, B and C who were sharing profits in proportion to their Capitals stood as follows as at 1st April, 2020:

C retires on the above date on the following conditions:
I. Fixed Assets be reduced by 10%.
II. Investments are revalued at Rs. 10,000.
III. Debtors were all good.
IV. Outstanding expenses be increased by Rs. 600.
V. Interest accrued on Investments Rs. 1,800.
VI. Goodwill of the firm be valued at Rs. 9,000.
Prepare capital accounts and the revised balance sheet.

Solution 32
(B)

Working Note:
C’s share of Goodwill = 9,000 x 1/6 = Rs. 1,500.
It will be credited to C’s Capital A/c and debited to A and B’s Capital A/cs in their gaining ratio of 3 : 2.

Point for Students:-
The goodwill is not shown in the books of a firm. However, if at the time of retirement of death of a partner, it appears in the balance sheet of a firm, it will be written off by debiting all the partner’s capital accounts in their old profit sharing ratio and crediting the goodwill account.

Question 33. Manoj, Naveen and Deepak were partners sharing profits and losses in the ratio of 4 : 3:2. As at 1st April 2018, their Balance Sheet was as follows.

Deepak retired on the above date as per the following terms :

Goodwill of the firm was valued at Rs. 21,000.
Stock to be appreciated by 10%.
Provision for doubtful debts should be 5% on debtors.
Machinery is to be valued at 5% more than its book value.
Motor Car is revalued at Rs. 15,500. Retiring partner took over Motor Car at this value.
Deepak be paid Rs. 2,000 in cash and balance be transferred to his loan account.

Show necessary journal entries. Prepare Revaluation Account, Capita Account and Opening Balance Sheet of continuing partners.

Solution 33

Question 34. The following was the Balance Sheet Of Ram and Shyam as at 31st March, 2020:

Ram retired from the business on 1st April, 2020. Goodwill is to be valued at Rs. 10,000. The Patents were valueless, Plant and Machinery is to be depreciated by 10%. A provision of 5% for Doubtful Debts is to be created on Book Debts. Assuming that these adjustments are duly carried out, show the Capital Accounts and Balance Sheet of Shyam after Ram has been paid off. Shyam borrows money from his bank on security of Plant and Machinery to pay off Ram.

Solution 34

Question 35 (new). Anita, Gaurav and Sonu were partners in a firm sharing profits and losses in proportion to their capitals. Their Balance Sheet as at 31^st March, 2019 was as 31^st March, 2019 was as follows
BALANCE SHEET of Anita, Gaurav and Sonu as at 31^st March, 2019

On the above date, Anita 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 as follows:
(i) Goodwill of the firm was valued at Rs. 3,00,000 and Anita’s share of goodwill was adjusted in the capital accounts of the remaining partners, Gaurav and Sonu.
(ii) Land and Building was to be brought up to 120% of its book value.
(iii) Bad Debts amounted to Rs. 20,000. A provision for doubtful debts was to be maintained at 10% on debtors.
(iv) Market value of investments was Rs. 1,10,000.
(v) Rs. 1,00,000 was paid immediately by cheque to Anita out to the amount due and the balance was to be transferred to her loan account which was to be paid in two equal annual installments along with interest @ 10% p.a.
Solution 35 (new).

Question 35. Sameer, Yasmin and Saloni were partners in a firm sharing profits and losses in the ratio of 4 : 3 :3. On 31.3.2016, their Balance Sheet was as follows:

On the above date, Sameer retired and it was agreed that :
(i) Debtors of Rs. 24,000 will be written off as bad debts and a provision of 5% on debtors for bad and doubtful debts Will be maintained.
(ii) An unrecorded creditor of Rs. 20,000 will be recorded.
(iii) Patents will be completely written off and 5% depreciation will be charged on stock, machinery and building.
(iv) Yasmin and Saloni will share future profits in the ratio of 3 : 2.
(v) Goodwill of the firm on Sameer’s retirement was valued at Rs. 5,40,000.
Pass necessary journal entries for the above transactions in the books of the firm on Sameer’s retirement.

Solution 35.

Working Note:-
1.) Computation of Gaining Ratio:-
Yasmin’s Gaining Ratio = 3/5-3/10=(6 – 3)/10=3/10
Saloni’s Gaining Ratio = 2/5-3/10=(4-3)/10=1/10
Gaining Ratio = 3 : 1

2.) Net Debtors = Rs. 90,000 – Rs. 4,000 = Rs. 86,000

Provision @ 5% on Rs. 86,000	Rs. 4,300
Less: Current Provision Rs. 10,000 – Rs. 4,000	Rs. 6,000
Excess Provision Credited to Revaluation	Rs. 1,700

Question 36. Following is the Balance Sheet of X, Y and Z as at 31st March, 2018. They shared profits in the ratio of 3 : 3:2.

On 1st April, 2018 Y decided to retire from the firm on the following terms.
(a) Stock to be depreciated by Rs. 12,000.
(b) Advertisement Suspense Account to be written off.
(c) Provision for Bad and Doubtful Debts to be increased to Rs. 6,000.
(d) Fixed Assets be appreciated by 10%.
(e) Goodwill of the firm be valued at Rs. 80,000 and the amount due to the retiring partner be adjusted in X’s and Z’s Capital Accounts.
Prepare the Revaluation Account, Partner’s Capital Accounts and the Balance Sheet to give effect to the above.

Solution 36.

Working Note:-
1.) Y’s Share of goodwill = Rs. 80,000 × 3/8 = Rs. 30,000
X and Z in their Gaining Ratio of 3:2
X’s Gain = Rs. 80,000 × 3/5 = Rs. 18,000
Z’s Gain = Rs. 30,000 × 2/5 = Rs. 12,000

Question 37. (A)
X. Y and Z were partners in a firm sharing profits in 5 :3 :2 ratio. On 31st March, 2016 Z retired from the firm. On the date of Z‘s retirement the Balance Sheet of the firm was as follows :

On Z’s retirement it was agreed that :
(i) Land and Building will be appreciated by 5% and furniture will be depreciated by 20%.
(ii) Provision for doubtful debts will be made at 5% on debtors and provision for legal claims will be made Rs. 60,000.
(iii) Goodwill of the firm was valued at Rs. 60,000.
(iv) Rs. 70,000 from Z’s Capital Account will be transferred to his loan account and the balance will be paid to him by cheque.
Prepare Revaluation Account, Partners’ Capital Accounts and Balance Sheet of X and Y after Z’s retirement.

Solution 37.
(A)

Working Note:-
1.) Z’s Share of goodwill = Rs. 60,000 × 2/10 = Rs. 12,000
X and Z in their Gaining Ratio of 5:3
X’s Gain = Rs. 12,000 × 5/8 = Rs. 7,500
Z’s Gain = Rs. 12,000 × 3/8 = Rs. 4,500

Question 37. (B)
A, B and C are partners sharing profits in the ratio of their Capitals. Their Balance Sheet as at March 31, 2020 is as under :

A retired on this date.
Additional Information:
(i) Furniture and fittings were undervalued by 14,000.
(ii) An amount of 112,000 due from Mr. Ann, a debtor, was doubtful and a provision for the same is required.
(iii) Stock be valued at 90%.
(iv) Goodwill of the firm be valued at 160,000.
(v) 11,00,000 be transferred to A’s loan account and balance be paid through bank. Bank overdraft be arranged, if required.
(vi) B and C will share future profits in 5:3.
Prepare necessary ledger accounts and balance sheet of the firm after A ’s retirement.

Solution 37. (B)

Working Note:-
1.) Computation of Gaining Ratio:
B’s Share = 5/8-2/5=(25- 16)/40=9/40
C’s Share = 3/8-1/5=(15- 8)/40=7/40
Gaining Ratio = 9 : 7

2.) A’s Share of Goodwill = Rs. 60,000 × 2/5 = Rs. 24,000
B will be debited by Rs. 24,000 × 9/16 = Rs. 13,500
C will be debited by Rs. 24,000 × 7/16 = Rs. 10,500

3.) Computation of Bank Overdraft:
Bank Overdraft = Bank Balance as per Balance Sheet – Amount required to pay off
Bank Overdraft = Rs. 44,800 – Rs. 1,24,800
Bank Overdraft = Rs. 80,000

Question 38. A. B and C are in partnership sharing profits in the ratio of 3 : 2 : 1. On 28th February. 2017 C retires from the firm. Their Balance Sheet on this date was as follows :

The following was agreed upon :
(i) Goodwill of the firm is valued at Rs. 1,50,000. C sells his share of goodwill to A and B in the ratio of 4: 1.
(ii) Stock is revalued at 3,00,000 and debtors arc revalued at Rs. 1,50,000.
(iii) Outstanding expenses be brought down to Rs. 3,000.
(iv) Investments are sold at a loss of 10%.
(v) C is paid off in full.
Prepare Revaluation Account, Capital Accounts and the Balance Sheet of the new firm.

Solution 38.

Question 39. On 31st March, 2018 the Balance Sheet M/s A, B and C sharing profits and losses in proportion to their fixed capitals stood as follows :

On 1st April, 2018, B wants to retire from the firm and the remaining partners decide to carry on. The following re-adjustments of assets and liabilities have been agreed upon before the ascertainment of the amount payable to B :
(i) That, out of the Fire Insurance Premium paid during 2017-18. ? 10.000 be carried forward as unexpired.
(ii) That the land and buildings be appreciated by 10%.
(iii) That provision for doubtful debts be brought upto 5% on debtors.
(iv) That the machinery be depreciated by 5%.
(v) That a provision for Rs. 15,000 be made in respect of an outstanding bill for repairs.
(vi) That the goodwill of the entire firm be at Rs. 1,80,000 and B’s share of the same adjusted in the A/cs of A and C who share future profits in the proportion of 3/4th and 1/4th respectively; and
(vii) That B be paid Rs. 50,000 in cash and the balance be transferred to his Loan A/c.
Prepare Revaluation A/c, Partner‘s Current Accounts, Capital A/cs and the Balance Sheet of the firm of A and C.

Solution 39.

Question 40. Anand, Bihari and Shivin are equal partners in a firm. Bihari retires and his claim including his capital and his share of goodwill is Rs. 40,000. He is paid in kind, a vehicle valued at Rs. 20,000 which is unrecorded in the books of the firm till the date of retirement and the balance in cash.
You are required to give the journal entries for recording the payment to Bihari in the books of the firm.

Solution 40.

Question 41. The Balance Sheet of X, Y and Z who were sharing profit in proportion of capitals is as follows:

Y retires and the following adjustments of the assets and liabilities have been made before the ascertainment of the amount payable by the firm to Y :
(i) That the stock be depreciated by 5%.
(ii) That the provision for doubtful debts be increased to 5% on debtors.
(iii) That the land and building be appreciated by 20%.
(iv) That a provision of Rs. 750 be made in respect of outstanding legal charges.
(v) That the Goodwill of the entire firm be fixed at Rs. 16,200 and Y‘s share of the same be adjusted into the Accounts of X and Z.
(vi) That X and Z decide to share future profits of the firm in equal proportion.
(vii) That the entire capital of the new firm is fixed at Rs. 48,000 between X and Z in equal proportions. For the purpose, actual cash is to be brought in or paid off.
You are required to prepare the Revaluation Account, Partner’s Capital Accounts, Bank account and revised balance sheet after Y’s retirement. Also indicate the gaming ratio.

