Double Entry Book Keeping Ts Grewal Vol. I 2019 for Class 12 Commerce Accountancy Chapter 6

Question 79:

The Balance Sheet of X, Y and Z as at 31st March, 2018 was:

Liabilities		Amount (₹)	Assets	Amount (₹)
Bills Payable		2,000	Cash at Bank	5,800
Employees' Provident Fund		5,000	Bills Receivable	800
Workmen Compensation Reserve		6,000	Stock	9,000
General Reserve		6,000	Sundry Debtors	16,000
Loans		7,100	Furniture	2,000
Capital A/cs:			Plant and Machinery	6,500
X	22,750		Building	30,000
Y	15,250		Advertising Suspense	6,000
Z	12,000	50,000
		76,100		76,100

The profit-sharing ratio was 3 : 2 : 1. Z died on 31st July, 2018. The Partnership Deed provides that:
(a) Goodwill is to be calculated on the basis of three years' purchase of the five years' average profit. The profits were: 2017-18: ₹ 24,000; 2016-17: ₹ 16,000; 2015-16: ₹ 20,000 and 2014-15: ₹ 10,000 and 2013-14: ₹ 5,000.
(b) The deceased partner to be given share of profits till the date of death on the basis of profits for the previous year.
(c) The Assets have been revalued as: Stock ₹ 10,000; Debtors ₹ 15,000; Furniture ₹ 1,500; Plant and Machinery ₹ 5,000; Building ₹ 35,000. A Bill Receivable for ₹ 600 was found worthless.
(d) A Sum of ₹ 12,233 was paid immediately to Z's Executors and the balance to be paid in two equal annual instalments together with interest @ 10% p.a. on the amount outstanding.
Give Journal entries and show the Z's Executors' Account till it is finally settled.

Answer:

Journal
Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
Workmen’s Compensation Reserve	Dr.		6,000
To X’s Capital A/c				3,000
To Y’s Capital A/c				2,000
To Z’s Capital A/c				1,000
(Workmen’s Compesation Reserve distributed among partners in their old ratio)

General Reserve A/c	Dr.		6,000
To X’s Capital A/c				3,000
To Y’s Capital A/c				2,000
To Z’s Capital A/c				1,000
(General Reserve distributed among partners in their old ratio)

X’s Capital A/c	Dr.		3,000
Y’s Capital A/c	Dr.		2,000
Z’s Capital A/c	Dr.		1,000
To Advertisement Suspense A/c				6,000
(Advertisement suspense written off among partners in their old ratio)

X’s Capital A/c	Dr.		4,500
Y’s Capital A/c	Dr.		3,000
To Z’s Capital A/c				7,500
(Z’s share of goodwill adjusted)

Revaluation A/c	Dr.		3,600
To Sundry debtors A/c	Dr.			1,000
To Furniture A/c				500
To Plant and Machinery A/c				1,500
To Bills Receivable A/c				600
(Decrease in value of Assets transferred to Revaluation Account)

Stock A/c	Dr.		1,000
Building A/c	Dr.		5,000
To Revaluation A/c				6,000
(Increase in value of Assets transferred to Revaluation Account)

Revaluation A/c	Dr.		2,400
To X’ Capital A/c				1,200
To Y’s Capital A/c				800
To Z’s Capital A/c				400
(Revaluation profit distributed among partners in their old ratio)

Profit and Loss Suspense A/c	Dr.		1,333
To Z’s Capital A/c				1,333
(Z’s share of profit transferred his capital account)

Z’s Capital A/c	Dr.		22,233
To Z’s Executor’s A/c				22,233
(Amount due to Z transferred to his Executor’s Account)

Z’s Executor’s A/c	Dr.		12,333
To Bank A/c				12,333
(Amount paid to Z’s Executor)

Z’s Executor’s Account
Dr.					Cr.
Date	Particulars	Amount Rs	Date	Particulars	Amount Rs
2018			2018
July 31	Bank A/c	12,233	July 31	Z’s Capital A/c	22,233
2019			2019
Mar. 31	Balance c/d	10,667	Mar. 31	Interest (10,000 × 10% for 8 months)	667
		22,900			22,900
2019			2019
July 31	Bank A/c (5,000 + 667 + 333)	6,000	Apr. 01	Balance b/d	10,667
			July 31	Interest (10,000 × 10% for 4 months )	333
2020			2020
Mar.31	Balance c/d	5,333	Mar. 31	Interest (5,000 × 10% for 8 months)	333
		11,333			11,333
2020			2020
July 31	Bank A/c (5,000 + 333 + 167)	5,500	Apr. 01	Balance b/d	5,333
			July 31	Interest (5,000 × 10% for 4months)	167
		5,500			5,500

Working Notes:

WN1 Calculation of Goodwill

Goodwill = Average Profit × Number of Year’s Purchase

∴ Goodwill = Average Profit × Number of Years’ Purchase

= 15,000 × 3 = Rs 45,000

WN2 Adjustment of Goodwill

Old Ratio = 3 : 2 : 1

Z died.

