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Page No 5.100:

Question 73:

A , B and C are partners in a firm sharing profits in the proportion of 3 : 2 : 1 . Their Balance Sheet as at 31st March, 2018  stood as follows :

Liabilities

 

Assets

Sundry Creditors

2,60,000

Cash in Hand

42,500

General Reserve

1,20,000

Cash at Bank

2,14,500

Capital A/cs:

  Debtors 1,63,000
  A

2,00,000

  Stock 17,500
  B 1,20,000   Investments 1,32,500
  C 

80,000

4,00,000

Building 2,10,000
 

7,80,000

 

7,80,000

       
   
B died on 30th June , 2018 and according to the deed of the said partnership his executors are entitled to be paid as under:
(a) The capital to his credit at the time of his death and interest thereon @ 10% per annum.
(b) His proportionate share of General Reserve.
(c) His share of profits  fro the intervening period will be based on the sales during that period. Sales from 1st April, 2018 to 30th June , 2018 were as ₹ 12,00,000. The rate of profit during        past three years had been 10% on sales.
(d) Goodwill according to his share of profit to be calculated by taking twice the amount of profits of the last three years less 20% . The profit of the previous three years were: 1st Year: ₹         82,000; 2nd year: ₹ 90,000; 3rd year ₹ 98,000.
(e) The investments were sold at par and his executors were paid out in full.
Prepare B's Capital Account and his Executors'  Account.

Answer:

B’s Capital Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

B’s Executor A/c

3,47,000

Balance b/d

1,20,000

 

 

Interest on Capital A/c

3,000

 

 

General Reserve

40,000

 

 

Profit & Loss Suspense A/c

40,000

 

 

Goodwill A/c

1,44,000

 

3,47,000

 

3,47,000

 

 

 

 

           

 

B’s Executor Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Bank A/c

3,47,000

B’s Capital A/c

3,47,000

 

3,47,000

 

3,47,000

 

 

 

 

           

Working Notes:

WN 1: Calculation of Interest on Capital

WN 2: Calculation of Profit Share up-to-death

WN 3: Calculation of share of goodwill

Page No 5.100:

Question 74:

Babita, Chetan and David are partners in a firm sharing profits in the ratio of 2 : 1 : 1 respectively. Firm closes its accounts on 31st March every year. Chetan died on 30th September, 2012. There was a balance of ₹ 1,25,000 in Chetan's Capital Account in the beginning of the year. In the event of death of any partner, the Partnership Deed provides for the following:
(a) Interest on capital will be calculated at the rate of 6% p.a.
(b) The executor of deceased partner shall be paid ₹ 24,000 for his share of goodwill.
(c) His share of Reserve Fund of ₹ 12,000, shall be paid to his executor.
(d) His share of profit till the date of death will be calculated on the basis of sales. It is also specified that the sales during the year 2011-12 were ₹ 4,00,000. The sales from 1st April, 2012 to 30th September, 2012 were ₹ 1,20,000. The profit of the firm for the year ending 31st March, 2012 was ₹ 2,00,000.
Prepare Chetan's Capital Account to be presented to his executor.

Answer:

Chetan’s Capital A/c
Dr.
Cr.
Particulars
Amount
(Rs)
Particulars
Amount
(Rs)
Chetan’s Executor’s A/c
1,79,750
Capital
1,25,000
 
 
Interest on Capital
(for 6 months)
3,750
 
 
Babita’s Share Capital A/c*
16,000
 
 
David’s Share Capital A/c*
8,000
 
 
Share of Reserve
12,000
 
 
P & L Suspense A/c**
15,000
 
 
 
 
 
1,79,750
 
1,79,750
 
 
 
 

Working Note: *
 
 

**Sales in the year 2011-12 = 4,00,000

Profit for year 2011-12 = 2,00,000 = 50% of Sales.

Therefore, Profit for the Period Apr 01 to 30th Sep = 50% of Sales of the same period

Share of Profit to be divided = 50% of Rs 1,20,000 = Rs 60,000

Chetan’s Share of Profit = 1/4th of Rs 60,000 = Rs 15,000

Page No 5.100:

Question 75:

Sunny, Honey and Rupesh were partners in a firm. On 31st March, 2014, their Balance Sheet was as follows:

Liabilities

 

Assets

Creditors

10,000

Plant and Machinery

40,000

General Reserve

30,000

Furniture

15,000

Capital A/cs:

  Investments 20,000
Sunny

30,000

  Debtors 20,000
Honey 30,000   Stock 20,000
Rupesh

20,000

80,000

  25,000
 

1,20,000

 

1,20,000

       
   
Honey died on 31st December, 2014. The Partnership Deed provided that the representatives of the deceased partner shall be entitled to:
(a) Balance in the Capital Account of the deceased partner.
(b) Interest on Capital @ 6% per annum up to the date of his death.
(c) His share in the undistributed profits or losses as per the Balance Sheet.
(d) His share in the profits of the firm till the date of his death, calculated on the basis of rate of net profit on sales of the previous year. The rate of net profit on sales of previous year was 20%. Sales of the firm during the year till 31st December, 2014 was ₹ 6,00,000.
Prepare Honey's Capital Account to be presented to his executors.

Answer:

Honey’s Capital A/c

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Executor’s A/c

81,350

Balance b/d

30,000

 

 

Interest on Capital

1,350

 

 

Profit and Loss Suspense A/c

40,000

 

 

General Reserve

10,000

 

81,350

 

81,350

 

 

 

 

 

Working Notes:

WN1 Calculation of Interest on Honey’s Capital

WN2 Calculation of Honey’s share in profits

WN3 Calculation of Honey’s Share in General Reserve



Page No 5.101:

Question 76:

​​R, S and T were partners sharing profits and losses in the ratio of 5 : 3 : 2 respectively. On 31st March, 2018, their Balance Sheet stood as:

Liabilities

 

Assets

Sundry Creditors

40,000

Goodwill

25,000

Bills Payable

15,000

Leasehold

1,00,000

Workmen Compensation Reserve

30,000

Patents 30,000

Capital A/cs:

  Machinery 1,50,000
   R 1,50,000   Stock 50,000
   S

1,25,000

  Debtors 40,000
   T

75,000

3,50,000

Cash at Bank 40,000
 

4,35,000

 

4,35,000

       
   
T died on 1st August, 2018. It was agreed that:
(a) Goodwill be valued at 212 years' purchase of average of last 4 years' profits which were:
    2014-15: ₹ 65,000;  2015-16: ₹ 60,000; 2016-17: ₹ 80,000 and 2017-18: ₹ 75,000.
(b) Machinery be valued at ₹ 1,40,000; Patents be valued at ₹ 40,000; Leasehold be valued at ₹ 1,25,000 on 1st August, 2018.
(c) For the purpose of calculating T's share in the profits of 2018-19, the profits in 2018-19 should be taken to have accrued on the same scale as in 2017-18.
(d) A sum of ₹ 21,000 to be paid immediately to the Executors of T and the balance to be paid in four equal half-yearly instalments together with interest @ 10% p.a.
Pass necessary Journal entries to record the above transactions and T's Executors' Account. 

Answer:

Journal
Particulars
L.F.
Debit
Amount
Rs
Credit
Amount
Rs
Revaluation A/c
Dr.
 
10,000
 
To Machinery A/c
 
 
10,000
(Decrease in value of Machinery transferred to Revaluation Account)
 
 
 
 
 
 
 
Patents A/c
Dr.
 
10,000
 
Leasehold A/c
Dr.
 
25,000
 
To Revaluation A/c
 
 
35,000
(Increase in value Patents and Leasehold transferred to Revaluation Account)
 
 
 
 
 
 
 
 
Revaluation A/c
Dr.
 
25,000
 
To R’s Capital A/c
 
 
12,500
To S’s Capital A/c
 
 
7,500
To T’s Capital A/c
 
 
5,000
(Revaluation profit distributed among partners in their old ratio)
 
 
 
 
 
 
 
R’ Capital A/c
Dr.
 
12,500
 
S’s Capital A/c
Dr.
 
7,500
 
T’s Capital A/c
Dr.
 
5,000
 
To Goodwill A/c
 
 
25,000
(Goodwill written off among partners in their old ratio)
 
 
 
 
 
 
 
R’s Capital A/c
Dr.
 
21,875
 
S’s Capital A/c
Dr.
 
13,125
 
To T’s Capital A/c
 
 
35,000
(T’s share of goodwill adjusted)
 
 
 
 
 
 
 
Profit and Loss Suspense A/c
Dr.
 
5,000
 
  To T’s Capital A/c
 
 
5,000
(T’s share of profit transferred to his capital account)
 
 
 
 
 
 
 
Workmen’s Compensation Reserve A/c
Dr.
 
30,000
 
To R’s Capital A/c
 
 
15,000
To S’s Capital A/c
 
 
9,000
To T’s Capital A/c
 
 
6,000
(Workmen’s Compensation Reserve distributed among partners in their old ratio )
 
 
 
 
 
 
 
T’s Capital A/c
Dr.
 
1,21,000
 
To T’s Executors A/c
 
 
1,21,000
(Amount due to T after all adjustments transferred to his Executor’s Account)
 
 
 
 
 
 
 
T’s Executor’s A/c
Dr.
 
21,000
 
To Bank A/c
 
 
21,000
(Amount paid to T’s Executor)
 
 
 
 
 
 
 
 
T’s Executor’s Account
Dr.
 
Cr.
Date
Particulars
Amount
Rs
Date
Particulars
Amount
Rs
2018
 
 
2018
 
 
Aug. 01
Cash A/c
21,000
Aug. 01
T’s Capital A/c
1,21,000
2019     2019    
Jan. 31
Cash A/c (25,000 + 5,000)
30,000
Jan. 31
Interest (1,00,000 ×10% for 6 months)
5,000
Mar. 31
Balance c/d
76,250
Mar. 31
Interest (75,000 ×10% for 2 months)
1,250
 
 
1,27,250
 
 
1,27,250
2019
 
 
2019
 
 
Aug. 01
Cash A/c (25,000 + 1,250 + 2,500)
28,750
Apr. 01
Balance b/d
76,250
2020
 
 
Aug. 01
Interest (75,000 × 10% for 4 months)
2,500
Jan. 31 Cash A/c (25,000 + 2,500) 27,500 2020    
Mar. 31
Balance c/d
25,417
Jan. 31
Interest (50,000 × 10% for 6 months)
2,500
 
 
 
Mar. 31
Interest (25,000 × 10% for 2 months)
417
 
 
81,667
 
 
81,667
2020
 
 
2020
 
 
Aug. 01
Cash A/c (25,000 + 417 + 833)
26,250
Apr. 01
Balance b/d
25,417
 
 
 
Aug. 01
Interest (25,000 × 10% for 4 months)
833
 
 
26,250
 
 
26,250
 
 
 
 
 
 

Working Notes:

WN 1 Calculation of Goodwill

Goodwill = Average Profit × Number of Year’s Purchase



∴ Goodwill = Average Profit × Number of Years’ Purchase
                    = 70,000 × 2.5 = Rs 1,75,000

WN 2 Adjustment of Goodwill

Old Ratio (R, S and T) = 5 : 3 : 2

T died.

∴ New Ratio (R and S) = 5 : 3 and

Gaining Ratio = 5 : 3

T’s Share in Goodwill =

This share of goodwill is to be distributed between R and S in their gaining ratio (i.e. 5 : 3).


WN 3 Calculation of T’s Share of Profit

Profit for 2017-18 = Rs 75,000

T's Share of Profit for 2018-19 =75,000×210×412=Rs.5,000

WN 4
 
Revaluation Account
Dr.
 
Cr.
Particulars
Amount
Rs
Particulars
Amount
Rs
Machinery
10,000
Patents
10,000
Profit transferred to:
 
Leasehold
25,000
R’s Capital A/c
12,500
 
 
 
S’s Capital A/c
7,500
 
 
 
T’s Capital A/c
5,000
25,000
 
 
 
35,000
 
35,000
 
 
 
 

WN 5
T’s Capital Account
Dr.
 
Cr.
Particulars
Amount
Rs
Particulars
Amount
Rs
Goodwill
5,000
Balance b/d
75,000
T’s Executor’s A/c
1,21,000
Workmen’s Compensation Reserve
6,000
 
 
Profit and Loss Suspense A/c
5,000
 
 
R’s Capital A/c
21,875
 
 
S’s Capital A/c
13,125
 
 
Revaluation A/c (Profit)
5,000
 
1,26,000
 
1,26,000
 
 
 
 

Page No 5.101:

Question 77:

Akhil, Nikhil and Sunil were partners sharing profits and losses equally. Following was their Balance Sheet as at 31st March, 2018:
 

Liabilities

 

Assets

Trade Creditors

40,000

Building

2,00,000

General Reserve

45,000

Plant and Machinery

80,000

Capital A/cs:

  Stock 35,000
 Akhil

1,95,000

  Debtors 80,000
 Nikhil 1,20,000   Cash at Bank 85,000
 Sunil

80,000

3,95,000

   
 

4,80,000

 

4,80,000

       
   
Sunil died on 1st August, 2018. The Partnership Deed provided that the executor of a deceased partner was entitled to:
(a) Balance of Partners' Capital Account and his share of accumulated reserve.
(b) Share of profits from the closure of the last accounting year till the date of death on the basis of the profit of the preceding completed year before death.
(c) Share of goodwill calculated on the basis of three times the average profit of the last four years.
(d) Interest on deceased partner's capital @ 6% p.a.
(e) ₹ 50,000 to be paid to deceased's executor immediately and the balance to remain in his Loan Account.
Profits and Losses for the preceding years were: 2014-15 − ₹ 80,000 Profit; 2015-16 − ₹ 1,00,000 Loss; 2016-17 − ₹ 1,20,000 Profit; 2017-18 − ₹ 1,80,000 Profit.
Pass necessary Journal entries and prepare Sunil's Capital Account and Sunil's Executor Account. 

Answer:

Journal
Particulars
L.F.
Debit
Amount
Rs
Credit
Amount
Rs
General Reserve A/c
Dr.
 
45,000
 
To Akhil’s Capital A/c
 
 
15,000
To Nikhil’s Capital A/c
 
 
15,000
To Sunil’s Capital A/c
 
 
15,000
(General Reserve distributed among partners in their old ratio)
 
 
 
 
 
 
 
Akhil’s Capital A/c
Dr.
 
35,000
 
Nikhil’s Capital A/c
Dr.
 
35,000
 
To Sunil’s Capital A/c
 
 
70,000
(Sunil’s share of goodwill adjusted)
 
 
 
 
 
 
 
Interest on Capital A/c
Dr.
 
1,600
 
To Sunil’s Capital A/c
 
 
1,600
(Interest allowed on Sunil’s Capital)
 
 
 
 
 
 
 
Profit and Loss Suspense A/c
Dr.
 
20,000
 
To Sunil’s Capital A/c
 
 
20,000
(Sunil’s profit share transferred to his capital account)
 
 
 
 
 
 
 
Sunil’s Capital A/c
Dr.
 
1,86,600
 
To Sunil’s Executor’s A/c
 
 
1,86,600
(Amount due to Sunil after all adjustments transferred to his Executor’s Account)
 
 
 
 
 
 
 
Sunil’s Executor’s A/c
Dr.
 
50,000
 
To Bank A/c
 
 
50,000
(Amount paid to Sunil’s Executor)
 
 
 
 
 
 
 
 
Sunil’s Capital Account
Dr.
 
Cr.
Particulars
Amount
Rs
Particulars
Amount
Rs
 
 
Balance b/d
80,000
 
 
Interest on Capital A/c
1,600
 
 
General Reserve
15,000
 
 
Profit and Loss Suspense A/c
20,000
 
 
Akhil’s Capital A/c (Goodwill)
35,000
Sunil’s Executor’s A/c
1,86,600
Nikhil’s Capital A/c (Goodwill)
35,000
 
1,86,600
 
1,86,600
 
 
 
 
 
Sunil’s Executor’s Account
Dr.
 
Cr.
Particulars
Amount
Rs
Particulars
Amount
Rs
Bank A/c
50,000
Sunil’s Capital A/c
1,86,600
Balance c/d
1,36,600
 
 
 
1,86,600
 
1,86,600
 
 
 
 

Working Notes:

WN 1 Calculation of Sunil’s Share of Profit

Profit for 2017-18 = Rs 1,80,000



WN 2 Calculation of Goodwill

Goodwill = Average Profit × Number of Year’s Purchase



∴ Goodwill = Average Profit × Number of Years’ Purchase

                   = 70,000 × 3 = Rs 2,10,000

WN 3 Adjustment of Goodwill

Old Ratio = 1 : 1 : 1

Sunil died.

∴ New Ratio = 1 : 1 and

Gaining Ratio = 1 : 1

Sunil’s Share in Goodwill =

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



WN 4 Calculation of Interest on Sunil’s Capital

Sunil’s Capital Balance = Rs 80,000

∴ Interest on Capital (for 4 months)



Page No 5.102:

Question 78:

B, C and D were partners in a firm sharing profits in the ratio of 5 :3 : 2. On 31st December, 2008, their Balance Sheet was as follows:
 

Liabilities

Amount

(₹)

Assets

Amount
(₹)

Creditors

43,000

Cash 

10,200

Bills Payable

17,000

Stock

24,500

General Reserve

70,000

Debtors 27,300

Capital A/cs:

  Land and Building 1,40,000
 B  40,000   Profit and Loss A/c 70,000
 C

50,000

     
 D

52,000

1,42,000

   
 

2,72,000

 

2,72,000

       
   
B died on 31st March, 2009. The Partnership Deed provided for the following on the death of a partner:
(a) Goodwill of the firm was to be valued at 3 years' purchase of the average profit of last 5 years. The  profits for the years ended 31st December, 2007, 31st December, 2006, 31st December, 2005, and 31st December, 2004 were ₹ 70,000; ₹ 60,000; ₹ 50,000 and ₹ 40,000 respectively. 
(b) B's share of profit or loss till the date of his death was to be calculated on the basis of the profit or loss for the year ended 31st December, 2008.
You are required to calculate the following:
(i) Goodwill of the firm and B's share of goodwill at the time of his death.
(ii) B's share in the profit or loss of the firm till the date of his death.
(iii) Prepare B's Capital Account at the time of his death to be presented to his Executors.

Answer:

(i) Calculation of Goodwill

Goodwill = Average Profit × Number of Year’s Purchase



∴ Goodwill = Average Profit × Number of Years’ Purchase

= 30,000 × 3 = Rs 90,000

Old Ratio (B, C and D) = 5 : 3 : 2

B Died.

New Ratio (C and D) = 3 : 2

B’s Share in Goodwill =

This share of goodwill is to be distributed between C and D in their gaining ratio (i.e. 3 : 2).



(ii) Calculation of B’s Share of Profit or Loss

Loss for the Year (2008) = Rs 70,000



(iii)

B’s Capital Account
Dr.
 
