4

Retirement or Death of a Partner

Q. 1 (A). A. B and C are partners sharing profits in the ratio of 6 : 5 : 4. Calculate new
profit sharing ratios if (0 A retires; (ii) B retires; (iii) C retires.

SOLUTION : 1 (A).
OldRatio ofA. Band C=6 : 5 :4.
New ratio of the remaining paniers will be calculated by striking out the share of the
retiring partner. Thus,
When A retires, the new ratio between B and C will be 5 : 4
When 3 retires, the new ratio between A and C will be 6 : 4
When C retires, the new ratio between A and B will be 6 : 5
Q. l (B). A. B, C and D are palmers sharing profits in the ratio ofS :3 :l :2. Calculate
the new profit sharing ratio ifB and C retire from the firm.

SOLUTION: l (B).
Old Ratio ofA, B, CandD= S : 3: l :2.
When 3 and C retire, the new ratio behveen A and D will be 5 : 2.
Q. 2. X, Y and Z are partners sharing profits in the ratio of 2/3 : 1/4 : 1/ 12. Calculate the
new ratio ifX retires.

SOLUTION : 2.
. . 2___1_.1
Oldratto ofX, YandZts3.4.12.

Thiscanbewrittenas8 :132: 1 01-8 :3 :1

Thus, when X retires, the new ratio between 1’ and Z will be 3 : 1.

Q 3. L, MendOwerepartnersinafirmsharingprofitsintheratioof3: 2: 2 M
retired and his share was divided equally between L and 0. Calculate the new profit sharing
ratio ofL and 0.

SOLUTION : 3.

OldRatioofL,Mand0is3 :2:20r;: -2
2
7 7' 3'
M 5 share will be divided betweenL and 0 equally.
. .l 2 w l
valigamznf7f - 7
 SOLUTIONS TO PRACTICAL QUESTIONS
_._..._--__—_..,_

Hence, L's new share

. . 2
0 W111 gain 2 oft?

Him
Mll—
Hence, 0’s new share

+
MIII-b
Thus, New Ratio behveen L and 0 is 014:

50
Q. 4. A, B and C ate partners sharing profits in the ratio of 4 : 3 : 2. B retires and his
share was taken up by A and C in the ratio of 3 : 2. Find out the new ratio.
SOLUTION:4.
. . 4 3 . 2
OldRat1oofA,BandCls4:3:201— : - . —
9 9 9
B’sshareudllbedividedbehveenAandCintheratio of3:2.
. . 3 3_i
Amllgam 5 of3— 45

.
Hence,Asnewshare— _ 29+45.‘
2 _ 20+9
45 -22
—45

- -
Cwillgam _— 25 of 31-15:.
9~ 45

. _
Hence,Csnewshare— _2_ _6__10+6 _ 16
9+4S —-———45 — 45

. 29 16 _
Thus,NewRat10betweenA andC :4? : E 01' 29.16

Q. 5 (A).A, Band Carepartners sharing profits inthe ratio of4

:3 : LA retires and
his 5 hare is taken over by B and C equally. Calculate
the new ratio.
SOLUTION : 5 (A).

01dRativflflfx‘i.BandCis4:3:lbri ' 2 1
8'8:§
A ’s share will be divided behyeen B and C equally
. .1 4
Bmllgamiofg
4
Hence, B’s new share E l_§fl__5_
8+4- 3 ‘3
. .1 4
Cwfllgamzofg .1.
4
H

Hence, C's new share = 1 l=1+2_§

8+4 8 ‘3
'33 0r 5 3
 Q. 5 (B). A. B and Care partners sharing profits in the ratio of 1/2 : 1/3 : 1/6. 3 retires
and his share is taken by A and C in the ratio of 5 : 3. Calculate the new ratio.
SOLUTION : 503).

Old RatioofA.BandCis 1" '1

2 ' 3 3‘6l
B‘ssharewiilbedividedbetweenAandCintheratio of5:3
. .5 1 __S_
Awfllgamgnf3 —24

.
Hence,A snew share = —+——-=
5

. .3 l
Cw111ga1n80f3 24

Hence, C’s new shai'e =

Thus,NewRatio betweenA and C=gz-214 Or 17 : 7

Q. 6. X, Yand Zare partners sharing in the ratio of2 : 2: 1. Yrefims and his share is
entirely taken by Z. Calculate the new ratio.
SOLUTION : 6.

OldRatioofX, YandZisZ :2 : 1 0% : % :%
Y’s share is entirely taken by Z
Hence, X‘s new share = % (Unchanged)

Z’s new share = % + g = g-

Thus,NewRatioofXandZ = %:%or2:3

Q. 7. P, Q and R are in parmership shating profits and losses as 1/2, 2/6 and 1/6
respectively. R retires and his share is taken by P and Q in the ratio of 2 : 1. Immediately,
S is admitted for 1/4th share of profit, l/3rd of which was given by P and the remaining
share was taken equally from P and Q. Calculate new profit-sharing ratio afier S’s
admission.
SOLUTION : T. . P Q

(1‘) Existing Share 2l 2

6

- l 2 2
EXEZE l l 1
6X3=fi
(ii) Shareacqmredfi'omR

. . 1 2 ll 2 1 _ 1r“
6+fi_.fi
(iii) NewShare(z+1fl 2+fi=1—

- 1 1‘ 1
(iv) SharegivenbyPtoS=Zx§ =12-
 4-4 setunpns T0 PRAQTJCAI: p_u_E_s_T_Iqrgs
= %= .122— 01%
(V1 Remaining share to be acquired by S = jiu- 112