∴ New Ratio (X and Y) = 3 : 1 and

Gaining Ratio = 3 : 2

Z’s Share in Goodwill =

This share of goodwill is to be distributed between X and Y in their gaining ratio (i.e. 3 : 1).

WN3 Calculation Z’s Share of Profit

Profit for 2017-18 ( Immediate Previous Year) = Rs 24,000

∴ Z’s Profit Share

WN4

Revaluation Account
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Sundry Debtors		1,000	Stock	1,000
Furniture		500	Building	5,000
Plant and Machinery		1,500
Bills Receivable		600
Profit transferred to:
X’s Capital A/c	1,200
Y’s Capital A/c	800
Z’s Capital A/c	400	2,400
		6,000		6,000

Question 80:

X, Y and Z were partners in a firm sharing profits and losses in the 5 : 4 : 3. Their Balance Sheet on 31st March, 2018 was as follows:

Liabilities		Amount (₹)	Assets	Amount (₹)
Creditors		2,00,000	Building	2,00,000
Employees' Provident Fund		1,50,000	Machinery	3,00,000
General Reserve		36,000	Furniture	1,10,000
Investment Fluctuation Reserve		14,000	Investment (Market value ₹ 86,000)	1,00,000
Capital A/cs:			Debtors	80,000
X	3,00,000		Cash at Bank	1,90,000
Y	2,50,000		Advertisement Suspense	1,20,000
Z	1,50,000	7,00,000
		11,00,000		11,00,000

X died on 1st October, 2018 and Y and Z decide to share future profits in the ratio of 7 : 5. It was agreed between his executors and the remaining partners that:
(i) Goodwill of the firm be valued at

2^{\frac{1}{2}}

years' purchase of average of four completed years' profit which were:

Year	2014-15	2015-16	2016-17	2017-18
Profits (₹)	1,70,000	1,80,000	1,90,000	1,80,000

(ii) X's share of profit from the closure of last accounting year till date of death be calculated on the basis of last years' profit.
(iii) Building undervalued by ₹ 2,00,000; Machinery overvalued by ₹ 1,50,000 and Furniture overvalued by ₹ 46,000.
(iv) A provision of 5% be created on Debtors for Doubtful Debts.
(v) Interest on Capital to be provided at 10% p.a.
(vi) Half of the net amount payable to X's executor was paid immediately and the balance was transferred to his loan account which was to be paid later.
Prepare Revaluation Account, X's Capital Account and X's Executor's Account as on 1st October, 2018.

Answer:

Revaluation Account
Dr.				Cr.
Particulars	Amount Rs	Particulars	Amount Rs
Machinery	1,50,000	Building	2,00,000
Furniture	46,000
Provision for Doubtful Debts	4,000

	2,00,000		2,00,000

X’s Capital Account
Dr.				Cr.
Particulars	Amount Rs	Particulars	Amount Rs
Advertisement Suspense A/c	50,000	Balance b/d	3,00,000
X’s Executors A/c	5,05,000	General Reserve	15,000
		Y’s Capital A/c	1,12,500
		Z’s Capital A/c	75,000
		Profit & Loss Suspense	37,500
		Interest on Capital	15,000

	5,55,000		5,55,000

X’s Executors Account
Dr.				Cr.
Particulars	Amount Rs	Particulars	Amount Rs
Bank A/c	2,52,500	X’s Capital A/c	5,05,000
X’s Executors Loan Account	2,52,500

	57,000		57,000

Working Notes:

WN1: Calculation of Share in General Reserve

$Reserve = \frac{36, 000 \times 5}{12} = Rs 15,000$
WN2: Calculation of Interest on Capital

$Interest on capital = \frac{3, 00, 000 \times 10 \times 6}{100 \times 12} = Rs 15,000$
WN3: Calculation of Profit & Loss Suspense

$Profit & Loss Suspense = \frac{1, 80, 000 \times 5 \times 6}{12 \times 12} = Rs 37,500$
WN4: Calculation of Share in Goodwill

$\begin{array}{l} \begin{array}{l} Gaining Ratio = New Ratio - Old Ratio \\ Y's Gain = \frac{7}{12} - \frac{4}{12} = \frac{7 - 4}{12} = \frac{3}{12} \\ Z's Gain = \frac{5}{12} - \frac{3}{12} = \frac{5 - 3}{12} = \frac{2}{12} \\ Goodwill = Average Profit \times No. of years' Purchase \\ = 1, 80,000 \times 2.5 = Rs 4,50,000 \\ X's share in Goodwill = 4,50,000 \times \frac{5}{12} = Rs 1,87,500, should be contributed by Y & Z in gaining ratio i.e. 3:2 \end{array} \end{array}$

Question 81:

X, Y and Z were partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. Z died on 30th June, 2018. The Balance Sheet of the firm as at that 31st March, 2018 is as follows:

