Double Entry Book Keeping Ts Grewal Vol i 2017 Solutions for Class 12 Commerce Accountancy Chapter 5 Retirement/Death Of A Partner are provided here with simple stepbystep explanations. These solutions for Retirement/Death Of A Partner are extremely popular among class 12 Commerce students for Accountancy Retirement/Death Of A Partner Solutions come handy for quickly completing your homework and preparing for exams. All questions and answers from the Double Entry Book Keeping Ts Grewal Vol i 2017 Book of class 12 Commerce Accountancy Chapter 5 are provided here for you for free. You will also love the adfree experience on Meritnationâ€™s Double Entry Book Keeping Ts Grewal Vol i 2017 Solutions. All Double Entry Book Keeping Ts Grewal Vol i 2017 Solutions for class 12 Commerce Accountancy are prepared by experts and are 100% accurate.
Page No 5.100:
Answer:
Revaluation Account 

Dr. 

Cr. 

Particulars 
Amount Rs 
Particulars 
Amount Rs 

Machinery 
24,000 
Furniture 
7,500 

Provision for Doubtful Debts 
2,500 
Stock 
6,400 



Prepaid Advertisement Expenses 
4,200 



Loss transferred to: 




X’s Capital A/c 
4,200 




Y’s Capital A/c 
2,800 




Z’s Capital A/c 
1,400 
8,400 


26,500 

26,500 





Partners’ Capital Accounts 

Dr. 

Cr. 

Particulars 
X 
Y 
Z 
Particulars 
X 
Y 
Z 

Current A/c 


10,000 
Balance b/d 
2,40,000 
1,60,000 
80,000 

Revaluation A/c 
4,200 
2,800 
1,400 
Current A/c 
16,000 
5,000 


Z ’s Capital A/c 

10,000 

Reserve 
30,000 
20,000 
10,000 

Z ’s Capital A/c 

34,000 

Y ’s Capital A/c 


34,000 

Z’s Executors A/c 


1,22,600 
Y ’s Capital A/c 


10,000 

Balance c/d 
2,81,800 
1,38,200 
















2,86,000 
1,85,000 
1,34,000 

2,86,000 
1,85,000 
1,34,000 










Z's Executor Account 

Dr. 
Cr. 

Date 
Particulars 
J.F. 
Amount Rs 
Date 
Particulars 
J.F. 
Amount Rs 

201617 



201617 




Dec. 31 
Bank A/c (61,300 + 6,130) 

67,430 
Jun. 30 
Z’s Capital A/c 

1,22,600 

Mar. 31 
Balance c/d 

62,832.5 
Dec. 31 
Interest $(1,22,600\times \frac{10}{100}\times \frac{6}{12})$ 

6,130 





Mar.31 
Interest $(61,300\times \frac{10}{100}\times \frac{3}{12})$ 

1,532.5 




1,30,262.5 



1,30,262.5 










201718 



201718 




Jun. 30 
Bank (61,300 + 3,065) 

64,365 
April 01 
Balance b/d 

62,832.5 





Jun. 30 
Interest $(61,300\times \frac{10}{100}\times \frac{3}{12})$ 

1,532.5 




64,365 



64,365 










Working Notes:
WN1: Calculation of Profit & Loss Suspense
$\text{ProfitlossSuspense}=\frac{8,16,000\times 1\times 3}{6\times 12}=\text{Rs34,000}$
WN2: Calculation of Gaining Ratio and Share of Goodwill
$\begin{array}{l}\text{GainingRatio=NewRatioOldRatio}\\ \text{X'sgain}=\frac{1}{2}\frac{3}{6}=0\\ \text{Y'sgain}=\frac{1}{2}\frac{2}{6}=\frac{1}{6}\\ \text{X:Y}=\text{0:1}\\ \text{Z'sshareofgoodwill=60,000}\times \frac{1}{6}=\text{Rs10,000shouldbegivenbyY}\end{array}$
Note:
Z’s share of profit is adjusted through Y’s capital A/c because there is change in profit sharing ratio of remaining partners.
Page No 5.101:
Answer:
Revaluation Account 

Dr. 

Cr. 

Particulars 
Amount Rs 
Particulars 
Amount Rs 

Machinery 
13,600 
Creditors 
1,000 

Profit transferred to: 

Stock 
14,000 

X 
5,000 

Provision for Doubtful Debts 
4,000 

Y 
3,000 

Investment 
2,200 

Z 
2,000 
10,000 
Bad Debts Recovered 
200 



Prepaid Insurance 
2,200 


23,600 

23,600 






Partners’ Capital Accounts 

Dr. 

Cr. 

Particulars 
X 
Y 
Z 
Particulars 
X 
Y 
Z 

Goodwill 
6,000 
3,600 
2,400 
Balance b/d 
1,35,000 
95,000 
74,000 

Drawings 


12,000 
Revaluation 
5,000 
3,000 
2,000 

Profit & Loss A/c 
75,000 
45,000 
30,000 
IFR 
3,500 
2,100 
1,400 

X’s Capital A/c 

8,750 

Y’s Capital A/c 
8,750 

14,000 

Z ’s Capital A/c 

14,000 

WCR 
3,000 
1,800 
1,200 

Loan to Z 


1,000 





Z’s Executors A/c 


47,200 





Balance c/d 
74,250 
30,550 







1,55,250 
1,01,900 
92,600 

1,55,250 
1,01,900 
92,600 










Z’s Executors Account 

Dr. 

Cr. 

Particulars 
Amount Rs 
Particulars 
Amount Rs 

Bank A/c 
11,200 
Z’s Capital A/c 
47,200 

Z’s Executors Loan Account 
36,000 









57,000 

57,000 






Balance sheet as on April 01, 2017 after Z’s death 

Liabilities 
Amount Rs 
Assets 
Amount Rs 

Creditors 
17,000 
Patents 
52,000 

Z’s Executors Loan A/c 
36,000 
Machinery 
48,800 

Workmen Compensation Claim 
1,000 
Stock 
34,000 

Capital A/cs: 