' It 15 aCQUired by S equally from P and Q

P and Q
Thus, 5 acquires g; 0f% = +2 each from

(vi) New ShareofP :i_is'il§'11_2 = 223%zg

New Shareoi’Q =1_7i§_1i2 = %=;_1

16 11 :9
Hence,NewProfitSharingRatioofRQandS=§g : E : i=16:11

Q. 8 (A). A, B and C were partners sharing profits in the ratio of 7 : 5 : 3. Find out the
gaining ratio and new ratios when (t) A retires, (1'0 B retires or (iii) C retires.
SOLUTION : 8 (A).
OldRatioofA,BandCiST :5 :3
Since the new profit sharing ratio ofthe remaining partners is not given in the question,
it will he assumed that the remaining partners have gained in their old ratio.
(1‘) When A retires, the gaining ratio between B and C is 5 : 3.
(ii) When B retires, the gaining ratio between A and C is 7 : 3.
(11'1”) When C retires, the gaining ratio between A and B is 7 : 5.
New ratio of the remaining partners will be calculated by snikhig out the share of the
retiring partner. Thus,
(0 When A retires, the new ratio between B and C is 5 : 3
(ii) When B retires, the new ratio between A and C is 7 : 3
(iii) When C retires, the new ratio betweenA and B is 7 : 5
Q. 8 (B). X, Yand Z shale profits in the ratio of 1/2, 3/10, 1/5. Calculate the gaining
ratio and new ratios when :
(i) X dies, (ii) 1’ dies or (1'1“sz dies.

SOLUTION : 8 (B).
-
OldRatioofX
- l . i . l Or5 ..3 ..2
YanleSz.10.5

Since the new profit sharing ratio ofthe remaining partners is not given in the question,
it will be assumed that the remaining partners have gained in their old ratio.
(0 When X dies, the gaining ratio between Y and Z is 3 : 2.
(it) When Y dies, the gaining ratio between X and Z is 5 : 2.
(iii) When Z dies, the gainng ratio between X and Y is S : 3.
New ratio of the remaining partners will be calculated by striking out the share of the
retiring parttier. Thus,
(1‘) WhenX dies, the new ratio between F and Z'is 3 : 2.
(ii) When 1’ dies, the new ratio between Xand Z is 5 : 2.
(iii) When Z dies, the new ratio betweenX and Y is 5 : 3.
 RETIREMENT OR DEATH OF A PARTNER
4.5
Q. 8 (C). P. Q, Rand Swere partneis sharing profits in the ratio ofS :4 : 3 : 1. Pand
S retire from the firm. Calculate the gaining ratio and new profit sharing ratio of Q and R.
SOLUTION : 8 (C).
Old RatioofP. Q,RandSisS : 4:3 :1
When P and S retire :
Gaining Ratio between Q and R is 4 : 3.
New Ratio between Q and R is 4 : 3.
Q. 9 (A). On lst April, 2018 Ashish, Narnish and Aman were partners sharing profits
and losses in the ratio of2/5, 2/5 and 1/5 respectively. On this date Namish retires. The new
profit shan'ng ratio of Ashish and Aman will be 3/4 and 1/4 respectively. Caleulate gaining
ratio.

SOLUTION : 9 (A).
Gaining Ratio = New Ratio — Old Ratio

GainingRatioofAshish=——-—=———=-—

.. . _1 ________
GalmngRattoofAman—4 — 5 — 20 _ 20

Gaining Ratio between Ashish and Aman=-2% : 210 or 7: 1.

Q. 9 (B). 011 [st April, 2013 A, B and C were partners sharing profits and losses
in the
ratio of A 5/10, B 3/10 and C 2/10 respectively. On this date B retires.
The new profit
sharing ratio ofA and C will be A 3/5 and C 2/5. Calculate gaining ratio.
SOLUTION : 9 (B).
Gaining Ratio = New Ratio — Old Ratio
. ~ - _- 25—1;__— _—5
AsGamngatio 10 =2
10

, -- - _ 2 241
CSGangm" ' 5‘10‘ 1—22 ‘10
GainingRstiobetweenAandC=-l%:rl%or1:2
Q. 10 (A). A, B and C are partners shating profits in the ratio of 1/2 : 1/3
: 1/6. C retires
and A and B decide to share future profits equally. Calculate the gaining ratio.

SOLUTION : 10 (A).
Gaining Ratio = New Ratio - 01d Ratio
Nli— NIH

mIr—I NII—t

A ’s Gaining Ratio =
D

B’s Gaining Ratio

O‘IV-l

=
Ii

Thus, A gains nothing, whereas B gains éth.

Q. 10(3). A,B, CandDarepMersshanngprofitsmflietatioofS

:4 : 3 :2.Aretires
and B, C and D decide to share the profits and losses equall
y in future. Calculate the
gaining ratio.
 ________________________

SOLUTION : 10 (B).
Gaining Ratio = New Ratio - 01d Ratio
4 42 2_
14—1 2
.
B'sGaining Ratio = 31 — E = _22

3 14—9 5
.
CS Gaining Ratio = 31 — 1—4 = T115

. l 2 14—6 8
D’sGainingRatlo = gfifi=—42—-=E

Hence,GainingRatioofB,CandD=% ; 2% ; 132.01.225.3'

Q. 11. Rekha, Ruchi and Sumchi are partners. Ruchi retires. Calculate new ratie if
continuing partners acquired her share in the ratio of 2 : 3. Also mention the gaming ratio.
SOLUTION : ll.
. .2 1 =__
Rekha Wlii gain 3 of 5 15
,
Hence,Rekhasnewshare _1 23:22.
— 3+15 2.
15 15
Suruchiwill gams
'-3-0fl3 =3,—
15
Hence,Suruchlsnewshare
, _1' A_fl=£15
—3+15— 15
NewRatioofRekhaandSuruehi = %1%01'738

Gaining Ratio : Since Rekha and Sumchi have acquired Ruchi’s share in the
ratio of2 : 3, the gaining ratio will be 2 :3.
Q. 12. X, Yand Z are partners sharing profits in the ratio of 1/9 : 1/3 and 5/9. Z retires
and surrenders 3/4th of this share in favour of X and remaining in favour of Y. Calculate
new ratio and gaining ratio.
SOLUTION:12.