BALANCE SHEET as at 31st March, 2018
Liabilities		Amount (₹)	Assets	Amount (₹)
X's Capital A/c	2,40,000		Machinery	2,40,000
Y's Capital A/c	1,60,000		Furniture	1,50,000
Z's Capital A/c	80,000	4,80,000	Investments	40,000
X's Current A/c		16,000	Stock	64,000
Y's Current A/c		5,000	Sundry Debtors	50,000
Reserve		60,000	Bills Receivable	22,000
Bills Payable		34,000	Cash at Bank	37,000
Sundry Creditors		40,000	Cash in Hand	22,000
			Z's Current A/c	10,000


		6,35,000		6,35,000

The following decisions were taken by the remaining partners:
(a) A Provision for Doubtful Debts is to be raised at 5% on Debtors.
(b) While Machinery to be decreased by 10%, Furniture and Stock are to be appreciated by 5% and 10% respectively.
(c) Advertising Expenses ₹ 4,200 are to be carried forward to the next accounting year and, therefore, it is to be adjusted through the Revaluation Account.
(d) Goodwill of the firm is valued at ₹ 60,000.
(e) X and Y are to share profits and losses equally in future.
(f) Profit for the year ended 31st March, 2018 was ₹ 8,16,000 and Z's share of profit till the date of death is to be determined on the basis of profit for the year ended 31st March, 2018.
(g) The Fixed Capital Method is to be converted into the Fluctuating Capital Method by transferring the Current Account balances to the respective Partners' Capital Accounts.
Prepare the Revaluation Account, Partners' Capital Accounts and prepare C's Executors's Account to show that C's Executors were paid in two half-yearly instalments plus interest of 10% p.a. on the
unpaid balance. The first instalment was paid on 31st December, 2018.

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
2018-19					2018-19
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

2019-20					2019-20
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

$Profit & loss Suspense = \frac{8, 16, 000 \times 1 \times 3}{6 \times 12} = Rs 34,000$
WN2: Calculation of Gaining Ratio and Share of Goodwill

$\begin{array}{l} Gaining Ratio = New Ratio - Old Ratio \\ X's gain = \frac{1}{2} - \frac{3}{6} = 0 \\ Y's gain = \frac{1}{2} - \frac{2}{6} = \frac{1}{6} \\ X:Y = 0:1 \\ Z's share of goodwill=60,000 \times \frac{1}{6} = Rs 10,000 should be given by Y \end{array}$
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.

Question 82:

X, Y and Z are partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. Their Balance Sheet as at 31st March, 2018 was as follows:


Liabilities		Amount (₹)	Assets		Amount (₹)
Sundry Creditors		18,000	Goodwill		12,000
Investments Fluctuation Reserve		7,000	Patents		52,000
Workmen Compensation Reserve		7,000	Machinery		62,400
Capital A/cs:			Investment		6,000
X	1,35,000		Stock		20,000
Y	95,000		Sundry Debtors	24,000
Z	74,000	3,04,000	Less: Provision for Doubtful Debts	4,000	20,000
			Loan to Z		1,000
			Cash at Bank		600
			Profit and Loss A/c		1,50,000
			Z's Drawings		12,000
		3,36,000			3,36,000

Z died on 1st April, 2018, X and Y decide to share future profits and losses in ratio of 3 : 5. It was agreed that:
(i) Goodwill of the firm be valued

2^{\frac{1}{2}}

years' purchase of average of four completed years' profits which were: 2014-15

—

₹ 1,00,000; 2015-16

—

₹ 80,000; 2016-17

—

₹ 82,000.
(ii) Stock is undervalued by ₹ 14,000 and machinery is overvalued by ₹ 13,600.
(iii) All debtors are good. A debtor whose dues of ₹ 400 were written off as bad debts paid 50% in full settlement.
(iv) Out of the amount of insurance premium debited to Profit and Loss Account, ₹ 2,200 be carried forward as prepaid insurance premium.
(v) ₹ 1,000 included in Sundry Creditors is not likely to arise.
(vi) A claim of ₹ 1,000 on account of Workmen Compensation to be provided for.
(vii) Investment be sold for ₹ 8,200 and a sum of ₹ 11,200 be paid to executors of Z immediately. The balance to be paid in four equal half-yearly instalments together with interest @ 8% p.a. at half year rest.
Show Revaluation Account, Capital Accounts of Partners and the Balance Sheet of the new firm.

