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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 profitsharing 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: 201718: ₹ 24,000; 201617: ₹ 16,000; 201516: ₹ 20,000 and 201415: ₹ 10,000 and 201314: ₹ 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 201718 ( 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 ₹ 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}^{\raisebox{1ex}{$1$}\!\left/ \!\raisebox{1ex}{$2$}\right.}$ years' purchase of average of four completed years' profit which were:
Year  201415  201516  201617  201718 
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
$\text{Reserve}=\frac{36,000\times 5}{12}=\text{Rs15,000}$
WN2: Calculation of Interest on Capital
$\text{Interestoncapital}=\frac{3,00,000\times 10\times 6}{100\times 12}=\text{Rs15,000}$
WN3: Calculation of Profit & Loss Suspense
$\text{ProfitLossSuspense}=\frac{1,80,000\times 5\times 6}{12\times 12}=\text{Rs37,500}$
WN4: Calculation of Share in Goodwill
$\begin{array}{l}\begin{array}{l}\text{GainingRatio=NewRatioOldRatio}\\ \text{Y'sGain=}\frac{7}{12}\frac{4}{12}=\frac{74}{12}=\frac{3}{12}\\ \text{Z'sGain=}\frac{5}{12}\frac{3}{12}=\frac{53}{12}=\frac{2}{12}\\ \text{Goodwill}=\text{AverageProfit}\times \text{No.ofyears'Purchase}\\ \text{}=1,80\text{,000}\times 2.\text{5}=\text{Rs4,50,000}\\ \text{X'sshareinGoodwill=4,50,000}\times \frac{5}{12}=\text{Rs1,87,500,shouldbecontributedbyYZingainingratioi.e.3:2}\end{array}\end{array}$
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  
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 halfyearly 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 

201819 



201819 




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 










201920 



201920 




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

64,365 
April 01 
Balance b/d 

62,832.5 





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

1,532.5 




64,365 



64,365 










Working Notes:
WN1: Calculation of Profit & Loss Suspense
$\text{ProfitlossSuspense}=\frac{8,16,000\times 1\times 3}{6\times 12}=\text{Rs34,000}$
WN2: Calculation of Gaining Ratio and Share of Goodwill
$\begin{array}{l}\text{GainingRatio=NewRatioOldRatio}\\ \text{X'sgain}=\frac{1}{2}\frac{3}{6}=0\\ \text{Y'sgain}=\frac{1}{2}\frac{2}{6}=\frac{1}{6}\\ \text{X:Y}=\text{0:1}\\ \text{Z'sshareofgoodwill=60,000}\times \frac{1}{6}=\text{Rs10,000shouldbegivenbyY}\end{array}$
Note:
Z’s share of profit is adjusted through Y’s capital A/c because there is change in profit sharing ratio of remaining partners.
Page No 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 ${2}^{\raisebox{1ex}{$1$}\!\left/ \!\raisebox{1ex}{$2$}\right.}$ years' purchase of average of four completed years' profits which were: 201415$\u2014$₹ 1,00,000; 201516$\u2014$₹ 80,000; 201617$\u2014$₹ 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 halfyearly 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 + 8,20011,200 + 200) 
2,200 




1,61,000 

1,61,000 





Working Notes:
WN1: Calculation of Gaining Ratio and Share of Goodwill
$\begin{array}{l}\text{GainingRatio=NewRatioOldRatio}\\ \text{X'sgain}=\frac{3}{8}\frac{5}{10}=\frac{5}{40}\text{(Sacrifice)}\\ \text{Y'sgain}=\frac{5}{8}\frac{3}{10}=\frac{13}{40}\\ \text{Z'sshareofgoodwill=70,000}\times \frac{2}{10}=\text{Rs14,000}\\ \text{X'sshareofgoodwill=70,000}\times \frac{5}{40}=\text{Rs8,750}\end{array}$
WN2: Calculation of Goodwill
$\begin{array}{l}\text{Goodwill}=\text{AverageProfit}\times \text{No.ofyears'Purchase}\\ \text{}=28\text{,000}\times 2.\text{5}=\text{Rs70,000}\end{array}\phantom{\rule{0ex}{0ex}}\begin{array}{l}\text{AverageProfit}=\frac{\text{TotalProfitsofpastyearsgiven}}{\text{Numberofyears}}\\ \text{}=\frac{1,00,000+80,000+82,0001,50,000}{4}=\text{Rs28,000}\end{array}$
Page No 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 ₹ 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 
64,000 