Z’s share will be divided betweenX and Yinthe ratio of%:-}

. .3 5 _ fl
11171111111gaun40f9 — 36

Hence,X’snewshaie— 9+36 36 36

.
Yw111gam4of9
.1 5 _— _5_
36

_
Hence,i”smwshare— .1.3 i=lE+_5=lZ
36 36 3

New Ratio ofXand Y= E - 17—01 19 -' 17

36'36
Gaining Ratio: Since Z has surrendered his share of profit in the ratio 01% :
i,
the gaining ratio will be 3 : 1 betweenX and Y.
 _.___..__- _.._______________
_“"'"""' “"-'------_..-.,_---—_-—_

Q. 13. P. Q. R and S were partners sharing profits in the ratio of 2 : 3 : S : 2. Sretires

and his share is acquired by Q and R in the ratio of 3 : 2. Calculate new ratio and gaining
ratio.
SOLUTION : 13.
8’5 share will be divided between Q and R in the ratio of 3 : 2
. . 3 2 6
Q w1 11 gam _ 0f _ = _
60
s 12
Hence, Q’s new share
3 6 =15+e=g1_
E 60 so 60
11

. .2 2 _ i
Rwfllgamsof12 — 60
5 4 25+4 29
Hence,Rsnewshare= l—2+E= 60 _60

P‘s share will remain the same l'.€. %

. __2_.fl._22 10:21:29 _ _
NewRat100fP,QandR—12.60.600r——--—60 0110.21.29.

Gaining Ratio : Since Q and R have acquired S’s share in the ratio of 3 : 2, the
gaining ratio will be 3 : 2 between Q and R.

Q. 14. A and B were partners sharing profits in the ratio of S : 3. On 1stApri1, 2014
they admitted C as a new partner for 1/4th share which he acquired from A and B in the
ratio of 3 : 2. On lst April 2015, another new partnerD was admitted for 1/6th share which
he acquires 1/10 fremA and 1/15 from C. On lst April, 2016 A dies and his share was taken
over by B, C and D equally.
Calculate :
(1) New profit sharing ratio 0fA, B and C 0n C’s admission.
(1‘1) New profit sharing ratio ofA, B, C and D on D’s admission.
(1'11“) New profit sharing ratio ofB, C and D on A’s death.

SOLUTION: l4.
(1) Calculation of Sacrificing Ratio :
- -
Sacnficmg Ratio 0fA - _ a5 of 1-1
— 4 _ 20

. . . _ __2- l_ l
Sacnficmg Ratio ofB — 5 01‘4- 20

New Profit Sharing Ratio ofA, B and C :

1;
C's
ts.)
U1
'4.)
U1

. . =_. 19:11:10
11 _—-
191_._ —=19: :10
4-3-6 40‘40'4‘“ 40 11
 (ii) New Profit sharing Ratio ofA. B. C and D :

_‘ en.
411 10
19—4
40
=n
4
_n
B = '40
C "- n .1: M
40—15 120
:3;
10
_ -1
D _ '6
. . _ _ fl,fl.22.1__45:33:22:20
A'B'C‘D' 40'40'120'6‘ 120
= 4S:33:22:20
(1'1‘1‘) New Profit Sharing Ratio 011 A’s death :

. - 4s. . £ Ln
A 3 share 1.12., 121115 taken over by A, Band Cequally1.e., 120 x 3 — 120 each

, _£ £-.fl
Bsnews'hm '120+120‘120
22 15 37
C’snewshare =W+Tzfi=m

0’5 new share = n+h_h

120 120 _ 120
ThusNew RatioofB. CandD=48 : 37 :35

Q. 15X, Yand Zare partners sharingprofits inthe ratio 0f5 :4 : 3.Xretires fi'omthe
firm and it is decided that new profit-sharing ratio between Yand Z will be same as existing
behveenX and Y. Calculate new ratio and gaining ratio.
SOLUTION : 15.
Ratio beMeenXand Y= S :4
Hence, New Ratio between Y and Z will also be 5 : 4
Gaining Ratio 2 New Ratio — Old Ratio
5 4 _ 20 -— 12 8
mam: 9—1—2" 36 ‘33"
- _ i_2_£:2_l
263““— 91" 3s '3
ThusGahiingRatioonandZ=§—'J-or8'7
’ 36'36 '
Q. 16(A).L, MandNaretlneepaMerssharingprofitsintheratioof4 :3 :2
respectively. M retires and the goodwill is valued at $1,013,000. N0 goodwill account
appears as yet in the books of the firm. L and N will share profits in future in the ratio
of S : 3 respectively. Pass Journal Entry for goodwill.
RETIREMENTOHDEATH OF A PARTNER 49
SOLUTION 16 (A). JOURNAL -----------
Date Particu/ars L.F. Dr. 1’?) CF- 0'}
L's Capital A/c Dr. 19.500
N’s Capital A/c Dr. 16.500
T0 M‘s Capital No 35.000
(Renting partner‘s shaie of goodwill adjusted to
remaining partners in their gaining ratio 13 : 11)

Note : Gaining Ratio = New Ratio — Old Ratio

L Gm
- .21-
3 9
_._4s—32 _n
12 ' 72
- .13. _21—16
N Gal“ 3 9
_ 11
72 ' 72
As such, gaining ratio betweenL andN= 13: 11.