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, 2018 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 + 8,200-11,200 + 200)		2,200
		1,61,000		1,61,000

Working Notes:

WN1: Calculation of Gaining Ratio and Share of Goodwill

$\begin{array}{l} Gaining Ratio = New Ratio - Old Ratio \\ X's gain = \frac{3}{8} - \frac{5}{10} = - \frac{5}{40} (Sacrifice) \\ Y's gain = \frac{5}{8} - \frac{3}{10} = \frac{13}{40} \\ Z's share of goodwill=70,000 \times \frac{2}{10} = Rs 14,000 \\ X's share of goodwill=70,000 \times \frac{5}{40} = Rs 8,750 \end{array}$
WN2: Calculation of Goodwill

$\begin{array}{l} Goodwill = Average Profit \times No. of years' Purchase \\ = 28,000 \times 2.5 = Rs 70,000 \end{array} \begin{array}{l} Average Profit = \frac{Total Profits of past years given}{Number of years} \\ = \frac{1, 00, 000 + 80, 000 + 82, 000 - 1, 50, 000}{4} = Rs 28,000 \end{array}$

Question 83:

X, Y and Z were partners in a firm sharing profits in the ratio of 2 : 2 : 1. On 31st March, 2018, their Balance Sheet was as follows:

Liabilities		Amount (₹)	Assets	Amount (₹)
Trade Creditors		1,20,000	Cash at Bank	1,80,000
Bills Payable		80,000	Stock	1,40,000
General Reserve		60,000	Sundry Debtors	80,000
Capital A/cs:			Building	3,00,000
X	7,00,000		Advance to Y	7,00,000
Y	7,00,000		Profit and Loss A/c	3,20,000
Z	60,000	14,60,000
		17,20,000		17,20,000

Y died on 30th June, 2018. The Partnership Deed provided for the following on the death of a partner:
(i) Goodwill of the business was to be calculated on the basis of 2 times the average profit of the past 5 years. Profits for the years ended 31st March, 2018, 31st March, 2017, 31st March, 2016, 31st March, 2015 and 31st March, 2014 were ₹ 3,20,000 (Loss); ₹ 1,00,000; ₹ 1,60,000; ₹ 2,20,000 and ₹ 4,40,000 respectively.
(ii) Y's share of profit or loss from 1st April, 2018 till his death was to be calculated on the basis of the profit or loss for the year ended 31st March, 2018.
You are required to calculate the following:
(a) Goodwill of the firm and Y's share of goodwill at the time of his death.
(b) Y's share in the profit or loss of the firm till the date of his death.
(c) Prepare Y's Capital Account at the time of his death to be presented to his executors.

Answer:

Y’s Capital Account
Dr.				Cr.
Particulars	Amount Rs	Particulars	Amount Rs
Profit & Loss A/c	1,28,000	Balance b/d	7,00,000
Profit & Loss Suspense (Share of Loss)	32,000	General Reserve	24,000
Advance to Y	7,00,000	X’s Capital A/c Z ’s Capital A/c	64,000 32,000
		Y’s Executors A/c	40,000

	8,20,000		8,20,000

Working Notes:

WN1: Calculation of Share in General Reserve

$Reserve = \frac{60, 000 \times 2}{5} = Rs 24,000$
WN2: Calculation of Share in Goodwill

$\begin{array}{l} Goodwill = Average Profit \times No. of years' Purchase \\ = 1, 20,000 \times 2 = Rs 2,40,000 \\ Y's share in Goodwill = 2,40,000 \times \frac{2}{5} = Rs 96,000, should be contributed by X & Z in 2:1 \end{array} \begin{array}{l} Average Profit = \frac{Total Profits of past years given}{Number of years} \\ = \frac{1, 00, 000 + 1, 60, 000 + 2, 20, 000 + 4, 40, 000 - 3, 20, 000}{5} = Rs 1,20,000 \end{array}$
WN3: Calculation of Profit & Loss Suspense

$Profit & loss Suspense (Loss) = \frac{3, 20, 000 \times 2 \times 3}{5 \times 12} = Rs 32,000$

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

Question 2:

From the following particulars, calculate new profit-sharing 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

Question 3:

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 profit-sharing ratio.

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

$S h a r e t a k e n b y R : \frac{1}{5} \times \frac{1}{3} = \frac{1}{15} S h a r e t a k e n b y S : \frac{1}{5} \times \frac{2}{3} = \frac{2}{15}$

New Ratio = Old Ratio + Share acquired from M

$R' s N e w S h a r e : \frac{2}{5} + \frac{1}{15} = \frac{6 + 1}{15} = \frac{7}{15} S' s N e w S h a r e : \frac{2}{5} + \frac{2}{15} = \frac{6 + 2}{15} = \frac{8}{15}$

∴ New Profit Ratio (R and S) = 7 : 8

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

Question 5:

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

$\begin{matrix} X & : & Y & : & Z \\ Old Ratio & = & \frac{1}{2} & : & \frac{3}{10} & : & \frac{1}{5} \\ = & \frac{5 : 3 : 2}{10} \end{matrix}$

New Ratio after Y's retirement = 5 : 2

Gaining Share = New Share – Old Share

$X' s Gain = \frac{5}{7} - \frac{5}{10} = \frac{15}{70} Z' s Gain = \frac{2}{7} - \frac{2}{10} = \frac{6}{70}$

Gaining Ratio = 15 : 6 or 5 : 2

Question 6:

(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 profit-sharing 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

Question 7:

Kumar, Lakshya, Manoj and Naresh are partners sharing profits in the ratio of 3 : 2 : 1 : 4. Kumar retires and his share is acquired by Lakshya and Manoj in the ratio of 3 : 2. Calculate new profit-sharing ratio and gaining ratio of the remaining partners.