Solution 41.

Working Note:-
Computation of Gaining Ratio:-
X’s Gain = 1/2-5/12=(6-5)/12=1/12
Z’s Gain = 1/2-3/12=(6-3)/12=3/12
Y’s Share of goodwill = Rs. 16,200 × 4/12 = Rs. 5,400

Question 42. On 31st March, 2015, the Balance Sheet of Saman, Harish and Meeta who were sharing profits and losses in the ratio of 2 : 3 : 2, stood as follows :

On 31st March, 2015, Harish retired from the firm and the remaining partners decided to carry on the business. It was agreed to revalue the assets and liabilities as follows :
(i) Land and buildings be appreciated by 20%.
(ii) Machinery be depreciated by 20%.
(iii) Closing stock be valued at Rs. 4,50,000.
(iv) Provision for Doubtful Debts be made at 5% on Debtors.
(v) Sundiy creditors of ?65,000 be written off.
(vi) Goodwill ofthe firm be valued at 35,60,000 and Harish’s share of the goodwill be
adjusted in the accounts of 83111011 and Meeta who will share the filture profits and
losses in the ratio of 3 : 2.
(vii) The total capital of the newly constituted firm will be 85,00,000, which will be
adjusted by opening Current Accounts.
(viii) Amount due to Harish 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 new firm on Harish’s retirement.

Solution 42.

Working Note:-
1.) Computation of Gaining Ratio:-
Saman’s Gain = 3/5-2/7=(21-10)/35=11/35
Meeta’s Gain = 2/5-2/7=(14-10)/35=4/35
Gaining Ratio = 11:4

2.) Harish’s Share of goodwill = Rs. 5,60,200 × 3/7 = Rs. 2,40,000
Saman’s Share = Rs. 2,40,000 × 11/15 = Rs. 1,76,000
Meeta’s Share = Rs. 2,40,000 × 4/15 = Rs. 64,000

3.) Total Capital new firm = Rs. 35,00,000
Saman’s Capital = Rs. 35,00,000 × 3/5 = Rs. 21,00,000
Meeta’s Capital = Rs. 35,00,000 × 2/5 = Rs. 14,00,000

Question 43 (new). On 31^st March, 2015, the Balance Sheet of Saman, Harish and Meeta who were sharing profits and losses in the ratio of 2 : 3 : 2, stood as follows :
BALANCE SHEET
as at 31^st March, 2021

On 31st March, 2015, Harish retired from the firm and the remaining partners decided to carry on the business. It was agreed to revalue the assets and liabilities as follows :
(i) Land and buildings be appreciated by 20%.
(ii) Machinery be depreciated by 20%.
(iii) Closing stock be valued at Rs. 4,50,000.
(iv) Provision for Doubtful Debts be made at 5% on Debtors.
(v) Sundry creditors of Rs. 65,000 be written off.
(vi) Goodwill of the firm be valued at Rs. 5,60,000 and Harish’s share of the goodwill be adjusted in the accounts of Suman and Meeta who will share the future profits and losses in the ratio of 3 : 2.
(vii) The total capital of the newly constituted firm will be 85,00,000, which will be adjusted by opening Current Accounts.
(viii) Amount due to Harish 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 new firm on Harish’s retirement.
Solution 43 (new).

Working Note:-
1.) Calculation of Gaining Ratio:-
Saman’s Gain = 3/5-2/7=(21-10)/35=11/35
Meeta’s Gain = 2/5-2/7=(14-10)/35=4/35
Gaining Ratio = 11:4

2.) Harish’s Share of goodwill = Rs. 5,60,200 × 3/7 = Rs. 2,40,000
Saman’s Share = Rs. 2,40,000 × 11/15 = Rs. 1,76,000
Meeta’s Share = Rs. 2,40,000 × 4/15 = Rs. 64,000

3.) Total Capital new firm = Rs. 35,00,000
Saman’s Capital = Rs. 35,00,000 × 3/5 = Rs. 21,00,000
Meeta’s Capital = Rs. 35,00,000 × 2/5 = Rs. 14,00,000

Question 43. Ajay, Vijay and Sanjay are partners in a firm sharing profits and losses in the ratio of 5 : 4 : 3. Vijay retires. After making all adjustments relating to revaluation, goodwill and accumulated profits, etc. the capital account of Ajay showed a credit balance of Rs. 2,00,000 and that of Sanjay Rs. 1,00,000. It was decided to adjust the capitals of Ajay and Sanjay in their profit sharing ratio. You are required to calculate the new capital of the partner’s and record necessary entry for surplus/deficit.

Solution 43.

Total Capital of Ajay and Sanjay = Rs. 2,00,000 + Rs. 1,00,000 = Rs. 3,00,000
Profit Sharing Ratio = 5:3
Ajay’s Capital = Rs. 3,00,000 × 5/8 = Rs. 1,87,500
Cash withdrawn by Ajay = Rs. 2,00,000 – Rs. 1,87,500 = Rs. 12,500
Sanjay’s Capital = Rs. 3,00,000 × 3/8 = Rs. 1,12,500
Cash bought by Sanjay = Rs. 1,12,500 – Rs. 1,00,000 = Rs. 12,500

Question 44. X, Y and Z are partners in a firm sharing profits in the ratio of 3 : 2 : 1. On April 1st 2018, X retires from the firm, Y and Z agree that the capital of the new firm shall be fixed at Rs. 2,10,000 in the profit sharing ratio. The Capital Accounts of Y and Z after all adjustments on the date of retirement showed balances of Rs. 1,45,000 and Rs. 63,000 respectively. State the amount of actual cash to be brought in or to be paid to the partners.

Solution 44.
After X’s retirement, the new ratio of Y and Z is 2:1.
Y’s Capital in the new firm should be = Rs. 2,10,000 × 2/3= Rs. 1,40,000
Cash withdrawn by Y = Y’s New Capital – Y’s existing Capital
Cash withdrawn by Y = Rs. 1,40,000 – Rs. 1,45,000
Cash withdrawn by Y = Rs. 5,000

Z’s Capital in the new firm should be = Rs. 2,10,000 × 1/3 = Rs. 70,000
Cash withdrawn by Y = Y’s New Capital – Y’s existing Capital
Cash withdrawn by Y = Rs. 70,000 – Rs. 63,000
Cash withdrawn by Y = Rs. 7,000

Question 45. Following is the Balance Sheet of Kusum, Sneh and Usha as at 31st March 2018, who have agreed to share profits and losses in proportion of their capitals.

On 31st March, 2018 Kusum desired to retire from the firm and the remaining partners decided to carry on the business. It was agreed to revalue the assets and re-assess the liabilities on that date, on the following basis :
(i) Land and Building be appreciated by 30%.
(ii) Machinery be depreciated by 30%.
(iii) There were Bad debts of Rs. 35,000.
(iv) The claim on account of Workmen Compensation Reserve was estimated at Rs. 15,000.
(V) Goodwill of the firm was valued at Rs. 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 of3 : 4 respectively.
(vi) Capital of the new film 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.
(vii) Amount due to Kusum be settled by paying Rs. 1,00,000 in cash and balance by transferring to her loan A/c which will be paid later on.
Prepare Revaluation Account, Capital Accounts Partners and Balance Sheet of the new firm afier Kusum’s retirement.

Solution 45.

Working Note:-
Computation of Gaining Ratio:-
Sneh’s Gain = 3/7-3/7=0
Usha’s Gain = 4/7-2/7=(4-2)/17=2/7

Total Capital of Ajay and Sanjay = Rs. 2,00,000 + Rs. 6,00,000 + Rs. 3,00,000 = Rs. 14,00,000
Profit Sharing Ratio = 5:4
Sneh’s Capital = Rs. 14,00,000 × 3/7 = Rs. 6,00,000
Ush’s Capital = Rs. 144,00,000 × 4/7 = Rs. 8,00,000

Question 46. A, B and C are partners sharing profits in 4: 3 : 3. Their Balance Sheet as at 31st March 2018 was as follows:

C retires on 1st April, 2018 and A and B decide to share future profits in the ratio of 6 : 4. It is agreed that: (i) Goodwill of the firm is valued at Rs. 80,000.
(ii) Land & Building is undervalued by Rs. 1,00,000 and Stock is overvalued by 20%.
(iii) Provision for Doubtful Debts is to be decreased to 710,000.
(iv) Computer valued 730,000 was unrecorded in the books.
It was decided to pay off C by giving him this computer and the balance in annual instalments of Rs. 1,00,000 together with interest @ 10% p.a.
You are required to prepate :
(a) Revaluation Account.
(b) C’s Capital Account, and
(c) C’s Loan Account till it is finally closed.

Solution 46.

Working Note:-
C’s Share of Goodwill = Rs. 80,000 × 3/10 = Rs. 24,000
Old Ratio A, B and C = 4:3:3
New Ratio of A and B = 6:4

Computation of Gaining ratio:-
A’s Gain = 6/10-4/10=2/10
B’s Gain = 4/10-3/10=1/10
Gaining Ratio = 2:1

Question 47. Lalit, Madhur and Neens were partners sharing profits as 50%. 30% and 20% respectively. On 3 1st March, 2013, their Balance Sheet was as follows :

On this date, Madhur retired and Lalit and Neena agreed to continue on the following terms :
(a) The goodwill of the firm was valued at Rs. 51,000.
(b) There was a claim for Workmen’s Compensation to the extent of Rs. 6,000.
(c) Investment were brought down to Rs. 15,000.
(d) Provision for bad debts was reduced by Rs. 1,000.
(e) Madhur was paid Rs. 10,300 in cash and the balance was transferred to his loan account payable in two equal instalments together with interest @12% p.a.
Prepare Revaluation Account, Partners’ Capital Accounts and Madhur’s Loan Account till the loan is finally paid off.

Solution 47.

Working Note:-
Computation of Gaining Ratio:-
Madhur’s Share of Goodwill = Rs. 51,000 × 3/10 = Rs. 15,300

Question 48. R, S and T were partners in a firm sharing profits in 2:2:1 ratio. On 1-4-2017 their Balance Sheet was as follows:

S retired from the firm on 1-4-2017 and his share was ascertained on the revaluation of assets as follows:
Stock Rs. 40,000; Furniture Rs. 6,000; Plant and Machinery Rs. 18,000; Building Rs. 40,000; Rs. 1,700 were to be provided for doubtful debts. The goodwill of the firm was valued at Rs. 12,000.
S was to be paid Rs. 21,6 80 in cash on retirement and the balance in three equal quarterly instalments (starting from 30th June 2017) along with interest @12% . Prepare Revaluation Account, Partner’s Capital Accounts, S’s Loan Account and Balance Sheet on 1-4 -2017.

Solution 48

Question 49. Following is the Balance Sheet of G, K & W as at 31st March, 2015 who share profits in the ratio of 3:2:1.