_ Q. 16 (B). Ashok, Rakesh and Mukesh were paIlIlel‘S sharing profits and losses in the
1'3th 0f 2 : 2 : 1. On Ist April, 2018, their goodwill was valued at 33,00,000: there being no
account for it in the books. On this date Rakesh retired. Pass the Journal Entry to record
goodwill.
SOLUTION : 16 (B). JOURNAL
Dare Particulars LF. Dr. R,1 Cr. R)

2018
April 1 Ashok Capital A/c Dr. 80,000
Mukesh Capital A/c Dr. 40,000
To Rakesh Capital No 1,211,000
(Retiring partner’s share of goodwill adjusted to
remaining partners in their gaining ratio 1'.e., 2 : 1)
s
Q. 17.A, B, CandDarepartmi-s shatingprofitsintheratio 0f2 : 4 : 3 : 1. Cretire
super profits of
and for this purpose goodwill is valued at two year’s purchase of average
last four years, which are as under :
lst Year 3' 40,000
11nd Year 2 10,000 (Loss)
11110 Year f1,00,000
IVth Year 6,511,000
The normal profits for similar firms is 56,000.
Record necessary entry for goodwill on retirement of C.
SOLUTION : 17. JOURNAL
BF. Dr. {?1 Cr. R)
Date Particulars
Dr. 2,400
A’s Capital A/c
B's Capital A/c Dr. 4,800
Dr. 1,200
D’s Capital A/c 8,400
To C’s Capital No
to
(Retiring palmer’s share of goodwill a_djusted
1)
remaining partners intheir gaining ratio 2:4:
._-__-..___ ________,,.....____..--———- ..___

Working Note :
Average Profits 2 {(40,000 w 10,000 + 1,00,000 + 1,50,000) / 4 = ?70.000
Super Profits = Average Profits — Norma] Profits
= 270,000 — 356.000 = 214,000
Goodwill = Super Profits >< Number 01‘ Year’s Purchase
= {14,000 x 2 = 123,000

C‘5 share of Goodwill = ?28,000 x 1% = ¥8,400

Q. 18. A, B and C are sharing profits in the ratio 0f4 : 3 :2. Goodwill is appearing in
the books at a value of ?42,000. C retires and 011 the day of C’s retirement Goodwill is
valued at 263,000. Pass the necessaty journal entries.
SOLUTION : 18. JOURNAL
Dare Particulars L.F. Dr. R) Cr. 1’?)
A‘s Capital A/c Dr. 18,667
B’s Capital A/c Dr. 14,000
C’s Capital A/c Dr. 9,333
To Goodwill No 42.000
(Goodwill existing in the books written off in old ratio)
A's Capital A/c Dr. 8,000
B’s Capital A/e Dr. 6,000
To C’s Capital No (2/9 of 63,000) 14,000
(C’s share of goodwill adjusted to remaining partners in
their gaining ratio 4 : 3) .

Q. 19(A). P, Q and R are equal partners. Goodwill is appearing in their books at

?4,00,000. R retires and 011 the day ofR’s retirement Goodwill is valued at 22,50,000. Pass
the necessary journal entries. '
SOLUTION: 19(A). JOURNAL
Date Particulars LF. Dr. R) Cr. (?)
P’s Capital A/c Dr. 1,33,333
Q’s Capital A/c Dr. 1,33,333
R’s Capital A/c Dr 1,33,334
T0 Goodwill No 4,011,000
(Goodwill appearing in the books written 011‘ in old ratio)
P’s Capital A/c Dr. 41,666
Q’s Capital A/c Dr. 41,667
To R’s Capital No (1/3 of2,511,000) 83,333
(Retiring partner’s share of goodwill adjusted to
remaining painters in their gaining ratio 1212., equally)

0.19 (B). A, B and Care partners sharing profits and losses inthe
ratio 0f2.: 2 : 1. C
decided to retire and on this date goodwill 0f the film is valued at
?2,00,000. Pass entries
when goodwill account is aheady appearing in the books at 31,50,000.
SOLUTION : 19 (B). JOURNAL
Date Particuiars LF. Dr. (f) Cr. (?1
A ‘3 Capital A/c Dr. 60.000
B's Capital A/c Dr. 60,000
C‘5 Capital A/c DI. 30,000
To Goodwill A/c 1,50,000
(Goodwill appearing in the books written off in 011.1
ratio)
A's Capital A/c Dr. 20,000
B‘s Capital A/c Dr. 20,000

To C’s Capital Ne (31» 012,011,000) 40’0""

(Retiring partner’s share of goodwill adjusted to
remaining partners in their gaining 13110129.. equally)

Q. 20 (A). P. R and S are in partnership sharing profits 4/8, 3/8 and 1/8 respectively. It
is provided under the partnership deed that 00 the death ofany partner his share 0fgoodwill
is to be valued at one-half of the net profits credited to his account during the last 4
completed years (books of accounts are closed on 3lst March).
R died on Ist April, 2018. The firm’s profits for the last 4 years were as follows: 2015
Profits 31,20,000; 2016 Profits ?60,000; 2017 Losses 120,000 and 2018 Profits 280,000.
1. Determine the amount that should be credited to R in respect of his share of
goodwill.
2. Pass a journal entry for the adjustment of goodwill, assuming that profit sharing
ratio between P and S in future will be 3 : 2. Show your working clearly.

SOLUTION : 20 (A).
Valuation of Goodwill :
Total Profits of the last four years 21,20,000 + €60,000 — $20,000
+ $0,000 = 22,40,000.

