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Page No 6.100:

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: â‚¹ 24,000; 2016-17: â‚¹ 16,000; 2015-16: â‚¹ 20,000 and 2014-15: â‚¹ 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 â‚¹ 15,000; Furniture â‚¹ 1,500; Plant and Machinery â‚¹ 5,000; Building â‚¹ 35,000. A Bill Receivable for â‚¹ 600 was found worthless.
(d) A Sum of â‚¹ 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
 
 
 
 

Page No 6.100:

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 â‚¹ 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 212 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 â‚¹ 2,00,000; Machinery overvalued by â‚¹ 1,50,000 and Furniture overvalued by â‚¹ 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=36,000×512=Rs 15,000

WN2: Calculation of Interest on Capital

Interest on capital=3,00,000×10×6100×12=Rs 15,000

WN3: Calculation of Profit & Loss Suspense

Profit & Loss Suspense=1,80,000×5×612×12=Rs 37,500

WN4: Calculation of Share in Goodwill

Gaining Ratio = New Ratio - Old RatioY's Gain = 712412=7412=312Z's Gain = 512312=5312=212Goodwill=Average Profit×No. of years' Purchase               =1,80,000×2.5=Rs 4,50,000X's share in Goodwill = 4,50,000×512=Rs 1,87,500, should be contributed by Y & Z in gaining ratio i.e. 3:2



Page No 6.101:

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
       
 â€‹
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 â‚¹ 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 â‚¹ 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 â‚¹ 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 (1,22,600×10100×612)

 

6,130

 

 

 

 

Mar.31

Interest (61,300×10100×312)

 

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 (61,300×10100×312)

 

1,532.5

 

 

 

64,365

 

 

 

64,365

 

 

 

 

 

 

 

 

                 

 

Working Notes:

WN1: Calculation of Profit & Loss Suspense

Profit & loss Suspense=8,16,000×1×36×12=Rs 34,000

WN2: Calculation of Gaining Ratio and Share of Goodwill

Gaining Ratio = New Ratio - Old RatioX's gain=1236=0Y's gain=1226=16X:Y=0:1Z's share of goodwill=60,000×16=Rs 10,000 should be given by Y

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 6.102:

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 212 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 â‚¹ 14,000 and machinery is overvalued by â‚¹ 13,600.
(iii) All debtors are good. A debtor whose dues of â‚¹ 400 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, â‚¹ 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 â‚¹ 1,000 on account of Workmen Compensation to be provided for.
(vii) Investment be sold for â‚¹ 8,200 and a sum of â‚¹ 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

Gaining Ratio = New Ratio - Old RatioX's gain=38510=540 (Sacrifice)Y's gain=58310=1340Z's share of goodwill=70,000×210=Rs 14,000 X's share of goodwill=70,000×540=Rs 8,750

WN2: Calculation of Goodwill

Goodwill=Average Profit×No. of years' Purchase               =28,000×2.5=Rs 70,000Average Profit=Total Profits of past years givenNumber of years                        =1,00,000+80,000+82,0001,50,0004=Rs 28,000

Page No 6.102:

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 â‚¹ 3,20,000 (Loss); â‚¹ 1,00,000; â‚¹ 1,60,000; â‚¹ 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=60,000×25=Rs 24,000

WN2: Calculation of Share in Goodwill

Goodwill=Average Profit×No. of years' Purchase               =1,20,000×2=Rs 2,40,000Y's share in Goodwill=2,40,000×25=Rs 96,000, should be contributed by X & Z in 2:1Average Profit=Total Profits of past years givenNumber of years                        =1,00,000+1,60,000+2,20,000+4,40,0003,20,0005=Rs 1,20,000

WN3: Calculation of Profit & Loss Suspense

Profit & loss Suspense (Loss)=3,20,000×2×35×12=Rs 32,000

 



Page No 6.77:

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 6.77:

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

Page No 6.77:

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 = 15

M’s share taken by R and S in ratio of 1 : 2

Share taken by R: 15×13=115Share taken by S: 15×23=215

New Ratio = Old Ratio + Share acquired from M

R's New Share: 25+115=6+115=715S's New Share: 25+215=6+215=815

New Profit Ratio (R and S) = 7 : 8

Page No 6.77:

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 6.77:

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

X:Y:ZOld Ratio=12:310:15=5:3:210

New Ratio after Y's retirement = 5 : 2

Gaining Share = New Share – Old Share

X's Gain=57-510=1570Z's Gain=27-210=670

Gaining Ratio = 15 : 6 or 5 : 2

Page No 6.77:

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.