On 1st April, 2015. G retired and the following arrangements were agreed upon :
(1) Goodwill of the firm is to be valued at Rs. 15,000.
(2) The assets and liabilities are to be valued as under : Stock Rs. 10,000; Sundry Debtors Rs. 11,500; Land and Buildings Rs. 18,000; Plant and Machinery Rs. 16,500; and Sundry Creditors Rs. 9,200.
(3) Liability for Workmen’s Compensation amounting to Rs. 500 is to be brought into the books.
(4) The entire capital of the firm as newly constituted be fixed at Rs. 35,000 between K and W in the proportion of 4 : 3 and the actual cash to be paid off or to be brought in by continuing partners as the case may be.
(5) Rs. 13,150 were paid to G. The balance due to him was to be paid in three equal instalments annually together with interest @ 12% per annum.
Give necessary ledger accounts. the Balance Sheet of the firm after G’s retirement and G’s Loan Account till it is finally paid off.

Solution 49.

Question 50 A (new). Following is the Balance Sheet of G, K & W as at 31^st March, 2015 who share profits in the ratio of 3:2:1.

On 1st April, 2015, G retired and the following arrangements were agreed upon:
(1) Goodwill of the firm is to be valued at Rs. 15,000.
(2) The assets and liabilities are to be valued as under: Stock Rs. 10,000; Sundry Debtors Rs. 11,500; Land and Building Rs. 18,000; Plant and Machinery Rs. 16,500; and Sundry Creditors Rs. 9,200.
(3) Liability for Workmen’s Compensation amounting to Rs. 500 is to be brought into the books.
(4) The entries capital of the firm as newly constituted be fixed at Rs. 35,000 between K and W in the proportion of 4:3 and the actual cash to be paid off or to be brought in by continuing partners as the case may be.
(5) Rs. 13,150 were paid to G. The balance due to him was to be paid in three equal instalments annually together with interest @ 12% per annum.
Give necessary ledger accounts, the Balance Sheet of the firm after G’s retirement and G’s Loan Account till it is finally paid off.
Solution 50 A (new).

Working Note:-
G’s share in Goodwill = Rs. 15,000 × 3/6 = Rs. 7,500

Question 50. (A)
The Balance Sheet of X, Y and Z who are sharing profits & losses in the proportion of 1/2 : 1/3 : 1/6 respectively was as follows as at March 31, 2015 :

X retires from the business from 1st April, 2015 and his share in the firm is to be ascertained on a revaluation of the assets as follows: Stock Rs. 20,000; Furniture Rs. 3,000; Machinery Rs. 9,000; Building Rs. 20,000; and Rs. 850 are to be provided for doubtful debts. The goodwill of the firm is agreed to be valued at Rs. 6,000. X is to be paid Rs. 11,050 in cash on retirement and the balance in three equal annual instalments with interest at 5% p.a.
Show Revaluation Account, X ’s Capital Account and his Loan Account till final payment.

Solution 50
(A)

Question 50.
(B)
P, Q and R were partners sharing profits and losses in the ratio of 5 : 3 : 2 respectively. As at 31st March, 2018, the Balance Sheet of the firm stood as follows :

On this date Q decided to retire and for this purpose :
(a) Goodwill was valued at Rs. 19,000;
(b) Fixed assets were valued at Rs. 30,000;
(c) Stock was considered as worth Rs. 10,000.
Q was to be paid through cash, brought in by P and R, in such a way as to make their capitals proportionate to their new profit sharing ratio which was to be P 3/5 and R 2/5.
Record these matters in the journal of the firm and prepare the resultant Balance Sheet.

Solution 50 (B)

Working Note:-
1.) Computation of Gaining Ratio:-
Gaining Ratio = New Ratio – Old Ratio
P’s Gaining Ratio = 3/5-5/10=(6 – 5)/10=1/10
R’s Gaining Ratio = 2/5-2/10=(4-2)/10=2/10
Gaining Ratio = 1 : 2

2.) Total Capital of the New Firm = Rs. 21,600 + Rs. 17,800 + Rs. 5,600 = Rs. 45,000

Question 51. P, Q and R are partners in a firm. R retires from the firm. On the date of retirement, Rs. 3,00,000 is due to him. It is agreed to pay him in instalments every year at the end of the year. Prepare R’s Loan Account in the following cases :
(i) Five yearly instalments plus interest @ 15% p.a.
(ii) Instalments of Rs. 1, 00,000 which already includes interest @ 15% p.a. on the outstanding balance for the first four years and the balance including interest in the fifth year.

Solution 51.
(i)

(ii)

Question 52. A, B and C are partners in a firm sharing profits in the ratio of 3 :2: 1. On 31st March 2014 C retired. Following balances were disclosed by the Finn’s Balance Sheet on this date :
(i) Capitals: A Rs. 10,00,000; B Rs. 6,00,000 and C Rs. 4,40,000.
(ii) Profit & Loss (Dr. Balance) Rs. 15,000.
(ii) Advertisement Expenditure Rs. 15,000.
Revaluation of Assets and re-assessment of liabilities resulted in a loss of Rs. 60,000. On the retirement of C, goodwill is valued at Rs. 1,80,000.
The amount payable to C is agreed to be paid in two yeariy instalments of Rs. 2,00,000 each including interest @ 10% p.a. on the outstanding balance during the first two years and the balance including interest in the third year. Books are closed on 31st March every year.
Prepare C‘s Loan Account till it is finally paid.

Solution 52.

Working Note:-

Question 53. Kushal, Kumar and Kavita were partners in a firm sharing profits in the ratio of 3 : 1 : 1. On 1st April, 2012 their Balance Sheet was as follows :

On the above date Kavita retired and the following was agreed :
(i) Goodwill of the firm was valued at Rs. 40,000.
(ii) Land was to be appreciated by 30% and building was to be depreciated by Rs. 1,00,000.
(iii) Value of furniture was to be reduced by Rs. 20,000.
(iv) Bad debts provision is to be increased to Rs. 15,000.
(v) 10% of the amount payable to Kavita was paid in cash and the balance was transferred to her Loan Account.
(vi) Capitals of Kushal and Kumar will be in proportion to their new profit sharing ratio. The surplus/ deficit, if any in their Capital Accounts will be adjusted through Current Accounts.
Prepare Revaluation Account, Partner’s Capital Accounts and Balance Sheet of Kushal and Kumar after Kavita’s retirement.

Solution 53.

Question 54. A, B and C are partner’s sharing profits in the ratio of 50%, 30% and 20%. B retires and after all adjustments relating to accumulated profits, goodwill and revaluation etc. their capitals stood at Rs. 1,90,000; Rs. 1,50,000 and Rs. 80,000 respectively. It was decided that entire sum payable to B is to be brought in by A and C in such a way so as to make their capitals proportionate to their profit sharing ratio. Calculate the amount to be brought in by A and C and pass entries for the same. Also pass entry relating to payment to B.

Solution 54.

Working Note:-
Computation of New Capital:
New Profit = A’s Capital Account + C’s Capital Account – Amount payable to B
Total Capital = Rs. 1,90,000 + Rs. 80,000 – 1,50,000
Total Capital = Rs. 4,20,000
A’s New Ratio = Rs. 4,20,000 × 5/7 = Rs. 3,00,000
C’s New Ratio = Rs. 4,20,000 × 2/7 = Rs. 12,00,000

	A (Rs.)	B (Rs.)
Capital required	3,00,000	1,20,000
Less: – Existing Capital	1,90,000	80,000
	Rs. 110,000	Rs. 40,000

Question 55. P, Q and R are in partnership sharing profits in the ratio of 3:2:1. R retires. Following balances appeared in their books:

Goodwill is agreed at Rs. 30,000. Sufficient money is to be introduced so that R is paid off and leave Rs. 4,000 in cash at bank. P and Q are to provide such sum as will make their Capitals proportionate to their share of profits.
Prepare necessary entries and the new balance sheet.

Solution 55.

Working Note:-

P’s New Capital = Rs. 6,00,000 × 3/5 = Rs. 36,000
Q’s New Capital = Rs. 6,00,000 × 2/5 = Rs. 24,000
Amount to be brought in P and Q:

Question 56. A, B and C were equal partners. Their Balance Sheet as at 31st March, 2017 was as under :

B retired on 1st April, 2017. A and C decided to continue the business sharing profits in the ratio of 3:2. Following terms were agreed :
(a) Goodwill of the firm was valued at Rs. 57,600.
(b) Reserve for bad and doubtful debts to be maintained at 10% on debtors.
(c) Land and building to be increased to Rs. 1,32,000.
(d) Furniture to be reduced by Rs. 8,000.
(e) Rent outstanding (not provided for as yet) was Rs. 1,500.
Remaining partners decided to bring sufficient cash in the business to pay off B and to maintain a bank balance of Rs. 24,800. They also decided to readjust their capitals as per their new profit sharing ratio.
Prepare necessary Ledger Accounts and Balance Sheet.

Solution 56.

Working Note:-
Gaining Ratio =New Ratio – Old Ratio
A’s Gain = 1/2-1/3=(3-2)/6=1/2
B’s Gain = 1/2-1/3=(3-2)/6=1/6
B’s Share of Goodwill = Rs. 57,600 × 1/3 = Rs. 19,200

Question 57. X, Y and Z are partners sharing profits in the ratio of 4 : 2 : 3. Y retires. On this date his Capital after making adjustments for reserves and revaluation exists at Rs. 2,00,000. X and Z agreed to pay him Rs. 2,40,000 in fill settlement of his account Record necessary journal entry for the treatment of goodwill if X and Z decided to share future profits equally.

Solution 57.

Question 58. A, B and C were partners in a firm. B died on 31st August, 2018. B’s share of profit from the closure of the last accounting year till the date of death was to be calculated on the basis of the average of three completed years of profits before death. Profits for the years ending 31st March 2016, 2017 and 2018 were Rs. 40,000; Rs. 50,000 and Rs. 72,000 respectively. The firm closes its books on 31st March every year.
Calculate B’s share of profit till the date of her death and pass the necessary journal entry for the same assuming :
(i) there is no change in the profit sharing ratio of A and C;
(ii) there is change in the profit sharing ratio of A and C and the new ratio is 7 : 5.

Solution 58.
Average Profit = (Rs.40,000 + 50,000 +72,000 )/3 = Rs. 54,000
Five month’s profit, i.e, from 1st April, 2018 to 31st August, 2018= Rs. 54,000 X 5/12 = Rs. 22,500
Share of B till his death = Rs. 22,500 X 1/3 = Rs. 7,500.
(i) when there is no change in the profit sharing ratio of A and C;

(ii) When there is change in the profit sharing ratio of A and C and the new ratio is 7 : 5.
A Gains: 7/12- 1/3 = (7-4)/12 =3/12
C Gains: 5/12 – 1/3 = (5-4 )/12 = 1/12
Hence, Gaining Ratio of A and C = 3:1

Question 59. Hari, Mohan and Sohan were partners in a firm sharing profits in 2 : 2 : 1 ratio. The firm closes its books on 31st March every year. Mohan died on 24-8-2017. On Mohan‘s death the goodwill of the firm was valued at Rs. 75,000. The partnership deed provided that on the death of a partner his share in the profits of the firm in the year of his death will be calculated on the basis of last year’s profit. The profit of the firm for the year ended 31-3-2017 was Rs. 2,00,000. Calculate Mohan’s share of profit till the time of his death and pass the necessary journal entries for the treatment of goodwill and his share of profit.

Solution 59.

Working Notes:
(i) Mohan’s share of goodwill = Rs. 75,000 X2/5 = Rs. 30,000. It will be debited to the Capital Accounts of hari and Sohan in their gaining ratio, i.e., 2:1.
(ii) Number of days from March 31 to August 24 = 146
Mohan’s share of profit = 2,00,000 X 146/(365 ) X 2/5 = Rs. 32,000.