Y’s Executors A/c 
40,000 







8,20,000 

8,20,000 






Working Notes:
WN1: Calculation of Share in General Reserve
$\text{Reserve}=\frac{60,000\times 2}{5}=\text{Rs24,000}$
WN2: Calculation of Share in Goodwill
$\begin{array}{l}\text{Goodwill}=\text{AverageProfit}\times \text{No.ofyears'Purchase}\\ \text{}=1,20\text{,000}\times 2=\text{Rs2,40,000}\\ \text{Y'sshareinGoodwill}=\text{2,40,000}\times \frac{2}{5}=\text{Rs96,000,shouldbecontributedbyXZin2:1}\end{array}\phantom{\rule{0ex}{0ex}}\begin{array}{l}\text{AverageProfit}=\frac{\text{TotalProfitsofpastyearsgiven}}{\text{Numberofyears}}\\ \text{}=\frac{1,00,000+1,60,000+2,20,000+4,40,0003,20,000}{5}=\text{Rs1,20,000}\end{array}$
WN3: Calculation of Profit & Loss Suspense
$\text{ProfitlossSuspense(Loss)}=\frac{3,20,000\times 2\times 3}{5\times 12}=\text{Rs32,000}$
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 profitsharing ratio of the partners:
(a) Shiv, Mohan and Hari were partners in a firm sharing profits in the ratio of 5 : 5 : 4. Mohan retired and his share was divided equally between Shiv and Hari.
(b) P, Q and R were partners sharing profits in the ratio of 5 : 4 : 1. P retires from the firm.
Answer:
(a)
Old Ratio (Shiv, Mohan and Hari) = 5 : 5 : 4
Mohan’s Profit Share =
His share is divided between Shiv and Hari equally i.e. in the ratio of 1: 1
New Profit Share = Old Profit Share + Share taken from Mohan
∴ New Profit Ratio (Shiv and Hari) = 15 : 13
(b)
Old Ratio (P, Q and R) = 5 : 4 : 1
P’s Profit Share =
As we can see, no information is given as to how Q and R are acquiring P's profit share after his retirement, so the new profit sharing ratio between Q and R is calculated just by crossing out the P’s share. That is, the new ratio becomes 4 : 1
∴New Profit Ratio (Q and R) = 4 : 1
Page No 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 profitsharing 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
$SharetakenbyR:\frac{1}{5}\times \frac{1}{3}=\frac{1}{15}\phantom{\rule{0ex}{0ex}}SharetakenbyS:\frac{1}{5}\times \frac{2}{3}=\frac{2}{15}\phantom{\rule{0ex}{0ex}}\phantom{\rule{0ex}{0ex}}\phantom{\rule{0ex}{0ex}}$
New Ratio = Old Ratio + Share acquired from M
$R\text{'}sNewShare:\frac{2}{5}+\frac{1}{15}=\frac{6+1}{15}=\frac{7}{15}\phantom{\rule{0ex}{0ex}}S\text{'}sNewShare:\frac{2}{5}+\frac{2}{15}=\frac{6+2}{15}=\frac{8}{15}\phantom{\rule{0ex}{0ex}}$
∴ New Profit Ratio (R and S) = 7 : 8
Page No 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
$\begin{array}{ccccccc}& & \mathrm{X}& :& \mathrm{Y}& :& \mathrm{Z}\\ \mathrm{Old}\mathrm{Ratio}& =& \frac{1}{2}& :& \frac{3}{10}& :& \frac{1}{5}\\ & =& \frac{5:3:2}{10}& & & & \end{array}$
New Ratio after Y's retirement = 5 : 2
Gaining Share = New Share – Old Share
