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#### 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.

 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

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 ${2}^{1}{2}}$ 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.

 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

WN2: Calculation of Interest on Capital

WN3: Calculation of Profit & Loss Suspense

WN4: Calculation of Share in Goodwill

#### 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.

 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 $\left(1,22,600×\frac{10}{100}×\frac{6}{12}\right)$ 6,130 Mar.31 Interest $\left(61,300×\frac{10}{100}×\frac{3}{12}\right)$ 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 $\left(61,300×\frac{10}{100}×\frac{3}{12}\right)$ 1,532.5 64,365 64,365

Working Notes:

WN1: Calculation of Profit & Loss Suspense

WN2: Calculation of Gaining Ratio and Share of Goodwill

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 ${2}^{1}{2}}$ 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.

 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

WN2: Calculation of Goodwill

#### 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.

 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

WN2: Calculation of Share in Goodwill

WN3: Calculation of Profit & Loss Suspense

#### 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.

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.

(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.

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

New Ratio = Old Ratio + Share acquired from M

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.

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.

Calculation of Gaining Ratio

New Ratio after Y's retirement = 5 : 2

Gaining Share = New Share – Old Share

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 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.

(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.

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.

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

New Ratio = Old Ratio + Share acquired from B

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.

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

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.

#### 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.

#### 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.

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.

 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

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.

 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

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

#### 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.

 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

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

#### 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.

 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

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.

 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

WN2: Calculation of Gaining Ratio

Gaining Ratio = New Ratio − Old Ratio

#### 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.

 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

WN2: Calculation of Retiring Partner’s Share of Goodwill

#### 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.

 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.

 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

WN2: Calculation of Retiring Partner’s Share of Goodwill

#### 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.

 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

WN2: Calculation of Retiring Partner’s Share of Goodwill

#### 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;  ₹ 80,000 and − ₹ 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.

 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

WN2: Calculation of Retiring Partner’s Share of Goodwill

#### 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.

 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.

 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.

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.

 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.

 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)

#### 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.

 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

WN2: Calculation of Retiring Partner’s Share of Goodwill

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 11/2 times the average profit of the three preceding completed years.
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 as per the partnership agreement?

 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.

 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)