Question 60. A, B and C are sharing profits in the ratio of 4 : 3 : 2. A dies on 31st December, 2019. Accounts are closed on 3 1st March every year. Sales for the year ending 31st March,2019 amounted to Rs. 4,00,000. Sales of Rs. 3,30,000 amounted between the period from 1st April. 2017 to 31st December, 2019. The profit for the year ending 31st March, 2019 amounted to Rs. 60,000.
Calculate the deceased partner’s share in the current year‘s profits of the firm.
Solution 60. Profit from 1st April 2019 to 31st December, 2019 on the basis of sales If sales are Rs. 4,00,000, profit is Rs. 60,000
If sales are Rs. 3,30,000 profit will be 60,000/(4,00,000 ) × 3,30,000= Rs. 49,500
A’s share will be = Rs. 49,500 × 4/(9 ) = Rs. 22,000

Question 61. P, R and S are in the partnership sharing profit in the ratio of 2:1:1 respectively. R died on 1st Feb.2018 and it is decided that profit sharing ratio between P and S in future will be 2:3. Pass the necessary journal entries.

Solution 61.

Question 62 (new). A, B and C were partners in a firm sharing profit and losses in the ratio of 2:2:1. Their books are closed on March 31st every year.
B died on 1st August, 2019. The executors of B are entitled to:
(i) His share of Capital i.e. Rs. 4,00,000 along-with his share of goodwill. The total goodwill of the firm was valued at 1.5 year’s purchases of last year’s profit.
(ii) His share of profit up to his date of death on the basis of sales till date of death. Sales for the year ended March 31, 2019 was Rs. 4,00,000 and profit for the same year was Rs. 80,000. Sales shows a growth trend of 25% and percentage of profit earning is increased by 4%.
(iii) Amount payable to B was transferred to his executors.
Pass necessary Journal Entries and show the working clearly.
Solution 62 (new).

Working Note:-
Calculation of Goodwill:-
Total goodwill of firm = Rs. 80,000 × 1.5 year
Total goodwill of firm = Rs. 1,20,000
B’s share in goodwill = Rs. 1,20,000 × 2/5 = 48,000

Calculation of Profit:-
Profit of the firm = Rs. 80,000
B’s Profit = Rs. 80,000 × 2/5 × 6/12 = Rs. 16,000

Question 62. The Balance Sheet of Sindhu, Rahul and Kamlesh, who were sharing profits in the ratio of 3 : 3 : 4 respectively, as at 31st March, 2012 was as follows :

Sindhu died on 31st July 2012. The partnership deed provided for the following on the death of a partner:
(a) Goodwill of the firm be valued at two years’ purchase of average profits for the last three years which were Rs. 80,000.
(b) Sindhu’s share of profit till the date of his death was to be calculated on the basis of sales. Sales for the year ended 31st March, 2012 amounted to Rs. 8,00,000 and that from 1st April to 31st July 2012 Rs. 3,00,000. The profit for the year ended 31st March, 2012 was Rs. 2,00,000.
(c) Interest on capital was to be provided @ 6% p.a.
Prepare Sindhu’s Capital Account to be rendered to his executor.

Solution 62.

Working Note:
1.Computation of Goodwill:
Goodwill = 2 year’s purchase of average profit of the last three years
Goodwill = 2 X Rs. 80,000
Goodwill = Rs. 1,60,000
Sindhu’s Share of Goodwill = Rs. 1,60,000 × 3/10 = Rs. 48,000
Gaining ratio = 3 : 4

Rahul’s Contribution = Rs. 48,000 × 3/7 = Rs. 20,571
Kamlesh’s Contribution = Rs. 48,000 × 4/7 = Rs. 27,429

Question 63 (new). The Balance Sheet of Sindhu, Rahul and Kamlesh, who were sharing profits in the ratio of 3 : 3 : 4 respectively, as at 31^st March, 2020 was as follows :

Sindhu died on 31st July 2020. The partnership deed provided for the following on the death of a partner :
(a) Goodwill of the firm be valued at two years’ purchase of average profits for the last three years which were Rs. 80,000.
(b) Sindhu’s share of profit till the date of his death was to be calculated on the basis of sales. Sales for the year ended 31st March, 2020 amounted to Rs. 8,00,000 and that from 1st April to 31st July 2020 Rs. 3,00,000. The profit for the year ended 31st March, 2020 was Rs. 2,00,000.
(c) Interest on capital was to be provided @ 6% p.a.
Prepare Sindhu’s Capital Account to be rendered to his executor.
Solution 63 (new).

Working Note:
1.Calculation of Goodwill:
Goodwill = 2 year’s purchase of average profit of the last three years
Goodwill = 2 × Rs. 80,000
Goodwill = Rs. 1,60,000
Sindhu’s Share of Goodwill = Rs. 1,60,000 × 3/10 = Rs. 48,000
Gaining ratio = 3 : 4

Rahul’s Contribution = Rs. 48,000 × 3/7 = Rs. 20,571
Kamlesh’s Contribution = Rs. 48,000 × 4/7 = Rs. 27,429

Question 63. A, B and C were partners in a firm sharing profits in the ratio of 5 : 3 :2. The Balance Sheet as at 31.3.2018 was as follows :

A died on 30.9.2018 and B and C decide to share future profits in the ratio of 7:3. Under the partnership agreement the executors of a deceased partner were entitled to :
(a) Amount standing to the credit of partner’s capital account.
(b) Interest on capital at 12% per annum.
(c) Share of goodwill on the basis of four years purchase of last three years average profit.
(d) Share of profit from the closing of the last financial year to the date of death on the basis of last year’s profit. Profits for the year 2016, 2017 and 2018 were Rs. 8,000; Rs. 12,000 and Rs.7,000 respectively.
Prepare A ’s Capital account to be rendered to his executors.

Solution 63.

Working Note:-
(i) Computation of Gaining Ratio:-
B’s Share = 7/10-3/10=4/10

C’s Share = 3/10-2/10=1/10
Gaining Ratio = 4:1

(ii) Valuation of Goodwill:-
Total Profit = Rs. 8,000 + Rs. 12,000 + Rs. 7,000
Total Profit = Rs. 27,000

Average Profit = (Total Profit )/(Number of years)

Average Profit = (Rs. 27,000 )/3
Average Profit = Rs. 9,000

Goodwill at 4 year purchases = Rs. 9,000 × 4 = Rs. 36,000
A’s Goodwill = Rs. 36,000 × 5/10 = Rs. 18,000

(iii) Share of profit payable to A = Rs. 7,000 × 6/12 × 5/10 = Rs. 1,750

Question 64. Ram, Ghanshyam and Vrinda were partners in a firm sharing profits in the ratio of 4 : 3 : 1. The firm closes its books on 31st March every year. 0n 1st February, 2015 Ghanshyam died and it was decided that the new profit—sharing ratio between Ram and Vrinda will be equal. The Partnership Deed provided for the following on the death of a partner:
(a) His share of goodwill be calculated on the basis of half of the profits credited to his account during the previous four completed years:
The firm’s profit for the last four years were.
2010-11 — Rs. 1,20,000, 2011—12 — Rs. 80,000, 2012-13 — Rs. 40,000, and 2013-14 — Rs. 80,000.
(b) His share of profit in the year of his death was to be computed on the basis of average profits of past two years.
Pass necessary Journal entries relating to goodwill and profit to he transferred to Ghanshyam’s Capital Account. Also show your workings clearly.

Solution 64.

Working Note:-
(i) Computation of gaining Ratio:-
Gaining Ratio = New Share – Old Share
Ram’s Share = 1/2-4/8=Nil

Vrinda’s Share = 1/2-1/8=(4-1)/8=3/8
Vrinda is the only gaining partner.

(2) Computation of Gaining ratio:-
Total Profit of last 4 year = Rs. 1,20,000 + Rs. 80,000 + Rs. 40,000 + Rs. 80,000 = Rs. 3,20,000
Firms Goodwill = Rs. 3,20,000 × 3/8 = Rs. 1,20,000

Ghanshaym’s Goodwill = Rs. 1,20,000 × 1/2 = Rs. 60,000

(3) Ghanshaym’s share of profit:-
Average profit of past two years = (Rs.40,000+Rs.80,000)/2 = Rs. 60,000

Profit for 10 months (from 1st April, 2014 to 1st February 2015)
= Rs. 60,000 × 10/12 = Rs. 50,000
Ghnashaym’s Profit = Rs. 50,000 × 3/8 = Rs. 18,750

Question 65. A, B and C are partners sharing profits in the ratio 4/9:1/3:2/9. B retires and A and C decide to share profits in the ratio of 1:2. It was decided to adjust B’s share of goodwill in the accounts of continuing partners. Pass journal entries.

Solution 65.

Working Note:-
Computation of Gaining Ratio:-
Gaining Ratio = New Ratio – Old Ratio
A’s Share = 1/3-4/9=(3-4)/9=1/9 (Sacrifice)

B’s Share = 2/3-2/9=(6-2)/9 = 4/9 (Gain)

Total Goodwill of the Firm = Rs. 30,000 × 3/1 = Rs. 90,000

A’s share = Rs. 90,000 × 1/9 = Rs. 10,000

C’s share = Rs. 90,000 × 4/9 = Rs. 40,000

Question 66 (new). A, B and C were partners in a firm. A died on 31.3.2018 and the Balance sheet of the firm on that date was as under.

On A’s death it was found that patents were valueless, furniture was to be brought down to Rs. 24,000, Plant was to be reduced by Rs. 10,000 and there was a liability of Rs. 7,000 on account of workmen’s compensation.
Pass the necessary Journal entries for the above at the time of A’s death.
Solution 66 (new).

Question 66. A, B, C and D were partners sharing profits in the ratio of 5 : 3 :2 : 2. B died on 1st March, 2018. Goodwill of the firm was valued at Rs. 6,00,000. A, C and D decided to share future profits equally. Give necessary journal entry.

Solution 66.

Working Note:-
Computation of Gaining Ratio:-
Gaining Ratio = New Ratio – Old Ratio
A’s Share = 1/3-5/12=(4-3)/12=1/12(Sacrifice)
B’s Share = 0-3/12=3/12 (Sacrifice)
C’s Share = 1/3-2/12=(4-2)/12=2/12 (Gain)
D’s Share = 1/3-2/12=(4-2)/12=2/12 (Gain)

Question 67 A (new). Tripti, Atishay and Radhika were partners in a firm sharing profits and losses in the ration of 2:2:1. Their Balance Sheet as at 31-3-2019 was as follows:
BALANCE SHEET OF TRIPTI, ATISHAY AND RADHIKA as at 31^st March, 2019

Tripti died on 30th June, 2019. According to the partnership deed, the executors of the deceased partner are entitled to:
(a) Balance in partner’s Capital account.
(b) Salary @ Rs. 12,500 per quarter.
(c) Share of goodwill calculated on the basis of twice the average of past three year’s profits and share of profits from the closure of last accounting year till the date of death on the basis of last year’s profit. Profits for 2016-17 and 2017-18 were 1,00,000 and Rs. 1,50,000 respectively.
(d) Tripti withdrew Rs. 20,000 on 1st May, 2019 for her personal use.
Prepare Tripti’s Capital Account to be rendered to her executors.
Solution 67 A (new).