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 6.78:

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:

Kumar's share=310acquired by Lakshya and Manoj in 3:2Share acquired by Lakshya=310×35=950Share acquired by Manoj=310×25=650Lakshya's New Share=210+950=1950Manoj's New Share=110+650=1150Naresh's share (as retained)=410 or 2050New Profit Sharing Ratio=19:11:20

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

Page No 6.78:

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 = 415

B’s share taken by A and C in ratio of 1 : 1

Share taken by A: 415×12=215Share taken by C: 415×12=215

New Ratio = Old Ratio + Share acquired from B

A's New Share: 815+215=1015=23C's New Share: 315+215=515=13

 New Profit Ratio (A and C) = 2 : 1

Page No 6.78:

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 = 210

C’s share is taken by A in entirety

New Ratio = Old Ratio + Share acquired from C

A's New Share: 510+210=710B's New Share: 310+0=310

 New Profit Ratio (A and B) = 7 : 3

Page No 6.78:

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:

Calculation of Gaining RatioP :Q :R=7:5:3(Old ratio)Q :R=7:5 (New ratio, same as between P & Q)Gaining Ratio = New Ratio - Old RatioQ's Gain=712515=352060=1560R's Gain=512315=251260=1360Q :R=15:13

Page No 6.78:

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:

Old Ratio=3:4:1Murli's share=38Share acquired by Naveen=38×23=28Remaining Share=3828=18acquired by OmprakashGaining Ratio=28:18=2:1Naveen's New Share=48+28=68Omprakash's New Share=18+18=28New Profit Sharing Ratio=3:1

Page No 6.78:

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

Page No 6.78:

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 â‚¹ 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 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 6.78:

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 â‚¹ 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 

P=410510=110sacrificeQ=310310=0R=310110=210

P's share=4,20,000×110=42,000R's share=4,20,000×210=84,000S's share=4,20,000×110=42,000

Page No 6.78:

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 â‚¹ 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

Manisha's share=Firm's Goodwill×Manisha's Profit ShareManisha's share=1,80,000×13=60,000


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

Aparna's gain=3536=330Sonia's gain=2516=730Gaining Ratio=3:7
Aparna's share=60,000×310=18,000Sonia's share=60,000×710=42,000

Page No 6.78:

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 â‚¹ 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 6.79:

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 â€‹â‚¹ 60,000. Pammy retires and at the time of Pammy's retirement, goodwill is valued at â‚¹ 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

Pammy's share=Firm's Goodwill×Pammy's Profit SharePammy's share=84,000×26=28,000 to be borne by gaining partners in gaining ratio

WN2: Calculation of Gaining Ratio

Gaining Ratio = New Ratio − Old Ratio

Hanny's gain=2336=16Sunny's gain=1316=16Gaining Ratio=1:1

Page No 6.79:

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 â‚¹ 60,000. Y retires and at the time of Y's retirement, goodwill is valued at â‚¹ 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

X :Y :Z=3:2:1(Old ratio)X :Z = 2:1(New ratio)Gaining Ratio = New Ratio - Old RatioX's Gain=2336=16Z's Gain=1316=16X:Z=1:1


WN2: Calculation of Retiring Partner’s Share of Goodwill

Y's share of goodwill=84,000×26=Rs 28,000Y's share of goodwill will be brought by X and Z in their gaining ratio1:1Therefore, X's Capital A/c will be debited with 28,000×12=Rs 14,000And, Y's Capital A/c will be debited with 28,000×12=Rs 14,000

 

Page No 6.79:

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 â‚¹ 1,39,200. A and C agreed to pay him â‚¹ 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.