Debtors 
24,000 

X 
74,250 

Prepaid Insurance 
2,200 
Y 
30,550 
1,04,800 


Bank Overdraft (600 + 8,20011,200 + 200) 
2,200 




1,61,000 

1,61,000 





Working Notes:
WN1: Calculation of Gaining Ratio and Share of Goodwill
$\begin{array}{l}\text{GainingRatio=NewRatioOldRatio}\\ \text{X'sgain}=\frac{3}{8}\frac{5}{10}=\frac{5}{40}\text{(Sacrifice)}\\ \text{Y'sgain}=\frac{5}{8}\frac{3}{10}=\frac{13}{40}\\ \text{Z'sshareofgoodwill=70,000}\times \frac{2}{10}=\text{Rs14,000}\\ \text{X'sshareofgoodwill=70,000}\times \frac{5}{40}=\text{Rs8,750}\end{array}$
WN2: Calculation of Goodwill
$\begin{array}{l}\text{Goodwill}=\text{AverageProfit}\times \text{No.ofyears'Purchase}\\ \text{}=28\text{,000}\times 2.\text{5}=\text{Rs70,000}\end{array}\phantom{\rule{0ex}{0ex}}\begin{array}{l}\text{AverageProfit}=\frac{\text{TotalProfitsofpastyearsgiven}}{\text{Numberofyears}}\\ \text{}=\frac{1,00,000+80,000+82,0001,50,000}{4}=\text{Rs28,000}\end{array}$
Page No 5.78:
Question 1:
A ,B and C were partners sharing profits in the ratio of 1/2, 2/5 and 1/10. Find the new ratio of the remaining partners if C retires.
Answer:
Old Ratio (A, B and C) = or 5 : 4 : 1
As we can see, no information is given as to how A and B are acquiring C's profit share after his retirement, so the new profit sharing ratio between A and B is calculated just by crossing out the C’s share. That is, the new ratio becomes 5 : 4.
∴ New Profit Ratio (A and B) = 5 : 4
Page No 5.78:
Question 2:
Ram, Mohan and Sohan were partners sharing profits in the ratio of 1/5, 1/3 and 7/15 respectively. Sohan retires and his share was taken by Ram and Mohan in the ratio of 3:2. Find out the new ratio.
Answer:
Old Ratio (Ram, Mohan and Sohan) = or 3 : 5 : 7
Sohan’s Profit Share =
Ram and Mohan decided to take his share in the ratio of 3 : 2
New Profit Share = Old Profit Share + Share taken from Sohan
∴ New Profit Ratio (Ram and Mohan) = 36 : 39 or 12 : 13
Page No 5.78:
Question 3:
From the following particulars, calculate new profitsharing ratio of the partners:
(a) 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.
(b) P, Q and R were partners sharing profits in the ratio of 5:4:1. P retires from the firm.
Answer:
(a)
Old Ratio (Shiv, Mohan and Hari) = 5 : 5 : 4
Mohan’s Profit Share =
His share is divided between Shiv and Hari equally i.e. in the ratio of 1: 1
New Profit Share = Old Profit Share + Share taken from Mohan
∴ New Profit Ratio (Shiv and Hari) = 15 : 13
(b)
Old Ratio (P, Q and R) = 5 : 4 : 1
P’s Profit Share =
As we can see, no information is given as to how Q and R are acquiring P's profit share after his retirement, so the new profit sharing ratio between Q and R is calculated just by crossing out the P’s share. That is, the new ratio becomes 4 : 1
∴New Profit Ratio (Q and R) = 4 : 1
Page No 5.78:
Question 4:
A, B and C were partners sharing profits in the ratio of 4:3:2 . A retires , assuming B and C will share profits in the ratio of 2:1. Determine the gaining ratio.
Answer:
Old Ratio (A, B and C) = 4 : 3 : 2
New Ratio (B and C) = 2 : 1
Gaining RatioNew Ratio − Old Ratio
∴Gaining Ratio = 3 : 1
Page No 5.78:
Question 5:
Kangli, Mangli and Sanvali are partners sharing profits in the ratio of 4:3:2 . Kangli retires . Assuming Mangli and Sanvali will share profits in the future in the ratio of 5:3, determine the gaining ratio.
Answer:
Old Ratio (Kangli, Mangli and Sanvali) = 4 : 3 : 2
New Ratio (Mangli and Sanvali) = 5 : 3
Gaining RatioNew Ratio − Old Ratio
∴Gaining Ratio = 21 : 11
Page No 5.78:
Question 6:
X, Y and Z are partners sharing profits in the ratio of 1/2, 3/10 , and 1/5. Calculate the gaining ratio of remaining partners when Y retires from the firm.
Answer:
Calculation of Gaining Ratio
$\begin{array}{ccccccc}& & \mathrm{X}& :& \mathrm{Y}& :& \mathrm{Z}\\ \mathrm{Old}\mathrm{Ratio}& =& \frac{1}{2}& :& \frac{3}{10}& :& \frac{1}{5}\\ & =& \frac{5:3:2}{10}& & & & \end{array}$
New Ratio after Y's retirement = 5 : 2
Gaining Share = New Share – Old Share
$\mathrm{X}\text{'}\mathrm{s}\mathrm{Gain}=\frac{5}{7}\frac{5}{10}=\frac{15}{70}\phantom{\rule{0ex}{0ex}}\mathrm{Z}\text{'}\mathrm{s}\mathrm{Gain}=\frac{2}{7}\frac{2}{10}=\frac{6}{70}$
Gaining Ratio = 15 : 6 or 5 : 2
Page No 5.78:
Question 7:
(a) W,X,Y and Z are partners sharing profits and losses in the ratio of 1/3, 1/6, 1/3,and 1/6 respectively.Y retires and W, X and Z decide to share the profits and losses equally in future . Calculate gaining ratio.
(b) A ,B and C are partners sharing profits and losses in the ratio of 4:3:2. C retires from the business. A is acquiring 4/9 of C's share and balance is acquired by B . Calculate the new profitsharing ratio and gaining ratio.
Answer:
(a)
Old Ratio (W, X, Y and Z) = or 2 : 1 : 2 : 1
New Ratio (W, X and Z) = 1 : 1 : 1
Gaining Ratio = New Ratio − Old Ratio
∴Gaining Ratio = 0 : 1 : 1
(b)
Old Ratio (A, B and C) = 4 : 3 : 2
C’s Profit Share =
A acquires 4/9 of C’s Share and remaining share is acquired by B.
New Profit Share = Old Profit Share + Share acquired from C
∴ New Profit Ratio (A and B) = 44 : 37
Gaining Ratio = New Ratio − Old Ratio
∴Gaining Ratio = 8 : 10 or 4 : 5
Page No 5.78:
Question 8:
Sita, Geeta and Meeta were partners in a firm sharing profits in the ratio of 7:6:7. Geeta retired and her share was divided equally between Sita and Meeta. Calculate the new profitsharing ratio of Sita and Meeta.