Working Notes:-
(1) Calculation of Goodwill:-
Average Profit = (1,00,000 + 1,50,000 + 2,00,000)/3
Average Profit = Rs. 1,50,000

Goodwill of the firm = Average Profits of the last three years × Number of Years’ Purchase
Goodwill of the firm = Rs. 1,50,000 × 2
Goodwill of the firm = Rs. 3,00,000

Tripti’s share of goodwill = Rs. 3,00,000 × 2/5
Tripti’s share of goodwill = Rs. 1,20,000

(2) Calculation of Tripti’s Share of Profit
Last Year’s profit = Rs. 2,00,000

Profit till the date of death = Rs. 2,00,000 × 3/12 = Rs. 50,000
Tripti’s Share of Profits = Rs. 50,000 × 2/5 = Rs. 20,000

Question 67(A). Brown and Smith are partners. The partnership deed provides:
(i) That the Accounts be balanced on 31st December each year.
(ii) That the profits be divided as follows: Brown 1/2; Smith 1/3 and carried to a Reserve account 1/6.
(iii) That in the event of the death of a partner, his executors be entitled to be paid.
Out:-
(a) The Capital to his credit at the date of death.
(b) His proportion of Reserve at the date of last Balance Sheet.
(c) His proportion of profit to date of death based on the average profits of the last three completed years.
(d) By way of goodwill his proportion of the total profits for the three preceding years.
On 3lst December, 2017, the ledger balances were :

The profits for three years were :
2015 Rs. 4,200; 2016 Rs. 3,900; 2017 Rs. 4,500. Smith died on lst May, 2018. Show the accounts as between the firm and Smith’s executors as on May 1st, 2018.

Solution 67 (A).

Working Note:-
Profit Sharing Ratio of Brown and Smith = 1/2:1/3
Profit Sharing Ratio of Brown and Smith =3 : 2

(ii) Share in Profit:-
Average Profit = (Total Profit )/(Number of years)

Average Profit = (Rs. 4,200 +Rs. 3,900 + Rs. 4,500 )/3
Average Profit = Rs. 4,200

Share in Profit = Rs. 4,200 × 4/12 × 2/5 = Rs. 560

(iii) Share in Goodwill:-
Goodwill = Rs. 4,200 + Rs. 3,900 + Rs. 4,500 = Rs. 12,600
Share in goodwill = Rs. 12,600 × 2/5 = Rs. 5,040

Question 67. (B)
X and Y Shared profits in the ratio of 2 ‘. 1. Following is their Balance Sheet as at 3151 March, 2018:

Y died on 30111 June, 2018. Besides his capital and reserves, his legal representatives are entitled to :
(i) His share of goodwill based on 2 years purchase of the last 3 years average profits less 10%. Last three years profits were Rs. 9,000; Rs. 20,000 and Rs. 16,000.
(ii) Fixed Assets are revalued at 776,000. There is no need of provision for doubtful debts, as the debtors are all good.
(iii) He is to be allowed interest at 12% pa, upto the date of death.
Prepare Y’s A10 to be rendered to his legal representatives.

Solution 67. (B)

Working Note:-
Share in Goodwill:-
Average Profit = (Total Profit )/(Number of years)

Average Profit = (Rs. 9,000 +Rs. 20,000 + Rs. 16,000 )/3
Average Profit = Rs. 15,000
Total Goodwill of the firm = Rs. 15,000 × 90/1000×2 = Rs. 27,000

Y’s Share = Rs. 27,000 ×1/3 = Rs. 9000

Question 68. A, B and C are partners in a firm sharing profits in the ratio of 5 : 3 : 2 respectively. Their Balance Sheet as at 31st March, 2018 was as follows :

On 1st October, 2018, due to illness B died.
(1) Goodwill is to be valued at two years’ purchase of the average profits of previous five years, which were : 2014 — Rs. 10,000; 2015 — Rs. 13,000; 2016 —— Rs. 12,000; 2017 — Rs. 15,000 and 2018 — Rs. 20,000.
(ii) Patents were valued at Rs. 8,000; Machinery at Rs. 28,000 and Buildings at Rs. 30,000.
(iii) B’s share of profit till the date of his death will be calculated on the basis of profit of the year 2018.
(iv) Interest on capital will be provided at 10% p.a.
(v) Amount due to B’s executors will be transferred to Charity account.
Prepare B’s capital account to be presented to his executors.

Solution 68

Working Note:
(1) Firm’s Goodwill = (10,0000 + 13,000 + 12,000 +15,000+20,000)/5 X 2
= 14,000 X 2 = Rs. 28,000
B’s share of Goodwill = Rs. 28,000 X 3/10 = Rs. 8,400 which is contributed by A and C in their gaining ratio i.e. 5:2.
(2) B’s Share of profit till the date of death = 20,000 X 6/12 X 3/10 = Rs. 3,000

Question 69. A, B and C are in partnership, sharing profits in the proportion of two—thirds, one-sixth respectively.
A died on the 30th June, 2018, three months after the annual accounts had been prepared and in accordance with the partnership agreement, his share of the profits to the date of death was estimated on the basis of the profit for the preceding year. In addition to this, the agreement provided for interest on capital at 5 per cent per annum on the balance standing to the credit of the capital account at the date of the last Balance Sheet, and also for goodwill, which was to be brought into account at two years’ purchase of the average profits for the last three years.
A ’s capital on 3lst March, 2018 stood at 71,20,000, and his drawings from then to the date of death amounted to Rs. 9,000.
The net profits of the business for the three preceding years amounted to Rs. 33,500; Rs. 41,500 and Rs. 40,500, respectively.
You are required to prepare A’s Capital Account as at the date of death, for a settlement with his executors.

Solution 69
(i) Computation of Goodwill:-
Goodwill = (33,500 + 41,000 + 40,500 )/3 X 2 = Rs. 77,000

A’s share of Goodwill = Rs. 77,000 X 2/3 = Rs. 51,333
It will be credited to A and will be debited to B and C in their gaining ratio i.e., 1/6:1/6 or equally.

(ii) Share of profit:-
A ‘s share = 40,500 × 3/12 × 2/3 = Rs. 6,750.

Question 70. You are given the Balance Sheet of A, B and C who are partners sharing profits in the ratio of2 :2 : l as at March 31, 2017.

B died on June 15, 2017. According to the Deed, his legal representatives are entitled to :
(a) Balance in Capital Account;
(b) Share of goodwill valued on the basis of thrice the average of the past 4 years’ profits;
(c) Share in profits up to the date of death on the basis of average profits for the past 4 years;
(d) Interest on capital account @ 12% 13.3. Profits for the years ending on March 31 of 2014, 2015, 2016, 2017 respectively were Rs. 15,000, Rs. 17,000, Rs. 19,000 and Rs. 13,000.
B’s legal representatives were to be paid the amount due. A and C continued as partners by taking over B’s share equally. Work out the amount payable to B‘s legal representatives.

Solution 70.

Working Note:-
1.) Valuation of Goodwill
Total Profit = Rs. 15,000 + Rs. 17,000 + Rs. 19,000 + Rs. 13,000 = Rs. 64,000
Average Profit = 64,000/4
Average Profit = Rs. 16,000

Goodwill of Firm = 3 × Average Profit
Goodwill of Firm = 3 × Rs. 16,000
Goodwill of Firm = Rs. 48,000

B’s Share = Rs. 48,000 × 2/5 = Rs. 19,200

Profit and Loss = (Rs. 64,000)/4×2/5×2.5/12 = Rs. 1,333

Interest on Capital = Rs. 25,000 × 12/100×2.5/12 = Rs. 625

Question 71. X, Y and Z were partners sharing profits in the ratio of3 : 2 : 1. As at 31st March, 2018, their Balance Sheet stood as under :

Y died on 31st July, 2018. The partnership deed provides that the executors of the deceased partner are entitled to :
(i) The Capital to his credit at the time of his death;
(ii) His share of reserves;
(iii) His share of profits to the date of death based on the average profits of the last three completed years, less 10%, and
(iv) Goodwill according to his proportion of the total profits for the three preceding years, which were Rs. 80,000; Rs. 1,30,000 and Rs. 1,50,000 respectively.
(v) The Investments were sold at par and Y’s executor’s were paid off.
Prepare Partner’s Capital Accounts, Y‘s Executor’s Account and Balance Sheet of the surviving partners X and Z.

Solution 71.

Working Note:-
1.) Total Profit for last three Years = Rs. 80,000 + Rs. 1,30,000 + Rs. 1,50,000 = Rs. 3,60,000
Average Profit = (Rs. 3,60,000)/3
Average Profit = Rs. 1,20,000

Profit from 1st April to 31st July, 2018 = Rs. 1,20,000 × 4/12 = Rs. 40,000

Y’s Share of Profit = Rs. 40,000 × 2/6 = Rs. 13,333
Less = 10% of Rs. 13,333 = 1,333
Y’s Share of Profit = 13,333 – Rs. 1,333
Y’s Share of Profit = Rs. 12,000

(2) Y’s Share of Goodwill:-
Total Profits of last three year = Rs. 3,60,000
Y’s Share in Profit = Rs. 3,60,000 × 2/6
Y’s Share in Profit = Rs. 1,20,000

Question 72. L. Mand N were partners sharing profits and losses in the ratio of 5 : 3 : 2. Their Balance Sheet as at 1.4.2015 was as under :

N died on 5th November, 2015 and according to the partnership deed his executors Were entitled to be paid as under :
(a) The capital to his credit at the time of his death and interest thereon @ 8% per annum.
(b) His share of Reserves.
(c) His share of profits for the intervening period will be based on the sales during that period, which were calculated as Rs. 2,40,000. The rate of profit during past 4 years had been 15% on sales.
(d) Goodwill according to his share of profit to be calculated by taking thrice the amount of the average profit of the last four years less 25%. The profits of the previous years were :

The investments were sold at par and his executors were paid out. Pass the necessary journal entries and write the account of the executors of N.

Solution 72.

Working Note:
(1) Computation of Interest on Capital :
Number of days from April 1,2025 to November 5,2015 = 2019
Interest on Capital = 20,000 X 219/365 X 8/100 = Rs. 960

(2) Computation of Goodwill:

Average Profit = (10,500 + 12,000 + 12,500 +13,000)/4 = 12,000
Less: 25% of 12,000 = 3,000
Goodwill = 9,000 X 3 = Rs. 27,000

N’s share of Goodwill = 27,000 X 2/(10 ) =Rs. 5,400
It will be credited to the Capital Account of N and will be debited to the Capital Account of L and M in their gaining ratio i.e., 5:3.

Question 73 (new). P, Q and R were partners in a firm sharing profits in the ratio of 5:6:9. On 31-3-2021, their Balance Sheet was as follows :

R died on 30th April, 2016. The partnership deed provided for the following on the death of a partner :
(i) Goodwill of the firm was to be valued at 3 year’s purchase of the average profits of the last 5 years. The profits for the years ending 31-3-2020, 31-3-2019, 31-3—2018 and 31—3-2017 were Rs. 80,000; Rs. 80,000; Rs. 1,10,000 and Rs. 2,20,000 respectively.
(ii) R‘s share of profit or loss till the date of his death was to be calculated on the basis of the profit or loss for the year ending 31-3-2021.
You are required to calculate the following :
(i) Goodwill of the firm and R’s share of goodwill at the time of his death.
(ii) R’s share in the profit or loss of the firm till the date of his death.
Prepare R’s Capital Account also at the time of his death to he presented to his executors.
Solution 73 (new).