Answer:

$\begin{array}{l} Kumar' s share = \frac{3}{10} (acquired by Lakshya and Manoj in 3:2) \\ Share acquired by Lakshya = \frac{3}{10} \times \frac{3}{5} = \frac{9}{50} \\ Share acquired by Manoj = \frac{3}{10} \times \frac{2}{5} = \frac{6}{50} \\ Lakshya' s New Share = \frac{2}{10} + \frac{9}{50} = \frac{19}{50} \\ Manoj' s New Share = \frac{1}{10} + \frac{6}{50} = \frac{11}{50} \\ Naresh' s share (as retained) = \frac{4}{10} or \frac{20}{50} \\ New Profit Sharing Ratio = 19 : 11 : 20 \end{array}$

Gaining Ratio = 3:2 (as given in the question)

Question 8:

A, B, and 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.

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

$S h a r e t a k e n b y A : \frac{4}{15} \times \frac{1}{2} = \frac{2}{15} S h a r e t a k e n b y C : \frac{4}{15} \times \frac{1}{2} = \frac{2}{15}$

New Ratio = Old Ratio + Share acquired from B

$A' s N e w S h a r e : \frac{8}{15} + \frac{2}{15} = \frac{10}{15} = \frac{2}{3} C' s N e w S h a r e : \frac{3}{15} + \frac{2}{15} = \frac{5}{15} = \frac{1}{3}$

∴ New Profit Ratio (A and C) = 2 : 1

Question 9:

A, B, and C are partners sharing profits in the ratio of 5 : 3 : 2. C retires and his share is taken by A. Calculate new profit-sharing 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

$A' s N e w S h a r e : \frac{5}{10} + \frac{2}{10} = \frac{7}{10} B' s N e w S h a r e : \frac{3}{10} + 0 = \frac{3}{10}$

∴ New Profit Ratio (A and B) = 7 : 3

Question 10:

P, Q and R are partners sharing profits in the ratio of 7 : 5 : 3. P retires and it is decided that profit-sharing ratio between Q and R will be same as existing between P and Q. Calculate New profit-sharing ratio and Gaining Ratio.

Answer:

$\begin{array}{l} Calculation of Gaining Ratio \\ P :Q :R = 7 :5:3 (Old ratio) \\ Q :R=7:5 (New ratio, same as between P & Q) \\ Gaining Ratio = New Ratio - Old Ratio \\ Q's Gain= \frac{7}{12} - \frac{5}{15} = \frac{35 - 20}{60} = \frac{15}{60} \\ R's Gain= \frac{5}{12} - \frac{3}{15} = \frac{25 - 12}{60} = \frac{13}{60} \\ Q :R = 15 : 13 \end{array}$

Question 11:

Murli, Naveen and Omprakash are partners sharing profits in the ratio of 3/8, 1/2 and 1/8. Murli retires and surrenders 2/3rd of his share in favour of Naveen and remaining share in favour of Omprakash. Calculate new profit-sharing ratio and gaining ratio of the remaining partners.

Answer:

$\begin{array}{l} Old Ratio = 3:4:1 \\ Murli' s share = \frac{3}{8} \\ Share acquired by Naveen = \frac{3}{8} \times \frac{2}{3} = \frac{2}{8} \\ Remaining Share = \frac{3}{8} - \frac{2}{8} = \frac{1}{8} (acquired by Omprakash) \\ Gaining Ratio = \frac{2}{8} : \frac{1}{8} = 2 : 1 \\ Naveen' s New Share = \frac{4}{8} + \frac{2}{8} = \frac{6}{8} \\ Omprakash' s New Share = \frac{1}{8} + \frac{1}{8} = \frac{2}{8} \\ New Profit Sharing Ratio = 3 : 1 \end{array}$

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 profit-sharing 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

Question 13:

L, M and O are partners sharing profits and losses in the ratio of 4 : 3 : 2. M retires and the goodwill is valued at ₹ 72,000. Calculate M's share of goodwill and pass the Journal entry for Goodwill. L and O decided to share the future profits and losses in the ratio of 5 : 3.

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 Ratio

New 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).