$\mathrm{X}\text{'}\mathrm{s}\mathrm{Gain}=\frac{5}{7}\frac{5}{10}=\frac{15}{70}\phantom{\rule{0ex}{0ex}}\mathrm{Z}\text{'}\mathrm{s}\mathrm{Gain}=\frac{2}{7}\frac{2}{10}=\frac{6}{70}$
Gaining Ratio = 15 : 6 or 5 : 2
Page No 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 C are partners sharing profits and losses in the ratio of 4 : 3 : 2. C retires from the business. A is acquiring 4/9 of C's share and balance is acquired by B. Calculate the new profitsharing ratio and gaining ratio.
Answer:
(a)
Old Ratio (W, X, Y and Z) = or 2 : 1 : 2 : 1
New Ratio (W, X and Z) = 1 : 1 : 1
Gaining Ratio = New Ratio − Old Ratio
∴Gaining Ratio = 0 : 1 : 1
(b)
Old Ratio (A, B and C) = 4 : 3 : 2
C’s Profit Share =
A acquires 4/9 of C’s Share and remaining share is acquired by B.
New Profit Share = Old Profit Share + Share acquired from C
∴ New Profit Ratio (A and B) = 44 : 37
Gaining Ratio = New Ratio − Old Ratio
∴Gaining Ratio = 8 : 10 or 4 : 5
Page No 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 profitsharing ratio and gaining ratio of the remaining partners.
Answer:
$\begin{array}{l}\mathrm{Kumar}\text{'}s\mathrm{share}=\frac{3}{10}\left(\mathrm{acquired}\mathrm{by}\mathrm{Lakshya}\mathrm{and}\mathrm{Manoj}\mathrm{in}3:2\right)\\ \mathrm{Share}\mathrm{acquired}\mathrm{by}\mathrm{Lakshya}=\frac{3}{10}\times \frac{3}{5}=\frac{9}{50}\\ \mathrm{Share}\mathrm{acquired}\mathrm{by}\mathrm{Manoj}=\frac{3}{10}\times \frac{2}{5}=\frac{6}{50}\\ \mathrm{Lakshya}\text{'}\mathrm{s}\mathrm{New}\mathrm{Share}=\frac{2}{10}+\frac{9}{50}=\frac{19}{50}\\ \mathrm{Manoj}\text{'}\mathrm{s}\mathrm{New}\mathrm{Share}=\frac{1}{10}+\frac{6}{50}=\frac{11}{50}\\ \mathrm{Naresh}\text{'}\mathrm{s}\mathrm{share}(\mathrm{as}\mathrm{retained})=\frac{4}{10}\mathrm{or}\frac{20}{50}\\ \mathrm{New}\mathrm{Profit}\mathrm{Sharing}\mathrm{Ratio}=19:11:20\end{array}$
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 profitsharing ratio.
Answer:
Old Ratio (A, B and C) = 8 : 4 : 3
B retires from the firm.
His profit share = $\frac{4}{15}$
B’s share taken by A and C in ratio of 1 : 1
$SharetakenbyA:\frac{4}{15}\times \frac{1}{2}=\frac{2}{15}\phantom{\rule{0ex}{0ex}}SharetakenbyC:\frac{4}{15}\times \frac{1}{2}=\frac{2}{15}\phantom{\rule{0ex}{0ex}}\phantom{\rule{0ex}{0ex}}\phantom{\rule{0ex}{0ex}}$
New Ratio = Old Ratio + Share acquired from B
$A\text{'}sNewShare:\frac{8}{15}+\frac{2}{15}=\frac{10}{15}=\frac{2}{3}\phantom{\rule{0ex}{0ex}}C\text{'}sNewShare:\frac{3}{15}+\frac{2}{15}=\frac{5}{15}=\frac{1}{3}\phantom{\rule{0ex}{0ex}}$
∴ New Profit Ratio (A and C) = 2 : 1
Page No 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 profitsharing ratio of A and B.
Answer:
Old Ratio (A, B and C) = 5 : 3 : 2
C retires from the firm.
His profit share = $\frac{2}{10}$
C’s share is taken by A in entirety
New Ratio = Old Ratio + Share acquired from C