Working Notes:
(1) Valuation of Firm’s Goodwill:
Average Profit = (Rs. 2,20,000 + Rs. 1,10,000 + Rs. 80,000 – Rs. 1,60,000 )/5 = Rs. 66,000

Values of Firm’s Goodwill = Average Profit X Number Of Years’ Purchase
Firm’s Goodwill = Rs. 66,000 × 3 = Rs. 1,98,000
R’s Share of Goodwill = Rs. 1,98,000 × 9/(20 ) = Rs. 89,100

(2) R’s Share of Profit/ Loss till the date of his death:
R’s Share of Profit /Loss will be Calculated on the basis of the profit or loss for the year ending 31-3-2016. In this year firm incurred a loss of Rs. 1,60,000

Hence, R’s Share of Loss = Rs. 1,60,000 × 1/12 × 9/(20 ) = Rs. 6,000

Question 73. P, Q and R were partners in a firm sharing profits in the ratio of 5:6:9. On 31-3-2016, their Balance Sheet was as follows :

R died on 30th April, 2016. The partnership deed provided for the following on the death of a partner :

(i) Goodwill of the firm was to be valued at 3 year’s purchase of the average profits of the last 5 years. The profits for the years ending 31-3-2015, 31-3-2014, 31-3—2013 and 31—3-2012 were Rs. 80,000; Rs. 80,000; Rs. 1,10,000 and Rs. 2,20,000 respectively.

(ii) R‘s share of profit or loss till the date of his death was to be calculated on the basis of the profit or loss for the year ending 31-3-2016.
You are required to calculate the following :
(i) Goodwill of the firm and R’s share of goodwill at the time of his death.
(ii) R’s share in the profit or loss of the firm till the date of his death.
Prepare R’s Capital Account also at the time of his death to he presented to his executors.

Solution 73.

Working Notes:
(1) Valuation of Firm’s Goodwill:
Average Profit = (Rs. 2,20,000 + Rs. 1,10,000 + Rs. 80,000 – Rs. 1,60,000 )/5 = Rs. 66,000

Values of Firm’s Goodwill = Average Profit X Number Of Years’ Purchase
Firm’s Goodwill = Rs. 66,000 × 3 = Rs. 1,98,000

R’s Share of Goodwill = Rs. 1,98,000 × 9/(20 ) = Rs. 89,100

(2) R’s Share of Profit/ Loss till the date of his death:
R’s share of benefit / loss will be determined for the year ending 31-3-2016 on the basis of profit or loss. A loss of Rs. 1,60,000 was suffered by the company this year.

Hence, R’s Share of Loss = Rs. 1,60,000 × 1/12 × 9/(20 ) = Rs. 6,000

Question 74. G, E and F were partners in a firm sharing profits in the ratio of 7 : 2 : 1. The Balance Sheet of the firm as at 31st March, 2018 was as follows :

E died on 24th August 2018. Partnership deed provides for the settlement of claims on the death of a partner in addition to his capital as under :
(i) The share of profit of deceased partner to be computed upto the date of death on the basis of average profits of the past three years Which was Rs. 80,000.
(ii) His share in profit/loss on revaluation of assets and re-assessment of liabilities which were as follows :
Land and Buildings were revalued at Rs. 94,000, Machinery at Rs. 38,000 and Stock at Rs. 5,000. A provision of 2.5% was to be created on debtors for bad and doubtful debts.
(iii) The net amount payable to E’s executors was transferred to his Loan Account, to be paid later on.
Prepare Revaluation Account, Partner’s Capital Accounts and E’s Executor A/c. G and F decided to continue the business keeping their capital balances in their new profit sharing ratio. Any surplus or deficit to be transferred to current accounts of the partners.

Solution 74

Working Note:-
1.) Computation of E’s Share in profit for 146 days:-
= Rs. 80,000 × 2/10×146/365 = Rs. 6,400

2.) Interest o E’s Loan = Rs. 30,000 × 6/10×146/365 = Rs. 720

3.) Computation of adjusted Capitals of G and F:
G’s Capital + F’s Capital = Rs. 76,790 + Rs. 10,970 = Rs. 87,760

New Profit sharing ratio of G and F = 7:1

G’s Capital = Rs. 87,760 × 7/8 = Rs. 76,790

F’s Capital = Rs. 87,760 × 1/8 = Rs. 10,970

Question 75. The following is the Balance Sheet of Ram, Mohan and Sohan as at 31st March,2017:

Ram, Mohan and Sohan shared profits and losses in the ratio of 2 : 2 : l. Sohan died on 30th June 2017. Under the partnership agreement the executor of Sohan was entitled to :
(a) Amount standing to the credit of his Capital Account.
(b) Interest on Capital which amounted to Rs. 150.
(c) His share of goodwill Rs. 5,000.
(d) His share of profit from the closing of the last financial year to the date of death which amounted to Rs. 750.
Sohan’s executor was paid Rs. 1,400 on 1st July 2017 and the balance in four equal yearly installments starting from 30th June 2018 with interest @ 6% pa.
Pass necessary Journal entries and draw up Sohan‘s Account to be rendered to his executor and Sohan’s Executor‘s Account till it is finally paid.

Solution 75.

Question 76. A, B, C. and D are partners sharing profits in the ratio of4 : 3 :2 : 1. A and C retire from the firm. Calculate the new profit sharing ratio of B and D.

Solution 76.
Old Ratio of A, B, C and D = 4 :3 :2 : 1.
When A and C retire, the new ratio between B and D 3 : 1.

Question 77. A, B and C are partners sharing profits in the ratio of 1/2 : 3/8 : 1/8. Calculate the new ratio if C retires.

Solution 77.
Old Ratio of A, B and C = 1/2:3/8:1/8
It can be written as = (4∶ 3 ∶ 1)/8
So, when C retires, the new ratio between A and B will be 4 : 3.

Question 78. A, Band C were partners in a firm sharing profits in the ratio of 8 : 4 :3. B retires and his share is taken up equally by A and C. Find the new profit sharing ratio.

Solution 78.
B’s share will be divided between A and C in the ratio of 1 : 1
A’s Gain 1/2 of 4/15 = 2/15

A’s New Share = 8/15+2/15=(8+2)/15=10/15

C’s Gain 1/2 of 4/15 = 2/15

C’s New Share = 3/15+2/15=(3+2)/15=5/15

New Ratio of A and C = 10/15 ∶ 5/15
New Ratio of A and C = 2 : 1.

Question 79. Shiv. Mohan and Hari were partners in a firm sharing profits in the ratio of 5 : 5 : 4. Mohan retired and his share was divided equally between Shiv and Hari. Calculate the new profit sharing ratio of Shiv and Hari.

Solution 79.
Old Ratio of Shiv, Mohan and Hari = 5 : 5 : 4
Mohan’s share will be divided between Shiv and Hari in the ratio of 1 : 1
Shiv’s Gain 1/2 of 5/14 = 28/28

Shiv’s New Share = 5/14+5/28=(10+5)/28=15/28

Hari’s Gain 1/2 of 5/14 = 5/28

Hari’s New Share = 4/14+5/28=(8+5)/28=13/28

New Ratio of A and C = 15/28 ∶ 13/28
New Ratio of A and C = 15 : 13.

Question 80. A, B and C were partners sharing profits in the ratio of 1/5, 1/3 and 7/15 respectively. C retires and his share was taken up by A and B in the ratio of 3 : 2. Calculate the new ratio.

Solution 80.
Old Ratio of A, B and C = 1/5 : 1/3 7/15
Mohan’s share will be divided between A and B in the ratio of 3 : 2
A’s Gain 3/5 of 7/15 = 21/75

A’s New Share = 1/5+21/75=(15+21)/75=36/75

B’s Gain 2/5 of 7/15 = 14/75

B’s New Share = 1/3+14/75=(25+14)/75=39/75

New Ratio of A and B = 36/75 ∶ 39/75
New Ratio of A and B = 36 : 39 = 12 : 13

Question 81. X, Y and Z were partners sharing profits in the ratio of 4/9 : 3/9 : 2/9. X retires and his share was taken up by Y and Z in the ratio of 2 : 1. Find out the new ratio.

Solution 81.
Old Ratio of X, Y and Z = 4/9 ∶3/9 ∶2/9
X’s share will be divided between Y and Z in the ratio 2:1
Y will gain 2/3 of 4/9 = 8/27

Y’s New Share = 3/9+8/27=(9 + 8)/27=17/27

Z will gain 1/3 of 4/9 = 4/27

Z’s New Share = 2/9+4/27=(6 + 4)/27=10/27

New ratio between Y and Z = 17/27:10/27
New ratio between Y and Z = 17 : 10.

Question 82. A, B and C were partners sharing profits in the ratio of 4 : 3 : 2. B retires from the firm. Calculate the new ratio, if
(i) B’s share was taken up by A and C in the ratio of 2 : 1.
(ii) B’s share was taken up by A and C equally.
(iii) B’s share was taken up by A only.

Solution 82.
Old Ratio of A, B and C = 4 : 3 : 2 = 4/9 ∶3/9 ∶2/9

(i) When B’s share is taken up by A and C in the ratio of 2:1
A will gain 2/3 of 3/9 = 2/27

A’s New Share = 4/9+2/9=(4 + 2)/9=6/9

C will gain 1/3 of 3/9 = 1/9

C’s New Share = 2/9+1/9=(2 + 1)/9=3/9

New ratio between Y and Z = 6/9:3/9
New ratio between Y and Z = 2 : 1.

(ii) When B’s share is taken up by A and C equally.
A will gain 1/2 of 3/9 = 1/6

New Share of A = 4/9+1/6=(8 + 3)/18=11/18

C will gain 1/2 of 3/9 = 1/6

New Share of C = 2/9+1/6=(4 + 3)/18=7/18

New ratio between A and C = 11/18:7/18
New ratio between Y and Z = 11 : 7.

(iii) When B’s share is taken up by A alone:-
New Share of A = 4/9+3/6=(4 + 3)/9=7/9

New Share of C = 2/9

New ratio between A and C = 7/9:2/9
Hence, the new ratio between Y and Z = 7 : 2.

Question 83. H, P and S were partners in a firm sharing profits in the ratio of 4:3:3. On August 1, 2017, P died. His 20% share was acquired by H and remaining by S. Calculate the new profit sharing ratio.

Solution 83.
Ratio of H, P and S is 4 : 3 : 3.
H’s Gain = 3/10×20/100=3/50
H’s new share = 4/10+3/50= (20 + 3)/50=23/50
S’s Gain = 3/10×80/100=12/50
S’s new share = 3/10+12/50= (15 + 12)/50=27/50
New Profit sharing Ratio of H and S is 23:27

Question 84. Kangli, Mangli and Sanvali are three partners sharing profits in the ratio of 4 : 3 : 2. Kangli retires. Assuming Mangli and Sanvali will share profits in future in the ratio of 5 : 3, determine the gaining ratio.