Answer:
Old Ratio (Sita, Geeta and Meeta) = 7 : 6 : 7
Geeta’s Profit Share =
Her share is divided between Sita and Meeta equally i.e. in the ratio of 1: 1
New Profit Share = Old Profit Share + Share taken from Geeta
∴ New Profit Ratio (Sita and Meeta) = 20 : 20 or 1 : 1
Page No 5.78:
Question 9:
R, S and M are partners sharing profits in the ratio of 2/5,2/5 and 1/5 . M decides to retire from the business and his share is taken by R and S in the ratio of 1:2 . Calculate the new profitsharing ratio.S
Answer:
Old Ratio (R, S and M) = 2 : 2 : 1
M retires from the firm.
His profit share = $\frac{1}{5}$
M’s share taken by R and S in ratio of 1 : 2
$SharetakenbyR:\frac{1}{5}\times \frac{1}{3}=\frac{1}{15}\phantom{\rule{0ex}{0ex}}SharetakenbyS:\frac{1}{5}\times \frac{2}{3}=\frac{2}{15}\phantom{\rule{0ex}{0ex}}\phantom{\rule{0ex}{0ex}}\phantom{\rule{0ex}{0ex}}$
New Ratio = Old Ratio + Share acquired from M
$R\text{'}sNewShare:\frac{2}{5}+\frac{1}{15}=\frac{6+1}{15}=\frac{7}{15}\phantom{\rule{0ex}{0ex}}S\text{'}sNewShare:\frac{2}{5}+\frac{2}{15}=\frac{6+2}{15}=\frac{8}{15}\phantom{\rule{0ex}{0ex}}$
∴ New Profit Ratio (R and S) = 7 : 8
Page No 5.79:
Question 10:
A, B, C and D were partners in a firm sharing profits in 5:3:2:2 ratio. B and C retired from the firm . B's share was acquired by D and C's share was acquired by A . Calculate new profitsharing ratio of A and D .
Answer:
Old Ratio (A, B, C and D) = 5 : 3 : 2 : 2
B’s Profit Share =
C’s Profit Share =
B’s Share was acquired by D and C’s share was acquired by A.
∴ D’s New Share = D’s Old share + Share of B
A’s New Share = A’s Old Share + Share of C
∴ New Profit Ratio (A and D) = 7 : 5
Page No 5.79:
Question 11:
A, B, and C were partners in a firm sharing profits in 8:4:3 . B retires and his share is taken up equally by A and C. Find the new profitsharing ratio .
Answer:
Old Ratio (A, B and C) = 8 : 4 : 3
B retires from the firm.
His profit share = $\frac{4}{15}$
B’s share taken by A and C in ratio of 1 : 1
$SharetakenbyA:\frac{4}{15}\times \frac{1}{2}=\frac{2}{15}\phantom{\rule{0ex}{0ex}}SharetakenbyC:\frac{4}{15}\times \frac{1}{2}=\frac{2}{15}\phantom{\rule{0ex}{0ex}}\phantom{\rule{0ex}{0ex}}\phantom{\rule{0ex}{0ex}}$
New Ratio = Old Ratio + Share acquired from B
$A\text{'}sNewShare:\frac{8}{15}+\frac{2}{15}=\frac{10}{15}=\frac{2}{3}\phantom{\rule{0ex}{0ex}}C\text{'}sNewShare:\frac{3}{15}+\frac{2}{15}=\frac{5}{15}=\frac{1}{3}\phantom{\rule{0ex}{0ex}}$
∴ New Profit Ratio (A and C) = 2 : 1
Page No 5.79:
Question 12:
A, B and C are partners in a firm sharing profits and losses in the ratio of 4:3:2 . B decides to retire from the firm. Calculate new profitsharing ratio of A and C in the following circumstances:
(a) If B gives his share to A and C in the original ratio of A and C .
(b) If B gives his share to A and C in equal proportion.
(c) If B gives his share to A and C in the ratio of 3:1.
(d) If B gives his share to A only.
Answer:
Old Ratio (A, B and C) = 4 : 3 : 2
B retires from the firm.
His profit share =
Case (a) B gives his share to A and C in their original ratio.
Original Share (A and C) = 4 : 2
New Ratio = Old Ratio + Share acquired from B
∴ New Profit Ratio (A and C) = 36 : 18 or 2 : 1
Case (b) B gives his share to A and C in equal proportion.
New Ratio = Old Ratio + Share acquired from B
∴ New Profit Ratio (A and C) = 11 : 7
Case (c) B gives his to A and C in the ratio 3 : 1.
New Ratio = Old Ratio + Share acquired from B
∴ New Profit Ratio (A and C) = 25 : 11
Case (d) B gives his share to A only.
A’s New Share = A’s Old Share + Share of B
C’s Share
∴ New Profit Ratio (A and C) = 7 : 2
Page No 5.79:
Question 13:
A, B, and C are partners sharing profits in the ratio of 5:3:2 . C retires and his share is taken up by A . Calculate new profitsharing ratio of A and B .
Answer:
Old Ratio (A, B and C) = 5 : 3 : 2
C retires from the firm.
His profit share = $\frac{2}{10}$
C’s share is taken by A in entirety
New Ratio = Old Ratio + Share acquired from C
$A\text{'}sNewShare:\frac{5}{10}+\frac{2}{10}=\frac{7}{10}\phantom{\rule{0ex}{0ex}}B\text{'}sNewShare:\frac{3}{10}+0=\frac{3}{10}\phantom{\rule{0ex}{0ex}}$
∴ New Profit Ratio (A and B) = 7 : 3
Page No 5.79:
Answer:
Old Profit Sharing Ratio amongst Partner’s (A, B and C)  5 : 3 : 2
B retires and his share was taken by A and C in ratio of 2 : 1
Gaining Ratio of A and C is 2 : 1
New Ratio between A and C is 21 : 9 or 7 : 3
After this D is admitted for 25% share
Half of this 25% was gifted by A and remaining half was provided by A and C equally
It means 75% (50% + ½ of remaining 50%) of 25% (given to D) was actually given by A and rest 25% was given by C.
Page No 5.79:
Question 15:
P, Q and R are partners sharing profits in the ratio of 7:5:3. P retires and it is decided that profitsharing ratio between Q and R will be same as existing between P and Q . Calculate New profitsharing ratio and Gaining Ratio.
Answer:
$\begin{array}{l}\text{CalculationofGainingRatio}\\ \text{P:Q:R}=7\text{:5:3}\left(\text{Oldratio}\right)\\ \text{Q:R=7:5(Newratio,sameasbetweenPQ)}\\ \text{GainingRatio=NewRatioOldRatio}\\ \text{Q'sGain=}\frac{7}{12}\frac{5}{15}=\frac{3520}{60}=\frac{15}{60}\\ \text{R'sGain=}\frac{5}{12}\frac{3}{15}=\frac{2512}{60}=\frac{13}{60}\\ \text{Q:R}=15:13\\ \end{array}$
Page No 5.79:
Answer:
Journal