Cr.
Particulars
Amount
Rs
Particulars
Amount
Rs
Profit and Loss A/c
35,000
Balance b/d
40,000
Profit and Loss Suspense A/c
8,750
General Reserve
35,000
 
 
C’s Capital A/c (Goodwill)
27,000
B’s Executor’s A/c
76,250
D’s Capital A/c (Goodwill)
18,000
 
1,20,000
 
1,20,000
 
 
 
 

Page No 5.102:

Question 79:

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

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Bills Payable

2,000

Cash at Bank

5,800

Employees' Provident Fund

5,000

Bills Receivable

800

Workmen Compensation Reserve

6,000

Stock 9,000
General Reserve 6,000 Sundry Debtors 16,000
Loans 7,100 Furniture 2,000

Capital A/cs:

  Plant and Machinery 6,500
X 22,750   Building 30,000
Y

15,250

  Advertising Suspense 6,000
Z

12,000

50,000

   
 

76,100

 

76,100

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

Answer:

Journal
Particulars
L.F.
Debit
Amount
Rs
Credit
Amount
Rs
Workmen’s Compensation Reserve
Dr.
 
6,000
 
To X’s Capital A/c
 
 
3,000
To Y’s Capital A/c
 
 
2,000
To Z’s Capital A/c
 
 
1,000
(Workmen’s Compesation Reserve distributed among partners in their old ratio)
 
 
 
 
 
 
 
General Reserve A/c
Dr.
 
6,000
 
To X’s Capital A/c
 
 
3,000
To Y’s Capital A/c
 
 
2,000
To Z’s Capital A/c
 
 
1,000
(General Reserve distributed among partners in their old ratio)
 
 
 
 
 
 
 
X’s Capital A/c
Dr.
 
3,000
 
Y’s Capital A/c
Dr.
 
2,000
 
Z’s Capital A/c
Dr.
 
1,000
 
To Advertisement Suspense A/c
 
 
6,000
(Advertisement suspense written off among partners in their old ratio)
 
 
 
 
 
 
 
X’s Capital A/c
Dr.
 
4,500
 
Y’s Capital A/c
Dr.
 
3,000
 
To Z’s Capital A/c
 
 
7,500
(Z’s share of goodwill adjusted)
 
 
 
 
 
 
 
Revaluation A/c
Dr.
 
3,600
 
  To Sundry debtors A/c
Dr.
 
 
1,000
To Furniture A/c
 
 
500
To Plant and Machinery A/c
 
 
1,500
To Bills Receivable A/c
 
 
600
(Decrease in value of Assets transferred to Revaluation Account)
 
 
 
 
 
 
 
Stock A/c
Dr.
 
1,000
 
Building A/c
Dr.
 
5,000
 
To Revaluation A/c
 
 
6,000
(Increase in value of Assets transferred to Revaluation Account)
 
 
 
 
 
 
 
Revaluation A/c
Dr.
 
2,400
 
To X’ Capital A/c
 
 
1,200
To Y’s Capital A/c
 
 
800
To Z’s Capital A/c
 
 
400
(Revaluation profit distributed among partners in their old ratio)
 
 
 
 
 
 
 
Profit and Loss Suspense A/c
Dr.
 
1,333
 
To Z’s Capital A/c
 
 
1,333
(Z’s share of profit transferred his capital account)
 
 
 
 
 
 
 
Z’s Capital A/c
Dr.
 
22,233
 
  To Z’s Executor’s A/c
 
 
22,233
(Amount due to Z transferred to his Executor’s Account)
 
 
 
 
 
 
 
Z’s Executor’s A/c
Dr.
 
12,333
 
To Bank A/c
 
 
12,333
(Amount paid to Z’s Executor)
 
 
 
 
 
 
 
 
Z’s Executor’s Account
Dr.
 
Cr.
Date
Particulars
Amount
Rs
Date
Particulars
Amount
Rs
2018
 
 
2018
 
 
July 31
Bank A/c
12,233
July 31
Z’s Capital A/c
22,233
2019     2019    
Mar. 31
Balance c/d
10,667
Mar. 31
Interest (10,000 × 10% for 8 months)
667
 
 
22,900
 
 
22,900
2019
 
 
2019
 
 
July 31
Bank A/c (5,000 + 667 + 333)
6,000
Apr. 01
Balance b/d
10,667
 
 
 
July 31
Interest (10,000 × 10% for 4 months )
333
2020     2020    
Mar.31
Balance c/d
5,333
Mar. 31
Interest (5,000 × 10% for 8 months)
333
 
 
11,333
 
 
11,333
2020
 
 
2020
 
 
July 31
Bank A/c (5,000 + 333 + 167)
5,500
Apr. 01
Balance b/d
5,333
 
 
 
July 31
Interest (5,000 × 10% for 4months)
167
 
 
5,500
 
 
5,500
 
 
 
 
 
 

Working Notes:

WN1 Calculation of Goodwill

Goodwill = Average Profit × Number of Year’s Purchase



∴ Goodwill = Average Profit × Number of Years’ Purchase

                   = 15,000 × 3 = Rs 45,000

WN2 Adjustment of Goodwill

Old Ratio = 3 : 2 : 1

Z died.

∴ New Ratio (X and Y) = 3 : 1 and

Gaining Ratio = 3 : 2

Z’s Share in Goodwill =

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



WN3 Calculation Z’s Share of Profit

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

∴ Z’s Profit Share

WN4
 
Revaluation Account
Dr.
 
Cr.
Particulars
Amount
Rs
Particulars
Amount
Rs
Sundry Debtors
1,000
Stock
1,000
Furniture
500
Building
5,000
Plant and Machinery
1,500
 
 
Bills Receivable
600
 
 
Profit transferred to:
 
 
 
X’s Capital A/c
1,200
 
 
 
Y’s Capital A/c
800
 
 
 
Z’s Capital A/c
400
2,400
 
 
 
6,000
 
6,000
 
 
 
 



Page No 5.103:

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 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 ₹ 2,00,000; Machinery overvalued by ₹ 1,50,000 and Furniture overvalued by ₹ 46,000.
(iv) A provision of 5% be created on Debtors for Doubtful Debts.
(v) Interest on Capital to be provided at 10% p.a.
(vi) Half of the net amount payable to X's executor was paid immediately and the balance was transferred to his loan account which was to be paid later.
Prepare Revaluation Account, X's Capital Account and X's Executor's Account as on 1st October, 2018.

Answer:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Machinery

1,50,000

Building

2,00,000

Furniture

46,000

 

 

Provision for Doubtful Debts

4,000

 

 

 

 

 

 

 

2,00,000

 

2,00,000

 

 

 

 

           

X’s Capital  Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Advertisement Suspense A/c

50,000

Balance b/d

3,00,000

X’s Executors A/c

5,05,000

General Reserve

15,000

 

 

Y’s Capital A/c

1,12,500

 

 

Z’s Capital A/c

75,000

 

 

Profit & Loss Suspense

37,500

 

 

Interest on Capital

15,000

 

 

 

 

 

5,55,000

 

5,55,000

 

 

 

 

           

 

X’s Executors  Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Bank A/c

2,52,500

X’s Capital A/c

5,05,000

X’s Executors  Loan Account

2,52,500

 

 

 

 

 

 

 

57,000

 

57,000

 

 

 

 

           

Working Notes:

WN1: Calculation of Share in General Reserve

Reserve=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 5.104:

Question 81:

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

BALANCE SHEET as at 31st March, 2018
Liabilities Amount
(₹)
Assets Amount
​(₹)
X's Capital A/c 2,40,000  

Machinery

2,40,000
Y's Capital A/c 1,60,000   Furniture 1,50,000

Z's Capital A/c

80,000 4,80,000 Investments 40,000
X's Current A/c 16,000 Stock 64,000
Y's Current A/c 5,000 Sundry Debtors                      50,000
Reserve 60,000 Bills Receivable 22,000
Bills Payable 34,000 Cash at Bank 37,000
Sundry Creditors 40,000 Cash in Hand 22,000
    Z's Current A/c 10,000
       
       
  6,35,000   6,35,000
       
 ​
The following decisions were taken by the remaining partners:
(a) A Provision for Doubtful Debts is to be raised at 5% on Debtors.
(b) While Machinery to be decreased by 10%, Furniture and Stock are to be appreciated by 5% and 10% respectively.
(c) Advertising Expenses ₹ 4,200 are to be carried forward to the next accounting year and, therefore, it is to be adjusted through the Revaluation Account.
(d) Goodwill of the firm is valued at ₹ 60,000.
(e) X and Y are to share profits and losses equally in future.
(f) Profit for the year ended 31st March, 2018 was ₹ 8,16,000 and Z's share of profit till the date of death is to be determined on the basis of profit for the year ended 31st March, 2018.
(g) The Fixed Capital Method is to be converted into the Fluctuating Capital Method by transferring the Current Account balances to the respective Partners' Capital Accounts.
Prepare the Revaluation Account, Partners' Capital Accounts and prepare C's Executors's Account to show that C's Executors were paid in two half-yearly instalments plus interest of 10% p.a. on the
unpaid balance. The first instalment was paid on 31st December, 2018.

Answer:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Machinery

24,000

Furniture

7,500

Provision for Doubtful Debts

2,500

Stock

6,400

 

 

Prepaid Advertisement Expenses

4,200

 

 

Loss transferred to:

 

 

 

X’s Capital A/c

4,200

 

 

 

Y’s Capital A/c

2,800

 

 

 

Z’s Capital A/c

1,400

8,400

 

26,500

 

26,500

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

X

Y

Z

Particulars

X

Y

Z

Current A/c

 

 

10,000

Balance b/d

2,40,000

1,60,000

80,000

Revaluation A/c

4,200

2,800

1,400

Current A/c

16,000

5,000

 

Z ’s Capital A/c

 

10,000

 

Reserve

30,000

20,000

10,000

Z ’s Capital A/c

 

34,000

 

Y ’s Capital A/c

 

 

34,000

Z’s Executors A/c

 

 

1,22,600

Y ’s Capital A/c

 

 

10,000

Balance c/d

2,81,800

1,38,200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,86,000

1,85,000

1,34,000

 

2,86,000

1,85,000

1,34,000

 

 

 

 

 

 

 

 

                 

Z's Executor Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

2018-19

 

 

 

2018-19

 

 

 

Dec. 31

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

 

67,430

Jun. 30

Z’s Capital A/c

 

1,22,600

Mar. 31

Balance c/d

 

62,832.5

Dec. 31

Interest (1,22,600×10100×612)

 

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 5.104:

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

Answer:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Machinery

13,600

Creditors

     1,000

Profit transferred to:

 

Stock

14,000

X                                                

5,000

 

Provision for Doubtful Debts

4,000

Y                                                  

3,000

 

Investment

2,200

Z                                                 

2,000

10,000

Bad Debts Recovered

200

 

 

Prepaid Insurance

2,200

 

23,600

 

23,600

 

 

 

 

             

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

X

Y

Z

Particulars

X

Y

Z

Goodwill

6,000

3,600

2,400

Balance b/d

1,35,000

95,000

74,000

Drawings

 

 

12,000

Revaluation

5,000

3,000

2,000

Profit & Loss A/c

75,000

45,000

30,000

IFR

3,500

2,100

1,400

X’s Capital A/c

 

8,750

 

Y’s Capital A/c

8,750

 

14,000

Z ’s Capital A/c

 

14,000

 

WCR

3,000

1,800

1,200

Loan to Z

 

 

1,000

 

 

 

 

Z’s Executors A/c

 

 

47,200

 

 

 

 

Balance c/d

74,250

30,550

 

 

 

 

 

 

1,55,250

1,01,900

92,600

 

1,55,250

1,01,900

92,600

 

 

 

 

 

 

 

 

                   

Z’s Executors  Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Bank A/c

11,200

Z’s Capital A/c

47,200

Z’s Executors  Loan Account

36,000

 

 

 

 

 

 

 

57,000

 

57,000

 

 

 

 

           

Balance sheet 

as on April 01, 2018 after Z’s death

Liabilities

Amount

Rs

Assets

Amount

Rs

Creditors

17,000

Patents

52,000

Z’s Executors Loan A/c

36,000

Machinery 

48,800

Workmen Compensation Claim

1,000

Stock

34,000

Capital A/cs:

 

Debtors

24,000

X

74,250

 

Prepaid Insurance

2,200

Y

30,550

1,04,800

 

 

Bank Overdraft (600 + 8,200-11,200 + 200)

2,200

 

 

 

1,61,000

 

1,61,000

 

 

 

 

 

Working Notes:

WN1: Calculation of Gaining Ratio and Share of Goodwill

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 5.105:

Question 83:

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

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Trade Creditors

1,20,000

Cash at Bank

1,80,000

Bills Payable

80,000

Stock

1,40,000

General Reserve

60,000

Sundry Debtors 80,000

Capital A/cs:

  Building 3,00,000
  X

7,00,000

  Advance to Y 7,00,000
  Y 7,00,000   Profit and Loss A/c 3,20,000
  Z

60,000

14,60,000

   
 

17,20,000

 

17,20,000

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

Answer:

Y’s Capital  Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Profit & Loss A/c

1,28,000

Balance b/d

7,00,000

Profit & Loss Suspense (Share of Loss)

32,000

General Reserve

24,000

Advance to Y
 

7,00,000

X’s Capital A/c
Z ’s Capital A/c

64,000
32,000

 

 

Y’s Executors A/c

40,000

 

 

 

 

 

8,20,000

 

8,20,000

 

 

 

 

           

 

Working Notes:

WN1: Calculation of Share in General Reserve

Reserve=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 5.80:

Question 1:

A, B and C were partners sharing profits in the ratio of 1/2, 2/5 and 1/10. Find the new ratio of the remaining partners if C retires.

Answer:

Old Ratio (A, B and C) = or 5 : 4 : 1

As we can see, no information is given as to how A and B are acquiring C's profit share after his retirement, so the new profit sharing ratio between A and B is calculated just by crossing out the C’s share. That is, the new ratio becomes 5 : 4.

∴ New Profit Ratio (A and B) = 5 : 4

Page No 5.80:

Question 2:

Ram, Mohan and Sohan were partners sharing profits in the ratio of 1/5, 1/3 and 7/15 respectively. Sohan retires and his share was taken by Ram and Mohan in the ratio of 3:2. Find out the new ratio.

Answer:

Old Ratio (Ram, Mohan and Sohan) = or 3 : 5 : 7

Sohan’s Profit Share =

Ram and Mohan decided to take his share in the ratio of 3 : 2

New Profit Share = Old Profit Share  +  Share taken from Sohan

∴ New Profit Ratio (Ram and Mohan) = 36 : 39 or 12 : 13

Page No 5.80:

Question 3:

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 5.80:

Question 4:

Sita, Geeta and Meeta were partners in a firm sharing profits in the ratio of 7:6:7. Geeta retired and her share was divided equally between Sita and Meeta. Calculate the new profit-sharing ratio of Sita and Meeta.

Answer:

Old Ratio (Sita, Geeta and Meeta) = 7 : 6 : 7

Geeta’s Profit Share =

Her share is divided between Sita and Meeta equally i.e. in the ratio of 1: 1

New Profit Share = Old Profit Share  +  Share taken from Geeta

∴ New Profit Ratio (Sita and Meeta) = 20 : 20 or 1 : 1

Page No 5.80:

Question 5:

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 5.80:

Question 6:

A, B and C were partners sharing profits in the ratio of 4 : 3 : 2. A retires, assuming B and C will share profits in the ratio of 2 : 1. Determine the gaining ratio.

Answer:

Old Ratio (A, B and C) = 4 : 3 : 2

New Ratio (B and C) = 2 : 1

Gaining RatioNew Ratio − Old Ratio

∴Gaining Ratio = 3 : 1

Page No 5.80:

Question 7:

Kangli, Mangli and Sanvali are partners sharing profits in the ratio of 4:3:2 . Kangli retires . Assuming Mangli and Sanvali will share profits in the  future in the ratio of 5:3, determine the gaining ratio.

Answer:

Old Ratio (Kangli, Mangli and Sanvali) = 4 : 3 : 2

New Ratio (Mangli and Sanvali) = 5 : 3

Gaining RatioNew Ratio − Old Ratio

∴Gaining Ratio = 21 : 11

Page No 5.80:

Question 8:

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 5.80:

Question 9:

(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 5.81:

Question 10:

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 5.81:

Question 11:

A, B, C  and D  were partners in a firm sharing profits in 5:3:2:2 ratio. B and C retired from the firm . B's share was acquired by D and C's share was acquired by A . Calculate new profit-sharing ratio of A and D .

Answer:

Old Ratio (A, B, C and D) = 5 : 3 : 2 : 2

B’s Profit Share =

C’s Profit Share =

B’s Share was acquired by D and C’s share was acquired by A.

∴ D’s New Share = D’s Old share + Share of B

A’s New Share = A’s Old Share + Share of C

∴ New Profit Ratio (A and D) = 7 : 5

Page No 5.81:

Question 12:

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 5.81:

Question 13:

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 5.81:

Question 14:

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 5.81:

Question 15:

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 5.81:

Question 16:

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 5.81:

Question 17:

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 5.81:

Question 18:

P, Q, R and S were partners in a firm sharing profits in the ratio of 5 : 3 : 1 : 1. On 1st January, 2017, S retired from the firm. On S's retirement the goodwill of the firm was valued at ₹ 4,20,000. The new profit-sharing ratio between 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

(₹)

  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 5.81:

Question 19:

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

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 5.81:

Question 20:

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

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

(₹)

Credit

Amount

(₹)

 

Hanny’s Capital A/c

Dr.

 

30,000

 

 

Pammy’s Capital A/c

Dr.

 

20,000

 

 

Sunny’s Capital A/c

 

 

10,000

 

 

To Goodwill A/c

 

 

 

60,000

 

(Old goodwill written-off in old ratio)

 

 

 

 

 

 

 

 

 

 

 

Hanny’s Capital A/c

Dr.

 

14,000

 

 

Sunny’s Capital A/c

Dr.

 

14,000

 

 

To Pammy’s Capital A/c

 

 

 

28,000

 

(Adjustment for goodwill in gaining ratio)

 

 

 

 


Working Notes:

WN1: Calculation of Pammy’s Share in Goodwill

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 5.82:

Question 21:

A, B and C are partners sharing profits in the ratio of 3 : 2 : 1. B retired and the new profit-sharing ratio between A and C was 2 : 1. On B's retirement, the goodwill of the firm was valued at ₹ 90,000. Pass necessary Journal entry for the treatment of goodwill on B's retirement.

Answer:

Journal

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

A’s Capital A/c

Dr.

 

15,000

 

C’s Capital A/c

Dr.

 

15,000

 

To B’s Capital A/s

 

 

30,000

(Adjustment B’s share of goodwill made)

 

 

 

Working Notes:

WN 1 Calculation of Gaining Ratio

Old Ratio (A, B and C) = 3 : 2 : 1

B retires from the firm.