Solution 84.
Calculation of Gaining Ratio:-
Gaining Ratio = New Ratio — Old Ratio

Gaining Ratio of Mangli = 3/8-3/9=(45 – 24)/72=21/72

Gaining Ratio of Sanvali = 3/8-2/9=(27 – 16)/72=11/72

Hence, the gaining ratio between of Mangli and Sanvali 21 : 11.

Question 85. A, B and C are partners sharing profits and losses equally. B dies. A and C agree to share future profits in the ratio of 7 : 5. Calculate the gaining ratio.

Solution 85.
Calculation of Gaining Ratio:-
Gaining Ratio = New Ratio — Old Ratio
Gaining Ratio of A = 7/12-1/3
Gaining Ratio of A =(7 – 4)/12
Gaining Ratio of A =3/12

Gaining Ratio of C = 5/12-1/3
Gaining Ratio of C =(5 – 4)/12
Gaining Ratio of C =1/12
Gaining Ratio between A and C is 3 : 1.

Question 86. A. B and C are partners with capitals of Rs. 1,00,000; Rs. 75,000 and Rs. 50,000 respectively. They share profits and losses in the ratio of their capital. C retires, His share is acquired by A and B in the ratio of 2 : 1. Calculate the new profit sharing ratio and gaining ratio.

Solution 86
Old Ratio of A, B and C is 1,00,000 : 75,000 : 50,000 or 4 : 3 : 2 or 4/9:3/9:2/9
C’s share will be split in a 2:1 ratio between A and B.
A will gain 2/3 of 2/9 = 4/27

New Share of A = 4/9+4/27=(12 + 4)/27=16/27

B will gain 1/3 of 2/9 = 2/27

New Share of B = 3/9+2/27=(9 + 2)/27=11/27

New ratio between A and B = 16/27:11/27

New ratio between A and B = 16 : 11
Hence, the gaining ratio = 2:1

Question 87. A, B and C are partners with capitals of Rs. 1,00,000; Rs. 75,000 and Rs. 50,000 respectively. On C’s retirement, his share is acquired by A and B in the ratio of 6 : 4. Ascertain new profit sharing ratio and gaining ratio.

Solution 87.
Old Ratio of A, B and C = 1/3:1/3:1/3
C’s share will be split in a 2:1 ratio between A and B.
Gaining ratio of A 3/5 of 1/3 = 3/15

New Share of A = 1/3+3/15=(5 + 3)/15=8/15

Gaining ratio of B 2/5 of 1/3 = 2/15

New Share of B = 1/3+2/15=(5 + 2)/15=7/15

New ratio between A and B = 8/15:7/15

New ratio between A and B = 8 : 7
Gaining Ratio = 3:2

Question 88. Alia, Karan and Shilpa were partners in a firm sharing profits in the ratio of 5 : 3 : 2. Goodwill appeared in their books at a value of Rs. 60,000 and General Reserve at Rs. 20,000. Karan decided to retire from the firm. On the date of his retirement, goodwill of the firm was valued at Rs. 2,40,000. The new profit-sharing ratio decided among Alia and was 2 :3.
Record necessary Journal entries on Karan‘s retirement.

Solution 88.

Working Note:-
Calculation of Gaining Ratio:-
Gaining Ratio = New Ratio — Old Ratio
Gaining Ratio of Alia’s = 2/5-5/10=(4 – 5)/10=-1/10 (sacrifice)
Gaining Ratio of Shilpa’s = 3/5-2/10=(6 – 2)/10=4/10 (Gain)

Question 89. M,N and O who are partners in a firm share profits in the ratio of 3:2:1 Goodwill has been valued at Rs. 60,000. On N’s retirement, Mand 0 agree to share profits equally.
Pass necessary journal entry for treatment of N’s share of goodwill.

Solution 89.

Working Note:-
Computation of Gaining Ratio:-
Gaining Ratio = New Ratio — Old Ratio
Gaining Ratio of M = 1/2-3/6=(3 – 3)/6=0
Gaining Ratio of O = 1/2-1/6=(3 – 1)/6=2/6 (Gain)

Points for Students:-
If the death of a partner occurs on any day during the year, the executors of the deceased partner will also be entitled to the share of profits earned by the firm from the beginning of the year till the date of his death. Such profit may be ascertained from any of the following methods:
(A) On time Basis
(B) On Turnover or Sales Basis.

Question 90. Ravi, Mukesh, Naresh and Yogesh are partners in a firm sharing profits in the ratio of 2 : 2 : 1. 0n Mukesh’s retirement the goodwill of the firm is valued at Rs. 90,000. Ravi, Naresh and Yogesh decided to share future profits equally. Pass the necessary journal entry for the treatment of goodwill.

Solution 90.

Working Note:-
Calculation of Gaining Ratio:-
Gaining Ratio = New Ratio — Old Ratio
Gaining Ratio of Ravi = 1/3-2/6=(2 – 2)/6=0
Gaining Ratio of Naresh = 1/3-1/6=(2 – 1)/6=1/6 (Gain)
Gaining Ratio Yogesh = 1/3-1/6=(2 – 1)/6=1/6 (Gain)

Question 91. L, M N and O are partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1 : 1. M and O decided to retire from the firm. The goodwill of the firm was valued at Rs. 3,60,000. L and N decided to share future profits equally.
Find out Gaining Ratio and Pass necessary journal entry for the treatment of goodwill.

Solution 91.

Working Note:-
Calculation of Gaining Ratio:-
Gaining Ratio = New Ratio — Old Ratio

Gaining Ratio of L = 2/6-1/2=(2 – 3)/6=1/6 (Gain)

Gaining Ratio of N = 1/6-1/2=(1 – 3)/6=2/6 (Gain)

M’s Share of Goodwill = Rs. 3,60,000 × 2/6 = 1,20,000

O’s Share of Goodwill = Rs. 3,60,000 × 1/6 = 60,000

Question 92.
(a) A, B and C are partners in a firm sharing profits in the ratio of 5 :3 :2. A retires and his share is taken up by B and C equally. Find the new profit sharing ratio and the gaining ratio.
(b) The goodwill of the firm is valued at Rs. 2,00,000. No goodwill account appears in the books. Pass necessary journal entry for recording the goodwill in the above mentioned case.

Solution 92.
(a) A’s Share is taken up by B and C equally.
B’s Gain = 1/2×5/10=5/20

B’s new share = 3/10+5/20= (6 + 5)/20=11/20

C’s Gain = 1/2×5/10=5/20

C’s new share = 2/10+5/20= (4 + 5)/20=9/20

New Profit sharing Ratio of B and C is 11/20:9/20 or 11 : 9
Gaining ratio = 1:1.

(b) A’s share of Goodwill = Rs. 2,00,000 × 5/10= Rs. 1,00,000

Question 93. L, M and O were partners in a firm sharing profits in 1 : 3 :2 ratio. L retired and the new profit sharing ratio between M and O was 1 : 2. 0n L’s retirement the goodwill of the firm was valued at Rs. 1,20,000. Pass necessary journal entry treatment of goodwill on L’s retirement.

Solution 93.

Working Note:-
Gaining Ratio of O = 2/3-2/6=2/6

Sacrifices Ratio of M = 1/3-3/6=1/6

O gains 2/6, including 1/6 that M sacrificed in favour of O. As a result, O must reimburse M for such a sacrifice.

Question 94. X, Y and Z are in partnership sharing profits in the proportion of 3 :2: 1. There is no goodwill A/c in the books of the firm.
As from 1st April, 2018, it was agreed that X should give only part of time, to the business and that in consequence he should receive in future only one half of his previous share, the remaining half divided equally between Y and Z. The goodwill to be valued for this purpose, at Rs. 40,000.
Show the new share of partners and pass necessary journal entry.

Solution 94.

Working Note:-
X will get only 1/2 of his previous share.

X’s New share = 1/2 of 3/6=1/4

Remaining 1/4 will be divided between Y and Z equally.

Gaining Ratio of Y = 1/2 of 1/4=1/8

New share of Y = 2/6+1/8= (8 + 3)/24=11/24

Gaining Ratio of Z = 1/2 of 1/4=1/8

New share of Z = 1/6+1/8= (4 + 3)/24=7/24

New Share of X, Y and Z = 1/4:11/24:7/24

New Share of X, Y and Z = (6 ∶ 11 ∶ 7)/24
Hence, The New Share of X, Y and Z = 6 : 11 : 7.

Question 95. Kavya, Manya and Navita were partners sharing profits as 50%, 30% and 20% respectively. On 31—3-2016, their Balance Sheet was as under :

On the above date, Kavya retired and Manya and Navita agreed to continue the business on the following terms :
(a) Firm’s goodwill was valued at Rs. 60,000 and it was decided to adjust Kavya’s share of goodwill in the capital accounts of continuing partners.
(b) There was a claim for workmen’s compensation to the extent of Rs. 4,000.
(c) Investments were revalued at Rs. 2,13,000.
(d) Fixed Assets were to be depreciated by 10%.
(e) Kavya was to be paid Rs. 20,000 through a bank draft and the balance was transferred to her loan account which will be paid in two equal annual instalments together with interest @10% p.a. Prepare Revaluation A/c, Partner’s Capital accounts and Kavya’s Loan Account till it is finally paid.

Solution 95.

Question 96. Kanika, Disha and Kabir were partners sharing profits in the ratio 2 : 1 : 1. On 31-3—2016, their Balance Sheet was as under :

Kanika retired on 1-4-2016. 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 1 2013-14 were Rs. 1,00,000 and for 2014—15 were Rs. 1,30,000.
(b) Fixed assets were to be increased to Rs. 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.

Solution 96.

Working Note:-
Calculation of Valuation of Goodwill:
Valuation of Goodwill = Profit for 2013-14 + Profit for 2014-15 – Loss for 2015-16
Valuation of Goodwill = Rs. 1,00,000 + Rs. 1,30,000 – Rs. 20,000
Valuation of Goodwill = Rs. 2,10,000

Calculation of Average Profit:-
Average Profit = 2,10,000/3
Average Profit =Rs.70,000

2 year’s Purchase of goodwill = Rs. 70,000 × 2 = Rs. 1,40,000
Kanika’s share of goodwill = Rs. 1,40,000 × 2/4 = Rs. 70,000

Question 97 (new). Krish, Vrish and Peter are partners sharing profit in the ratio of 3:2:1. Vrish retired from the balance sheet of the firm was as follows:
Balance Sheet
As at 31^st March, 2020

Solutions Chapter 5 Retirement or Death of a Partner

Additional Information:
(i) Premises to be appreciated by 20%, Stock to be depreciated by 10% and Provision for doubtful debts was to be maintained @ 5% on Debtors. Further, provision for legal damages is to be increased by 1,200 and furniture to be brought up to Rs. 45,000.
(ii) Goodwill of the firm is valued at Rs. 42,000.
(iii) Rs. 26,000 from Vrish’s Capital Account be transferred to his loan account and balance to be paid through bank; if required, necessary loan may be obtained from bank.
(iv) New profit sharing ratio of Krish and Peter is decided to be 5:1.
Prepare Revaluation Account, Partners Capital Accounts and Balance sheet.
Solution 97 (new).