$A\text{'}sNewShare:\frac{5}{10}+\frac{2}{10}=\frac{7}{10}\phantom{\rule{0ex}{0ex}}B\text{'}sNewShare:\frac{3}{10}+0=\frac{3}{10}\phantom{\rule{0ex}{0ex}}$
∴ New Profit Ratio (A and B) = 7 : 3
Page No 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 profitsharing ratio between Q and R will be same as existing between P and Q. Calculate New profitsharing ratio and Gaining Ratio.
Answer:
$\begin{array}{l}\text{CalculationofGainingRatio}\\ \text{P:Q:R}=7\text{:5:3}\left(\text{Oldratio}\right)\\ \text{Q:R=7:5(Newratio,sameasbetweenPQ)}\\ \text{GainingRatio=NewRatioOldRatio}\\ \text{Q'sGain=}\frac{7}{12}\frac{5}{15}=\frac{3520}{60}=\frac{15}{60}\\ \text{R'sGain=}\frac{5}{12}\frac{3}{15}=\frac{2512}{60}=\frac{13}{60}\\ \text{Q:R}=15:13\\ \end{array}$
Page No 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 profitsharing ratio and gaining ratio of the remaining partners.
Answer:
$\begin{array}{l}\mathrm{Old}\mathrm{Ratio}=\mathrm{3:4:1}\\ \mathrm{Murli}\text{'}s\mathrm{share}=\frac{3}{8}\\ \mathrm{Share}\mathrm{acquired}\mathrm{by}\mathrm{Naveen}=\frac{3}{8}\times \frac{2}{3}=\frac{2}{8}\\ \mathrm{Remaining}\mathrm{Share}=\frac{3}{8}\frac{2}{8}=\frac{1}{8}\left(\mathrm{acquired}\mathrm{by}\mathrm{Omprakash}\right)\\ \mathrm{Gaining}\mathrm{Ratio}=\frac{2}{8}:\frac{1}{8}=2:1\\ \mathrm{Naveen}\text{'}s\mathrm{New}\mathrm{Share}=\frac{4}{8}+\frac{2}{8}=\frac{6}{8}\\ \mathrm{Omprakash}\text{'}s\mathrm{New}\mathrm{Share}=\frac{1}{8}+\frac{1}{8}=\frac{2}{8}\\ \mathrm{New}\mathrm{Profit}\mathrm{Sharing}\mathrm{Ratio}=3:1\end{array}$
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 profitsharing ratio of A and C in the following circumstances:
(a) If B gives his share to A and C in the original ratio of A and C.
(b) If B gives his share to A and C in equal proportion.
(c) If B gives his share to A and C in the ratio of 3 : 1.
(d) If B gives his share to A only.
Answer:
Old Ratio (A, B and C) = 4 : 3 : 2
B retires from the firm.
His profit share =
Case (a) B gives his share to A and C in their original ratio.
Original Share (A and C) = 4 : 2
New Ratio = Old Ratio + Share acquired from B
∴ New Profit Ratio (A and C) = 36 : 18 or 2 : 1
Case (b) B gives his share to A and C in equal proportion.
New Ratio = Old Ratio + Share acquired from B
∴ New Profit Ratio (A and C) = 11 : 7
Case (c) B gives his to A and C in the ratio 3 : 1.
New Ratio = Old Ratio + Share acquired from B
∴ New Profit Ratio (A and C) = 25 : 11
Case (d) B gives his share to A only.
A’s New Share = A’s Old Share + Share of B
C’s Share
∴ New Profit Ratio (A and C) = 7 : 2
Page No 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 ₹ 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 ₹ 4,20,000. New profitsharing 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 