Profit Credited to R’s Account = ?2,40,000 x %= $0,000

R’s share ofGoodwill = 390,000 x % = 345,000

JOURNAL

Dare Particulars LF. Dr. R) Cr. (1’)

2018
April 1 P‘s Capital A/c Dr. 12,000
S’s Capital A/c Dr. 33,000
To R’s Capital No 45,000
(R’s share of Goodwill debited t0 the accounts of
continuing partners in their gaining ratio 4 : 11)
Calculation of Gaining Ratio : New Ratio — 01d Ratio
-. 2£=M=i
Pam“ 5'3 40 40
4' 1 2 3999119115.193.119.03.001 99.531190?
21,164 11
SGains: g—E—40 _-—r:——
0

Thus, Gaining Ratio is 4 : 11.

20 (B). A. B. C and D are part ners in a firm sharing profits and losses in the ratio
Q.
. The goodwill 0fthe firm was valued
of 2 : 2 : l : 1. A and C decided to retire from the firm
the ratio of 5 : 3.
at =190.000. B and D decided to share future profits in
ill.
Pass necessary journal entry for the treatment of goodw

SOLUTION : 20 (B).
Calculation of Gaining Ratio :
. _ g_5 = 8—15 7
3631113 —24 j]
68
112:4-9 5
D Gains = —24— '2';
68
As such, Gaining Ratio between B and D = 7 : 5
JOURNAL

Particulars LF. Dr. R) Cr. (1')

Date

B‘s Capital N1: (132— 014530019 Dr. 26,250

D’s Capital Me 1% 0145,0110) Dr. 13,250
30,000
To A‘s Capital No
15,000
To C‘s Capital A/c
(A and Cs share of goodwill debited t0 the gaining
partners in their gaining ratio of 7 : S}

Working Note (1) :

z
A’s Share ofGoodwill = 290,000% = 30,000
C’s Share ofGoodwill = 190,000 % = 15,000
45,000
_...—

Q. 21. A, B and Cwere partners sharing profits in the ratio 0f2 :3 :4. On 15111 March
2018 B died and the new profit sharing ratio 0fA and C was 5 : 4. On B’s death the goodwill
of the firm was valued at ?75,000. Pass the necessary journal entry for the treatment of
goodwill.
SOLUTION :21. JOURNAL
Date Particu/ars LF. Dr. R) Cr. ('1’)
2018
March 15 A‘s Capital A/c Dr. 25,000
To B‘s Capital No 25,000
(A’s Capital A/c debited as he alone has gained 011
B’5 death)
 RETIREMENT 011055111954 ?&BINER ______
__ _________________ 4’13
Calculation of Gaining Ratio :
-- -
Gaming Ratio 01A -2_
9 2-2
9_9
. . . _ 4 4
Gaming Ratio of C — 9—9= 0

Q. 22. Surender, Ramesh, Naresh and Mohan are partn

ers in a firm sharing profits in
2 : l : 2 : 1 ratio. On the retirement of Naresh,
the Goodwill was valued at ?72,000.
Surender. Ramesh and Mohan decided to shar
e futune profits equally. Pass the necessary
journal entry for the treatment of goodwill.
SOLUTION : 22. JOURNAL
Date Particulars L.F. Dr. R) Cr. R)
Ramesh’s Capital A/c Dr. 12,000
Mohan‘s Capital A/c
Dr. 12,000
To Naiesh’s Capital A/c
(Naresh share of goodwill adjusted to the accounts 24,000
of
continuing paxtners in their gaining ratio 0 : 1 : 1
without
raising Goodwill A/c)
Calculation of Gaining Ratio : (New Rati
o — Old Ratio)
Surender.. .1._
3 6— ?__2_—2_
6 _ —0

Ramesh.- .i.
3H6 1-2
" —1-3. 6 ‘6

Mohan. 36— 6 *6
Hence, Gaining Ratio 150: 1 : 1.

Q. 23. Arjun, Bhim and Nakul are partners

sharing profits and losses in the ratio of
14 : 5 : 6 respectively. Bhim retires and surr
enders his 5/2501 share in favour 0me.
goodwill 0f the firm is valued at 2 years purc The
hase of super profits based on average profi
of last 3 years. The profits for the ts
last 3 years are $50,000, 360,000 and
respectively. The normal profits for the simi 255, 000
lar firm are ?3 0,000. Goodwill already appe
in the books ofthe finn at ?75,000. The ars
profit for the first year after Bhim’s reti
11,00,000. Give the necessary joumal entr reme nt was
ies to adjust Goodwill and to distribute profi
showing your workings clearly. ts
SOLUTION : 23. JOURNAL
Date Particulars LF. Dr. (?) Cr. (‘1’)
Arjun’s Capital A/c
Dr. 42,000
Bhim’s Capital A/c
Dr. 15,000
Nakul’s Capital Ho
Dr. 18,000
To Goodwill No
(Existing goodwill written off in old ratio of 75,000
14 : 5 : 6)
Arjun‘s Capital A/c
Dr. 10,000
To Bhim‘s Capital No
(Goodwill adjusted by debiting gaining part 10,000
ner Arjun and
crediting sacrificing partner Bhim)
4.14 ”291911911810 P992119019U19719118
P1011181 Loss Appropriation A/c Dr. 1.00.000
T0 Arjun's Capital A/c 76,000
T0 Nakul‘s Capital A/c 24,000
(Profit distributed between Arjun 8:. Nakui in New Ratio
19 : 6)

Working Notes :
(1) Calculation of‘Value ofGoodwill :
+ 55 000
Average Profits of last 3 years = W = 255,000
Super Profits = Average Profits w11101111111 Profits
= 255.000 — ”€30,000 = ?25,000
Goodwill =Super Profits X N0. of Year’s Purchase
225,000 x 2 = 80,000
5
Bhim’s Share of Goodwill = 30,000 x - = 210,000
25
(2) New Ratio 0fA1jun and Nakul :
. ,
Anunsnewshare
_ —+ 14 255 (Bhim Share) = E
25 —
19

Nakul s new share £+NIL:£

25 25

Q. 24 (A). A, B and C were partners sharing profits in the ratio of 6 : 4 : 5. Their

capitals were A — 21,00,000, B — =480,000 and C -— ?60,000. On lst April 2018, B
retired 00111 the firm and the new profit sharing ratio between A and C was decided as
11 : 4. On B‘s retirement the goodwill 0f the firm was valued at 1’ 1,80,000. Showing your
calculations clearly pass necessary journal entry for the treatment of goodwill 0n B’s
retirement.