Particulars

L.F.

Date
Amount
Rs

Credit
amount
Rs


L’s Capital A/c

Dr.


13,000


O’s Capital A/c

Dr.


11,000


To M’s Capital A/c



24,000


(Adjustment M’s share of goodwill made)









Working Note:
WN 1 Calculation of Gaining Ratio
Old Ratio (L, M and O) = 4 : 3 : 2
M retires from the firm.
New Ratio (L and O) = 5 : 3
Gaining RatioNew Ratio − Old Ratio
∴ Gaining Ratio = 13 : 11
WN 2 Adjustment of Goodwill
Goodwill of the firm = Rs 72,000
This share of goodwill is to be debited to remaining Partners’ Capital Accounts in their gaining ratio (i.e. 13 : 11).
Page No 5.79:
Answer:
Journal 

Particulars 
L.F. 
Debit Amount (Rs) 
Credit Amount (Rs) 

A’s Capital A/c 
Dr. 

1,950 

C’s Capital A/c 
Dr. 

1,650 

To B’s Capital A/c 


3,600 

(Adjustment B’s share of goodwill made) 








Working Notes:
WN 1 Calculation of Gaining Ratio
Old Ratio (A, B and C) = 4 : 3 : 2
B retires from the firm.
New Ratio (A and C) = 5 : 3
Gaining RatioNew Ratio − Old Ratio
∴Gaining Ratio = 13 : 11
WN 2 Adjustment of Goodwill
Goodwill of the firm = Rs 10,800
This share of goodwill is to be debited to remaining Partners’ Capital Accounts in their gaining ratio (i.e. 13 : 11).
Page No 5.79:
Question 18:
A , B and C are partners sharing profits in the ratio of 3 : 2 : 1 . B retired and the new profitsharing ratio between A and C was 2 : 1 . On B's retirement , the goodwill of the firm was valued at â‚ą 90,000 . Pass necessary journal entry for the treatment of goodwill on B's retirement .
Answer:
Journal 

Particulars 
L.F. 
Debit Amount Rs 
Credit Amount Rs 

A’s Capital A/c 
Dr. 

15,000 

C’s Capital A/c 
Dr. 

15,000 

To B’s Capital A/s 


30,000 

(Adjustment B’s share of goodwill made) 



Working Notes:
WN 1 Calculation of Gaining Ratio
Old Ratio (A, B and C) = 3 : 2 : 1
B retires from the firm.
New Ratio (A and C) = 2 : 1
Gaining RatioNew Ratio − Old Ratio
∴Gaining Ratio = 1 : 1
WN 2 Adjustment of Goodwill
Goodwill of the firm = Rs 90,000
B’s share of goodwill
This share of goodwill is to be debited to remaining Partners’ Capital Accounts in their gaining ratio (i.e. 1 : 1).
Page No 5.79:
Question 19:
X , Y and Z are partners sharing profits in the ratio of 3 : 2 ; 1 . Goodwill is appearing in the books at a value of â‚ą 60,000. Y retires and at the time of Y's retirement , goodwill is valued at â‚ą 84,000. X and Z decide to share future profits in the ratio of 2 : 1 .Pass the necessary journal entries through Goodwill Account .
Answer:
Journal 

Date 
Particulars 
L.F. 
Debit Amount (Rs) 
Credit Amount (Rs) 








X’s Capital A/c 
Dr. 

30,000 


Y’s Capital A/c 
Dr. 

20,000 


Z’s Capital A/c 
Dr. 

10,000 


To Goodwill A/c 



60,000 

(Goodwill written off) 






Dr. 

14,000 


X’s Capital A/c 
Dr. 

14,000 


Z’s Capital A/c 



28,000 

To Y’s Capital A/c 





(Adjustment of Y’s share of goodwill) 









Working Notes:
WN1:Calculation of Gaining Ratio
$\begin{array}{l}\text{X:Y:Z}=3\text{:2:1}\left(\text{Oldratio}\right)\\ \text{X:Z=2:1(Newratio)}\\ \text{GainingRatio=NewRatioOldRatio}\\ \text{X'sGain=}\frac{2}{3}\frac{3}{6}=\frac{1}{6}\\ \text{Z'sGain=}\frac{1}{3}\frac{1}{6}=\frac{1}{6}\\ \text{X:Z}=1:1\end{array}$
WN2: Calculation of Retiring Partner’s Share of Goodwill
$\begin{array}{l}\text{Y'sshareofgoodwill=84,000}\times \frac{2}{6}=\text{Rs28,000}\\ \text{Y'sshareofgoodwillwillbebroughtbyXandZintheirgainingratio1:1}\\ \text{Therefore,X'sCapitalA/cwillbedebitedwith28,000}\times \frac{1}{2}=\text{Rs14,000}\\ \text{And,Y'sCapitalA/cwillbedebitedwith28,000}\times \frac{1}{2}=\text{Rs14,000}\end{array}$
Page No 5.79:
Question 20:
A, B and C are partners sharing profits in the ratio of 4/9 : 3/9 : 2/9. B retires and his capital after making adjustments for reserves and gain (profit) on revaluation stands at â‚ą 1,39,200. A and C agreed to pay him â‚ą 1,50,000 in full settlement of his claim . Record necessary journal entry for adjustment of goodwill if the new profitsharing ratio is decided at 5 : 3 .
Answer:
Journal



Date

Particulars

L.F.

Debit
Amount
Rs

Credit Amount
Rs



A’s Capital A/c

Dr.


5,850




C’s Capital A/c

Dr.


4,950




To B’s Capital A/c




10,800



(Adjustment of B’s share of goodwill)





Working Notes
i. Calculation of B’s share of goodwill
A, B and C are sharing profits in ratio 4/9 : 3/9 : 2/9
B retires from the firm. Remaining partners agreed to pay him Rs 1,50,000
B’s capital after making necessary adjustments Rs 1,39,200
Therefore, Hidden Goodwill is Rs (1,50,000 – 1,39,200) i.e. Rs 10,800
ii Gaining Ratio
New profit sharing ratio between A and B is 5:3
Thus, B’s share of goodwill will be brought in by A and C in the gaining ratio 13:11 i.e.
Page No 5.80:
Question 21:
M, N and O are partners in a firm sharing profits in the ratio of 3 : 2 : 1 . Goodwill has been valued at â‚ą 60,000. On N's retirement , M and O agree to share profits equally. Pass the necessary journal entry for treatment of N's share of goodwill.
Answer:
Journal 

Date 
Particulars 
L.F. 
Debit Amount (Rs) 
Credit Amount (Rs) 








O’s Capital A/c 
Dr. 

20,000 


To N’s Capital A/c 



20,000 

(Adjustment of N’s share of goodwill) 









Working Notes:
WN1:Calculation of Gaining Ratio
$\begin{array}{l}\text{M:N:O}=3\text{:2:1}\left(\text{Oldratio}\right)\\ \text{M:O=1:1(Newratio)}\\ \text{GainingRatio=NewRatioOldRatio}\\ \text{M'sGain=}\frac{1}{2}\frac{3}{6}=\frac{33}{6}=0\\ \text{O'sGain=}\frac{1}{2}\frac{1}{6}=\frac{31}{6}=\frac{2}{6}\end{array}$
WN2: Calculation of Retiring Partner’s Share of Goodwill
$\begin{array}{l}\text{N'sshareofgoodwill=60,000}\times \frac{2}{6}=\text{Rs20,000}\\ \text{N'sshareofgoodwillwillbebroughtbyOonly.}\\ \text{Therefore,O'sCapitalA/cwillbedebitedwithRs20,000}\end{array}$
Page No 5.80:
Question 22:
A , B , C and D are partners in a firm sharing profits in the ratio of 2 : 1 : 2 : 1 . On the retirement of C , Goodwill was valued â‚ą 1,80,000. A, B and D decide to share future profits equally . Pass the necessary journal entry for the treatment of goodwill.
Answer:
Journal 

Date 
Particulars 
L.F. 
Debit Amount (Rs) 
Credit Amount (Rs) 


B’s Capital A/c 
Dr 

30,000 


D’s Capital A/c 
Dr. 