Question 14:

P, Q, R and S were partners in a firm sharing profits in the ratio of 5 : 3 : 1 : 1. On 1st January, 2019, S retired from the firm. On S's retirement, goodwill of the firm was valued at ₹ 4,20,000. New profit-sharing ratio among P, Q and R will be 4 : 3 : 3.
Showing your working notes clearly, pass necessary Journal entry for the treatment of goodwill in the books of the firm on S's retirement.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019 Jan.1	R’s Capital A/c	Dr.		84,000
	To P’s Capital A/c				42,000
	To S’s Capital A/c				42,000
	(Goodwill adjusted)

Working Notes:

Gaining Ratio = New Ratio – Old Ratio

$\begin{array}{l} P = \frac{4}{10} - \frac{5}{10} = - \frac{1}{10} (sacrifice) \\ Q = \frac{3}{10} - \frac{3}{10} = 0 \\ R = \frac{3}{10} - \frac{1}{10} = \frac{2}{10} \end{array}$

$\begin{array}{l} P' s share = 4, 20, 000 \times \frac{1}{10} = 42, 000 \\ R' s share = 4, 20, 000 \times \frac{2}{10} = 84, 000 \\ S' s share = 4, 20, 000 \times \frac{1}{10} = 42, 000 \end{array}$

Question 15:

Aparna, Manisha and Sonia are partners sharing profits in the ratio of 3 : 2 : 1. Manisha retired and goodwill of the firm is valued at ₹ 1,80,000. Aparna and Sonia decided to share future profits in the ratio of 3 : 2. Pass necessary Journal entries.

Answer:

Journal
Date	Particulars		L.F.	Amount (₹)	Amount (₹)
	Aparna’s Capitals A/c	Dr.		18,000
	Sonia’s Capital A/c	Dr.		42,000
	To Manisha’s Capital A/c				60,000
	(Manisha’s share of goodwill adjusted to Aparna’s and Sonia’s Capital Account in their gaining ratio)

Working Notes:

WN1: Calculation of Manisha’s Share in Goodwill

$\begin{array}{l} Manisha' s share = Firm' s Goodwill \times Manisha' s Profit Share \\ Manisha' s share = 1, 80, 000 \times \frac{1}{3} = 60, 000 \end{array}$

WN2: Calculation of Gaining Ratio
Gaining Ratio = New Ratio − Old Ratio

\begin{array}{l} Aparna's gain = \frac{3}{5} - \frac{3}{6} = \frac{3}{30} \\ Sonia's gain = \frac{2}{5} - \frac{1}{6} = \frac{7}{30} \\ Gaining Ratio=3:7 \end{array}

Aparna' s share = 60, 000 \times \frac{3}{10} = 18, 000 Sonia' s share = 60, 000 \times \frac{7}{10} = 42, 000

Question 16:

A, B and C are partners sharing profits in the ratio of 3 : 2 : 1. B retired and the new profit-sharing ratio between A and C was 2 : 1. On B's retirement, the goodwill of the firm was valued at ₹ 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).

Question 17:

Hanny, Pammy and Sunny are partners sharing profits in the ratio of 3 : 2 : 1. Goodwill is appearing in the books at a value of ₹ 60,000. Pammy retires and at the time of Pammy's retirement, goodwill is valued at ₹ 84,000. Hanny and Sunny decided to share future profits in the ratio of 2 : 1. Record the necessary Journal entries.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
	Hanny’s Capital A/c	Dr.		30,000
	Pammy’s Capital A/c	Dr.		20,000
	Sunny’s Capital A/c			10,000
	To Goodwill A/c				60,000
	(Old goodwill written-off in old ratio)

	Hanny’s Capital A/c	Dr.		14,000
	Sunny’s Capital A/c	Dr.		14,000
	To Pammy’s Capital A/c				28,000
	(Adjustment for goodwill in gaining ratio)

Working Notes:

WN1: Calculation of Pammy’s Share in Goodwill

\begin{array}{l} Pammy' s share = Firm' s Goodwill \times Pammy' s Profit Share \\ Pammy' s share = 84, 000 \times \frac{2}{6} = 28, 000 (to be borne by gaining partners in gaining ratio) \end{array}

WN2: Calculation of Gaining Ratio

Gaining Ratio = New Ratio − Old Ratio

\begin{array}{l} Hanny' s gain = \frac{2}{3} - \frac{3}{6} = \frac{1}{6} \\ Sunny' s gain = \frac{1}{3} - \frac{1}{6} = \frac{1}{6} \\ Gaining Ratio = 1:1 \end{array}

Question 18:

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 ₹ 60,000. Y retires and at the time of Y's retirement, goodwill is valued at ₹ 84,000. X and Z decided 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

$\begin{array}{l} X :Y :Z = 3 :2:1 (Old ratio) \\ X :Z = 2:1(New ratio) \\ Gaining Ratio = New Ratio - Old Ratio \\ X's Gain= \frac{2}{3} - \frac{3}{6} = \frac{1}{6} \\ Z's Gain= \frac{1}{3} - \frac{1}{6} = \frac{1}{6} \\ X:Z = 1 : 1 \end{array}$

WN2: Calculation of Retiring Partner’s Share of Goodwill

$\begin{array}{l} Y's share of goodwill=84,000 \times \frac{2}{6} = Rs 28,000 \\ Y's share of goodwill will be brought by X and Z in their gaining ratio1:1 \\ Therefore, X's Capital A/c will be debited with 28,000 \times \frac{1}{2} = Rs 14,000 \\ And, Y's Capital A/c will be debited with 28,000 \times \frac{1}{2} = Rs 14,000 \end{array}$

Question 19:

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 ₹ 1,39,200. A and C agreed to pay him ₹ 1,50,000 in full settlement of his claim. Record necessary Journal entry for adjustment of goodwill if the new profit-sharing 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.