SOLUTION : 24 (A). JOURNAL

Date Particulars LF. Dr. (1') Cr. {2)
2018
April ] A’s Capital 141/0 (5/ 15 0f 1,80,000) 60,000
T0 B’s Capital A/c (4/15 of 1,810,000) 43,000
To C’s Capital A/c (1/15 01' 1,811,000) 12,000
(Treatment of goodwill on B’s retirement)

Working Notes :
Calculation of Gaining Ratio :
A B
|._ 5|“ 3|; O

New Ratio
n
15
6 4
Old Ratio
15 15
New RatiowOId Ratio: i
15 (Gain) %(Sacrifice) (Sacrifice)
U1
.—

On]y A has gained %. Hence A will be debited and B and C will be credited.
RETIREMENT OR DEATH OF A PARTNER 4.15_

Q. 24 (B). X. Yand Zwere parmers in a firm sharing profits1n the ratio OH: 2. 1 Z
retired and the new profit sharing ratio between X and 1’ was 1. 2. On Z‘s retirement the
goodwill ofthe firm was valued at 230,000. Pass necessary journal entry for the treatment
of goodwill on 25 retirement.
SOLUTION : 24 (B). JOURNAL
Dare Particulars LF. Dr. (2) Cr. (2)
1‘3 Capital NC (2/6 0130.000) Dr. 10,000
To X‘s Capital Ne (lf6 of 30,000) 5,000
To Z’s Capital A10 (”6 0f30,000) 5,000
(1’ gains 2/6 share of profit whereas X loses 11’6 shale of
profit and Z also loses 1/6 share of profit 1’ compensates
X and Z for the loss'1n share of profit)

Working Notes :
(a 2‘5 share in goodwill = 30,000 x % = $5,000.
(1'1) Gaining Ratio = New Ratio — Old Ratio
_ 2—3
0st

X" 6 % (Sacrifice)
Y—_ _'6 -_
2 _£ -
O‘1IM

4:1.

—-6(Gam)
I1

Only 1’ has gained %. X has also sacrificed g- in favour of Y. Hence, 1’ is required

to
compensate X for such loss.
Q 25. A B CandDarepamIersshafing profitsintheratioofS: 3: 3: 1.0110
10
retirement of C, goodwill was valued at 23,60,000. 0’5 share of goodwill will be
adjusted
into the Capital accounts ofA B and D. Pass necessary entry for the treatment
of goodwill
when new profit sharing ratio is decided at 9: 2:
SOLUTION : 25. JOURNAL
Dare Particulars LF. Dr. (2) Cr. (2)
A’s Capital NC (41r12 of 3,60,000) Dr. 1,20,000
To B’s Capital NC (1le of 3,60,000)
30,000
To C’s Capital NC (3112 of 3,60,000)
90,000
(A gains lizvth share of profit whereas B ioses 315th share

ofprofit and c loses 1322-111 share ofprofit. A compensates

B and C for the loss in share of profits)

Working Notes.'
(1) C’s share 0fgoodw11]* 3,60,000 x i: = 290,000.

(ii) Calculation of Gaining Ratio :

A B C D
New Ratio 1 -2—
12 __ i
12 12
4.16 SOLUTIONS T0 PRACTICAL 0UEST10NS

Old Rat
. —
s 3
-- —
3 —
1
w 12 u 12 M
New Ratio _ 010 Ratio = 145 (Gain) é (Sacrifice) 112- (Sacrifice) 0

Only A has gained «112 Hence A will be debited and B and c will be credited.
Q. 26. A. B. CandDarepaMers sharingprofitsinthe ratioof4 :3 : 2 : 1.0111he
retirement ofB. Goodwill was valued at 23,00,000. A. C and D decide to continue the firm
sharing profits equally. Pass the necessary entry.

SOLUTION : 26. JOURNAL

Date Particuiars BF. Dr. (2) Cr. (2)

C’s Capital Afc (34-0 01300000) De 40,000

D‘s Capital NC (310 of 3,011,000) Dr. 70,000
To A ‘s Capital NC (3% of 300,000) 20,000
To B‘sCapital No (13—0 013,110,000) 90,000
(Adjustment for goodwill; C gains % and D gains %
whereas
A sacrifices % and retiring partner B sacrifices 13—0

Working Notes :
0) 3’5 shame ofGoodwill = 3,00,000 >< 13—0 = {90,000
(1'1) Gaining Ratio will be calculated as under :
A B C D
. 1 1 1
New Ratio E 3 3

. 4 3 2 1
omamw 10 10 10 w
. 7
__ .
. . 2 . 3 . i
30 (Gain) 30 (Gem)
New Ratio — Old Ratio 51— (Sacrifice) 10 (Sacrifice)

C and D will be debited since they have gained and A and B will be credited since they have
sacri ficed.

s
Q. 27. X, Yand Z are partners shating profits and losses in the ratio of 3 : 2 : l. Yretire
260,000 by Z.
selling his share to X and Z for 21,60,000, 21,00,000 being paid by X and
The profit for the year afier Y’s retirement is 22,40,000.
the profit
Pass entries to (a) record the sale of Y’s share to X and Z, and (b) distribute
between X and Z.
RETIREMENT OR DEATH OF A PARTNER 4.17