30,000 


To C’s Capital A/c 



60,000 

(Adjustment of C’s share of goodwill) 









Working Notes:
WN1:Calculation of Gaining Ratio
$\begin{array}{l}\text{A:B:C:D}=2\text{:1:2:1}\left(\text{Oldratio}\right)\\ \text{A:B:D=1:1:1(Newratio)}\\ \text{GainingRatio=NewRatioOldRatio}\\ \text{A'sGain=}\frac{1}{3}\frac{2}{6}=\frac{22}{6}=0\\ \text{B'sGain=}\frac{1}{3}\frac{1}{6}=\frac{21}{6}=\frac{1}{6}\\ \text{D'sGain=}\frac{1}{3}\frac{1}{6}=\frac{21}{6}=\frac{1}{6}\\ \text{A:B:D}=0:1:1\end{array}$
WN2: Calculation of Retiring Partner’s Share of Goodwill
$\begin{array}{l}\text{C'sshareofgoodwill=1,80,000}\times \frac{2}{6}=\text{Rs60,000}\\ \text{C'sshareofgoodwillwillbebroughtbyBandDintheirgainingratio1:1}\\ \text{Therefore,B'sCapitalA/cwillbedebitedwith60,000}\times \frac{1}{2}=\text{Rs30,000}\\ \text{And,D'sCapitalA/cwillbedebitedwith60,000}\times \frac{1}{2}=\text{Rs30,000}\end{array}$
Page No 5.80:
Question 23:
A, B and C were partners in a firm sharing profits in the ratio of 6 : 5 : 4 . Their capitals were A$\u2014$â‚ą 1,00,000; B$\u2014$â‚ą 80,000 and C$\u2014$â‚ą 60,000 respectively . On 1st April, 2009 , A retired from the firm and the new profit sharing ratio between B and C was decided as 1 : 4 . On A's retirement , the goodwill of the firm was valued at â‚ą 1,80,000. Showing your calculations clearly , pass the necessary journal entry for the treatment of goodwill on A's retirement.
Answer:
Journal 

Date 
Particulars 
L.F. 
Debit Amount (Rs) 
Credit Amount (Rs) 


C’s Capital A/c 
Dr. 

96,000 


To A’s Capital A/c 



72,000 

To B’s Capital A/c 



24,000 

(Adjustment of A’s and B’s share of goodwill) 









Working Notes:
WN1: Calculation of Gaining Ratio
$\begin{array}{l}\text{A:B:C}=6\text{:5:4}\left(\text{Oldratio}\right)\\ \text{B:C=1:4(Newratio)}\\ \text{GainingRatio=NewRatioOldRatio}\\ \text{B'sGain=}\frac{1}{5}\frac{5}{15}=\frac{35}{15}=\frac{2}{15}\left(Sacrifice\right)\\ \text{C'sGain=}\frac{4}{5}\frac{4}{15}=\frac{124}{15}=\frac{8}{15}\end{array}$
WN2: Calculation of Retiring Partner’s Share of Goodwill
$\begin{array}{l}\text{A'sshareofgoodwill=1,80,000}\times \frac{6}{15}=\text{Rs72,000}\\ \text{B'sshareofgoodwill=1,80,000}\times \frac{2}{15}=\text{Rs24,000}\\ \text{A'sandB'sshareofgoodwillbebroughtbyConly.}\\ \text{Therefore,C'sCapitalA/cwillbedebitedwith72,000+24,000=Rs96,000}\end{array}$
Page No 5.80:
Question 24:
X, Y and Z are partners sharing profits and losses in the ratio of 5 : 3 : 2 . Z retires and on the date of his retirement, the following adjustments were agreed upon:
(a) The value of Furniture is to be increased by â‚ą 12,000.
(b) The value of stock to be decreased by â‚ą 10,000.
(c) Machinery of the book value of â‚ą 50,000 is to be depreciated by 10%.
(d) A Provision for Doubtful Debts @ 5% is to be created on debtors of book value of â‚ą 40,000.
(e) Unrecorded Investment worth â‚ą 10,000.
(f) An item of â‚ą 1,000 included in bills payable is not likely to be claimed , hence should be written back.
Pass necessary journal entries.
Answer:
Revaluation Account


Dr.


Cr.


Particulars

Amount
Rs

Particulars

Amount
Rs


Stock A/c

10,000

Furniture A/c

12,000


Machinery A/c

5,000

Investments A/c

10,000


Provision for Doubtful Debts A/c

2,000

Bills Payable A/c

1,000


Profit transferred to:





X’s Capital A/c

3,000





Y’s Capital A/c

1,800





Z’s Capital A/c

1,200

6,000





23,000


23,000






Journal  
Date  Particulars  L.F.  Debit Amount (Rs) 
Credit Amount (Rs) 

(a)  Furniture A/c  Dr.  12,000  
To Revaluation A/c  12,000  
(Increase in value transferred to Revaluation Account)  
(b)  Revaluation A/c  Dr.  10,000  
To Stock A/c  10,000  
(Decrease in Stock transferred to Revaluation Account)  
(c)  Revaluation A/c  Dr.  5,000  
To Machinery A/c  5,000  
(Decrease in value of machinery transferred to Revaluation Account)  
(d)  Revaluation A/c  Dr.  2,000  
To Provision for Doubtful Debts A/c  2,000  
(Increase in liabilities to Revaluation Account)  
(e)  Investments A/c  Dr.  10,000  
To Revaluation A/c  10,000  
(Increase in value transferred to Revaluation Account)  
(f)  Bills Payable A/c  Dr.  1,000  
To Revaluation A/c  1,000  
(Decrease in liabilities transferred to Revaluation Account)  
(g)  Revaluation A/c  Dr.  6,000  
To X’s Capital A/c  3,000  
To Y’s Capital A/c  1,800  
To Z’s Capital A/c  1,200  
(Revaluation profit transferred to Partners’ Capital Accounts)  
Page No 5.80:
Answer:
Revaluation Account


Dr.


Cr.


Particulars

Amount
Rs

Particulars

Amount
Rs


Plant and Machinery (40,000 × 10%)

4,000

Building (1,00,000 × 20%)

20,000


Provision for Doubtful Debts

1,000

Stock of Finished Goods

5,000


Stock of Raw Materials

2,000

Computer

2,000


Workmen’s Compensation Claim

5,000




Profit transferred to:





A’s Capital A/c

6,000





B’s Capital A/c

6,000





C’s Capital A/c

3,000

15,000





27,000


27,000






Journal


Particulars

L.F.

Debit
Amount
Rs

Credit
Amount
Rs


Building A/c

Dr.


20,000


Stock of Finished Good A/c

Dr.


5,000


Computer A/c

Dr.


2,000


To Revaluation A/c



27,000


(Increase in value Assets transferred to Revaluation Account)










Revaluation A/c

Dr.


12,000


To Plant and Machinery A/c



4,000


To Provision for Doubtful Debts A/c



1,000


To Stock of Raw Material A/c



2,000


To Workmen’s Compensation Claim A/c



5,000


(Decrease in value of Assets and increase in Liabilities transferred to Revaluation Account)










Revaluation A/c

Dr.