New Ratio (A and C) = 2 : 1

Gaining RatioNew Ratio − Old Ratio

∴Gaining Ratio = 1 : 1

WN 2 Adjustment of Goodwill

Goodwill of the firm = Rs 90,000

B’s share of goodwill

This share of goodwill is to be debited to remaining Partners’ Capital Accounts in their gaining ratio (i.e. 1 : 1).

Page No 5.82:

Question 22:

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

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 5.82:

Question 23:

A, B and C are partners sharing profits in the ratio of 4/9 : 3/9 : 2/9. B retires and his capital after making adjustments for reserves and gain (profit) on revaluation stands at ₹ 1,39,200. A and C agreed to pay him ₹ 1,50,000 in full settlement of his claim. Record necessary Journal entry for adjustment of goodwill if the new profit-sharing ratio is decided at 5 : 3.

Answer:

Journal
 
Date
Particulars
L.F.
Debit
Amount
Rs
Credit Amount
Rs
 
A’s Capital A/c
Dr.
 
5,850
 
 
C’s Capital A/c
Dr.
 
4,950
 
 
    To B’s Capital A/c
 
 
 
10,800
 
(Adjustment of B’s share of goodwill)
 
 
 
 

Working Notes

i. Calculation of B’s share of goodwill

A, B and C are sharing profits in ratio 4/9 : 3/9 : 2/9

B retires from the firm. Remaining partners agreed to pay him Rs 1,50,000

B’s capital after making necessary adjustments Rs 1,39,200

Therefore, Hidden Goodwill is Rs (1,50,000 – 1,39,200) i.e. Rs 10,800

ii Gaining Ratio

New profit sharing ratio between A and B is 5:3






Thus, B’s share of goodwill will be brought in by A and C in the gaining ratio 13:11 i.e.

Page No 5.82:

Question 24:

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

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 5.82:

Question 25:

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

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 5.82:

Question 26:

A, B and C were partners in a firm sharing profits in the ratio of 6 : 5 : 4. Their capitals were A − ₹ 1,00,000;  ₹ 80,000 and − ₹ 60,000 respectively. On 1st April, 2009, A retired from the firm and the new profit sharing ratio between B and C was decided as 1 : 4. On A's retirement, the goodwill of the firm was valued at ₹ 1,80,000. Showing your calculations clearly, pass the necessary Journal entry for the treatment of goodwill on A's retirement.

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 5.82:

Question 27:

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 5.83:

Question 28:

A , B and C were partners , sharing profits and losses in the ratio of 2 : 2 : 1 . B decides to retire on 31st March, 2018. 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 Material;s ₹ 20,000; Stock of Finished Goods ₹ 30,000 and Debtors  ₹ 20,000.
The following was agreed among the partners on B's retirement:
(a) Building to be appreciated by 20%.
(b) Plant and Machinery to be depreciated by 10%.
(c) A Provision of 5% on Debtors to be created for Doubtful Debts .
(d) Stock of Raw Materials too 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
Rs
Particulars
Amount
Rs
Plant and Machinery (40,000 × 10%)
4,000
Building (1,00,000 × 20%)
20,000
Provision for Doubtful Debts
1,000
Stock of Finished Goods
5,000
Stock of Raw Materials
2,000
Computer
2,000
Workmen’s Compensation Claim
5,000
 
 
Profit transferred to:
 
 
 
  A’s Capital A/c
6,000
 
 
 
B’s Capital A/c
6,000
 
 
 
C’s Capital A/c
3,000
15,000
 
 
 
27,000
 
27,000
 
 
 
 
 
Journal
Particulars
L.F.
Debit
Amount
Rs
Credit
Amount
Rs
Building A/c     
Dr.
 
20,000
 
Stock of Finished Good A/c
Dr.
 
5,000
 
Computer A/c
Dr.
 
2,000
 
To Revaluation A/c
 
 
27,000
(Increase in value Assets transferred to Revaluation Account)
 
 
 
 
 
 
 
Revaluation A/c
Dr.
 
12,000
 
To Plant and Machinery A/c
 
 
4,000
To Provision for Doubtful Debts A/c
 
 
1,000
To Stock of Raw Material A/c
 
 
2,000
To Workmen’s Compensation Claim A/c
 
 
5,000
(Decrease in value of Assets and increase in Liabilities transferred to Revaluation Account)
 
 
 
 
 
 
 
Revaluation A/c
Dr.
 
15,000
 
To A’s Capital A/c
 
 
6,000
To B’s Capital A/c
 
 
6,000
To C’s Capital A/c
 
 
3,000
(Revalution Profit transferred to Partners’ Capital accounts)
 
 
 
 
 
 
 

Page No 5.83:

Question 29:

Ramesh wants to retire from the firm. The gain (profit) on revaluation on that date was ₹ 12,000. Mohan and Rahul want to share this in their new profit-sharing ratio of 3 : 2. Ramesh wants this to be shared equally. How is the profit to be shared? Give reasons.

Answer:

Revaluation of assets and liabilities is made at the time of Ramesh’s retirement and not after his retirement. Therefore, profits on revaluation will be distributed among all the partners in their old profit sharing ratio. In the absence of partnership deed, profits are distributed equally among all the partners.

Therefore, Profit Share of each Partner =

Journal

Particulars

L.F.

Debit

Amount

(Rs)

Credit

Amount

(Rs)

Revaluation A/c

Dr.

 

12000

 

To Ramesh’s Capital A/c

 

 

4000

To Mohan’s Capital A/c

 

 

4000

To Rahul’s Capital A/c

 

 

4000

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

 

 

 

 

 

 

 

Page No 5.83:

Question 30:

X, Y and Z  are partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1 . Z retires from the firm on 31st March, 2018 . On the date of Z's retirement , the following balances appeared in the books of the firm:
   General Reserve ₹ 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
(Rs)
Credit
Amount
(Rs)
 
General Reserve A/c
Dr.
 
1,80,000
 
 
Workmen Compensation Reserve A/c
Dr.
 
24,000
 
 
  To X’s Capital A/c
 
 
 
1,02,000
 
  To Y’s Capital A/c
 
 
 
68,000
 
  To Z’s Capital A/c
 
 
 
34,000
 
(Accumulated profits distributed among partners in old ratio)
 
 
 
 
 
 
 
 
 
 
 
X’s Capital A/c
Dr.
 
15,000
 
 
Y’s Capital A/c
Dr.
 
10,000
 
 
Z’s Capital A/c
Dr.
 
5,000
 
 
  To Profit and Loss A/c
 
 
 
30,000
 
(Debit balance in Profit and Loss A/c distributed among partners in old ratio)
 
 
 
 

 

 

 

 

 

 
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 5.83:

Question 31:

Asha, Naveen and Shalini were partners in a firm sharing profits in the ratio of 5 : 3 : 2. Goodwill appeared in their books at a value of ₹ 80,000 and General Reserve at ₹ 40,000. Naveen decided to retire from the firm. On the date of his retirement, goodwill of the firm was valued at ₹ 1,20,000. The new profit-sharing ratio decided among Asha and Shalini is 2 : 3.
Record necessary Journal entries on Naveen's retirement.

Answer:

Journal
Date Particulars L.F. Debit
Amount
(Rs)
Credit
Amount
(Rs)
  Asha’s Capital A/c Dr.   40,000  
  Naveen’s Capital A/c Dr.   24,000  
  Shalini’s Capital A/c Dr.   16,000  
              To Goodwill A/c       80,000
  (Existing goodwill written off amongst existing partners in old ratio)        
           
  General Reserves A/c Dr.   40,000  
              To Asha’s Capital A/c       20,000
              To Naveen’s Capital A/c       12,000
              To Shalini’s Capital A/c       8,000
  (General Reserves distributed among all partners in old ratio)        
           
  Shalini’s Capital A/c Dr.    48,000  
              To Asha’s Capital A/c        12,000
              To Naveen’s Capital A/c        36,000
  (Goodwill adjusted by debiting gaining partner and crediting sacrificing partner and retiring partner)        
         


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 5.84:

Question 32:

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

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 5.84:

Question 33:

Partnership Deed of C and D, who are equal partners, has a clause that any partner may retire from the firm on the following terms by giving a six-month notice in writing:
The retiring partner shall be paid−
(a) the amount standing to the credit of his Capital Account and Current Account.
(b) his share of profit to the date of retirement, calculated on the basis of the average profit of the three preceding completed years.
(c) half the amount of the goodwill of the firm calculated at 11/2 times the average profit of the three preceding completed years.
gave a notice on 31st March, 2017 to retire on 30th September, 2017, when the balance of his Capital Account was ₹ 6,000 and his Current Account (Dr.) ₹ 500. Profits for the three preceding completed years ended 31st March, were: 2015  ₹ 2,800; 2016 − ₹ 2,200 and 2017 − ₹ 1,600. What amount is due to as per the partnership agreement? 

Answer:

C’s Capital Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

C’s Loan A/c

7,700

Balance b/d

6,000

 

 

C’s Current A/c

1,700

 

7,700

 

7,700

 

 

 

 

 

C’s Current Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Balance b/d

500

Profit and Loss Suspense A/c (Share of profit) (WN 1)

550

C’s Capital A/c (balancing figure)

1,700

D’s Current A/c (Share of goodwill) (WN 2)

1,650

 

2,200

 

2,200

 

 

 

 


Working Notes:

WN 1 Calculation of Profit (from April 01, 2017 to Sept. 30, 2017)



WN 2 Calculation of Goodwill 

Goodwill = Average Profit × 1.5

= 2,200 × 1.5 = Rs 3,300

C’s Share of Goodwill

Page No 5.84:

Question 34:

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, 2018 was:

 

 

 

Liabilities

Assets

 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, 2018 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

Rs

Particulars

Amount

Rs

Bad Debts

2,000

Loss transferred to:

 

Patents

9,000

X’s Capital A/c

4,400

 

 

 

Y’s Capital A/c

4,400

 

 

 

Z’s Capital A/c

2,200

11,000

 

11,000

 

11,000

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

X

Y

Z

Particulars

X

Y

Z

Revaluation A/c (Loss)

4,400

4,400

2,200

Balance b/d

82,000

60,000

75,500

Y’s Capital A/c (Goodwill)

18,667

9,333

Reserve

(Old Ratio)

7,400

7,400

3,700

Y’s Loan A/c

91,000

X’s Capital A/c  (Goodwill)

18,667

Balance c/d

66,333

67,667

Z’s Capital A/c

(Goodwill)

9,333

 

89,400

95,400

79,200

 

89,400

95,400

79,200

 

 

 

 

 

 

 

 

 

Balance Sheet

as on March 31, 2018 (after Y’s Retirement)

Liabilities

Amount

Rs

Assets

Amount

Rs

Creditors

49,000

Cash

8,000

Y’s Loan

91,000

Debtors (19000-2000)

17,000

Capital A/cs:

 

Stock

42,000

X

66,333

 

Building

2,07,000

Z

67,667

1,34,000

 

 

 

2,74,000

 

2,74,000

 

 

 

 

Working Notes:

WN 1 Calculation of Gaining Ratio

Old Ratio (X, Y and Z) = 2 : 2 : 1

Y retires from the firm.

∴Gaining Ratio = 2 : 1

WN 2 Adjustment of Goodwill

Goodwill of the firm = Rs 70,000

Y’s Share of Goodwill =

This share of goodwill is to be distributed between X and Z in their gaining ratio (i.e. 2 : 1).

Journal

Particulars

L.F.

Debit

Amount

(Rs)

Credit

Amount

(Rs)

X’s Capital A/c

Dr.

 

18,667

 

Z’s Capital A/c

Dr.

 

9,333

 

To Y’s Capital A/c

 

 

28,000

(Adjustment of goodwill made on Y’s retirement)

 

 

 

 

 

 

 



Page No 5.85:

Question 35:

Kanika, Disha and Kabir were partners sharing profits in the ratio of 2 : 1 : 1. On 31st March, 2016, their Balance Sheet was as under:

     
Liabilities Amount
(₹)
Assets Amount
(₹)

Trade creditors

53,000 Bank 60,000
Employees' Provident Fund 47,000 Debtors 60,000
Kanika's Capital 2,00,000 Stock 1,00,000
Disha's Capital 1,00,000 Fixed assets 2,40,000
Kabir's Capital 80,000 Profit and Loss A/c 20,000
       
       
       
  4,80,000   4,80,000
       
           
Kanika retired on 1st April, 2016. For this purpose, the following adjustments were agreed upon:
(a) Goodwill of the firm was valued at 2 years' purchase of average profits of three completed years preceding the date of retirement. The profits for the year:
      2013-14 were ₹ 1,00,000 and for 2014-15 were ₹ 1,30,000.
(b) Fixed Assets were to be increased to ₹ 3,00,000.
(c) Stock was to be valued at 120%.
(d) The amount payable to Kanika was transferred to her Loan Account.
​Prepare Revaluation Account, Capital Accounts of the partners and the Balance Sheet of the reconstituted firm.  

Answer:

Revaluation Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Revaluation Profit   Fixed Assets

60,000

  Kanika’s Capital

40,000

 

Stock

20,000

  Disha’s Capital

20,000

 

 

 

  Kabir’s Capital

20,000

80,000

   
 

80,000

 

80,000

       
 

Partners’ Capital Account 

Dr.

Cr.

Particulars

Kanika

Disha

Kabir

Particulars

Kanika

Disha

Kabir

Profit & Loss A/c

10,000

5,000

5,000

Balance b/d

2,00,000

1,00,000

80,000

Kanika’s Capital A/c  

35,000

35,000

Disha’s Capital A/c

35,000

 

 

Kanika’s Loan A/c

3,00,000

 

 

Kabir’s Capital A/c

35,000

 

 
Balance c/d

 

80,000

60,000

Revaluation

40,000

20,000

20,000

               
 

3,10,000

1,20,000

1,00,000

 

3,10,000

1,20,000

1,00,000

               
 

Balance Sheet

as on March 31, 2016

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Employees’ Provident Fund

47,000

Bank

60,000

Trade Creditors

53,000

Sundry Debtors

60,000

Kanika’s Loan A/c

3,00,000

Stock

1,20,000

Capitals   Fixed Assets

3,00,000

   Disha

80,000

     
   Kabir

60,000

1,40,000

 

 

 

5,40,000

 

5,40,000

     

 


Working Notes:
WN1: Calculation of Goodwill

Goodwill=Average Profits×Number of YearsPurchaseAverage Profits=Total ProfitsNumber of Years=1,00,000+1,30,00020,0003=2,10,0003=Rs 70,000Goodwill=70,000×2=Rs 1,40,000Kanika's share=1,40,000×24=70,000 (to be borne by gaining partners in gaining ratio)

Note: Since no information is given about the share of gain, it is assumed that the old partners are gaining in their old profit sharing ratio.

Page No 5.85:

Question 36:

The Balance Sheet of X, Y and who were sharing profits in proportion to their capitals stood as follows at 31st March, 2018:
 

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Sundry Creditors

13,800

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

45,000

 

  Less: Provision for D. Debts 200 9,800
  Y 30,000   Stock 16,000
  Z

15,000

90,000

Plant and Machinery

17,000

 

 

 

Land and Building

50,000

 

1,03,800

 

1,03,800

 

 

 

 


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

Answer:

Journal
Particulars
L.F.
Debit
Amount
Rs
Credit
Amount
Rs
Revaluation A/c
Dr.
 
4,300
 
To Provision for Doubtful Debts A/c
 
 
300
To Provision for Outstanding Repair Bills  A/c
 
 
4,000
(Provisions transferred to Revaluation Account)
 
 
 
 
 
 
 
Prepaid Insurance A/c
Dr.
 
1,500
 
Land and Building A/c
Dr.
 
10,000
 
To Revaluation A/c
 
 
11,500
(Increase in value of Assets transferred to Revaluation Account)
 
 
 
 
 
 
 
Revaluation A/c
Dr.
 
7,200
 
To X’s Capital A/c
 
 
3,600
To Y’s Capital A/c
 
 
2,400
To Z’s Capital A/c
 
 
1,200
(Revaluation profit distributed among X, Y and Z in their old ratio)
 
 
 
 
 
 
 
X’s Capital A/c
Dr.
 
5,400
 
Z’s Capital A/c
Dr.
 
1,800
 
To Y’s Capital A/c
 
 
7,200
(Y’s share of goodwill adjusted)
 
 
 
 
 
 
 
Y’s Capital A/c
Dr.
 
39,600
 
To Y’s loan A/c
 
 
39,600
(Y’s capital balance after all adjustment transferred to his Loan Account)
 
 
 
 
 
 
 
 
Balance Sheet
as on March 31, 2017 (after Y’s Retirement)
Liabilities
Amount
Rs
Assets
Amount
Rs
Sundry Creditors
13,800
Cash at Bank
11,000
Provision for Outstanding Repair Bills
4,000
Sundry Debtors
10,000
 
 
 
Less: Provision for Doubtful Debts
 
(500)
 
9,500
Y’s Loan
39,600
Stock
16,000
Capital A/cs:
 
Prepaid Insurance
1,500
X
43,200
 
Plant and Machinery
17,000
Z
14,400
57,600
Land and Building
60,000
 
1,15,000
 
1,15,000
 
 
 
 

Working Notes:

WN 1
Revaluation Account
Dr.
 
Cr.
Particulars
Amount
Rs
Particulars
Amount
Rs
Provision for Doubtful Debts
 
Prepaid Insurance
1,500
(500 – 200)
300
Land And Building
(50,000 × 20%)
10,000
Provision For Outstanding Repairs Bills
4,000
 
 
Profit transferred to:
 
 
 
X’s Capital A/c
3,600
 
 
 
Y’s Capital A/c
2,400
 
 
 
Z’s Capital A/c
1,200
7,200
 
 
 
11,500
 
11,500
 
 
 
 

WN 2
 
Partners' Capital Accounts
Dr.
 
Cr.
Particulars
X
Y
Z
Particulars
X
Y
Z
Y’s Capital A/c
5,400
 
1,800
Balance b/d
45,000
30,000
15,000
 
 
 
 
Revaluation A/c
3,600
2,400
1,200
Y’s Loan
 
39,600
 
X’s Capital A/c
 
5,400
 
Balance c/d
43,200
 
14,400
Z’s Capital A/c
 
1,800
 
 
48,600
39,600
16,200
 
48,600
39,600
16,200
 
 
 
 
 
 
 
 

WN 3 Calculation of Ratios



∴ Old Ratio (X, Y and Z) = 3 : 2 : 1

Y retires from the firm.