SOLUTION : 27. (1') JOURNAL

Dare Particuiars L.F. Dr. (2) Cr. (2)
X5 Capital Afc Dr. 1,00,000
Z15 Capital Ale Dr. 60,000
To Y’s Capital No 160,000
(Sale of Y’s share toXand Z for 21,60,000)
Profit and Loss Appropriation Ne Dr. 2,40,000
To X’ 5 Capital Afc 1,110,000
To Z" 5 Capital Ale 70,000
(Profit distributed afier Y’s retirement in their new ratio
719., 17 : '1')

(1'!) Calculation of new profit sharing ratio :

X and Z purchased Y‘s share for 21,60,000, out of whichX pays 21,00,000 and Z pays
260,000, 1'.e., X and Z will share Y’s shale of profit in the ratio of 1,00,000 : 60,000 = 5 : 3.
As such, new profit sharing ratios ofX and Z will be :
S 2 5 2 __5__
Xgetssthofrsshaxeof-g= 8 x 6 —24

X'soldshare =%

. .X’snewshare fi_3_+ i _ 12+5 zfl

—6+ 24 — 24 24

.3. 2
dets8thof1”sshareof6 _2 2.};
— 8 x6 -24

Z‘soldshare =%

.
..Z’snewshare _1
— 6 +1
+24 _.
—~ fl=l
24 24

. 17 7
Hence,Newratio betweenXandZ = —4241 =17:7

(iii) Division of Profit between X and Z :

Profit = 22,40,000
X’sshare =,240,,000><;—Z=21‘1,'0000
Z’sshare =,240,000x%= e70,000

Adjustment of Reservm and Accumulated Profits

Q. 28. X, Y and Z are partners sharing profits in the ratio of 4 : 5 : 6. X retires. Yand Z
decided to share We profits equally. On that date, there was a balance of 275,000 in
general reserve and a balance of 230,000 in the profit and loss account ofthe firm. Record
the necessaiy joumal entry.
4.13 sownons T0 PRACTICAL QUESTIONS
SOLUTION : 28. Books 01' X, Yand Z
Date Particulars LF. Dr. (2') Cr. (2,1
General Reserve NC Dr. 25,000
Profit 3.: Loss A}: Dr. 30,000
To X’s Capital No 28,000
To Y‘s Capital No 35,000
To 25 Capital No 42,000
(Distribution of free reserves among partners)

Q. 29. A, B. C and D are partners sharing profits in the ratio of l : 2 : 3 : 4. D retires

and his shaxe is taken up by A and B equally. Goodwill was valued at 3 year’s purchase of
average profits which were 220,000. General Reserve showed a balance of 265,000 at the
time of D‘s retirement.
You are required to record necessary journal entn'es to record the above adjustments
on D‘s retirement. You ate also required to prepare his capital account to find out the
amount due to him when his capital balance in the balance sheet was 21,50,000 before any
adjustment. Also calculate the new profit sharing ratios.
SOLUTION : 29. JOURNAL
Date Pafiicuiars L.F. Dr. (2) Cr. (2)
General Reserve Ale Dr. 65,000
To A ’5 Capital Aft: 6,500
To B‘s Capital Afc 13,000
To C’s Capital No 19,500
To D’s Capital Ale 26,000
(General Reserve'transferred to Capital Accounts) '
A’s Capital No Dr. 12,000
B’s Capital A/c Dr. 12,000
To D’s Capital No 24,000

(D’s share ofgoodwill 124,000 i.e., % x 60,000

adjusted to the accounts ofA and B in their sacrificing
ratio 1.0., equally)

Dr. D’S CAPITAL NC Cr.

Particatars 2 Particulars 2
To Balance ctd 2,00,000 By Balance bid 1,50,000
By General Reserve No 26,000
By A’s Capital Ale 12,000
By B’s Capital Afc 12,000
2,00,000 2,00,000

Calculation of New Profit Sharing Ratio :

D’s share will be divided between A and B equally

Awillgain§ofm4 _
— E2
 .
Hence. A s new share - 4 4—1
' 10 + [0 10
. .1 4 _ A
B Wlll gami offi ' m
,
Hence, B s new share : 1 123.
10 +10 10
C’s share will remain the same 119.. %

Hence . new RatioofA BandC =i

' 10'‘i
10''i
10
or 3 : 4 '. 3.

Q. 30. A, B. Cand D are pamwrs sharing profits in the ratio of4 : 3 :2 : 2. Cretircs
and the remaining partners decided to share future profits in S : 3 : 2. On the date of C’s
retirement there was a debit balance of 230,800 in the profit and loss account. Show the
necessary journal enhy for the treatment of profit and loss account balance.

SOLUTION : 30. Books ofA, B, C and D

JOURNAL
Date Particulars L.F. Dr. (2) Cr. (2)
A’s Capital A/c Dr. 1 1,200
B’s Capital Aft: Dr. 8,400
C’s Capital A/c Dr. 5,600
D's Capital Aft: Dr. 5,600
To Profit and Loss Ate 30,800
(Accumulated loss transferred to the capital accounts of
all partners in old ratio on C’s retirement)