15,000


To A’s Capital A/c



6,000


To B’s Capital A/c



6,000


To C’s Capital A/c



3,000


(Revalution Profit transferred to Partners’ Capital accounts)









Page No 5.81:
Question 26:
Ramesh wants to retire from the firm . The gain (profit) on revaluation on that date was â‚ą 12,000. Mohan and Rahul want to share this in their new profitsharing ratio of 3 : 2 . Ramesh wants this to be shared equally . How is the profit to be shared ? Give reasons.
Answer:
Revaluation of assets and liabilities is made at the time of Ramesh’s retirement and not after his retirement. Therefore, profits on revaluation will be distributed among all the partners in their old profit sharing ratio. In the absence of partnership deed, profits are distributed equally among all the partners.
Therefore, Profit Share of each Partner =
Journal 

Particulars 
L.F. 
Debit Amount (Rs) 
Credit Amount (Rs) 

Revaluation A/c 
Dr. 

12000 

To Ramesh’s Capital A/c 


4000 

To Mohan’s Capital A/c 


4000 

To Rahul’s Capital A/c 


4000 

(Revaluation profit distributed among all the partners in their old ratio) 








Page No 5.81:
Question 27:
X, Y and Z are partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1 . Z retires from the firm on 31st March, 2018 . On the date of Z's retirement , the following balances appeared in the books of the firm:
General Reserve â‚ą 1,80,000
Profit and Loss Account (Dr.) â‚ą 30,000
Workmen Compensation Reserve â‚ą 24,000 which was no more required
Employees' Provident Fund â‚ą 20,000.
Pass necessary journal entries for the adjustment of these items on Z's retirement .
Answer:
Journal


Date

Particulars

L.F.

Debit
Amount
(Rs)

Credit
Amount
(Rs)



General Reserve A/c

Dr.


1,80,000



Workmen Compensation Reserve A/c

Dr.


24,000



To X’s Capital A/c




1,02,000


To Y’s Capital A/c




68,000


To Z’s Capital A/c




34,000


(Accumulated profits distributed among partners in old ratio)












X’s Capital A/c

Dr.


15,000



Y’s Capital A/c

Dr.


10,000



Z’s Capital A/c

Dr.


5,000



To Profit and Loss A/c




30,000


(Debit balance in Profit and Loss A/c distributed among partners in old ratio)










Page No 5.81:
Question 28:
Asha, Naveen and Shalini were partners in a firm sharing profits in the ratio of 5 : 3 : 2 . Goodwill appeared in their books at a value of â‚ą 80,000 and General Reserve at â‚ą 40,000. Naveen decided to retire from the firm. On the date of his retirement , goodwill of the firm was valued at â‚ą 1,20,000 . The new profit ratio decided among Asha and Shalini is 2 : 3 .
Record necessary journal entries on Naveen's retirement.
Answer:
Journal  
Date  Particulars  L.F.  Debit Amount (Rs) 
Credit
Amount
(Rs)


Asha’s Capital A/c  Dr.  40,000  
Naveen’s Capital A/c  Dr.  24,000  
Shalini’s Capital A/c  Dr.  16,000  
To Goodwill A/c  80,000  
(Existing goodwill written off amongst existing partners in old ratio)  
General Reserves A/c  Dr.  40,000  
To Asha’s Capital A/c  20,000  
To Naveen’s Capital A/c  12,000  
To Shalini’s Capital A/c  8,000  
(General Reserves distributed among all partners in old ratio)  
Shalini’s Capital A/c  Dr.  48,000  
To Asha’s Capital A/c  12,000  
To Naveen’s Capital A/c  36,000  
(Goodwill adjusted by debiting gaining partner and crediting sacrificing partner and retiring partner)  
$CalculationofGainingRatio:\phantom{\rule{0ex}{0ex}}GainofaPartner=NewShareOldShare\phantom{\rule{0ex}{0ex}}Asha\text{'}sGain\left(Sacrifice\right):\frac{2}{5}\frac{5}{10}=\frac{45}{10}=\frac{()1}{10}\phantom{\rule{0ex}{0ex}}Shalini\text{'}sGain\left(Sacrifice\right):\frac{3}{5}\frac{2}{10}=\frac{62}{10}=\frac{4}{10}\phantom{\rule{0ex}{0ex}}Therefore,BothAshaandNaveenwouldbecompensatedbyShaliniintheratioof1:3\phantom{\rule{0ex}{0ex}}Asha\text{'}sSacrificefor\frac{1}{10}thShare=1,20,000\times \frac{1}{10}=12,000\phantom{\rule{0ex}{0ex}}Naveen\text{'}sSacrificefor\frac{3}{10}thShare=1,20,000\times \frac{3}{10}=36,000$
Page No 5.81:
Question 29:
Ram , Laxman and Bharat are partners sharing profits in the ratio of 3 : 2 ; 1 . Goodwill is appearing in the books at a value of â‚ą 1,80,000. Laxman retires and at the time of his retirement , goodwill is valued at â‚ą 2,52,000. Ram and Bharat decided to share future profits in the ratio of 2 : 1 . The Profit for the first year after Laxman's retirement amount to â‚ą 1,20,000 . Give the necessary journal entries to record goodwill and to distribute the profit. Show your calculations clearly.
Answer:
Journal 

Date 
Particulars 
L.F. 
Debit Amount (Rs) 
Credit Amount (Rs) 








Ram’s Capital A/c 
Dr. 

90,000 


Laxman’s Capital A/c 
Dr. 

60,000 


Bharat’s Capital A/c 
Dr. 

30,000 


To Goodwill A/c 



1,80,000 

(Goodwill written off) 






Dr. 

42,000 


Ram’s Capital A/c 
Dr. 

42,000 


Bharat’s Capital A/c 



84,000 

To Laxman’s Capital A/c 





(Adjustment of Laxman’s share of goodwill) 











Profit & Loss Appropriation A/c 
Dr. 

1,20,000 


To Ram’s Capital A/c 



80,000 

To Bharat’s Capital A/c 



40,000 

(Profit on revaluation transferred to Partners’ Capital A/c) 



Working Notes:
WN1:Calculation of Gaining Ratio
$\begin{array}{l}\text{Ram:Laxman:Bharat}=3\text{:2:1}\left(\text{Oldratio}\right)\\ \text{Ram:Bharat=2:1(Newratio)}\\ \text{GainingRatio=NewRatioOldRatio}\\ \text{Ram'sGain=}\frac{2}{3}\frac{3}{6}=\frac{43}{6}=\frac{1}{6}\\ \text{Bharat'sGain=}\frac{1}{3}\frac{1}{6}=\frac{21}{6}=\frac{1}{6}\\ \text{Ram:Bharat}=1:1\end{array}$
WN2: Calculation of Retiring Partner’s Share of Goodwill
$\begin{array}{l}\text{Laxman'sshareofgoodwill=2,52,000}\times \frac{2}{6}=\text{Rs84,000}\\ \text{Laxman'sshareofgoodwillwillbebroughtbyRamandBharatintheirgainingratio1:1}\\ \text{Therefore,Ram'sCapitalA/cwillbedebitedwith84,000}\times \frac{1}{2}=\text{Rs42,000}\\ \text{And,Bharat'sCapitalA/cwillbedebitedwith84,000}\times \frac{1}{2}=\text{Rs42,000}\end{array}$
Note: The entry for distributing profit as given in the book is wrong. The profit will be distributed between Ram & Bharat and not Ram and Laxman (since Laxman has retired)
Page No 5.81:
Question 30:
The Partnership Deed of C and D , who are equal partners , has a clause that any partner may retire from the firm on the following terms by giving a sixmonth notice in writing :
The retiring partner shall be paid$\u2014$
(a) the amount standing to the credit of his Capital Account and Current Account .
(b) His share of profits to the date of retirement , calculated on the basis of the average profit of the three preceding completed years .
(c) half the amount of the goodwill of the firm calculated at ${1}^{\raisebox{1ex}{$1$}\!\left/ \!\raisebox{1ex}{$2$}\right.}$ times the average profit of the three preceding completed years .
C gave a notice on 31st March, 2017 to retire on 30th September , 2017 , when the balance of his Capital Account was â‚ą 6,000 and his Current Account (DR.) â‚ą 500. The profits for the three preceding completed years were : year ended 31st March, 2015 â‚ą 2,800; year ended 31st March, 2016 â‚ą 2,200 and year ended 31st March, 2017 â‚ą 1,600. What amount is due to C in accordance with the partnership agreement ?
Answer:
C’s Capital Account 

Dr. 