Question 97. K, L and M were partners in a firm sharing profits in the ratio of 5 :3 : 2. On 31.3.2016 the Balance Sheet of the firm was as follows :

L retired from the firm on the following terms :
(i) The new profit sharing ratio between K and M will be 2 : 1.
(ii) Goodwill of the firm is valued at Rs. 72,000.
(iii) Provision for bad debts is to be made at the rate of 10% on debtors.
(iv) Creditors of Rs. 4,000 will not be claimed.
Prepare Revaluation Account, Partners’ Capital Accounts and Balance Sheet of K and M after L’s retirement.

Solution 97.

Working Note:-
1.) Gaining Ratio = New Ratio – Old Ratio
Gaining Ratio of K = 2/3-5/10=(20 – 15)/30=5/30
Gaining Ratio of M = 1/3-2/10=(10 – 6)/30=4/30
Gaining Ratio = 5 : 4

2.) L’s Goodwill Contribution = Rs. 72,000 × 3/10 = Rs. 21,600

Question 98. X, Y and Z were partners in a firm sharing profits in the ratio of ½: 1/3 : 1/6 respectively. The Balance Sheet of the firm as at 31st March, 2018 stood as follows :

Y retired from the firm on 1st April, 2018 subject to the following conditions :
(a) Goodwill of the firm be valued at Rs. 9,000.
(b) Machinery would be depreciated by 10% and motor vans by 15%.
(c) Stock would be appreciated by 20% and Buildings by 10%.
(d) The provision for doubtful debts would be increased by Rs. 975.
(e) Liability for workmen’s compensation to the extent of Rs. 825 would be created.
It was agreed that X and Z would share profits in future in the ratio of 3 : 2 respectively. You are required to prepare the Revaluation Account, Capital Accounts of the partners and the Balance Sheet of the firm after the retirement of Y.

Solution 98.

Working Note:-
1.) Gaining Ratio = New Ratio – Old Ratio
Gaining Ratio of X = 3/5-1/2=(6 – 5)/10=1/10
Gaining Ratio of Z = 2/5-1/6=(12 – 5)/30=7/30
Gaining Ratio = 1/10:7/30
Gaining Ratio = 3 : 7

2.) Y’s portion of goodwill = Rs. 90,000 × 1/3 = Rs. 3,000
X’s sacrifice for Y = Rs. 3,000 × 3/10 = Rs. 900
Z’s sacrifice for Y = Rs. 3,000 × 7/10 = Rs. 2,100

Question 99 (new). P, Q and R were partners in a firm sharing profits in the ratio of 2 : 3 :5. 0n 31—3-2021 their Balance Sheet was as follows :

On the above date R retired from the firm due to his illness on the following terms :
(i) Building was to be depreciated by Rs. 40,000.
(ii) Provision for doubtful debts was to be maintained at 20% on debtors.
(iii) Salary outstanding Rs. 5,000 was to be recorded and creditors Rs. 4,000 will not be claimed.
(iv) Goodwill of the firm was valued at Rs. 72,000.
R was to be paid Rs. 15,000 in cash, through bank and the balance was to be transferred to his loan account. Prepare Revaluation Account, Partners’ Capital Accounts and the Balance Sheet of P and Q after R’s retirement.
Solution 99 (new).

Working Note:-
1.) R’s Share of goodwill = Rs. 72,000 × 5/10 = Rs. 36,000
P = Rs. 36,000 × 2/5 = Rs. 14,400
Q = Rs. 36,000 × 3/5 = Rs. 21,600

Question 99. P, Q and R were partners in a firm sharing profits in the ratio of 2 : 3 :5. 0n 31—3-2016 their Balance Sheet was as follows:

Solution 99.

Working Note:-
Share of Goodwill of R = Rs. 72,000 × 5/10 = Rs. 36,000
Share of P in Goodwill = Rs. 36,000 × 2/5 = Rs. 14,400
Share of Q in Goodwill = Rs. 36,000 × 3/5 = Rs. 21,600

Question 100. A, B and C were in partnership sharing profits in proportion to their capitals. Their Balance Sheet as at 31-3-2018 was as follows:

On the above date B retired owing to ill health and the following adjustments were agreed upon:
(a) Buildings be appreciated by 10%.
(b) Provision for bad and doubtful debts be increased to 5% on debtors.
(c) Machinery be depreciated by 15%.
(d) Goodwill of the firm be valued at Rs. 36,000 and be adjusted into the Capital Accounts of A and C who will share profits in future in the ratio of 3 : 1.
(e) A provision be made for outstanding repairs bill of Rs. 3,000.
(f) Included in the value of creditors is Rs. 1,800 for an outstanding legal claim, which is not likely to arise. Out of the insurance premium paid Rs. 2,000 is for the next year. The amount was debited to P & L A/c.
(g) The partners decide to fix the capital of the new firm as Rs. 1,20,000 in the profit sharing ratio.
(h) B to be paid Rs. 9,000 in cash and the balance to be transferred to his Loan Account.
Prepare the Revaluation Account, Partner’s Capital Accounts and the Balance Sheet of the new firm after B’s retirement.

Solution 100

Working Note:-
1.) Calculation of Cash Balance:-
Cash Balance = Opening Balance + Cash Brought in by partners – Cash paid to B
Cash Balance = Rs. 16,000 + Rs. 4,500 + Rs. 1,500 + Rs. 9,000
Cash Balance = Rs. 13,000

2.) Adjustment of Capital of A:-
Adjusted Capital of A = Capital in new firm – Existing Capital
Adjusted Capital of A = 90,000 – 85,500
Adjusted Capital of A = 4,500

Adjustment of Capital of C:-
Adjusted Capital of C = Capital in new firm – Existing Capital
Adjusted Capital of C = 30,000 – 28,500
Adjusted Capital of C = 1,500

Question 101. Raja, Nawab and Badshah were partners sharing profits and losses in the ratio of 5 : 3 : 2. Their Balance Sheet as at 1-4-2018 was as under:

Nawab retired on that date and it was decided that Raja and Badshah would now on share the profit in the ratio of 3 : 2. Goodwill was valued at Rs. 10,000; Machinery at Rs. 45,000; Investments at Rs. 7,000; Stock at Rs. 10,000 and bad debts amounting to Rs. 500 be written off.
It was decided to fix the capital of the new firm at Rs. 40,000 and capital accounts of Raja and Badshah be adjusted accordingly and any difference be either paid / brought in cash.
Prepare Revaluation Account, Capital Accounts and the Balance Sheet of new firm assuming that one-third of the amount due to Nawab was paid in cash and balance was carried to Loan A/c.

Solution 101.

Working Note:-
1.) Gaining Ratio = New Ratio – Old Ratio
Gaining Ratio of Raja = 3/5-5/10=(6 – 5)/10=1/10

Gaining Ratio of Badshah = 2/5-2/10=(4 – 2)/10=2/10

Gaining Ratio = 1/10:2/10 = 1 : 2

Share of Goodwill of Nawab = Rs. 10,000 × 3/10 = Rs. 3,000

Question 102. The Balance Sheet of Messrs A, B and C showed as follows :

B agrees to take over the business, A and C retiring on the following terms:
(a) That the goodwill of the firm be valued at Rs. 15,000
(b) That plant and stock be reduced by 10%.
(c) That freehold property be appreciated by Rs. 1,000.
(d) That Provision for doubtful debts be brought up to Rs. 250.
(e) B has to bring in sufficient cash to pay off A and C. The partners used to share profits in the proportion of 2/5, 2/5 and 1/5.
Show the necessary Journal entries, Partner’s Capital Accounts and Balance Sheet of B after the retirement of A and C.

Solution 102

Working Note:-

Question 103. A, B and C are partners sharing profits and losses in the ratio of 3/6 : 2/6 : 1/6. Following is their Balance Sheet as at 31st March, 2018 :

B retires on 1st April, 2018 and the following terms were agreed :
(i)The Goodwill of the firm has been valued at Rs. 1,50,000.
(ii) Plant and Machinery has been revalued at Rs. 3,00,000 and stock revalued at Rs. 1,20,000.
(iii) A sum of Rs. 30,000 out of debtors was agreed to be bad and was to be written off.
(iv) Liability for workmen’s compensation to the extent of Rs. 8,000 is to be brought into the books.
(v) A and C will continue to carry on the business and shall share profits and losses equally in future.
(vi) Amount payable to B shall remain in the business as loan carrying interest at 18% p.a.
You are required to :
(a) give journal entries to give effect to the above, and
(b) prepare the opening balance sheet of A and B at 1st April, 2018.

Solution 103.

Working Note:-

Question 104 (new). Mohan, Vinay and Nitya were partners in a firm sharing profits and losses in the proportion of 1/2,1/4 and 1/6 respectively. On 31st March, 2018, their Balance Sheet was as follows:

Mohan retired on the above date and it was agreed that:
(i) Plant and Machinery will be depreciated by 5%.
(ii) An old computer previously written off was sold for Rs. 4,000.
(iii) Bad debts amounting to Rs. 3,000 will be written off and a provision of 5% on debtors for bad and doubtful debts will be maintained.
(iv) Goodwill of the firm was valued at Rs. 1,80,000 and Mohan’s share of the same was credited in his account be debiting Vinay’s and Nitya’s accounts.
(v) The capital of the new firm was to be fixed at Rs. 90,000 and necessary adjustments were to be made by bringing in or paying off cash as the case may be.
(vi) Vinay and Nitya will share future profits in the ratio of 3:2.
Prepare Revaluation Account, Partners’ Capital Accounts and the Balance Sheet of the reconstituted firm.

Solution 103 (new).

DK Goel Solutions Class 12th Chapter 5 Retirement or Death of a Partner

Why is it important to calculate the gaining ratio at the time of retirement or the death of any partner of a firm?

The gaining ratio plays an important role in case a member is eliminated from a firm either due to Retirement or death. Here the gaining ratio must be calculated to formulate the amount of goodwill payable by the existing members to the retired or deceased member.

How is the profit-sharing ratio selected on the Retirement or death of any member of the firm?

In case a profit holder of the firm gets retired or deceased, the profit gets distributed among the existing members of the firm as per the old profit-sharing ratio.

What happens to the partnership agreement on the death of a partner?

In case a partner of a firm decreases, the partnership immediately comes to an end. Although the firm may run with the remaining partners, the partnership of the deceased member is excluded. However, the deceased member’s family is offered a share of the firm as per the guidelines of the partnership agreement.

Write two deductions that may be made from the amount payable to the deceased partner.

Here are the two significant deductions that may be made from the funds to be paid to the deceased partner are as follows –
● Drawings made by the deceased member before his/her death.
● Deceased member’s share of loss on the revaluation of liabilities and assets of the firm.

How is the deceased partner’s share in profits calculated?

If a firm’s partner dies on any date after the framing of the firm’s balance sheet, then his/her share of profit is formulated from the beginning of the financial year to his/her date of death on the grounds of time or sales.

What is the change in profit sharing ratio among the existing partners?

In case of admission, Retirement, or the death of a partner, the existing members of a firm may decide to change their existing profit-sharing ratio. This may output in gain for few partners and a loss for a few. However, the partners who make a profit in this change must mandatorily compensate the sacrificing members of the firm.

Also refer to TS Grewal Solutions for Class 12

DK Goel Solutions

DK Goel Solutions Chapter 5 Retirement or Death of a Partner

Retirement or Death of a Partner DK Goel Class 12 Accountancy Solutions

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