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
$\begin{array}{l}\mathrm{P}=\frac{4}{10}\frac{5}{10}=\frac{1}{10}\left(\mathrm{sacrifice}\right)\\ \mathrm{Q}=\frac{3}{10}\frac{3}{10}=0\\ \mathrm{R}=\frac{3}{10}\frac{1}{10}=\frac{2}{10}\end{array}$
$\begin{array}{l}\mathrm{P}\text{'}s\mathrm{share}=4,20,000\times \frac{1}{10}=42,000\\ \mathrm{R}\text{'}s\mathrm{share}=4,20,000\times \frac{2}{10}=84,000\\ \mathrm{S}\text{'}s\mathrm{share}=4,20,000\times \frac{1}{10}=42,000\end{array}$
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 ₹ 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
$\begin{array}{l}\mathrm{Manisha}\text{'}s\mathrm{share}=\mathrm{Firm}\text{'}s\mathrm{Goodwill}\times \mathrm{Manisha}\text{'}s\mathrm{Profit}\mathrm{Share}\\ \mathrm{Manisha}\text{'}s\mathrm{share}=1,80,000\times \frac{1}{3}=60,000\end{array}$
WN2: Calculation of Gaining Ratio
Gaining Ratio = New Ratio − Old Ratio
$\begin{array}{l}\text{Aparna'sgain}=\frac{3}{5}\frac{3}{6}=\frac{3}{30}\\ \text{Sonia'sgain}=\frac{2}{5}\frac{1}{6}=\frac{7}{30}\\ \text{GainingRatio=3:7}\end{array}$
$\mathrm{Aparna}\text{'}s\mathrm{share}=60,000\times \frac{3}{10}=18,000\phantom{\rule{0ex}{0ex}}\mathrm{Sonia}\text{'}s\mathrm{share}=60,000\times \frac{7}{10}=42,000$
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 profitsharing 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).
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 ₹ 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 writtenoff 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
$\begin{array}{l}\mathrm{Pammy}\text{'}s\mathrm{share}=\mathrm{Firm}\text{'}\mathrm{s}\mathrm{Goodwill}\times \mathrm{Pammy}\text{'}s\mathrm{Profit}\mathrm{Share}\\ \mathrm{Pammy}\text{'}s\mathrm{share}=84,000\times \frac{2}{6}=28,000\left(\mathrm{to}\mathrm{be}\mathrm{borne}\mathrm{by}\mathrm{gaining}\mathrm{partners}\mathrm{in}\mathrm{gaining}\mathrm{ratio}\right)\end{array}$
WN2: Calculation of Gaining Ratio
Gaining Ratio = New Ratio − Old Ratio
$\begin{array}{l}\mathrm{Hanny}\text{'}s\mathrm{gain}=\frac{2}{3}\frac{3}{6}=\frac{1}{6}\\ \mathrm{Sunny}\text{'}s\mathrm{gain}=\frac{1}{3}\frac{1}{6}=\frac{1}{6}\\ \mathrm{Gaining}\mathrm{Ratio}=\mathrm{1:1}\end{array}$
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 ₹ 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
$\begin{array}{l}\text{X:Y:Z}=3\text{:2:1}\left(\text{Oldratio}\right)\\ \text{X:Z=2:1(Newratio)}\\ \text{GainingRatio=NewRatioOldRatio}\\ \text{X'sGain=}\frac{2}{3}\frac{3}{6}=\frac{1}{6}\\ \text{Z'sGain=}\frac{1}{3}\frac{1}{6}=\frac{1}{6}\\ \text{X:Z}=1:1\end{array}$
WN2: Calculation of Retiring Partner’s Share of Goodwill
$\begin{array}{l}\text{Y'sshareofgoodwill=84,000}\times \frac{2}{6}=\text{Rs28,000}\\ \text{Y'sshareofgoodwillwillbebroughtbyXandZintheirgainingratio1:1}\\ \text{Therefore,X'sCapitalA/cwillbedebitedwith28,000}\times \frac{1}{2}=\text{Rs14,000}\\ \text{And,Y'sCapitalA/cwillbedebitedwith28,000}\times \frac{1}{2}=\text{Rs14,000}\end{array}$
Page No 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 ₹ 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 profitsharing ratio is decided at 5 : 3.
Answer:
Journal