New Ratio (X and Z) = 3 : 1

Gaining Ratio = New Ratio − Old Ratio



∴ Gaining Ratio = 3 : 1

WN 4 Adjustment of Goodwill

Goodwill of the firm = 21,600

Y’s Share of Goodwill =

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



Page No 5.86:

Question 37:

N, S and G were partners in a firm sharing profits and losses in the ratio of 2 : 3 : 5. On 31st March, 2016 their Balance Sheet was as under:

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Creditors

1,65,000

Cash 1,20,000
General Reserve 90,000  Debtors 1,35,000  
Capitals:    Less: Provision 15,000 1,20,000
 N 2,25,000   Stock 1,50,000
 S 3,75,000   Machinery 4,50,000
 G

4,50,000

10,50,000

Patents

90,000

      Building 3,00,000
 

 

 

Profit and Loss Account

75,000

 

13,05,000

 

13,05,000

 

 

 

 


G retired on the above date and it was agreed that:
(a) Debtors of ₹ 6,000 will be written off as bad debts and a provision of 5% on debtors for bad and doubtful debts will be maintained.
(b) Patents will be completely written off and stock, machinery and building will be depreciated by 5%. 
(c) An unrecorded creditor of ₹ 30,000 will be taken into account. 
(d) N and S will share the future profits in 2 : 3 ratio.
(e) Goodwill of the firm on G's retirement was valued at ₹ 90,000.
Pass necessary Journal entries for the above transactions in the books of the firm on G's retirement.

Answer:

Journal
Date
Particulars
L.F.
Debit
Amount
(₹)
Credit
Amount
(₹)
  General Reserve A/c
Dr.
 
90,000
 
      To N’s Capital A/c      
18,000
      To S’s Capital A/c      
27,000
      To G’s Capital A/c      
45,000
  (Balance in reserve distributed among all partners in old ratio)        
   
 
 
 
 
   N’s Capital A/c
Dr.
 
15,000
 
   S’s Capital A/c
Dr.
 
22,500
 
   G’s Capital A/c
Dr.
 
37,500
 
       To Profit & Loss A/c      
75,000
  (Debit balance P&L A/c written off among all partners in old ratio)        
   
 
 
 
 
   N’s Capital A/c
Dr.
 
18,000
 
   S’s Capital A/c
Dr.
 
27,000
 
       To G’s Capital A/c      
45,000
  (Goodwill adjusted in gaining ratio)        
   
 
 
 
 
  Revaluation A/c
Dr.
 
1,65,000
 
     To Patent A/c      
90,000
     To Stock A/c      
7,500
     To Machinery  A/c       
22,500
     To Building A/c      
15,000
     To Creditors A/c      
30,000
  (Decrease in assets and increase in liabilities debited to Revaluation A/c)        
   
 
 
 
 
  Provision for Doubtful Debts A/c
Dr.
 
2,550
 
      To Revaluation A/c      
2,550
  (Excess provision written back)        
   
 
 
 
 
   N’s Capital A/c
Dr.
 
32,490
 
   S’s Capital A/c
Dr.
 
48,735
 
   G’s Capital A/c
Dr.
 
81,225
 
       To Revaluation A/c      
1,62,450
  (Loss on revaluation debited to partners’ capital accounts in old ratio)        
   
 
 
 
 
  G’s Capital A/c
Dr.
 
4,21,275
 
     To G’s Loan A/c      
4,21,275
  (Amount due to G transferred to his loan A/c)        

Working Notes:

WN1: Calculation of G’s Share of Goodwill

G's share=Firm's Goodwill×G's Profit ShareG's share=90,000×510=45,000 (to be borne by gaining partners in gaining ratio)

WN2: Calculation of Gaining Ratio
Gaining Ratio = New Ratio − Old Ratio
N's gain=25210=210S's gain=35310=310Gaining Ratio=2:3N's share=45,000×25=18,000S's share=45,000×35=27,000

WN2: Calculation of Excess/Deficit Provision for Doubtful Debts

Required Provision @5%=1,35,0006,000×5100=6,450Existing Provision after writing bad-debts= 9,000Excess Provision to be written back=2,550 9,0006,450

WN3: Calculation of G’s Loan Balance
Amount due to G = Opening Capital + Credits – Debits
= 4,50,000 + (45,000 + 45,000) – (37,500 + 81,225)
= Rs 4,21,275

Page No 5.86:

Question 38:

A, B and C are partners in a firm, sharing profits and losses as A 1/3, B 1/2 and C 1/6 respectively. The Balance Sheet of the firm as at 31st March, 2018 was:

 

Liabilities

Assets

Capital A/cs:

 

Factory Building

50,000

A

30,000

 

Plant ad Machinery

40,000

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

 

   

 

 

 

General Reserve   16,000 Debtors                18,000  

Sundry Creditors

  25,000

Less: Prov. for Doubtful Debts

500

17,00

 

 

Cash in Hand

8,500

 

 

 

 

       

 

 

 

 

 

1,51,000

 

1,51,000

 

 

 

 

 
 ​C retires on 1st April, 2018 subject to the following adjustments:

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

Answer:

Journal

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

Profit and Loss Adjustment A/c

Dr.

 

6,000

 

To Plant and Machinery A/c

 

 

4,000

To Provision for Doubtful Debts A/c

 

 

1,500

To Furniture A/c

 

 

500

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

 

 

 

 

 

 

 

Stock A/c

Dr.

 

3,750

 

Factory Building A/c

Dr.

 

5,000

 

To Profit and Loss Adjustment A/c

 

 

8,750

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

 

 

 

 

 

 

 

Profit and Loss Adjustment A/c

Dr.

 

2,750

 

To A’s Capital A/c

 

 

917

To B’s Capital A/c

 

 

1,375

To C’s Capital A/c

 

 

458

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

 

 

 

 

 

 

 

A’s Capital A/c

Dr.

 

6,400

 

To B’s Capital A/c

 

 

2,400

To C’s Capital A/c

 

 

4,000

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

 

 

 

 

 

 

 

C’s Capital A/c

Dr.

 

32,125

 

To C’s Loan A/c

 

 

32,125

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

 

 

 

 

 

 

 

Reserve Fund A/c

Dr.

 

16,000

 

To A’s Capital A/c

 

 

5,333

To B’s Capital A/c

 

 

8,000

To C’s Capital A/c

 

 

2,667

(Reserve Fund distributed among partners in their old ratio)

 

 

 

 

 

 

 

 

Profit and Loss Adjustment Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Plant and Machinery

 

Stock (25,000 × 15%)

3,750

(40,000 × 10%)

4,000

Factory Building (50,000 × 10%)

5,000

Furniture (10,000 × 5%))

500

 

 

Provision for Doubtful Debts

 

 

 

(2,000 – 500)

1,500

 

 

Profit transferred to:

 

 

 

A’s Capital A/c

917

 

 

 

B’s Capital A/c

1,375

 

 

 

C’s Capital A/c

458

2,750

 

 

 

 

 

 

 

8,750

 

8,750

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

A

B

C

Particulars

A

B

C

B’s Capital A/c (Goodwill)

2,400

 

 

Balance b/d

30,000

40,000

25,000

C’s Capital A/c (Goodwill)

4,000

 

 

Reserve Fund

5,333

8,000

2,667

C’s Loan A/c

 

 

32,125

Revaluation A/c (Profit)

917

1,375

458

Balance c/d

29,850

51,775

 

A’s Capital A/c (Goodwill)

 

2,400

4,000

 

36,250

51,775

32,125

 

36,250

51,775

32,125

 

 

 

 

 

 

 

 

 

Balance Sheet

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

Liabilities

Amounts

Rs

Assets

Amounts

Rs

Sundry Creditors

25,000

Factory Building

55,000

Loan Payable

15,000

Plant and Machinery

36,000

C’s Loan

32,125

Furniture

9,500

Capital A/cs:

 

Stock

28,750

A

29,850

 

Debtors

18,000

 

B

51,775

81,625

Less: Provision for Doubtful Debts

(2,000)

16,000

 

 

Cash in Hand

8,500

 

1,53,750

 

1,53,750

 

 

 

 


Working Notes:

WN 1 Calculation of Gaining Ratio

Old Ratio (A, B and C) = or 2 : 3 : 1

C retires from the firm.

New Ratio (A and B) = 3: 2

Gaining RatioNew Ratio − Old Ratio



WN 2 Adjustment of Goodwill

Goodwill of the firm = Rs 24,000

C’s Share of Goodwill =


 

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

A

B

C

Particulars

A

B

C

C’s Capital A/c (Goodwill)

1,600

2,400

 

Balance b/d

30,000

40,000

25,000

 

 

 

 

Reserve Fund

5,333

8,000

2,667

B’s Loan A/c

 

 

32,125

Revaluation A/c (Profit)

917

1,375

458

Balance c/d

34,650

46,975

 

A’s Capital A/c (Goodwill)

 

 

4,000

 

36,250

49,375

32,125

 

36,250

49,375

32,125

 

 

 

 

 

 

 

 


Working Notes:

WN 1 Calculation of Gaining Ratio

Old Ratio (A, B and C) = or 2 : 3 : 1

C retires from the firm.

New Ratio (A and B) = 2: 3

Gaining RatioNew Ratio − Old Ratio



WN 2 Adjustment of Goodwill

Goodwill of the firm = Rs 24,000

C’s Share of Goodwill =



Page No 5.87:

Question 39:

X, and Z were in partnership sharing profits and losses in the proportions of 3 : 2 : 1 . On 1st April, 2018 Y retires from the firm. On that date, their Balance Sheet was:

 

 

 

Liabilities

Assets

Trade Creditors 3,000 Cash in Hand 1,500
Bills Payable 4,500 Cash at Bank 7,500
Expenses Owing 4,500  Debtors 15,000
 Reserve Fund 13,500 Stock 12,000
Capital A/cs:   X  15,000   Factory Premises 22,500

                 Y

15,000

 

Machinery

8,000

                Z

15,000

45,000

Loose Tools

4,000

 

70,500

 

70,500

 

 

 

 

   
The terms were:
(a) Goodwill of the firm  was valued at ₹ 13,500 and adjustment in this respect was to be made in the continuing Partners' Capital Accounts without raising Goodwill Account.
(b) Expenses Owing to be brought down to ₹ 3,750.
(c)  Machinery and Loose Tools  are to be valued @ 10%  less than their book value.
(d) Factory Premises are to be revalued  at ₹ 24,300.
 Show Revaluation Account, Partners'  Capital Accounts and prepare the Balance Sheet of the firm after the retirement of Y .

Answer:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Machinery (8,000 × 10%)

800

Expenses Owing (4,500 –3,750)

750

Loose Tools (4,000 × 10%)

400

Factory Premises (24,300 – 22,500)

1,800

Profit transferred to:

 

 

 

X’s Capital A/c

675

 

 

 

Y’s Capital A/c

450

 

 

 

Z’s Capital A/c

225

1,350

 

 

 

2,550

 

2,550

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

X

Y

Z

Particulars

X

Y

Z

Y’s Capital A/c (Goodwill)

3,375

 

1,125

Balance b/d

15,000

15,000

15,000

 

 

 

 

Reserve Fund

6,750

4,500

2,250

Y’s Loan A/c

 

24,450

 

Revaluation A/c

675

450

225

 

 

 

 

X’s Capital A/c  (Goodwill)

 

3,375

 

Balance c/d

19,050

 

16,350

Z’s Capital A/c (Goodwill)

 

1,125

 

 

22,425

24,450

17,475

 

22,425

24,450

17,475

 

 

 

 

 

 

 

 

 

Balance Sheet

as on April 01, 2018 (after Y’s Retirement)

Liabilities

Amount

Rs

Assets

Amount

Rs

Trade Creditors

3,000

Cash in Hand

1,500

Bills Payable

4,500

Cash at Bank

7,500

Expenses Owing

3,750

Debtors

15,000

Y’s Loan

24,450

Stock

12,000

Capital A/c

 

Factory Premises

24,300

X

19,050

 

Machinery (8000 – 800)

7,200

Z

16,350

35,400

Loss tools (4,000 – 400)

3,600

 

71,100

 

71,100

 

 

 

 

Working Notes:

WN 1 Calculation of Gaining Ratio

Old Ratio (X, Y and Z) = 3 : 2 : 1

Y retires from the firm.

∴Gaining Ratio = 3: 1

WN 2 Adjustment of Goodwill

Goodwill of the firm = Rs 13,500

Y’s Share of Goodwill =

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

Page No 5.87:

Question 40:

Pankaj , Naresh and Saurabh are partners sharing profits in the ratio of 3 : 2 : 1 . On 31st March, 2018, Naresh retired from the firm due to his illness . On that date , Balance Sheet of the firm was as follows:
 

Liabilities

Amount

(₹)

Assets

Amount

(₹)

General Reserve

12,000

 Bank 7,600
Sundry Creditors

15,000

 Debtors

6,000

 

Bills Payable

12,000

  Less: Provision for D. Debts

400

5,600

Outstanding Salary 2,200 Stock   9,000
Provision for Legal Damages 6,000 Furniture   41,000
Capital A/cs:   Premises   80,000
Pankaj

46,000

 

   
Naresh 30,000      
Saurabh

20,000

96,000

   
 

 

 

 

 

 

1,43,200

 

1,43,200

 

 

 

 

 
Additional Information:
(a) Premises have appreciated by 20% , stock  depreciated by 10% and provision for doubtful debts was to be made 5% on debtors . Further provision for legal damages is to be made for ₹ 1,200 and  furniture to be brought up to ₹ 45,000. 
(b) Goodwill of the firm be valued at ₹ 42,000.
(c) ₹ 26,000 from Naresh's  Capital Account be transferred  to his Loan Account and balance be paid through bank: if required , necessary loan may be obtained from bank.
(d) New profit-sharing ratio of Pankaj and Saurabh is decided to be 5 : 1 .
Give the necessary Ledger Accounts and Balance Sheet of the firm after Naresh's retirement

Answer:

Revaluation Account
Dr.
Cr.
Particulars
Amount
()
Particulars
Amount
()
Stock
900
Premises
16,000
Provision for Legal Damages
1,200
Provision for Doubtful Debts
100
Revaluation Profit   Furniture
4,000
Pankaj’s Capital A/c
9,000
     
Naresh’s Capital A/c
6,000
     
Saurabh’s Capital A/c
3,000
18,000
   
 
20,100
 
20,100
       
 
Partners’ Capital Accounts
Dr.
Cr.
Particulars
Pankaj
Naresh
Saurabh
Particulars
Pankaj
Naresh
Saurabh
Naresh’s Capital A/c
14,000
    Balance b/d
46,000
30,000
20,000
Naresh’s Loan A/c  
26,000
  General Reserve
6,000
4,000
2,000
Bank  
28,000
  Revaluation (Profit)
9,000
6,000
3,000
Balance c/d
47,000
 
25,000
Pankaj’s Capital A/c  
14,000
 
 
61,000
54,000
25,000
 
61,000
54,000
25,000
               
 
Bank Account
  Dr.
Cr.
Particulars
Amount
()
Particulars
Amount
()
Balance b/d
7,600
Naresh’s Capital A/c
28,000
Bank Loan (Balancing Figure)
20,400
   
 
28,000
 
28,000
       
 

Balance Sheet

as on March 31, 2018

Liabilities

Amount

()

Assets

Amount

()

Sundry Creditors 15,000 Debtors

6,000

 
Bills Payable 12,000  Less: Provision for Doubtful Debts

300

5,700
Bank Loan 20,400 Stock 8,100
Outstanding Salaries 2,200 Furniture 45,000
Provision for Legal Damages 7,200 Premises 96,000
Naresh’s Loan 26,000    
Capitals:      
Pankaj 47,000      
Saurabh 25,000 72,000    
  1,54,800   1,54,800
       



Page No 5.88:

Question 41:

X, Y and Z are partners sharing profits in the ratio of 4 : 3 : 2 . Their Balance Sheet as at 31st March, 2018 stood as follows:
 

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Creditors

24,140

Cash at Bank 3,300
Capital A/cs:

 

Sundry Debtors

3,045

 

 X 12,000

 

  Less: Provision for D. Debts

105

2,940

 Y

9,000

 

Stock 4,800
 Z 6,000 27,000 Plant and Machinery 5,100
   

 

Land and Building 15,000
 

 

 

Y's Loan

20,000

 

51,140

 

51,140

 

 

 

 

 
Y having  given notice to retire from the firm, the following adjustments in the books of the firm were agreed upon:
(a) That the Land and Building be appreciated by 10%.
(b) That the Provision for Doubtful Debts is no longer necessary since all the debtors are considered good.
(c) That the stock be appreciated by 20%.
(d) That the adjustment be made in the accounts to rectify a mistake previously committed whereby Y was credited in excess by ₹ 810, while X and Z were debited in excess of ₹ 420 and ₹ 390 respectively.
(e) Goodwill of the firm be fixed at ₹ 5,400  and Y's  share of the same be adjusted to that of X and Z who were going to share in the ratio of 2 : 1 .
(f) It was decide by X and Y to settle Y's account immediately on his retirement .
You are required to show:
(i) Revaluation Account
(ii) Partner's Capital Accounts and
(iii) Balance Sheet of the firm after Y's retirement.

Answer:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Profit transferred to :

 

Land and Building (15,000 × 10%)

1,500

X’s Capital A/c

1,140

 

Provision for Doubtful Debts

105

Y’s Capital A/c

855

 

Stock (4,800 × 20%)

960

Z’s Capital A/c

570

2,565

 

 

 

2,565

 

2,565

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

X

Y

Z

Particulars

X

Y

Z

Y’s Capital A/c

1,200

 

600

Balance b/d

12,000

9,000

6,000

X’s Capital A/c (Rectification)

 

420

 

Revaluation A/c (Profit)

1,140

855

570

Z’s Capital A/c (Rectification)

 

390

 

X’s Capital A/c (Goodwill)

 

1,200

 

Y’s Loan A/c

 

10,845

 

Z’s Capital A/c (Goodwill)

 

600

 

Balanced c/d

12,360

 

6,360

Y’s Capital A/c (Rectification)

420

 

390

 

13,560

11,655

6,960

 

13,560

11,655

6,960

 

 

 

 

 

 

 

 

 

Balance Sheet

as on March 31, 2018 (after Y’s Retirement)

Liabilities

Amount

Rs

Assets

Amount

Rs

Creditors

24,140

Cash at Bank

3,300

 

 

Sundry debtors

3,045

 

 

Stock (4,800 + 960)

5,760

Capital A/cs:

 

Plant and Machinery

5,100

X

12,360

 

Land and Building

 

Z

6,360

18,720
 

 (15,000 + 1,500)
Y's Loan 
(W. N. 2)

16,500
9,155

 

42,860

 

42,860

 

 

 

 


Working Note:

1.Adjustment of Goodwill

Old Ratio (X, Y and Z) = 4 : 3 : 2

Y retires from the firm.

∴ Gaining Ratio = 4 : 2 or 2 : 1

Goodwill of the firm = Rs 5,400

Y’s Share of Goodwill =

This share of goodwill is to be distributed between X and Z in their gaining ratio (i.e. 2 : 1).