Cr. 

Particulars 
Amount Rs 
Particulars 
Amount Rs 

C’s Loan A/c 
7,700 
Balance b/d 
6,000 



C’s Current A/c 
1,700 


7,700 

7,700 





C’s Current Account 

Dr. 

Cr. 

Particulars 
Amount Rs 
Particulars 
Amount Rs 

Balance b/d 
500 
Profit and Loss Suspense A/c (Share of profit) (WN 1) 
550 

C’s Capital A/c (balancing figure) 
1,700 
D’s Current A/c (Share of goodwill) (WN 2) 
1,650 


2,200 

2,200 





Working Notes:
WN 1 Calculation of Profit (from April 01, 2017 to Sept. 30, 2017)
WN 2 Calculation of Goodwill
Goodwill = Average Profit × 1.5
= 2,200 × 1.5 = Rs 3,300
C’s Share of Goodwill
Page No 5.82:
Answer:
Revaluation Account 

Dr. 

Cr. 

Particulars 
Amount Rs 
Particulars 
Amount Rs 

Bad Debts 
2,000 
Loss transferred to: 


Patents 
9,000 
X’s Capital A/c 
4,400 




Y’s Capital A/c 
4,400 




Z’s Capital A/c 
2,200 
11,000 


11,000 

11,000 





Partners’ Capital Accounts 

Dr. 

Cr. 

Particulars 
X 
Y 
Z 
Particulars 
X 
Y 
Z 

Revaluation A/c (Loss) 
4,400 
4,400 
2,200 
Balance b/d 
82,000 
60,000 
75,500 

Y’s Capital A/c (Goodwill) 
18,667 
– 
9,333 
Reserve (Old Ratio) 
7,400 
7,400 
3,700 

Y’s Loan A/c 
– 
91,000 
– 
X’s Capital A/c (Goodwill) 
– 
18,667 
– 

Balance c/d 
66,333 
– 
67,667 
Z’s Capital A/c (Goodwill) 
– 
9,333 
– 


89,400 
95,400 
79,200 

89,400 
95,400 
79,200 









Balance Sheet as on March 31, 2017 (after Y’s Retirement) 

Liabilities 
Amount Rs 
Assets 
Amount Rs 

Creditors 
49,000 
Cash 
8,000 

Y’s Loan 
91,000 
Debtors (190002000) 
17,000 

Capital A/cs: 

Stock 
42,000 

X 
66,333 

Building 
2,07,000 
Z 
67,667 
1,34,000 



2,74,000 

2,74,000 





Working Notes:
WN 1 Calculation of Gaining Ratio
Old Ratio (X, Y and Z) = 2 : 2 : 1
Y retires from the firm.
∴Gaining Ratio = 2 : 1
WN 2 Adjustment of Goodwill
Goodwill of the firm = Rs 70,000
Y’s Share of Goodwill =
This share of goodwill is to be distributed between X and Z in their gaining ratio (i.e. 2 : 1).
Journal 

Particulars 
L.F. 
Debit Amount (Rs) 
Credit Amount (Rs) 

X’s Capital A/c 
Dr. 

18,667 

Z’s Capital A/c 
Dr. 

9,333 

To Y’s Capital A/c 


28,000 

(Adjustment of goodwill made on Y’s retirement) 








Page No 5.82:
Question 32:
The Balance Sheet of X, Y and Z who were sharing profits in proportion to their capitals stood as follows at 31st March, 2018:
Liabilities 
Amount (â‚ą) 
Assets 
Amount (â‚ą) 

Sundry Creditors 
13,800 
Cash at Bank  11,000  
Capital A/cs:  Sundry Debtors  10,000  25,000  
X 
45,000 

Less: Provision for D. Debts  200  9,800  
Y  30,000  Stock  16,000  
Z 
15,000 
90,000 
Plant and Machinery 
17,000 



Land and Building 
50,000 

1,03,800 
1,03,800 



Y retires on 1st April, 2018 and the following readjustments were agreed upon:
(a) Out of insurance premium which was debited to the Profit and Loss Account , â‚ą 1,500 be carried forward as Unexpired Insurance.
(b) The Provision for Doubtful Debts be brought up to 5% o Debtors .
(c) The Land and Building be appreciated by 20%.
(d) A provision of â‚ą 4,000 be made in respect of outstanding bills for repairs.
(e) The goodwill of the entire firm be fixed at â‚ą 21,600.
Y's share of goodwill be adjusted to that of X and Z whoa re going to share in future profits in the ratio of 3 : 1 .
Pass necessary journal entries and give the Balance Sheet after Y's retirement.
Answer:
Journal


Particulars

L.F.

Debit
Amount
Rs

Credit
Amount
Rs


Revaluation A/c

Dr.


4,300


To Provision for Doubtful Debts A/c



300


To Provision for Outstanding Repair Bills A/c



4,000


(Provisions transferred to Revaluation Account)










Prepaid Insurance A/c

Dr.


1,500


Land and Building A/c

Dr.


10,000


To Revaluation A/c



11,500


(Increase in value of Assets transferred to Revaluation Account)










Revaluation A/c

Dr.


7,200


To X’s Capital A/c



3,600


To Y’s Capital A/c



2,400


To Z’s Capital A/c



1,200


(Revaluation profit distributed among X, Y and Z in their old ratio)










X’s Capital A/c

Dr.


5,400


Z’s Capital A/c

Dr.


1,800


To Y’s Capital A/c



7,200


(Y’s share of goodwill adjusted)










Y’s Capital A/c

Dr.


39,600


To Y’s loan A/c



39,600


(Y’s capital balance after all adjustment transferred to his Loan Account)









Balance Sheet


as on March 31, 2017 (after Y’s Retirement)


Liabilities

Amount
Rs

Assets

Amount
Rs


Sundry Creditors

13,800

Cash at Bank

11,000


Provision for Outstanding Repair Bills

4,000

Sundry Debtors

10,000





Less: Provision for Doubtful Debts

(500)

9,500


Y’s Loan

39,600

Stock

16,000


Capital A/cs:


Prepaid Insurance

1,500


X

43,200


Plant and Machinery

17,000


Z

14,400

57,600

Land and Building

60,000



1,15,000


1,15,000






Working Notes:
WN 1
Revaluation Account


Dr.