Date

Particulars

L.F.

Debit
Amount
Rs

Credit Amount
Rs



A’s Capital A/c

Dr.


5,850




C’s Capital A/c

Dr.


4,950




To B’s Capital A/c




10,800



(Adjustment of B’s share of goodwill)





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

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








O’s Capital A/c 
Dr. 

20,000 


To N’s Capital A/c 



20,000 

(Adjustment of N’s share of goodwill) 









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

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


B’s Capital A/c 
Dr 

30,000 


D’s Capital A/c 
Dr. 

30,000 


To C’s Capital A/c 



60,000 

(Adjustment of C’s share of goodwill) 









Working Notes:
WN1:Calculation of Gaining Ratio
$\begin{array}{l}\text{A:B:C:D}=2\text{:1:2:1}\left(\text{Oldratio}\right)\\ \text{A:B:D=1:1:1(Newratio)}\\ \text{GainingRatio=NewRatioOldRatio}\\ \text{A'sGain=}\frac{1}{3}\frac{2}{6}=\frac{22}{6}=0\\ \text{B'sGain=}\frac{1}{3}\frac{1}{6}=\frac{21}{6}=\frac{1}{6}\\ \text{D'sGain=}\frac{1}{3}\frac{1}{6}=\frac{21}{6}=\frac{1}{6}\\ \text{A:B:D}=0:1:1\end{array}$
WN2: Calculation of Retiring Partner’s Share of Goodwill
$\begin{array}{l}\text{C'sshareofgoodwill=1,80,000}\times \frac{2}{6}=\text{Rs60,000}\\ \text{C'sshareofgoodwillwillbebroughtbyBandDintheirgainingratio1:1}\\ \text{Therefore,B'sCapitalA/cwillbedebitedwith60,000}\times \frac{1}{2}=\text{Rs30,000}\\ \text{And,D'sCapitalA/cwillbedebitedwith60,000}\times \frac{1}{2}=\text{Rs30,000}\end{array}$
Page No 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 − ₹ 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
$\begin{array}{l}\text{A:B:C}=6\text{:5:4}\left(\text{Oldratio}\right)\\ \text{B:C=1:4(Newratio)}\\ \text{GainingRatio=NewRatioOldRatio}\\ \text{B'sGain=}\frac{1}{5}\frac{5}{15}=\frac{35}{15}=\frac{2}{15}\left(Sacrifice\right)\\ \text{C'sGain=}\frac{4}{5}\frac{4}{15}=\frac{124}{15}=\frac{8}{15}\end{array}$
WN2: Calculation of Retiring Partner’s Share of Goodwill
$\begin{array}{l}\text{A'sshareofgoodwill=1,80,000}\times \frac{6}{15}=\text{Rs72,000}\\ \text{B'sshareofgoodwill=1,80,000}\times \frac{2}{15}=\text{Rs24,000}\\ \text{A'sandB'sshareofgoodwillbebroughtbyConly.}\\ \text{Therefore,C'sCapitalA/cwillbedebitedwith72,000+24,000=Rs96,000}\end{array}$
Page No 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 ₹ 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)  
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 ₹ 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)









Page No 6.80:
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 profitsharing ratio of 3 : 2. Ramesh wants this to be shared equally. How is the profit to be shared? Give reasons.
Answer:
Revaluation of assets and liabilities is made at the time of Ramesh’s retirement and not after his retirement. Therefore, profits on revaluation will be distributed among all the partners in their old profit sharing ratio. In the absence of partnership deed, profits are distributed equally among all the partners.
Therefore, Profit Share of each Partner =
Journal 

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

Revaluation A/c 
Dr. 