2. Computation of final settlement amount payable to/ receivable from Y after his retirement:

  Existing Loan against Y = 20,000
  Less: Amount payable   =  10,845
                                               9,155
Amount receivable from Y by the firm = Rs.9,155
                                             



Page No 5.89:

Question 42:

A, B and C are partners sharing profits and losses in the ratio of 4 : 3 : 3 respectively. Their Balance Sheet as at 31st March, 2018 is:

 

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Creditors

7,000

Land and Building 36,000
Bills Payable 3,000 Pland and Machinery 28,000
Reserves 20,000 Electronic Typewriter 8,000
    Stock 20,000
Capital A/cs:

 

Sundry Debtors

14,000

 

 A 32,000

 

  Less: Provision for D. Debts

2,000

12,000

 B

24,000

 

Bank 2,000
 C 20,000 76,000    
 

 

 

 

 

 

1,06,000

 

1,06,000

 

 

 

 


On 1st April, 2018, B retires from the firm on the following terms:
(a) Goodwill of the firm is to be valued at ₹ 14,000.
(b) Stock, Land and Building are to be appreciated by 10%.
(c) Plant and Machinery and Electronic Typewriter  are to be depreciated by 10%.
(d) Sundry Debtors are considered to be good.
(e) There is a liability of ₹ 2,000 for the payment of outstanding salary to the employee of the firm . This liability has not been shown in the above Balance Sheet but the same is to be      recorded  now .
(f) Amount payable to B is to be transferred to his Loan Account.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of A and C after B's retirement.

Answer:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Plant and Machinery
(28,000 × 10%)

2,800

Stock
(20,000 × 10%)

2,000

Electronic Typewriter
(8,000 × 10%)

800

Land and Building
(36,000 × 10%)

3,600

Outstanding Salary

2,000

Provision for Doubtful Debts

2,000

Profit transferred to:

 

 

 

A’s Capital A/c

800

 

 

 

B’s Capital A/c

600

 

 

 

C’s Capital A/c

600

2,000

 

 

 

 

 

 

 

7,600

 

7,600

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

A

B

C

Particulars

A

B

C

B’s Capital A/c

2,400

 

1,800

Balance b/d

32,000

24,000

20,000

 

 

 

 

Reserves

8,000

6,000

6,000

B’s Loan A/c

 

34,800

 

Revaluation A/c

800

600

600

 

 

 

 

A’s Capital A/c

 

2,400

 

Balance c/d

38,400

 

24,800

C’s Capital A/c

 

1,800

 

 

40,800

34,800

26,600

 

40,800

34,800

26,600

 

 

 

 

 

 

 

 

 

Balance Sheet

an on April 01, 2018 (after B’s Retirement)

Liabilities

Amount

Rs

Assets

Amount

Rs

Creditors

7,000

Land and Building (36,000 + 3,600)

39,600

Bills Payable

3,000

Plant and Machinery (28,000 – 2,800)

25,200

B’s Loan

34,800

Electronic Typewriter (8000 – 800)

7,200

Capital A/cs:

 

Stock (20,000 + 2,000)

22,000

A

38,400

Sundry Debtors

14,000

C

24,800

Bank

2000

Outstanding Salary

2,000

 

 

 

1,10,000

 

1,10,000

 

 

 

 


Working Note:

Adjustment of Goodwill

Old Ratio (A, B and C) = 4 : 3 : 3

B retires from the firm.

∴ Gaining Ratio = 4 : 3

Goodwill of the firm = Rs 14,000

B’s Share of Goodwill =

This share of goodwill is to be distributed between A and C in their gaining ratio (i.e. 4 : 3).

Page No 5.89:

Question 43:

Following is the Balance Sheet of X , Y and  as at 31st March, 2018. They shared profits in the ratio of 3 : 3 : 2 :
 

Liabilities

Amount

(₹)

Assets

Amount

(₹)

 Sundry Creditors

2,50,000

Cash at Bank 50,000
General Reserve 80,000 Bills Receivable 60,000
Partners' Loan A/cs:

 

 Debtors

80,000

 

X

50,000

  Less: Provision for D. Debts

4,000

76,000

Y 40,000 Stock   1,24,000
Capital A/cs:   Fixed Assets   3,00,000
X 1,00,000   Advertisements Suspense A/c 16,000
Y

60,000

 

Profit and Los A/c 4,000
Z

50,000

2,10,000

 

 

 

 

 

 

 

 

6,30,000

 

6,30,000

 

 

 

 

 
 On 1st April, 2018 , Y decided to retire from the firm on the following terms :
(a) Stock to be depreciated by ₹ 12,000.
(b) Advertisements Suspense Account to be written off. 
(c)  Provision for Doubtful Debts  to be increased  to ₹ 6,000.
(d) Fixed Assets be appreciated by 10%.
(e) Goodwill of the firm, valued at ₹ 80,000 and the amount due to the retiring partners to be adjusted in X's and Z's Capital  Accounts .
Prepare Revaluation Account , Partners' Capital Accounts and the Balance Sheet to give effect to the above.

Answer:

Revaluation Account
Dr.
 

Cr.

Particulars
Amount
Rs
Particulars
Amount
Rs
Stock
12,000
Fixed Assets (3,00,000 × 10%)
30,000
Provision for Doubtful Debts (6,000 – 4,000)
2,000
 
 
Profit transferred to:
 
 
 
X’s Capital A/c
6,000
 
 
 
Y’s Capital A/c
6,000
 
 
 
Z’s Capital A/c
4,000
16,000
 
 
 
30,000
 
30,000
 
 
 
 
 

Partners’ Capital Account

Dr.

 

Cr.

Particulars

X

Y

Z

Particulars

X

Y

Z

Profit and Loss A/c

1,500

1,500

1,000

Balance b/d

1,00,000

60,000

50,000

Advertise Suspense A/c

6,000

6,000

4,000

General Reserve

30,000

30,000

20,000

Y’s Capital A/c

18,000

 

12,000

Revaluation A/c

6,000

6,000

4,000

Y’s Loan A/c

 

1,58,500

 

X’s Capital A/c

 

18,000

 

Balance c/d

1,10,500

 

57,000

 

 

 

 

 

 

 

 

Z’s Capital A/c

 

12,000

 

 

1,36,000

1,26,000

74,000

 

1,36,000

1,26,000

74,000

 

 

 

 

 

 

 

 

 

Balance Sheet

as on April 01, 2018 (after Y’s Retirement)

Liabilities

Amount

Rs

Assets

Amount

Rs

Sundry Creditors

2,50,000

Cash at Bank

50,000

X’s Loan

50,000

Bills Receivable

60,000

Y’s Loan

1,58,500

Debtors

80,000

 

Capital A/c :

 

Less: Prov. For D.D.

(6,000)

74,000

 X

1,10,500

 

Stock (1,24,000 – 12,000)

1,12,000

 Z

57,000

1,67,500

Fixed Assets

3,30,000

 

 

(3,00,000 + 30,000)

 

 

6,26,000

 

6,26,000

 

 

 

 

                    

Y’s Loan Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

 

 

Balance b/d

40,000

Balance c/d

1,58,500

Y’s Capital A/c

1,18,500

 

1,58,500

 

1,58,500

 

 

 

 


Working Notes:

WN 1 Adjustment of Goodwill



WN 2 Distribution of General Reserve



WN3 Writing-off Advisement Suspense



WN4 Writing-off Profit and Loss (Loss)



Page No 5.90:

Question 44:

X, Y and Z are partners sharing profits and losses in the ratio of  3 : 2 : 1 . The Balance Sheet of the firm as at 31st March, 2018 stood as follows:
 

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Creditors

21,000

Cash at Bank 5,750
Workmen's Compensation Reserve

12,000

Debtors

40,000

 

Investments Fluctuation Reserve

6,000

  Less: Provision for D. Debts

2,000

38,000

Capital A/cs:   Stock   30,000
  X 68,000   Investments ( Market Value ₹ 17,600) 15,000
  Y

32,000

 

Patents 80,000
  Z

21,000

1,21,000

Machinery

50,000

    Advertisement Expenditure 5,250
    Goodwill 6,000
 

 

 

 

 

 

1,60,000

 

1,60,000

 

 

 

 

 

Z retired on the above date on the following terms:

(a)  Goodwill of the firm is to be valued at ₹ 34,800.
(b) Value of Patents is to be reduced by 20% and that of machinery to 90%.
(c) Provision for Doubtful Debts is to be created @ 6% on debtors.
(d) Z took over the investment at market value .
(e) Liability for Workmen Compensation to the extent of ₹ 750 is to be created .
(f) A liability  of ₹ 4,000 included in creditors is not to be paid .
(g) Amount due to Z to be settled on the following basis: ₹ 5,067 to be paid immediately , 50% of the balance within one year and the balance  by a Bill of Exchange ( without interest ) at 3   Months.
Give necessary journal entries for the treatment of goodwill , prepare Revaluation Account , Capital Accounts and the Balance Sheet of the new firm.

Answer:

Journal

Date
2018

Particulars

L.F.

Debit

Amount

(Rs)

Credit

Amount

(Rs)

 

 

 

 

 

 

April 01

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 Goodwill A/c

 

 

 

6,000

 

(Existing goodwill written off)

 

 

 

 

 

 

 

 

 

 

April 01

X’s Capital A/c

Dr.

 

3,480

 

 

Y’s Capital A/c

Dr.

 

2,320

 

 

            To Z’s Capital A/c

 

 

 

5,800

 

(Z’s share of goodwill credited to him and gaining partners debited in gaining ratio)

 

 

 

 

 

 

 

 

 

 

 

 

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Patents

2,000

Investments (17,600 – 15,000)

2,600

Machinery

5,000

Creditors

4,000

Prov. for Doubtful Debts

400

Loss on Revaluation transferred

 

 

 

X’s Capital A/c

400

 

 

 

Y’s Capital A/c

267

 

 

 

Z’s Capital A/c

133

800

 

 

 

 

 

7,400

 

7,400

 

 

 

 

             

 

 

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

X

Y

Z

Particulars

X

Y

Z

Goodwill A/c

3,000

2,000

1,000

Balance b/d

68,000

32,000

21,000

Revaluation A/c

400

267

133

X’s Capital A/c

 

 

3,480

Z’s Capital A/c

3,480

2,320

 

Y’s Capital A/c

 

 

2,320

Advertisement Expenditure A/c

2,625

1,750

875

Workmen Compensation Reserve A/c*

5,625

3,750

1,875

Investments A/c

 

 

17,600

Investment Fluctuation Reserve A/c*

3,000

2,000

1,000

Bank A/c

 

 

5,067

 

 

 

 

Z’s Loan A/c

 

 

2,500

 

 

 

 

Bills Payable A/c

 

 

2,500

 

 

 

 

Balance c/d

67,120

31,413

 

 

 

 

 

 

76,625

37,750

29,625

 

76,625

37,750

29,625

 

 

 

 

 

 

 

 

                   

 

 

Balance Sheet

as on April 01, 2018 after Z’s retirement

Liabilities

Amount

Rs

Assets

Amount

Rs

Creditors

17,000

Cash at Bank (5,750 – 5,067)

683

Workmen Compensation Claim

750

Stock

30,000

Bills Payable

2,500

Patents

8,000

Capital A/c’s:

 

 

Debtors A/c

40,000

 

X

67,120

 

Less: Prov. for D/ful Debts

2,400

37,600

Y

31,413

98,533

Machinery

45,000

Z’s Loan

2,500

 

 

 

1,21,283

 

1,21,283

 

 

 

 


Note:Amount due to Z = (21,000+3,480+2,320+1,875+1,000) - (1,000+133+875+17,600)                                =10,067Amout paid on Retirement immediately: Rs 5,067Amount paid within one year: 50% of 5,000 = Rs 2,500Amount payable by Bills ofExchange: Rs 2,500 (balance 50%)

Page No 5.90:

Question 45:

X, Y and Z are partners in a firm sharing profits in the ratio of 3 : 2 : 1. On 1st April, 2009, Y retires from the firm. X and Z agree that the capital of the new firm shall be fixed at ₹ 2,10,000 in the profit-sharing ratio. The Capital Accounts of X and Z  after all adjustments on the date of retirement showed balance of ₹ 1,45,000 and ₹ 63,000 respectively. State the amount of actual cash to be brought in or to be paid to the partners.

Answer:

Old Ratio (X, Y, and Z) = 3 : 2 : 1
 

Y retires from the firm.

∴New Ratio (X and Z) = 3 : 1


 

Total capital of the New Firm = Rs 2,10,000

Ascertainment of Actual Cash to be brought in or to be paid to the partners

Particulars

X

Z

New Capital

1,57,500

52,500

Existing Capital

1,45,000

63,000

Cash Paid/Brought in

(12,500)

(Brought in)

10,500

(Paid)


 


 


 

 

Page No 5.90:

Question 46:

On 31st March, 2018 , The Balance Sheet of A , B and C who were sharing profits and losses  in proportion to their capitals stood as:

 

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Creditors

10,800

Cash at Bank 13,000
Bills Payable

5,000

 Debtors

10,000

 

Capital A/cs:

 

  Less: Provision for D. Debts

200

9,800

A 45,000   Stock 9,000
B

30,000

 

Machinery 24,000
C

15,000

90,000

Freehold Premises

50,000

 

 

 

 

 

 

1,05,800

 

1,05,800

 

 

 

 


B retires and following readjustments of assets and liabilities have been agreed upon before ascertainment of the amount payable to B :
(a) Out of the amount of insurance premium which was debited to Profit and Loss Account, ₹  1,000 be carried forward for Unexpired insurance.
(b) Freehold Premises be appreciated by 10%.
(c) Provision for Doubtful Debts  is brought up to 5% on Debtors.
(d) Machinery be depreciated by 5%.
(e) Liability for Workmen Compensation to the extent of ₹ 1,500 would be created.
(f) That the goodwill of the entire firm be fixed at ₹ 18,000 and B's share of the same be adjusted into the  accounts of A and C who are going to share future profits  in the proportion of 3/4th and 1/4th  respectively.
(g) Total capital of the firm as newly  constituted be fixed at ₹ 60,000 between A and C in the proportion of 3/4th  and 1/4th after passing entries in their accounts for adjustments , i.e., actual cash to be paid or to be brought in by continuing partners as the case may be .
(h)  B be paid ₹ 5,000 in cash and the balance be transferred to his Loan Account.
Prepare Capital Accounts of Partners and the Balance Sheet of the firm of A and C

Answer:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Provision for Douibtful Debts (500 – 200)

300

Prepaid Insurance

1,000

Machinery (24,000 × 5%)

1,200

Freehold Premises

5,000

Outstanding Workmen’s Compensation

1,500

(50,000 × 10%)

 

Profit transferred to:

 

 

 

A’s Capital A/c

1,500

 

 

 

B’s Capital A/c

1,000

 

 

 

C’s Capital A/c

500

3,000

 

 

 

6,000

 

6,000

 

 

 

 

 

Partners’ Capital Account

Dr.

 

Cr.

Particulars

A

B

C

Particulars

A

B

C

B’s Capital A/c (Goodwill)

4,500

 

1,500

Balance b/d

45,000

30,000

15,000

Bank A/c

 

5,000

 

Revaluation A/c (Profit)

1,500

1,000

500

B’s Loan A/c

 

32,000

 

A’s Capital A/c (Goodwill)

 

4,500

 

Balance c/d

42,000

 

14,000

C’s Capital A/c (Goodwill)

 

1,500

 

 

46,500

37,000

15,500

 

46,500

37,000

15,500

 

 

 

 

Balance b/d

42,000

 

14,000

Balance c/d (WN 3)

45,000

 

15,000

Cash A/c

3,000

 

1,000

 

45,000

 

15,000

 

45,000

 

15,000

 

 

 

 

 

 

 

 

 

Balance Sheet

as on March 31, 2018 (after B’s retirement)

 

 

 

Liabilities

Amount

Rs

Assets

Amount

Rs

Creditors

10,800

Cash at Bank

12,000

Bills Payable

5,000

Debtors

10,000

 

Outstanding Workmen Compensation

1,500

Less: Provision for Doubtful Debts

 

(500)

 

9,500

B’s Loan

32,000

Stock

9,000

Capital A/cs:

 

Machinery (24,000 – 1,200)

22,800

A

45,000

 

Freehold Premises (50,000 + 5,000)

55,000

C

15,000

60,000

Prepaid Insurance

1,000

 

1,09,300

 

1,09,300

 

 

 

 

 

Bank Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Balance b/d

13,000

B’s Capital A/c

5,000

A’s Capital A/c

3,000

Balance c/d

12,000

C’s Capital A/c

1,000

 

 

 

17,000

 

17,000

 

 

 

 


Working Notes

WN 1 Calculation of Profit Sharing Ratio



B retires from the firm.

∴ New Ratio (A and C) = 3 : 1 and

Gaining Ratio = 3 : 1

WN 2 Adjustment of Goodwill

Goodwill of the firm = Rs 18,000

B’s Share of Goodwill =

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



WN 3 Adjustment of Partners’ Capital after B’s Retirement

Total Capital of the New Firm (after B’s retirement) = Rs 60,000

New Ratio = 3 : 1



Page No 5.91:

Question 47:

Amit, Balan and Chander were partners in a firm sharing profits in the proportion of 1/2, 1/3 and 1/6 respectively. Chander retired on 1st April, 2014. The Balance Sheet of the firm on the date of Chander's retirement was as follows:
 

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Sundry Creditors

12,600

 Bank 4,100
Provident Fund

3,000

 Debtors

30,000

 

General Reserve

9,000

 Less: Provision 

1,000

29,000

Capital A/cs:

 

 

   
Amit
40,000   Stock 25,000
Balan
36,500   Investments 10,000
Chander

20,000

96,500

Patents

5,000

 

 

 

Machinery

48,000

 

1,21,100

 

1,21,100

 

 

 

 

 
It was agreed that:
(i)  Goodwill will  be valued at ₹ 27,000.
(ii) Depreciation of 10% was to be provided on Machinery.
(iii) Patents were to be reduced by 20%. 
(iv) Liability on account of Provident Fund was estimated at ₹ 2,400.
(v) Chander took over Investments for ₹ 15,800.
(vi) Amit and Balan decided to adjust their capitals in proportion of their profit-sharing ratio by opening Current Accounts.
Prepare Revaluation Account and Partners' Capital Accounts on Chander's retirement. 

Answer:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Machinery

4,800

Investments A/c

5,800

Patents

1,000

Provident Fund A/c

600

Profit transferred to:

 

 

 

Amit’s Capital A/c

300

 

 

 

Balan’s Capital A/c

200

 

 

 

Chander’s Capital A/c

100

600

 

 

 

6,400

 

6,400

 

 

 

 

             
 

Partners’ Capital Account

Dr.

Cr.