Question 20:

M, N and O are partners in a firm sharing profits in the ratio of 3 : 2 : 1. Goodwill has been valued at ₹ 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

$\begin{array}{l} M :N :O = 3 :2:1 (Old ratio) \\ M :O =1:1(New ratio) \\ Gaining Ratio = New Ratio - Old Ratio \\ M's Gain = \frac{1}{2} - \frac{3}{6} = \frac{3 - 3}{6} = 0 \\ O's Gain= \frac{1}{2} - \frac{1}{6} = \frac{3 - 1}{6} = \frac{2}{6} \end{array}$

WN2: Calculation of Retiring Partner’s Share of Goodwill

$\begin{array}{l} N's share of goodwill=60,000 \times \frac{2}{6} = Rs 20,000 \\ N's share of goodwill will be brought by O only. \\ Therefore, O's Capital A/c will be debited with Rs 20,000 \end{array}$

Question 21:

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 ₹ 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

$\begin{array}{l} A :B :C :D = 2 :1:2:1 (Old ratio) \\ A :B :D =1:1:1(New ratio) \\ Gaining Ratio = New Ratio - Old Ratio \\ A's Gain = \frac{1}{3} - \frac{2}{6} = \frac{2 - 2}{6} = 0 \\ B's Gain = \frac{1}{3} - \frac{1}{6} = \frac{2 - 1}{6} = \frac{1}{6} \\ D's Gain = \frac{1}{3} - \frac{1}{6} = \frac{2 - 1}{6} = \frac{1}{6} \\ A:B:D = 0 : 1 : 1 \end{array}$

WN2: Calculation of Retiring Partner’s Share of Goodwill
$\begin{array}{l} C's share of goodwill=1,80,000 \times \frac{2}{6} = Rs 60,000 \\ C's share of goodwill will be brought by B and D in their gaining ratio1:1 \\ Therefore, B's Capital A/c will be debited with 60,000 \times \frac{1}{2} = Rs 30,000 \\ And, D's Capital A/c will be debited with 60,000 \times \frac{1}{2} = Rs 30,000 \end{array}$

Question 22:

A, B and C were partners in a firm sharing profits in the ratio of 6 : 5 : 4. Their capitals were A − ₹ 1,00,000; B − ₹ 80,000 and C − ₹ 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 ₹ 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

$\begin{array}{l} A :B :C = 6 :5:4 (Old ratio) \\ B :C=1:4 (New ratio) \\ Gaining Ratio = New Ratio - Old Ratio \\ B's Gain = \frac{1}{5} - \frac{5}{15} = \frac{3 - 5}{15} = - \frac{2}{15} (S a c r i f i c e) \\ C's Gain = \frac{4}{5} - \frac{4}{15} = \frac{12 - 4}{15} = \frac{8}{15} \end{array}$

WN2: Calculation of Retiring Partner’s Share of Goodwill

$\begin{array}{l} A's share of goodwill=1,80,000 \times \frac{6}{15} = Rs 72,000 \\ B's share of goodwill=1,80,000 \times \frac{2}{15} = Rs 24,000 \\ A's and B's share of goodwill be brought by C only. \\ Therefore, C's Capital A/c will be debited with 72,000+24,000 = Rs 96,000 \end{array}$

Question 23:

X, Y and Z are partners sharing profits and losses in the ratio of 5 : 3 : 2. Z retired and on the date of his retirement, following adjustments were agreed upon:
(a) The value of Furniture is to be increased by ₹ 12,000.
(b) The value of stock to be decreased by ₹ 10,000.
(c) Machinery of the book value of ₹ 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 ₹ 40,000.
(e) Unrecorded Investment worth ₹ 10,000.
(f) An item of ₹ 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)

Question 24:

A, B and C were partners, sharing profits and losses in the ratio of 2 : 2 : 1. B decides to retire on 31st March, 2019. On the date of his retirement, some of the assets and liabilities appeared in the books as follows:
Creditors ₹ 70,000; Building ₹ 1,00,000; Plant and Machinery ₹ 40,000; Stock of Raw Materials ₹ 20,000; Stock of Finished Goods ₹ 30,000 and Debtors ₹ 20,000.
Following was agreed among the partners on B's retirement:
(a) Building to be appreciated by 20%.
(b) Plant and Machinery to be reduced by 10%.
(c) A Provision of 5% on Debtors to be created for Doubtful Debts.
(d) Stock of Raw Materials to be valued at ₹ 18,000 and Finished Goods at ₹ 35,000.
(e) An Old Computer previously written off was sold for ₹ 2,000 as scrap.
(f) Firm had to pay ₹ 5,000 to an injured employee.
Pass necessary Journal entries to record the above adjustments and prepare the Revaluation Account.