12000 

To Ramesh’s Capital A/c 


4000 

To Mohan’s Capital A/c 


4000 

To Rahul’s Capital A/c 


4000 

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








Page No 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.) ₹ 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)










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 ₹ 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 profitsharing ratio decided among Asha and Shalini is 2 : 3.
Record necessary Journal entries on Naveen's retirement.
Answer:
Journal  
Date  Particulars  L.F.  Debit Amount (Rs) 
Credit
Amount
(Rs)


Asha’s Capital A/c  Dr.  40,000  
Naveen’s Capital A/c  Dr.  24,000  
Shalini’s Capital A/c  Dr.  16,000  
To Goodwill A/c  80,000  
(Existing goodwill written off amongst existing partners in old ratio)  
General Reserves A/c  Dr.  40,000  
To Asha’s Capital A/c  20,000  
To Naveen’s Capital A/c  12,000  
To Shalini’s Capital A/c  8,000  
(General Reserves distributed among all partners in old ratio)  
Shalini’s Capital A/c  Dr.  48,000  
To Asha’s Capital A/c  12,000  
To Naveen’s Capital A/c  36,000  
(Goodwill adjusted by debiting gaining partner and crediting sacrificing partner and retiring partner)  
$CalculationofGainingRatio:\phantom{\rule{0ex}{0ex}}GainofaPartner=NewShareOldShare\phantom{\rule{0ex}{0ex}}Asha\text{'}sGain\left(Sacrifice\right):\frac{2}{5}\frac{5}{10}=\frac{45}{10}=\frac{()1}{10}\phantom{\rule{0ex}{0ex}}Shalini\text{'}sGain\left(Sacrifice\right):\frac{3}{5}\frac{2}{10}=\frac{62}{10}=\frac{4}{10}\phantom{\rule{0ex}{0ex}}Therefore,BothAshaandNaveenwouldbecompensatedbyShaliniintheratioof1:3\phantom{\rule{0ex}{0ex}}Asha\text{'}sSacrificefor\frac{1}{10}thShare=1,20,000\times \frac{1}{10}=12,000\phantom{\rule{0ex}{0ex}}Naveen\text{'}sSacrificefor\frac{3}{10}thShare=1,20,000\times \frac{3}{10}=36,000$
Page No 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 ₹ 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
$\begin{array}{l}\text{Ram:Laxman:Bharat}=3\text{:2:1}\left(\text{Oldratio}\right)\\ \text{Ram:Bharat=2:1(Newratio)}\\ \text{GainingRatio=NewRatioOldRatio}\\ \text{Ram'sGain=}\frac{2}{3}\frac{3}{6}=\frac{43}{6}=\frac{1}{6}\\ \text{Bharat'sGain=}\frac{1}{3}\frac{1}{6}=\frac{21}{6}=\frac{1}{6}\\ \text{Ram:Bharat}=1:1\end{array}$
WN2: Calculation of Retiring Partner’s Share of Goodwill
$\begin{array}{l}\text{Laxman'sshareofgoodwill=2,52,000}\times \frac{2}{6}=\text{Rs84,000}\\ \text{Laxman'sshareofgoodwillwillbebroughtbyRamandBharatintheirgainingratio1:1}\\ \text{Therefore,Ram'sCapitalA/cwillbedebitedwith84,000}\times \frac{1}{2}=\text{Rs42,000}\\ \text{And,Bharat'sCapitalA/cwillbedebitedwith84,000}\times \frac{1}{2}=\text{Rs42,000}\end{array}$
Note: The entry for distributing profit as given in the book is wrong. The profit will be distributed between Ram & Bharat and not Ram and Laxman (since Laxman has retired)
Page No 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 sixmonth 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
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 ₹ 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) 