Particulars

Amit

Balan

Chander

Particulars

Amit

Balan

Chander

Investments A/c

 

 

15,800

Balance b/d

40,000

36,500

20,000

Chander’s Capital A/c

2,700

1,800

 

Revaluation A/c (Profit)

300

200

100

Loan A/c

 

 

10,300

General Reserve

4,500

3,000

1,500

Current A/c

 

5,900

 

Amit’s Capital A/c

 

 

2,700

Balance c/d

48,000

32,000

 

Balan’s Capital A/c

 

 

1,800

 

 

 

 

Current A/c

5,900

 

 

 

50,700

39,700

26,100

 

50,700

39,700

26,100

 

 

 

 

 

 

 

 

 

Working Notes:

WN1: Adjustment of Goodwill

WN2 Adjustment of Capital
Adjusted Old Capital of Amit=44,800 (40,000+4,500+300)-2,700=Rs 42,100Adjusted Old Capital of Balan=39,700 (36,500+3,000+200)-1,800=Rs 37,900Total Adjusted Capital=42,100+37,900=Rs 80,000New Profit Sharing Ratio=3:2Amit's New Capital=80,000×35=Rs 48,000Balan's New Capital=80,000×25=Rs 32,000

Note: Since, here no information is given regarding the share acquired by Amit and Balan, therefore, their gaining ratio is same as their new profit sharing ratio i.e. 3 : 2.



Page No 5.92:

Question 48:

J, H and K were partners in a firm sharing profits in the ratio of 5 : 3 : 2. On 31st March, 2015, their Balance Sheet was as follows:
 

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Creditors

42,000

Land and Building 1,24,000
Investment Fluctuation Fund 20,000 Motor Vans 40,000
Profit and Loss Account 80,000 Investments 38,000
Capital A/cs: J 1,00,000   Machinery   24,000
                     H 80,000   Stock

 

30,000

                     K 40,000

2,20,000

Debtors 80,000

 

      Less: Provision

6,000

74,000

 

 

 

Cash

32,000

 

3,62,000

 

3,62,000

 

 

 

 


On the above date, H retired and J and K agreed to continue the business on the following terms:
(i) Goodwill of the firm was valued at ₹ 1,02,000.
(ii) There was a claim of ₹ 8,000 for workmen's compensation.
(iii) Provision for bad debts was to be reduced by ₹ 2,000. 
(iv) H will be paid ₹ 14,000 in cash and balance will be transferred in his Loan Account which will be paid in four equal yearly instalments together with interest @ 10% p.a.
(v) The new profit-sharing ratio between J and K will be 3 : 2 and their capitals will be in their new profit-sharing ratio. The capital adjustments will be done by opening Current Accounts.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the new firm.

Answer:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Claim for Workmen Comp.

8,000

Provision for Doubtful Debts

2,000

   

Loss on Revaluation

 

 

 

  J’s Capital A/c

3,000

 

 

 

  H’s Capital A/c

1,800

 

 

 

  K’s Capital A/c

1,200

6,000

   

 

 

 

8,000

 

8,000

 

 

 

 

             

 

Partners’ Capital Account

Dr.

Cr.

Particulars

J

H

K

Particulars

J

H

K

Revaluation A/c

3,000

1,800

1,200

Balance b/d

1,00,000

80,000

40,000

H’s Capital A/c

10,200

 

20,400

IFF

10,000

6,000

4,000

Cash A/c

 

14,000

 

P&L A/c

40,000

24,000

16,000

H’s Loan A/c

 

1,24,800

 

J’s Capital

 

10,200

 

Balance c/d

1,36,800

 

38,400

K’s Capital

 

20,400

 

 

1,50,000

1,40,600

60,000

 

1,50,000

1,40,600

60,000

Current A/c

31,680

   

Balance b/d

1,36,800

 

38,400

Balance c/d

1,05,120

 

70,080

Current A/c

   

31,680

 

1,36,800

 

70,080

 

1,36,800

 

70,080

 

 

 

 

 

 

 

 

                 

 

Balance Sheet

as on March 31, 2015

Liabilities

Amount

(Rs)

Assets

Amount (Rs)

Creditors

42,000

Land and Building

1,24,000

Capitals:

 

Motor Vans

40,000

     J

1,05,120

 

Investments

38,000

     K

70,080

1,75,200

Machinery

24,000

J’s Current A/c

31,680

Stock

30,000

Claim for Workmen Compensation

8,000

Debtors

80,000

 

H’s Loan A/c

1,24,800

  Less: Provision

4,000

76,000

 

 

Cash (32,000 - 14,000)

18,000

 

 

K’s Current A/c

31,680

 

3,81,680

 

3,81,680

 

Working Notes:

WN1: Calculation of Gaining Ratio

WN2: Adjustment of Goodwill

 

WN3 Adjustment of Capital

WN4 Amount transferred to H’s Loan A/c

Amount to be transferred = (Credit side - Debit side) - Cash Paid

                                         = (1,40,600 - 1,800) - 14,000 = Rs 1,24,800

Page No 5.92:

Question 49:

X, Y and Z are partners in a  firm sharing profits in the ratio of 3 : 1 : 2 . On 31st March, 2018, their Balance Sheet was :
 

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Bills Payable

12,000

Freehold Premises 40,000
Sundry Creditors 28,000 Machinery 30,000
General Reserve 12,000 Furniture 12,000
Capital A/cs:   Stock 22,000
  X 30,000   Sundry Debtors

20,000

 

  Y 20,000     Less: Provision for D. Debts

1,000

19,000

 Z 28,000

78,000

Cash

7,000

 

 

 

 

 

 

1,30,000

 

1,30,000

 

 

 

 

 
Z retires from the business  and the partners agree to the following :
(a) Freehold Premises and Stock are to be appreciated by 20%  and 15% respectively.
(b) Machinery and Furniture are to be depreciated by 10%  and 7% respectively.
(c) Provision for Doubtful Debts is to be increased to ₹ 1,500.
(d) Goodwill of the firm is valued at ₹ 21,000 on Z's retirement.
(e) The continuing partners have decided to adjust their capitals in their new profit-sharing ratio after retirement of Z . Surplus/deficit, if any, in their Capital Accounts will be adjusted through Current Accounts.
Prepare necessary Ledger Accounts and draw the Balance Sheet of the reconstituted firm.

Answer:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Machinery (30,000 × 10%)

3,000

Freehold Premises (40,000 × 20%)

8,000

Furniture (12,000 × 7%)

840

Stock (22,000 × 15%)

3,300

Provision for Doubtful Debts (1,500 – 1,000)

500

 

 

Profit transferred to:

 

 

 

X’s Capital A/c

3,480

 

 

 

Y’s Capital A/c

1,160

 

 

 

Z’s Capital A/c

2,320

6,960

 

 

 

11,300

 

11,300

 

 

 

 

 

Partner’s Capital Accounts

Dr.

 

Cr.

Particulars

X

Y

Z

Particulars

X

Y

Z

Z’s Capital A/c

5,250

1,750

 

Balance b/d

30,000

20,000

28,000

 

 

 

 

General Reserve

6,000

2,000

4,000

Z’s Loan A/c

 

 

41,320

X’s Capital A/c (Goodwill)

 

 

5,250

 

 

 

 

Y’s Capital A/c (Goodwill)

 

 

1,750

Balance c/d

34,230

21,410

 

Revaluation A/c (Profit)

3,480

1,160

2,320

 

39,480

23,160

41,320

 

39,480

23,160

41,320

Y’s Current A/c

 

7,500

 

Balance b/d

34,230

21,410

 

Balance c/d (WN 3)

41,730

13,910

 

X’s Current A/c

7,500

 

 

 

41,730

21,410

 

 

41,730

21,410

 

 

 

 

 

 

 

 

 

 

Balance Sheet
as on 1st April, 2018

Liabilities

Amount

Rs

Assets

Amount

Rs

Bills Payable

12,000

Freehold Premises (40,000 + 8,000)

48,000

Sundry Creditors

28,000

Machinery (30,000 – 3,000)

27,000

Z’s Loan

41,320

Furniture (12,000 – 840)

11,160

Capital A/cs:

 

Stock (22,000 + 3,300)

25,300

X

41,730

 

Sundry Debtors

20,000

 

Y

13,910

55,640

Less: Provision for Doubtful Debts

 

(1,500)

 

18,500

Y’s Current A/c

7,500

Cash

7,000

 

 

X’s Current A/c

7,500

 

1,44,460

 

1,44,460

 

 

 

 


Working Notes

WN 1 Calculation of Profit Sharing Ratio

Old Ratio (X, Y and Z) = 3 : 1 : 2

Z retires from the firm.

∴ New Ratio (X and Y) = 3 : 1 and

Gaining Ratio = 3 : 1

WN 2 Adjustment of Goodwill

Goodwill of the firm = Rs 21,000

Z’s Share of Goodwill =

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



WN 3 Adjustment of Partners’ Capital after Z’s Retirement

Combined Capital of X and Y after all adjustments = 34,230 + 21,410 = Rs. 55,640

New Ratio = 3 : 1



Page No 5.93:

Question 50:

X, Y and Z are partners sharing profits in the ratio of 5 : 3 : 7. X retired from the firm. Y and Z decided to share future profits in the ratio of 2 : 3. The adjusted Capital Accounts of Y and Z showed balance of ₹ 49,500 and ₹ 1,05,750 respectively. The total amount to be paid to X is ₹ 1,35,750. This amount is to be paid by Y and Z in a manner that their capitals become proportionate to their new profit-sharing ratio. Calculate the amount to be brought in or to be paid to partners. 

Answer:

New Capital = 49,500 + 1,05,750 + 1,35,750 = Rs 2,91,000

Y's New Capital=2,91,000×25=1,16,400Z's New Capital=2,91,000×35=1,74,600

Y brings in Rs 66,900 (1,16,400 – 49,500)

Z brings in Rs Rs 68,850 (1,74,600 – 1,05,750)

Page No 5.93:

Question 51:

The Balance Sheet of X , Y and Z who shared profits in the ratio of 5 : 3 : 2 , as on 31st March, 2018  was as follows:

 

 

 

Liabilities

Assets

Sundry Creditors 39,750  Bank( Minimum Balance) 15,000
Employees Provident Fund 5,250  Debtors 97,500
Workmen Compensation Reserve 22,500 Stock 82,500
Capital A/cs:   Fixed Assets 1,87,500
1,65,000      

       Y

84,000

 

 

 

       Z

66,000

3,15,000

 

 

 

3,82,500

 

3,82,500

 

 

 

 

    
Y retired on the above date and it was agreed that:
(i) Goodwill of the firm is valued at ₹ 1,12,500 and Y's share of it be adjusted into the accounts of and Z who are going to share future profits  in the ratio of 3 : 2.
(ii) Fixed Assets be appreciated by 20% .
(iii) Stock be reduced to ₹ 75,000.
(iv) Y be paid amount brought in by X and Z in such a way as to make  their capitals  proportionate to their new profit-sharing ratio.
Prepare Revaluation Account , Capital Accounts of all partners and the Balance Sheet of the New Firm.

Answer:

Revaluation Account

Dr.  

Cr.

Particulars

Amount

()

Particulars

Amount

()

Stock

7,500

Fixed Assets

37,500

Revaluation Profit    

 

X’s Capital A/c

15,000

 

   
Y’s Capital A/c

9,000

 

   
Z’s Capital A/c

6,000

30,000

   
 

 

   
 

37,500

 

37,500

       
 

Partners’ Capital Accounts

Dr. Cr.

Particulars

X

Y

Z

Particulars

X

Y

Z

Y’s Capital A/c

11,250

 

22,500

Balance b/d

1,65,000

84,000

66,000

Bank

 

1,33,500

  General Reserve

11,250

6,750

4500

Balance c/d

2,20,500

 

1,47,000

Revaluation (Profit)

15,000

9,000

6,000

 

 

 

 

X’s Capital A/c

 

11,250

 

 

 

 

 

Z’s Capital A/c

 

22,500

 

 

 

 

 

Bank A/c

40,500

 

93,000

 

2,31,750

1,33,500

1,69,500

 

2,31,750

1,33,500

1,69,500

 

 

 

 

 

 

 

 

 
Balance Sheet
as on March 31, 2018
Liabilities
Amount
()
Assets
Amount
()
Sundry Creditors
39,750
Bank
15,000
Employees Provident Fund
5,250
Debtors
97,500
Capitals:   Stock
75,000
 X
2,20,500
  Fixed Assets
2,25,000
 Z
1,47,000
72,000
   
 
4,12,500
 
4,12,500
       

Working Notes:
New Capital = 1,80,000 + 54,000 + 1,33,500 = Rs 3,67,500

X's New Capital=3,67,500×35=2,20,500Z's New Capital=3,67,500×25=1,47,500

X brings in Rs 40,500 (2,20,500 – 1,80,000)

Z brings in Rs Rs93,000 (1,47,500 – 54,000)

Page No 5.93:

Question 52:

X, Y and Z are partners sharing profits in the ratio of 5 : 3 : 2 . Y retires on 1st April , 2018 from the firm , on which date capitals of X, Y and Z after all adjustments are ₹ 1,03,680 , ₹ 87,840 and ₹ 26,880 respectively. The Cash and Bank Balance on that date was ₹ 9,600. Y is to be paid through amount brought in by and Z in such a way as to make their capitals proportionate to their new profit-sharing ratio which will be X 3/5 and Z 2/5. Calculate the amount to be paid or to be brought in by the continuing partners assuming that a minimum Cash and Bank Balance of ₹ 7,200 was to be maintained and pass the necessary journal entries .

Answer:

Total capital of firm before retirement = 1,03,680+87,840+26,880= Rs 2,18,400Availability of cash = 9,600 - 7,200 (Minimum Balance) = Rs 2,400Combined new capital of X and Z=Rs 2,16,000X's new capital = 2,16,000×35=Rs 1,29,600Existing capital of X= Rs 1,03,680So, X has to bring = 1,29,6001,03,680= Rs 25,920Z's new capital = 2,16,000×25=Rs 86,400 Existing capital of Z = Rs 26,880So, Z has to bring = 86,40026,880=Rs 59,520  

Page No 5.93:

Question 53:

A, B and C are partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1 .Their Balance Sheet as at 31st March, 2018  is:
 

Liabilities

Amount

(₹)

Assets

Amount

(₹)

Creditors

30,000

Cash in Hand 18,000
Bills Payable

16,000

 Debtors

25,000

 

General Reserve

12,000

  Less: Provision for D. Debts

3,000

22,000

Capital A/cs:   Stock   18,000
 A

40,000

 

Furniture 30,000
 B 40,000   Machinery 70,000
 C

30,000

1,10,000

Goodwill

10,000

 

 

 

 

 

 

1,68,000

 

1,68,000

 

 

 

 

 
 Z is admitted as a new partner on 1st April, 2018 on the following terms:
(a) Provision for doubtful debts is to be maintained  at 5% on Debtors.
(b) Outstanding rent amounted to ₹  15,000.
(c) An accrued income of ₹  4,500 does not appear in the books of the firm . It is now to be recorded.
(d)  X takes over the Investments  at an agreed  value of ₹  18,000.
(e) New Profit-sharing Ratio of partners will be 4 : 3 : 2 .
(f)  Z will bring in ₹  60,000 as his capital by cheque.
(g)  Z is to pay an amount equal to his share in firm's goodwill valued at twice the average profits of the last three years which were ₹  90,000 ; ₹  78,000 and ₹  75,000 respectively.
(h) Half of the amount of the goodwill is to be withdrawn by X and Y .  
You are required to pass journal entries , prepare Revaluation Account , Partners'  Capital and Current  Accounts  and the Balance Sheet of the new firm.

  B retires on 1st April, 2018  on the following terms :
(a) Provision for Doubtful Debts be raised by ₹ 1,000.
(b) Stock to be depreciated by 10% and Furniture by 5% .
(c)  Their is an outstanding claim of damages of ₹ 1,100 and it is to be provided for.
(d) Creditors will be written back by ₹ 6,000.
(e) Goodwill of the firm is valued at ₹ 22,000.
(f)   Bis paid in full with the cash brought in by A and C in such a manner that their capitals are in proportion to their profit-sharing ratio and Cash in Hand remains at ₹ 10,000.
Prepare Revaluation Account , Partners' Capital Accounts and the Balance Sheet of A and C .

 

Answer:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Provision for Doubtful Debts

1,000

Creditors

6,000

Stock (18,000 × 10%)

1,800

 

 

Furniture (30,000 × 5%)

1,500

 

 

Outstanding Claim for Damages

1,100

 

 

Profit transferred to:

 

 

 

A’s Capital A/c

300

 

 

 

B’s Capital A/c

200

 

 

 

C’s Capital A/c

100

600

 

 

 

6,000

 

6,000

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

A

B

C

Particulars

A

B

C

B’s Capital A/c (Goodwill)

5,500

 

1,833

Balance b/d

40,000

40,000

30,000

Goodwill A/c

5,000

3,333

1,667

Revaluation A/c

300

200

100

Cash A/c

 

48,200

 

A’s Capital A/c (Goodwill)

 

5,500

 

Balance c/d

35,800

 

28,600

C’s Capital A/c (Goodwill)

 

1,833

 

 

 

 

 

General Reserve

6,000

4,000

2,000

 

46,300

51,533

32,100

 

46,300

51,533

32,100

 

 

 

 

 

 

 

 

Cash A/c

 

 

2,450

Balance b/d

35,800

 

28,600

Balance c/d (WN 3)

78,450

 

26,150

Cash A/c

42,650

 

 

 

78,450

 

28,600

 

78,450

 

28,600

 

 

 

 

 

 

 

 

 

Cash Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Balance b/d

18,000

B’s Capital A/c

48,200

A’s Capital A/c

42,650

C’s Capital A/c

2,450

 

 

Balance c/d

10,000

 

60,650

 

60,650

 

 

 

 

 

Balance Sheet

as on April 01,2018 (after B’s Retirement)

Liabilities

Amount

Rs

Assets

Amount

Rs

Creditors

24,000

Cash in Hand

10,000

Bills Payable

16,000

Debtors

25,000

 

Outstanding Claim for Damages

1,100

Less: Provision for Doubtful Debts

 

(4,000)

21,000

Capital A/cs:

 

Stock

16,200

A

78,450

 

Furniture

28,500

C

26,150

1,04,600

Machinery

70,000

 

1,45,700

 

1,45,700

 

 

 

 


Working Notes

WN 1 Calculation of Profit Sharing Ratio

Old Ratio (A, B and C) = 3 : 2 : 1

B retires from the firm.