Answer:

Revaluation Account
Dr.					Cr.
Particulars		Amount (₹)	Particulars	Amount (₹)
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 (₹)	Credit Amount (₹)
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)

Question 25:

Ramesh wants to retire from the firm. The gain (profit) on revaluation on that date was ₹ 12,000. Mohan and Rahul want to share this in their new profit-sharing 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)

Question 26:

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, 2019. On the date of Z's retirement, the following balances appeared in the books of the firm:
General Reserve ₹ 1,80,000
Profit and Loss Account (Dr.) ₹ 30,000
Workmen Compensation Reserve ₹ 24,000 which was no more required
Employees' Provident Fund ₹ 20,000.
Pass necessary Journal entries for the adjustment of these items on Z's retirement.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019 Mar.31	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)

Working Notes:

WN1: Calculation of Share in Credit Balance of Reserves

Total Credit Balance of Reserves = General Reserve + WCF

= 1,80,000 + 24,000 = 2,04,000

WN2: Calculation of Share in Debit Balance of Profit and Loss A/c

Note: Employees’ Provident Fund will not be distributed as it is a liability and not accumulated profit.

Question 27:

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 ₹ 80,000 and General Reserve at ₹ 40,000. Naveen decided to retire from the firm. On the date of his retirement, goodwill of the firm was valued at ₹ 1,20,000. The new profit-sharing 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)

C a l c u l a t i o n o f G a i n i n g R a t i o : G a i n o f a P a r t n e r = N e w S h a r e - O l d S h a r e A s h a' s G a i n (S a c r i f i c e) : \frac{2}{5} - \frac{5}{10} = \frac{4 - 5}{10} = \frac{(-) 1}{10} S h a l i n i' s G a i n (S a c r i f i c e) : \frac{3}{5} - \frac{2}{10} = \frac{6 - 2}{10} = \frac{4}{10} T h e r e f o r e, B o t h A s h a a n d N a v e e n w o u l d b e c o m p e n s a t e d b y S h a l i n i i n t h e r a t i o o f 1 : 3 A s h a' s S a c r i f i c e f o r \frac{1}{10} t h S h a r e = 1, 20, 000 \times \frac{1}{10} = 12, 000 N a v e e n' s S a c r i f i c e f o r \frac{3}{10} t h S h a r e = 1, 20, 000 \times \frac{3}{10} = 36, 000

Question 28:

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 ₹ 1,80,000. Laxman retires and at the time of his retirement, goodwill is valued at ₹ 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 ₹ 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

$\begin{array}{l} Ram :Laxman :Bharat = 3 :2:1 (Old ratio) \\ Ram :Bharat = 2:1(New ratio) \\ Gaining Ratio = New Ratio - Old Ratio \\ Ram's Gain = \frac{2}{3} - \frac{3}{6} = \frac{4 - 3}{6} = \frac{1}{6} \\ Bharat's Gain = \frac{1}{3} - \frac{1}{6} = \frac{2 - 1}{6} = \frac{1}{6} \\ Ram:Bharat = 1 : 1 \end{array}$

WN2: Calculation of Retiring Partner’s Share of Goodwill
$\begin{array}{l} Laxman's share of goodwill=2,52,000 \times \frac{2}{6} = Rs 84,000 \\ Laxman's share of goodwill will be brought by Ram and Bharat in their gaining ratio1:1 \\ Therefore, Ram's Capital A/c will be debited with 84,000 \times \frac{1}{2} = Rs 42,000 \\ And, Bharat's Capital A/c will be debited with 84,000 \times \frac{1}{2} = Rs 42,000 \end{array}$
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)

Question 29:

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 six-month notice in writing:
The retiring partner shall be paid−
(a) the amount standing to the credit of his Capital Account and Current Account.
(b) his share of profit to the date of retirement, calculated on the basis of the average profit of the three preceding completed years.
(c) half the amount of the goodwill of the firm calculated at 1^1/2 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 ₹ 6,000 and his Current Account (Dr.) ₹ 500. Profits for the three preceding completed years ended 31st March, were: 2015 − ₹ 2,800; 2016 − ₹ 2,200 and 2017 − ₹ 1,600. What amount is due to C as per 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

Question 30:

X, Y and Z were partners in a firm sharing profits in the ratio of 2 : 2 : 1. Their Balance Sheet as at 31st March, 2019 was:


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

Y retired on 1st April, 2019 on the following terms:
(a) Goodwill of the firm was valued at ₹ 70,000 and was not to appear in the books.
(b) Bad Debts amounted to ₹ 2,000 were to be written off.
(c) Patents were considered as valueless.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of X and Z after Y's retirement.

Answer:

Revaluation Account
Dr.					Cr.
Particulars	Amount (₹)	Particulars		Amount (₹)
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

Double Entry Book Keeping Ts Grewal Vol. I 2019 for Class 12 Commerce Accountancy Chapter 6 - Retirement Death Of A Partner

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