Cr.


Particulars

Amount
Rs

Particulars

Amount
Rs


Provision for Doubtful Debts


Prepaid Insurance

1,500


(500 – 200)

300

Land And Building
(50,000 × 20%) 
10,000


Provision For Outstanding Repairs Bills

4,000




Profit transferred to:





X’s Capital A/c

3,600




Y’s Capital A/c

2,400




Z’s Capital A/c

1,200

7,200




11,500


11,500






WN 2
Dr.


Cr.


Particulars

X

Y

Z

Particulars

X

Y

Z


Y’s Capital A/c

5,400


1,800

Balance b/d

45,000

30,000

15,000






Revaluation A/c

3,600

2,400

1,200


Y’s Loan


39,600


X’s Capital A/c


5,400



Balance c/d

43,200


14,400

Z’s Capital A/c


1,800




48,600

39,600

16,200


48,600

39,600

16,200










WN 3 Calculation of Ratios
∴ Old Ratio (X, Y and Z) = 3 : 2 : 1
Y retires from the firm.
New Ratio (X and Z) = 3 : 1
Gaining Ratio = New Ratio − Old Ratio
∴ Gaining Ratio = 3 : 1
WN 4 Adjustment of Goodwill
Goodwill of the firm = 21,600
Y’s Share of Goodwill =
This share of goodwill is to be distributed between X and Z in their gaining ratio (i.e. 3 : 1).
Page No 5.83:
Question 33:
A, B and C are partners in a firm, sharing profits and losses as A 1/3, B 1/2 and C 1/6 respectively. The Balance Sheet of the firm as at 31st March, 2018 was:


Liabilities 
â‚ą 
Assets 
â‚ą 

Capital A/cs: 

Factory Building 
50,000 

A 
30,000 

Plant ad Machinery 
40,000 

B  40,000  Furniture  10,000  
C  25,000  95,000  Stock  25,000  




General Reserve  16,000  Debtors  18,000  
Sundry Creditors 
25,000 
Less: Prov. for Doubtful Debts 
500 
17,00 



Cash in Hand 
8,500 












1,51,000 

1,51,000 





(a) Goodwill of the firm be valued at â‚ą 24,000. C's share of goodwill be adjusted into the account of A and B who are going to share in future in the ratio of 3 : 2 .
(b) Plant and Machinery to be depreciated by 10% and Furniture by 5%.
(c) Stock to be appreciated by 15% and Factory Building by 10%.
(d) Provision for Doubtful Debts to be raised to â‚ą 2,000.
You are required to pass journal entries to record the above transactions in the books of the firm and show the Profit and Loss Adjustment Account , Capital Account of C and the Balance Sheet of the firm after C's retirement.
Answer:
Journal 

Particulars 
L.F. 
Debit Amount Rs 
Credit Amount Rs 

Profit and Loss Adjustment A/c 
Dr. 

6,000 

To Plant and Machinery A/c 


4,000 

To Provision for Doubtful Debts A/c 


1,500 

To Furniture A/c 


500 

(Decrease in value of Assets and provision for doubtful debts transferred to Profit and Loss Adjustment Account) 









Stock A/c 
Dr. 

3,750 

Factory Building A/c 
Dr. 

5,000 

To Profit and Loss Adjustment A/c 


8,750 

( Increase in value of Assets transferred to Profit and Loss Adjustment Account) 









Profit and Loss Adjustment A/c 
Dr. 

2,750 

To A’s Capital A/c 


917 

To B’s Capital A/c 


1,375 

To C’s Capital A/c 


458 

(Profit distributed among A, B and C in their old ratio) 









A’s Capital A/c 
Dr. 

6,400 

To B’s Capital A/c 


2,400 

To C’s Capital A/c 


4,000 

(C’s share of goodwill and B’s gain in goodwill adjusted) 









C’s Capital A/c 
Dr. 

32,125 

To C’s Loan A/c 


32,125 

(C’s capital balance after all adjustment transferred to his Loan Account) 









Reserve Fund A/c 
Dr. 

16,000 

To A’s Capital A/c 


5,333 

To B’s Capital A/c 


8,000 

To C’s Capital A/c 


2,667 

(Reserve Fund distributed among partners in their old ratio) 








Profit and Loss Adjustment Account 

Dr. 

Cr. 

Particulars 
Amount Rs 
Particulars 
Amount Rs 

Plant and Machinery 

Stock (25,000 × 15%) 
3,750 

(40,000 × 10%) 
4,000 
Factory Building (50,000 × 10%) 
5,000 

Furniture (10,000 × 5%)) 
500 



Provision for Doubtful Debts 




(2,000 – 500) 
1,500 



Profit transferred to: 




A’s Capital A/c 
917 



B’s Capital A/c 
1,375 



C’s Capital A/c 
458 
2,750 








8,750 

8,750 





Partners’ Capital Accounts 

Dr. 

Cr. 

Particulars 
A 
B 
C 
Particulars 
A 
B 
C 
B’s Capital A/c (Goodwill) 
2,400 


Balance b/d 
30,000 
40,000 
25,000 
C’s Capital A/c (Goodwill) 
4,000 


Reserve Fund 
5,333 
8,000 
2,667 
C’s Loan A/c 


32,125 
Revaluation A/c (Profit) 
917 
1,375 
458 
Balance c/d 
29,850 
51,775 

A’s Capital A/c (Goodwill) 

2,400 
4,000 

36,250 
51,775 
32,125 

36,250 
51,775 
32,125 








Balance Sheet 

as on March 31, 2017 (after C’s Retirement) 

Liabilities 
Amounts Rs 
Assets 
Amounts Rs 

Sundry Creditors 
25,000 
Factory Building 
55,000 

Loan Payable 
15,000 
Plant and Machinery 
36,000 

C’s Loan 
32,125 
Furniture 
9,500 

Capital A/cs: 

Stock 
28,750 

A 
29,850 

Debtors 
18,000 

B 
51,775 
81,625 
Less: Provision for Doubtful Debts 
(2,000) 
16,000 


Cash in Hand 
8,500 


1,53,750 

1,53,750 





Working Notes:
WN 1 Calculation of Gaining Ratio
Old Ratio (A, B and C) = or 2 : 3 : 1
C retires from the firm.
New Ratio (A and B) = 3: 2
Gaining RatioNew Ratio − Old Ratio
WN 2 Adjustment of Goodwill
Goodwill of the firm = Rs 24,000
C’s Share of Goodwill =
Partners’ Capital Accounts 

Dr. 

Cr. 

Particulars 
A 
B 
C 
Particulars 
A 
B 
C 
C’s Capital A/c (Goodwill) 
1,600 
2,400 

Balance b/d 
30,000 
40,000 
25,000 




Reserve Fund 
5,333 
8,000 
2,667 
B’s Loan A/c 


32,125 
Revaluation A/c (Profit) 
917 
1,375 
458 
Balance c/d 
34,650 
46,975 

A’s Capital A/c (Goodwill) 


4,000 

36,250 
49,375 
32,125 

36,250 
49,375 
32,125 