∴ New Ratio (A and C) = 3 : 1 and

Gaining Ratio = 3 : 1

WN 2 Adjustment of Goodwill

Goodwill of the firm = Rs 22,000

B’s Share of Goodwill =

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



WN 3 Adjustment of Partners’ Capital after B’s Retirement

Amount to be brought in by A and C = Cash to be paid to B + Minimum Balance of Cash − Existing Balance of Cash

                                                           = 48,200 + 10,000 − 18,000 = Rs 40,200

Combined Capital of A and C after of all adjustments = 35,800 + 28,600 = Rs 64,400

∴ Total Capital of the Firm = Amount to be brought in by A and C + Combined Capital of A and C

                                           = 40,200 + 64,400 = 1,04,600



Page No 5.94:

Question 54:

Following is the Balance Sheet of Kusum, Sneh and Usha as on 31st March, 2018, who have agreed to share profits and losses in proportion of their capitals :

 
 
Liabilities
Assets
Capital A/cs
 
Land and Building
 4,00,000
Kusum
4,00,000   Machinery 6,00,000
Sneh
6,00,000   Closing Stock 2,00,000
Usha
4,00,000 14,00,000 Sundry Debtors  
Employees' Provident Fund 70,000      Less: Provision for Doubtful Debts 2,20,000  
Workmen Compensation Reserve            
30,000
Cash at Bank
21,429
2,00,000 
Sundry Creditors 1,00,000      2,00,000
         
 
16,00,000
 
 16,00,000
 
 
 
 


On 31st March, 2018, Kusum retired from the firm and the remaining partners decided to carry on the business . It was agreed to revalue the assets and reassess the liabilities on that date , on the following basis:
(a) Land and Building be appreciated by 30%.
(b) Machinery be depreciated by 30%.
(c) There were Bad Debts of ₹ 35,000.
(d) The claim against Workmen Compensation Reserve was estimated at ₹ 15,000.
(e) Goodwill of the firm was valued  at ₹ 2,80,000 and Kusum's share of goodwill  was adjusted against the Capital Accounts of the continuing partners Sneh and Usha who have decided to share  future profits in the ratio of 3 : 4 respectively.
(f) Capital of the new firm in total will be the same as before the retirement of Kusum  and will be in the new profit-sharing ratio of the continuing partners .
(g) Amount due to Kusum be settled by paying ₹ 1,00,000 in cash and balance by transferring to her Loan Account which will be paid later on.
Prepare Revaluation Account , Capital Accounts of Partners and Balance Sheet of the new firm after Kusum's retirement.

Answer:

Revaluation Account
Dr.
Cr.
Particulars
Amount
Rs
Particulars
Amount
Rs
Machinery A/c
1,80,000
Land and Building A/c
1,20,000
Bad Debts A/c (35,000 – 20,000)
15,000
Loss on Revaluation transferred to:
 
 
 
Kusum
21,429
 
 
 
Sneh
32,142
 
 
 
Usha
21,429
75,000
 
1,95,000
 
1,95,000
 
 
 
 

 


Partners’ Capital Account
Dr.
Cr.
Particulars
Kusum
Sneh
Usha
Particulars
Kusum
Sneh
Usha
Revaluation A/c (Loss)
21,429
32,142
21,429
Balance b/d
4,00,000
6,00,000
4,00,000
Usha’s Capital A/c
80,000
Workmen Compensation Fund
4,286
6,428
4,286
Bank A/c
1,00,000
Usha’s Capital A/c
80,000
Kusum’s Loan A/c
3,62,857
 
 
 
 
Balance c/d
5,74,286
3,02,857
 
 
 
 
 
4,84,286
6,06,428
4,04,286
 
4,84,286
6,06,428
4,04,286
Balance c/d
6,00,000
8,00,000
Balance b/d
5,74,286
3,02,857
 
 
 
 
Bank A/c (WN3)
25,714
4,97,143
 
6,00,000
8,00,000
 
6,00,000
8,00,000
 
 
 
 
 
 
 
 

 

Balance Sheet

as at March 31, 2018

Liabilities

Amount

Rs

Assets

Amount

Rs

Creditors

1,00,000

Land & Building

5,20,000

Employee’s Provident Fund

70,000

Machinery (6,00,000 – 1,80,000)

4,20,000

Workmen’s Compensation Claim

15,000

Stock

2,00,000

Kusum’s Loan

3,62,857

Sundry Debtors (2,20,000 – 35,000)

1,85,000

Capital A/c :

 

Bank

6,22,857

Sneh

6,00,000

 

 

 

Usha

8,00,000

14,00,000

 

 

 

19,47,857

 

19,47,857

 

 

 

 

 

Working Notes
 
WN 1 Calculation of Gaining Ratio 

Old Ratio (Kusum, Sneh and Usha) = 2:3:2

New Ratio (Sneh and Usha) = 3:4

Gaining Ratio = New Ratio – Old Ratio


WN2 Adjustment of Goodwill

Total Goodwill of the Firm = 2,80,000


It is to be adjusted by the Gaining partners i.e. only by Usha
 
WN3 Adjustment of Capital



 

Particulars

Sneh

Usha

New Capital Balance
6,00,000
8,00,000
Adjusted Old Capital Balance
5,74,286
3,02,857
Cash brought in by the Partner
25,714
4,97,143
 
 
 

 

WN4

Cash at Bank A/c

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Balance b/d

2,00,000

Kusum’s Capital A/c

1,00,000

Sneh’s Capital A/c

25,714

Balance c/d

6,22,857

Usha’s Capital A/c

4,97,143

 

 

 

7,22,857

 

7,22,857

 

 

 

 

 



Page No 5.95:

Question 55:

The Balance Sheet of X, Y and Z who were sharing profits in the ratio of 5 : 3 : 2 as at 31st March, 2018 is as follows:

 

 

 

Liabilities

Assets

 Creditors 50,000 Cash at Bank 40,000
Employees Provident Fund 10,000 Sundry Debtors 1,00,000
Profit and Loss A/c 85,000 Stock 80,000
Capital A/cs:   Fixed Assets 60,000
40,000      

        Y

62,000

 

 

 

        Z

33,000

1,35,000

 

 

 

2,80,000

 

2,80,000

 

 

 

 

    
X retired on 31st March, 2018 and Y and Z decided to share profits in future in the ratio of 3 : 2 respectively.
The other terms on retirement were:
(a) Goodwill of the firm is to be valued at ₹ 80,000.
(b) Fixed Assets are to be depreciated to ₹ 57,500.
(c) Make a Provision for Doubtful Debts at 5% on Debtors.
(d) A liability for claim , included in Creditors for ₹ 10,000 , is settled at ₹ 8,000.
The amount to be paid to X by Y and Z in such a way that their Capitals are proportionate to their profit-sharing ratio and leave a balance of ₹ 15,000 in the Bank Account.
Prepare Profit and Loss Adjustment Account and Partners' Capital Accounts.

Answer:

Revaluation Account
Dr.
Cr.
Particulars
Amount
Rs
Particulars
Amount
Rs
Fixed Assets A/c (60,000 – 57,500)
2,500
Creditors (10,000 – 8,000)
2,000
Provision for Doubtful Debts
5,000
Loss on Revaluation transferred to:
 
 
 
X
2,750
 
 
 
Y
1,650
 
 
 
Z
1,100
5,500
 
7,500
 
7,500
 
 
 
 

 

Partners’ Capital Accounts

Dr.

Cr.

Particulars

X

Y

Z

Particulars

X

Y

Z

Revaluation A/c (Loss)

2,750

1,650

1,100

Balance b/d

40,000

62,000

33,000

X’s Capital A/c

24,000

16,000

Profit & Loss A/c

42,500

25,500

17,000

Balance c/d

1,19,750

61,850

32,900

Y’s Capital A/c

24,000

 

 

 

 

Z’s Capital A/c

16,000

 

1,22,500

87,500

50,000

 

1,22,500

87,500

50,000

Bank A/c

1,19,750

Balance b/d

1,19,750

61,850

32,900

Balance c/d

1,18,500

79,000

Bank A/c

56,650

46,100

 

1,19,750

1,18,500

79,000

 

1,19,750

1,18,500

79,000

 

 

 

 

 

 

 

 

 
Working Notes
 
WN 1 Calculation of Gaining Ratio 

Old Ratio (X, Y and Z) = 5:3:2

New Ratio (Y and Z) = 3:2

Gaining Ratio = New Ratio – Old Ratio


Hence, gaining ratio is 3 : 2.
 
WN2 Adjustment of Goodwill

Total Goodwill of the Firm = 80,000


To be borne by Gaining partners in their Gaining Ratio i.e. 3:2








WN3 Adjustment of Capital

X’s Capital before adjustment = 1,19,750

Y’s Capital before adjustment = 61,850

Z’s Capital before adjustment = 32,900

Total Capital of New Firm=X's Capital+Y's Capital+Z's Capital+Closing balance of Bank Account-Available Bank Balance=1,19,750+61,850+32,900+15,000-32,000=Rs 1,97,500


 

Particulars

Y

Z

 New Capital Balance

1,18,500

79,000

 Adjusted Old Capital Balance

61,850

32,900

Cash brought in by the Partner

56,650

46,100

 

 

 


WN4
 

Cash at Bank A/c

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Balance b/d

40,000

Creditors

8,000

Y’s Capital A/c

56,650

X’s Capital A/c

1,19,750

Z’s Capital A/c

46,100

Balance c/d

15,000

 

1,42,750

 

1,42,750

 

 

 

 

Page No 5.95:

Question 56:

A, B and C are partners sharing profits in the ratio of 5 : 3 : 2. Their Balance Sheet as on 31st March, 2018 is given below:

 
Liabilities Assets
Capital A/cs:   Building 18,00,000
A 11,00,000   Investments 4,00,000
B 11,40,000   Stock 6,00,000
C 7,60,000 30,00,000 Debtors 10,00,000
Workmen Compensation Reserve 10,00,000 Cash and Bank 6,00,000
Creditors 2,00,000    
  Employees' Provident Fund 2,00,000    
  44,00,000   44,00,000
       

C retires on 30th June, 2018 and it was mutually agreed that:
(a) Building be valued at ₹ 22,00,000.
(b) Investments to be valued at ₹ 3,00,000.
(c) Stock be taken at ₹ 8,00,000.
(d) Goodwill of the firm be valued at two years' purchase of the average profit of the past five years.
(e) C's share of profits up to the date of retirement be calculated on the basis of average profit of the preceding three years.
The profits of the preceding five years were as under:
Year 2013-14 2014-15 2015-16 2016-17 2017-18
Profits (₹) 4,00,000 5,00,000 6,00,000 8,00,000 7,00,000
(f) Amount payable to C to be transferred to his Loan Account carrying interest @ 10% p.a.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet as at 30th June, 2018.

Answer:

 

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Investments

1,00,000

Building

4,00,000

Profit transferred to

 

Stock

2,00,000

A’s Capital A/c

2,50,000

 

 

 

B’s Capital A/c

1,50,000

 

 

 

C’s Capital A/c

1,00,000

5,00,000

 

 

 

 

 

 

 

6,00,000

 

6,00,000

 

 

 

 

             

 

 

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

A

B

C

Particulars

A

B

C

C’s Capital A/c

1,50,000

90,000

 

Balance b/d

11,00,000

11,40,000

7,60,000

C’s Loan A/c

 

 

13,35,000

Revaluation A/c

2,50,000

1,50,000

1,00,000

Balance c/d

17,00,000

15,00,000

 

A’s Capital A/c

 

 

1,50,000

 

 

 

 

B’s Capital A/c

 

 

90,000

 

 

 

 

Workmen Compensation Reserve A/c*

5,00,000

3,00,000

2,00,000

 

 

 

 

P & L Suspense A/c

 

 

35,000

 

 

 

 

 

 

 

 

 

18,50,000

15,90,000

13,35,000

 

18,50,000

15,90,000

13,35,000

 

 

 

 

 

 

 

 

                   

 

 

Balance Sheet

as at June 30, 2018 after C’s retirement

Liabilities

Amount

Rs

Assets

Amount

Rs

Creditors

2,00,000

Building

22,00,000

Employees’ Provident Fund

2,00,000

Investments

3,00,000

C’s Loan A/c

13,35,000

Stock

8,00,000

Capital Accounts:

 

 

Debtors

10,00,000

A

17,00,000

 

Cash and Bank

6,00,000

B

15,00,000

32,00,000

P&L Suspense Account

35,000

 

 

 

 

 

49,35,000

 

49,35,000

 

 

 

 


Working Notes:1. Calculation of GoodwillAverage Profit=4,00,000+5,00,000+6,00,000+8,00,000+7,00,0005=6,00,000Goodwill=2 years' purchase of average profit               =2×6,00,000=12,00,000C's share of Goodwill=12,00,000×210=2,40,000This amount would be adjusted through A and B's Capital Accounts in their gaining ratio, 5:3.2. Calculation of C's share of Profit(a) Average profit (last 3 years)=6,00,000+8,00,000+7,00,0003=21,00,0003=Rs 7,00,000(b) Profit (from April 01, 2017 to 30th June, 2017)=7,00,000×312=1,75,000(c) C's Share in Profits=Rs 1,75,000×210=35,000



Page No 5.96:

Question 57:

Kumar, Verma and Naresh were partners in a firm sharing Profit and Loss in the ratio of 3 : 2 : 2. On 23rd January, 2015 Verma died. Verma's share of profit till the date of his death was calculated at ₹ 2,350. Pass necessary Journal entry for the same in the books of the firm.

Answer:

The Journal entry for transferring Verma’s share of profit to his capital account is given below

Journal

Date

Particulars

L.F.

Debit

Amount

(Rs)

Credit

Amount

(Rs)

 

 

 

 

 

 

Profit and Loss Suspense A/c

Dr.

 

2,350

 

 

To Verma’ Capital A/c

 

 

2,350

 

(Verma’s share of profit dispensed through his Capital Account)

 

 

 

 

 

 

 

 

 

Page No 5.96:

Question 58:

A, B and C were partners sharing profits and losses in the ratio of 2 : 2 : 1. C died on 30th June, 2018. Profit and Sales for the year ended 31st March, 2018 were ₹ 1,00,000 and ₹ 10,00,000 respectively. Sales during April to June, 2018 were ₹ 1,50,000. You are required to calculate share of profit of C up to the date of his death.

Answer:

Profit for the year 2017-18 = Rs 1,00,000

Sales for the year 2017-18 = Rs 10,00,000

Ratio of Profit to Sales in 2017-18=1,00,00010,00,000×100=10%

Sales from April 01 2018 to June 30, 2018 = Rs 1,50,000

∴Profit from April 01, 2018 to June 30, 2018 on the basis of Profit Ratio of 2017-18

∴C’s Profit Share (from April 01, 2018 to June 30, 2018)

Page No 5.96:

Question 59:

A, B and C are partners sharing profits and losses in the ratio of 3 : 2 : 1. B died on 30th June, 2018. For the year ended 31st March, 2019, proportionate profit of 2018 is to be taken into consideration. During the year ended 31st March, 2018, bad debts of ₹ 2,000 had to be adjusted. Profit for the year ended 31st March, 2018 was ₹ 14,000 before adjustment of bad debts. Calculate B's share of profit till the date of his death.

Answer:

Profit for the year 2017-18 before adjusting bad debts = Rs 14,000

Bad debts = Rs 2,000

Profits after adjusting bad debts =14,000 – 2,000= Rs.12,000

Proportionate profit of the firm (from April 01, 2018 to June 30, 2018)=


B’s share of profit (from April 01, 2018 to June 30, 2018)=

Page No 5.96:

Question 60:

Ram, Manohar and Joshi were partners in a firm. Joshi died on 31st May, 2018. His share of profit from the closure of the last accounting year till the date of death was to be calculated on the basis of the average of three completed financial years of profits before death. Profits for the years ended 31st March, 2016, 2017 and 2018 were ₹ 7,000; ₹ 8,000 and ₹ 9,000 respectively. Calculate Joshi's share of profit till the date of his death and pass necessary Journal entry for the same.

Answer:





Joshi’s Profit Share (from April 01, 2018 to May 31, 2018)
 

Journal

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

Profit and Loss Suspense A/c

Dr.

 

444

 

To Joshi’s Capital A/c

 

 

444

(Joshi’s profit share credited to his capital account)

 

 

 

Page No 5.96:

Question 61:

XY and Z were partners sharing profits and losses in the ratio of 3 : 2 : 1. Y died on 30th June, 2018. Profit from 1st April, 2018 to 30th June, 2018 was ₹ 3,60,000. X and Z decided to share the future profits in the ratio of 3 : 2 respectively with effect  from 1st July, 2018. Pass the necessary Journal entries to record Y's share of profit up to the date of death. 

Answer:

Journal
S.No.
Particulars
L.F.
Debit Amount ()
Credit Amount ()
   X’s Capital A/c Dr.  
36,000
 
   Z’s Capital A/c Dr.  
84,000
 
     To Y’s Capital A/c      
1,20,000
   (Proportionate profit dispensed to deceased partner)        

Working Notes:
WN1: Calculation of Y’s Share of Profit

Y's share=Firm's Profit×Y's Profit ShareY's share=3,60,000×26=1,20,000 to be borne by gaining partners in gaining ratio


WN2: Calculation of Gaining Ratio

Gaining Ratio = New Ratio − Old Ratio

X's gain=3536=330Z's gain=2516=730Gaining Ratio=3:7X's share=1,20,000×310=36,000Z's share=1,20,000×710=84,000

Page No 5.96:

Question 62:

X, Y and Z were partners in a firm. Z died on 31st May, 2018. His share of profit from the closure of the last accounting year till the date of death was to be calculated on the basis of the average of three completed ₹ 19,000 and ₹ 17,000 respectively.
Calculate Z's share of profit till his death and pass necessary Journal entry for the same when:
(a) there is no change in profit-sharing ratio of remaining partners, and 
(b) there is change in profit-sharing ratio of remaining partners, new ratio being 3 : 2.

Answer:

Journal

S.No.
Particulars
L.F.
Debit Amount ()
Credit Amount ()
(a)
Profit & Loss Suspense A/c Dr.  
1,000
 
 
To Z’s Capital A/c    
 
1,000
 
(Proportionate profit dispensed to deceased partner)    
 
 
 
     
 
 
(b)
X’s Capital A/c Dr.  
800
 
  Y’s Capital A/c Dr.  
200
 
  To Z’s Capital A/c      
1,000
  (Proportionate profit dispensed to deceased partner)        

Working Notes:

WN1: Calculation of Z’s Share of Profit

Z's share=Firm's Average Profit×Z's Profit Share×Period for which Z remained in the businessAverage Profits=Total ProfitsNumber of Years=18,000+19,000+17,0003=54,0003=Rs 18,000Z's share=18,000×13×212=1,000 to be borne by gaining partners in gaining ratio in case b

WN2: Calculation of Gaining Ratio

Gaining Ratio = New Ratio − Old Ratio

X's gain=3513=415Y's gain=2513=115Gaining Ratio=4:1X's share=18,000×45=800Y's share=18,000×15=200

Page No 5.96:

Question 63:

P, R and S are in partnership sharing profits 4/8, 3/8 and 1/8 respectively. It is provided in the Partnership Deed that on the death of any partner his share of goodwill is to be valued at one-half of the net profit credited to his account during the last four completed years.
R died on 1st January, 2018. The firm's profits for the last four years ended 31st December, were as: 
2014 − ₹ 1,20,000; 2015 − ₹ 80,000; 2016 − ₹ 40,000; 2017 − ₹ 80,000.
(a) Determine the amount that should be credited to R in respect of his share of Goodwill.
(b) Pass Journal entry without raising Goodwill Account for its adjustment.