Page No 6.79:

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 â‚¹ 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

M :N :O=3:2:1(Old ratio)M :O =1:1(New ratio)Gaining Ratio = New Ratio - Old RatioM's Gain =1236=336=0O's Gain=1216=316=26


WN2: Calculation of Retiring Partner’s Share of Goodwill

N's share of goodwill=60,000×26=Rs 20,000N's share of goodwill will be brought by O only.Therefore, O's Capital A/c will be debited with Rs 20,000


 

Page No 6.79:

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 â‚¹ 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

A :B :C :D=2:1:2:1(Old ratio)A :B :D =1:1:1(New ratio)Gaining Ratio = New Ratio - Old RatioA's Gain =1326=226=0B's Gain =1316=216=16D's Gain =1316=216=16A:B:D=0:1:1


WN2: Calculation of Retiring Partner’s Share of Goodwill
C's share of goodwill=1,80,000×26=Rs 60,000C's share of goodwill will be brought by B and D in their gaining ratio1:1Therefore, B's Capital A/c will be debited with 60,000×12=Rs 30,000And, D's Capital A/c will be debited with 60,000×12=Rs 30,000

Page No 6.79:

Question 22:

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

A :B :C=6:5:4(Old ratio)B :C=1:4 (New ratio)Gaining Ratio = New Ratio - Old RatioB's Gain =15515=3515=215(Sacrifice)C's Gain =45415=12415=815


WN2: Calculation of Retiring Partner’s Share of Goodwill

A's share of goodwill=1,80,000×615=Rs 72,000B's share of goodwill=1,80,000×215=Rs 24,000A'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

Page No 6.79:

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 â‚¹ 12,000.
(b) The value of stock to be decreased by â‚¹ 10,000.
(c) Machinery of the book value of â‚¹ 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‚¹ 40,000.
(e) Unrecorded Investment worth â‚¹ 10,000.
(f) An item of â‚¹ 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 6.80:

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 â‚¹ 70,000; Building â‚¹ 1,00,000; Plant and Machinery â‚¹ 40,000; Stock of Raw Materials â‚¹ 20,000; Stock of Finished Goods â‚¹ 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 â‚¹ 18,000 and Finished Goods at â‚¹ 35,000.
(e) An Old Computer previously written off was sold for â‚¹ 2,000 as scrap.
(f) Firm had to pay â‚¹ 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)
 
 
 
 
 
 
 

Page No 6.80:

Question 25:

Ramesh wants to retire from the firm. The gain (profit) on revaluation on that date was â‚¹ 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)

 

 

 

 

 

 

 

Page No 6.80:

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.) â‚¹ 30,000
   Workmen Compensation Reserve â‚¹ 24,000 which was no more required
   Employees' Provident Fund â‚¹ 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.

Page No 6.80:

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 â‚¹ 80,000 and General Reserve at â‚¹ 40,000. Naveen decided to retire from the firm. On the date of his retirement, goodwill of the firm was valued at â‚¹ 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)        
         


Calculation of Gaining Ratio:Gain of a Partner=New Share - Old ShareAsha's Gain (Sacrifice): 25-510=4-510=(-)110Shalini's Gain (Sacrifice): 35-210=6-210=410Therefore, Both Asha and Naveen would be compensated by Shalini in the ratio of 1:3Asha's Sacrifice for 110th Share=1,20,000×110=12,000Naveen's Sacrifice for 310th Share= 1,20,000×310=36,000



Page No 6.81:

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

Ram :Laxman :Bharat=3:2:1(Old ratio)Ram :Bharat = 2:1(New ratio)Gaining Ratio = New Ratio - Old RatioRam's Gain =2336=436=16Bharat's Gain =1316=216=16Ram:Bharat=1:1


WN2: Calculation of Retiring Partner’s Share of Goodwill
Laxman's share of goodwill=2,52,000×26=Rs 84,000Laxman's share of goodwill will be brought by Ram and Bharat in their gaining ratio1:1Therefore, Ram's Capital A/c will be debited with 84,000×12=Rs 42,000And, Bharat's Capital A/c will be debited with 84,000×12=Rs 42,000

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 6.81:

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 â‚¹ 6,000 and his Current Account (Dr.) â‚¹ 500. Profits for the three preceding completed years ended 31st March, were: 2015  ₹ 2,800; 2016 − â‚¹ 2,200 and 2017 − â‚¹ 1,600. What amount is due to 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

Page No 6.81:

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 â‚¹ 70,000 and was not to appear in the books.
(b) Bad Debts amounted to â‚¹ 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