Answer:

(a) Calculation of R’s Share of Goodwill

Profit credited to R’s Capital Account in 4 years = Net profit for last four years × R’s Share





(b)

Journal
Particulars
L.F.
Debit
Amount
Rs
Credit
Amount
Rs
P’s Capital A/c
Dr.
 
48,000
 
S’s Capital A/c
Dr.
 
12,000
 
To R’s Capital A/c
 
 
60,000
(R’s share of goodwill adjusted)
 
 
 

Working Notes:

R’s Share of Goodwill = Rs 60,000

Old Ratio (P, R and S) = 4 : 3 : 1

R died.

∴ Gaining Ratio = 4 : 1

This share of goodwill is to be distributed between P and S in their gaining ratio (i.e. 4 : 1)



Page No 5.97:

Question 64:

X, Y and Z were partners in a firm sharing profit in 3 : 2 : 1. The firm closes its books on 31st March every year. Y died on 30th June, 2018. On Y's death goodwill of the firm was valued at ₹ 60,000. Y's share in the profit of the firm till the date of his death was to be calculated on the basis of previous year's profit which was ₹ 1,50,000.
Pass necessary Journal entries for goodwill and Y's share of profit at the time of his death.

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

(Rs)

Credit

Amount

(Rs)

2018

 

 

 

 

June 30

X’s Capital A/c

Dr.

 

15,000

 

 

Z’s Capital A/c

Dr.

 

5,000

 

 

    To Y’s Capital A/c

 

 

 

20,000

 

(Y’s share of goodwill adjusted through X and Y’s Capital Account in gaining ratio, i.e. 3 : 1)

 

 

 

 

 

 

 

 

 

 

June 30

Profit and Loss Suspense A/c

Dr.

 

12,500

 

 

   To Y’s Capital A/c

 

 

 

12,500

 

(Y’s profit share till his death debited to P&L Suspense A/c)

 

 

 

 

 

 

 

 

 

Working Notes:
WN 1: Calculation of Y's Share of Goodwill
Goodwill of the Firm= Rs 60,000Y's Share of Goodwill = 60,000 × 26 = Rs 20,00020,000 will be debited to X's & Z's Capital A/c in gaining ratio of 3 : 1X will pay = 20,000 × 34 = Rs 15,000Z will pay = 20,000 × 14 = Rs 5,000 

WN 2: Calculation of Y's Share of Profit
Previous Year's Profit = Rs 1,50,000Y's share of Profit (till death) = Previous Year's Profit × Y's Profit Share × 3 months (April 01, 2017 till June 30, 2017)Y's share of Profit (till death) = 1,50,000 × 26 × 312= Rs 12,500

Page No 5.97:

Question 65:

X, Y and Z were partners in a firm sharing profits in the ratio of 4 : 3 : 1 . The firm closes its books on 31st March every year . On 1st February, 2018 , Y died and it was decided that the new profit-sharing ratio between X and Z will be equal. Partnership Deed provided for the following on the death of a partner :
(a) His share of goodwill be calculated on the basis of half of the profits credited to his account during the previous four completed years . The firm's profits for the last four years  were:
 

Year 2013-14 2014-15 2015-16 2016-17
Profit(₹)  1,50,000 1,00,000 50,000 1,00,000

(b) His share of profit in the year of his death was to be computed on the basis of average profit of past  two years .
Pass necessary journal entries realting to goodwill and profit to be transferred  to Y's Capital Account.
 

Answer:

Journal

Date
2018

Particulars

L.F.

Debit

Amount

(Rs)

Credit

Amount

(Rs)

 

 

 

 

 

 

Feb 1

Z’s Capital A/c

Dr.

 

75,000

 

 

        To Y’s Capital A/c

 

 

 

75,000

 

(Adjustment of Y’s share of Goodwill )

 

 

 

 

 

    

 

 

 

 

Feb 1

Z’s Capital A/c

Dr.

 

23,438

 

 

        To Y’s Capital A/c

 

 

 

23,438

 

(Adjustment of Y’s share of Profit)

 

 

 

 

 

 

 

 

 

 

Working Notes:

WN1: Calculation of Gaining Ratio

X :Y :Z=4:3:1(Old ratio)X :Z=1:1(New ratio)Gaining Ratio = New Ratio - Old RatioX's Gain=1248=448=0Z's Gain=1218=418=38X:Z=0:3


WN2: Calculation of Retiring Partner’s Share of Goodwill
Y's share of goodwill=4,00,000×38×12=Rs 75,000Y's share of goodwill will be brought by Z only.


WN3: Calculation of Retiring Partner’s Share of Profit

Y's share of profit=75,000×38×1012=Rs 23,438Average profit for last two years=Rs 75,000


 

Page No 5.97:

Question 66:

X and Y are partners . The Partnership Deed provides inter alia:
(a) That the Accounts be balanced  on 31st March every year.
(b) That the profits be divided as : X one-half, Y one-third and carried to a Reserve one-sixth.
(c) That in the event of the death of a partner , his Executors be entitled to be paid out:
(i) The Capital to his credit till the date of death .
(ii) His proportion of profits till the date of death  based on the average profits of the last three completed years.
(iii) By way of Goodwill , his proportion of the total profits for the three preceding years .
(d)

 

Liabilities

Assets

Capital A/cs:

 

Sundry Assets

21,000

X

9,000

 

 

 

     Y      6,000  15,000      

 

   

 

 

 

Reserve   3,000      

Creditors

3,000

 

 

       
       

 

 

 

 

 

21,000

 

21,000

 

 

 

 

 
 ​The Profits for three years were : 2015-16₹ 4,200; 2016-17₹  3,900; 2017-18₹  4,500. Y died on 1st August, 2018. Prepare necessary accounts.

Answer:

Y’s Capital Account
Dr.
 
Cr.
Particulars
Amount
Rs
Particulars
Amount
Rs
 
 
Balance b/d
6,000
 
 
X’s Capital A/c (Reserve)
1,200
Y’s Executor’s A/c
12,800
X’s Capital A/c (Goodwill)
5,040
 
 
X’s Capital A/c (Profit)
560
 
12,800
 
12,800
 
 
 
 

Working Notes:

WN 1

Old Ratio (X and Y) =

WN 2



WN 3 Calculation Y’s Share of Profit 



Y’s Share of Profit (from April 01,2018 to August 01, 2018 )

WN 4 Calculation of Y’s Share of Goodwill 

Y’s share of Goodwill = Y’s Profit Share in last three year

Profit for last three years = 4,200 + 3,900 + 4,500 = Rs 12,600



Page No 5.98:

Question 67:

P, Q and R were partners in a firm sharing profits in 2 : 2 : 1 ratio. The Partnership Deed provided that on the death of a partner his executors will be entitled to the following:
(a) Interest on Capital @ 12% p.a.
(b) Interest on Drawings @ 18% p.a.
(c) Salary of ₹ 12,000 p.a.
(d) Share in the profit of the firm (up to the date of death) on the basis of previous year's profit.
P died on 31st May, 2018. His capital was ₹ 80,000. He had withdrawn ₹ 15,000 and interest on his drawings was calculated as ₹ 1,200. Profit of the firm for the previous year ended 31st March, 2018 was ₹ 30,000.
Prepare P's Capital Account to be rendered to his executors.

Answer:

P’s Capital Account
Dr.
 
Cr.
Particulars
Amount
Rs
Particulars
Amount
Rs
Drawings A/c
15,000
Balance b/d
80,000
Interest on Drawings A/c
1,200
Interest on Capital A/c
1,600
P’s Executor’s A/c
69,400
Salary (12,000 × 2/12)
2,000
 
 
Profit and Loss Suspense A/c 
2,000
 
85,600
 
85,600

 

 

 

 


Working Notes:

WN 1 Calculation of Interest on Capital

P’s Capital Balance = Rs 80,000

Interest on Capital (for 2 months)

WN 2 Calculation of P’s Share of Profit

Profit for last year = Rs 30,000

∴ P’s Share of Profit (for 2 Months)

Page No 5.98:

Question 68:

Vikas, Gagan and Momita were partners in a firm sharing profits in the ratio of 2 : 2 : 1. The firm closes its books on 31st March every year. On 30th September, 2014 Momita died. According to the provisions of Partnership Deed the legal representatives of a deceased partner are entitled for the following in the event of his/her death:
(a) Capital as per the last Balance Sheet.
(b) Interest on capital at 6% per annum till the date of her death.
(c) Her share of profit to the date of death calculated on the basis of average profit of last four years.
(d) Her share of goodwill to be determined on the basis of three years' purchase of the average profit of last four years. The profits of last four years were:

Year 2010-11 2011-12 2012-13 2013-14
Profit (₹ ) 30,000 50,000 40,000 60,000
 
The balance in Momita's Capital Account on 31st March, 2014 was ₹ 60,000 and she had withdrawn ₹ 10,000 till date of her death. Interest on her drawings was ₹ 300.
Prepare Momita's Capital Account to be presented to her executors.

Answer:

Momita’s Capital A/c

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Drawings

10,000

Balance b/d

60,000

Interest on Drawings

300

Interest on Capital

1,800

Executor’s A/c

83,000

Profit and Loss Suspense A/c

4,500

 

 

Vikas’s Capital A/c

13,500

 

 

Gagan’s Capital A/c

13,500

 

93,300

 

93,300

 

 

 

 

 

Working Notes:

WN1 Calculation of Interest on Momita’s Capital

WN2 Calculation of Momita’s share in Profits

WN3 Adjustment of Goodwill

Note: Since, here no information is given regarding the share acquired by Vikas and Gagan, therefore, their gaining ratio is same as their new profit sharing ratio i.e. 2 : 2 or 1 : 1.

Page No 5.98:

Question 69:

Iqbal and Kapoor are in partnership sharing profits and losses in 3 : 2. Kapoor died three months after the date of the last Balance Sheet. According to the Partnership Deed, the legal heir is entitled to the following:
(a) His capital as per the last Balance Sheet.
(b) Interest on above capital @ 3% p.a. till the date of death.
(c) His share of profits till the date of death calculated on the basis of last year's profits.
His drawings are to bear interest at an average rate of 2% on the amount irrespective of the period.
The net profits for the last three years, after charging insurance premium, were ₹ 20,000; ₹ 25,000 and ₹ 30,000 respectively. Kapoor's capital as per Balance Sheet was ₹ 40,000 and his drawings till the date of death were ₹ 5,000.
Draw Kapoor's Capital Account to be rendered to his representatives.

Answer:

Kapoor’s Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Drawings A/c

5,000

Balance b/d

40,000

Interest on Drawings A/c

100

Interest on Capital A/c

300

Balance c/d

38,200

Profit and Loss Adjustment A/c

3,000

 

 

 

 

 

 

 

 

 

43,300

 

43,300

 

 

 

 

 

Working Notes
 
WN1 Calculation of Interest on Capita of Kapoor till date of his death
WN2 Calculation of Share of Profit of Kapoor till date of his death
 
WN3 Calculation of Interest on Drawings
 

Page No 5.98:

Question 70:

A, B and C were partners in a firm sharing profits in the ratio of 5 : 3 ; 2 . On 31st March, 2017, their Balance Sheet was as follows:​
 

Liabilities

 

Assets

Creditors

11,000

Building

20,000

Reserves

6,000

Machinery

30,000

Capital A/cs:

  Stock 10,000
   A

30,000

  Patents 11,000
   B 25,000   Debtors 8,000
   C

15,000

70,000

Cash 8,000
 

87,000

 

87,000

       

A died on 1st October, 2017 . It was agreed  among his executors and the remaining partners that:
(i) Goodwill to be valued at 212 years' purchase of the average  profit of the previous 4 years , which were 2013-14: ₹  13,000; 2014-15: ₹  12,000; 2015-16: ₹  20,000 and 2016-17: ₹  15,000.
(ii) Patents be valued at ₹  8,000; Machinery at ₹  28,000; and Building at ₹  25,000.
(iii) Profits for the year  2017-18 be taken as having  accrued at the same rate as that of the previous year .
(iv) Interest on capital  be provided @ 10% p.a. 
(v) Half of the amount due to A to be paid immediately to the executors  and the balance transferred to his ( Executors) Loan Account.
Prepare A's Capital Account and A's Executors Account as  on 1st October, 2017.

Answer:

A’s Capital  Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

A’s Executors A/c

57,000

Balance b/d

30,000

 

 

Reserve

3,000

 

 

B’s Capital A/c (Goodwill)

11,250

 

 

C ’s Capital A/c (Goodwill)

7,500

 

 

Profit & Loss Suspense

3,750

 

 

Interest on Capital

1,500

 

 

 

 

 

57,000

 

57,000

 

 

 

 

           

 

A’s Executors  Account

Dr.

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Bank A/c

28,500

A’s Capital A/c

57,000

A’s Executors  Loan Account

28,500

 

 

 

 

 

 

 

57,000

 

57,000

 

 

 

 

           

 

Working Notes:

WN1: Calculation of Share in Reserve

Reserve=6,000×510=Rs 3,000

WN2: Calculation of Interest on Capital

Interest on capital=30,000×10×6100×12=Rs 1,500

WN3: Calculation of Profit & Loss Suspense

Profit & loss Suspense=15,000×5×610×12=Rs 3,750

WN4: Calculation of Share in Revaluation Profit/Loss

Revaluation=Nil(3,0002,000+5,000)

WN5: Calculation of Share in Goodwill

Goodwill=Average Profit×No. of Years' Purchase               =15,000×2.5=Rs 37,500A's share in Goodwill =37,500×510=Rs 18,750 A's share of Goodwill will be brought by B & C in 3:2B's Capital will be debited by 18,750×35=11,250C's Capital will be debited by 18,750×25=7,500Average Profit=Total Profits of past years' givenNumber of years                        =13,000+12,000+20,000+15,0004=Rs 15,000

 



Page No 5.99:

Question 71:

Virad, Vishad and Roma were partners in a firm sharing profits in the ratio of 5 : 3 : 2 respectively. On 31st March, 2013, their Balance Sheet was as under:

 
Liabilities Assets
Capital A/cs:   Buildings 2,00,000
Virad 3,00,000   Machinery 3,00,000
Vishad 2,50,000   Patents 1,10,000
Roma  1,50,000 7,00,000 Stock 1,00,000
Reserve Fund   60,000 Debtors   80,000
Creditors 1,10,000 Cash 80,000
       
  8,70,000   8,70,000
       

​Virad died on 1st October, 2013. It was agreed between his executors and the remaining partners that:
(i) Goodwill of the firm be valued at 212 years purchase of average profits for the last three years. The average profits were ₹ 1,50,000.
(ii) Interest on capital be provided at 10% p.a.
(iii) Profits for the 2013-14 be taken as having accrued at the same rate as that of the previous year which was ₹ 1,50,000.
Prepare Virad's Capital Account to be presented to his Executors as on 1st October, 2013.

Answer:

Virad’s Capital Account

Dr.

 

Cr.

Particulars

Amount

(Rs)

Particulars

Amount

(Rs)

 

 

Balance b/d

3,00,000

Executor’s A/c

5,70,000

Vishad’s Capital A/c

1,12,500

 

 

Roma’s Capital A/c

75,000

 

 

Profit and Loss Suspense A/c

37,500

 

 

Reserve Fund

30,000

 

 

Interest on Capital

15,000

 

5,70,000

 

5,70,000

 

 

 

 

 

Calculation of Gaining Ratio of Vishad and Roma:

WN1: Calculation of Virad’s Share of Goodwill:

WN2: Calculation of Profit share of Virad:

WN3: Calculation of Interest on Virad ‘s Capital:

WN4: Virad’s share of Reserve fund:

Page No 5.99:

Question 72:

Kavita, Leena and Monica are partners in firm sharing profits in the ratio of 1 : 1 : 3 respectively. Their Capital Accounts showed the following balances on 31st March, 2012: Kavita ₹ 70,000; Leena ₹ 65,000 and Monica ₹ 2,10,000. Firm closes its accounts every year on 31st March. Kavita died on 30th September, 2012. In the event of death of any partner, the Partnership Deed provides for the following:
(a) Interest on capital will be calculated at the rate of 6% p.a.
(b) The deceased partner's share in the goodwill of the firm will be calculated on the basis of 2 years' purchase of the average profit of last three years. The profits of the firm for the last three years were ₹ 90,000; ₹ 1,00,000 and ₹ 1,10,000 respectively.
(c) Her share in the Reserve Fund of the firm will be paid. The Reserve Fund of the firm was ₹ 60,000 at the time of Kavita's death.
(d) Her share of profit till the date of death will be calculated on the basis of sales. It is also specified that the sales during the year 2011-12 were ₹ 20,00,000. The sales from 1st April, 2012 to 30th September, 2012 were ₹ 4,00,000. The profit of the firm for the year ending 31st March, 2012 was ₹ 2,00,000.
Prepare Kavita's Capital Account to be presented to his legal representative.

Answer:

Kavita’s Capital A/c
Dr.
 
Cr.
ParticKavita, Leena and Monica are partners in firm sharing profits in the ratio of 1 : 1 : 3 respectively. Their Capital Accounts showed the following balanceson 31st March, 2012: Kavita  ₹ 70,000; Leena ₹ 65,000 and Monica ₹ 2,10,000. Firm closes its accounts every year on 31st March. Kavita died on 30th September, 2012. In the event of death of any partner, the Partnership Deed provides for the following :
(a) Interest on capital will be calculated at the rate of 6% p.a.
(b) The deceased partner's share in the goodwill of the firm will be calculated on the basis of 2 years' purchase of the average profit of last three years. The profits of the firms for the last three years were ₹ 90,000; ₹ 1,00,000 and ₹ 1,10,000 respectively.
(c) Her share in the Reserve Fund of the firm will be paid . The Reserve Fund of the firm was ₹ 60,000 at the time of Kavita's death.
(d) Her share of profit till the date of death will be calculated  on the basis of sales. It is also specified that the sales during the year 2011-12 were ₹ 20,00,000. The sales from 1st April, 2012 to 30th September, 2012 were ₹ 4,00,000. The profit of the firm for the year ending 31st March, 2012 was ₹ 2,00,000.
Prepare Kavita's Capital Account to be presented to his legal representative.ulars
Amount
(Rs)
Particulars
Amount
(Rs)
Kavita’s Executor’s A/c
1,32,100
Capital
70,000
 
 
Interest on Capital
2,100
 
 
Leena’s Capital A/c*
10,000
 
 
Monica’s Capital A/c*
30,000
 
 
Share of Reserve
12,000
 
 
P & L Suspense A/c**
8,000
 
 
 
 
 
1,32,100
 
1,32,100
 
 
 
 

Working Note

*Calculation of Goodwill

On the basis of 2 yrs purchase of average 3 years profit



** Sales in the year 2011-12 = 20,00,000

Profit for year 2011-12 = 2,00,000 = 10% of Sales.

Therefore, Profit for the Period 1 Apr – 30th Sep = 10% of Sales of the same period

Share of Profit to be divided = 10% of Rs 4,00,000 = Rs 40,000

Kavita’s Share of Profit = 1/5th of Rs 40,000 = Rs 8,000



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