Q. 31. A, B and C axe partners sharing profits and losses in the ratio of2 : 2 : 1. A retires
and the new ratio between B and C is agreed at 3 : 2. Give joumal entries 011 A’s retirement
in the following cases :
(a) Workmen Compensation Reserve appears in the books at 21,20,000 and there is
a claim of 21,50,000 against it.
(6) Investment Fluctuation Reserve appears in the books at 240,000, when
Investments (market value 21,00,000) appear at 285,000.
SOLUTION : 31. JOURNAL
Date Particulars L.F. Dr. (2) Cr. (2)
(a) Workmen Compensation Reserve Ate Dr. 1,20,000
Revaluation A11: Dr. 30,000
To Provision for Workmen Compensation Claim Afc 1,50,000
(Provision made for workmen claim and shortfall
charged to Revaluation Account)
A ’3 Capital A/c Dr. 12,000
B’s Capital Ale Dr. 12,000
C’s Capital Aft: Dr. 6,000
To Revaluation No 30,000
(Loss on revaluation debited t0 Partners” Capital
Accounts in their old profit—sharing ratio)
4.20 SOLUTIONS TO PRACTICAL QUESTIONS

(6) investments Fluctuation Reserve A/c Dr. 40.000

To A '3 Capital Ne 16,000
To B's Capital No 16,000
To C‘3 Capital Ne 8,000
(Investments fluctuation reserve credited to Partners‘
Capital Accounts in their old profit-sharing ratio)
Investments Afc Dr. 15,000
To Revaluation No 15,000
(Value of investments brought up to market value)
Revaluation A/c Dr. 15,000
To A ‘5 Capital No 6,000
To B‘5 Capital Afc 6,000
To C’5 Capital NC 3,000
(Profit on revaluation credited to partner’s Capital
Accounts in their old profit-sharing ratio)

Q. 32. A, B and C are partners sharing profits in the ratio of 3 : 2 : l. C retires and new
profit sharing ratio is agreed at 3 : 1. They also decided to record the effect ofthe following
without affecting their book values :
2
General Reserve 1,00,000
Profit & Loss Account 45.000
Advertisement Suspense Account 25,000
You are required to pass the necessaiy single adjusting entry.
SOLUTION :32.
Calculation ofNet Effect : 2
General Reserve 1,00,000
(+) Profit & Loss Account 45,000
1,45,000
(—) Advertisement Suspense Account 25,000
Net Effect M
Calculation of Sacrifice or Gain :
3 3 _ 6 —9 _i .
A 6‘4 ‘ 12 "1263‘“
2 1 4-3 l .
B 6_4 — 1 —1—Sac11fice

JOURNAL
Date Particulars L.F. Dr. (2) Cr. (2)

A’s Capital Afc 11,20,000 x 13—2 ) ’ 30,000

To B'5 Capital Aft: (1,20,000 x % 10,000

To C’s Capital Ne 11,20,000 x% ) 20,000

(Adjustment for accumulated profitsflosses on the C‘s
retirement)
RETIREMENT 0H DEATH OF A PARTNER 4.21
Q. 33. A, B and C are partners sharing profits in the ratio OH :3 :2. C retires and A
and B agree to share filtlll'e profits in the ratio of 6 : 4. Goodwill is m be taken at two
year's
purchase of the average profits of the last 5 years, which were 1' 10,000; $25,000; (15,000
(loss); 136.000 and ?44,000 respectively.
At the date of C’s retirement, following balances appeared in the books of the firm:
2'
General Reserve 1,20,000
Profit & Loss Account (Du) 30,000
C’5 Capital 2,00,000
You are required to record necessary journal entries in the books of the firm and
prepare C ’5 Capital Account on his retirement.
SOLUTION : 33.

JOURNAL
Dare Particulars LF. Dr. (U Cr. (6')
A‘s Capital Afc [1!2 of ?8.000) Dr. 4,000
B‘s Capital No (1:? of (8,000) Dr. 4,000
To C’s Capital NC 8,000
(Adjustment for goodwill on C’s retirement)
General Reserve A/c Dr. 1,20,000
To A‘s Capital No 60,000
To B’s Capital Ne 36,000
To C’s Capital Afe 24,000
(Distribution of general reserve)
A ‘3 Capital Afc Dr. 15,000
B's Capital Afc Dr. 9,000
C’s Capital Ale Dr. 6,000
To Profit 8:. Loss No 30,000
(Aeemnulated loss debited to partner’s capital accounts)
C’s Capital Ale Dr. 2,26,000
To C’s Loan NC 2,26,000
(Amount due to C transfen'ed to his Loan Account)

Dr. C’S CAPITAL ACCOUNT Cr.

Particulars ’x’ Particulars 1’
To Profit & Loss No 6,000 By Balance bid 2,00,000
To C’s Loan Afe By A’s Capital Afc 4,000
(Balancmg figure) 2,26,000 By B’s Capital Afc 4,000
By General Reserve No 24,000
2,32,000 2,32,000

Working Notes :
(1) Valuation of Goodwill:
Average Profit = 10,000 + 25,000 - 15,000 +36,000 + 44,000 = ?20,000
5
4,22 SOLUTIONS T0 PRACTICAL QUESTIONS

Goodwill at 2 year‘s purchase = 20.000 x 2 = {40.000

("5 share = 40.000 x % = ?8,000

(2) Gaining Ratio :

_ £_i_L
A _ 10 10—10
_ 1L i_i .
B F 10—10—10 Orl.l

Revaluation of Assets and Liabilities

Q. 34 (A). X, Y and Z are partners in a finn sharing profits and losses equally. The
balance sheet of the firm as at 3 1 st March, 2018 stood as follows :
Liabilities ? Assets 1'

Creditors 1,09,000 Cash in hand and Cash at Bank 36,000

General Reserve l00,000 Debtors 2,00,000
Provident Fund 20,000 Stock 1,00,000

Capitals : Investments (at cost) 50,000

X 3,00,000 Freehold Property 4,00,000
Y 2,00,000 Trade Marks 20,000
Z 2,00,000 100,000 Goodwill 33,000
8,89,000 8,89,000

Z retires on lst April, 2018 subject to the following adjustments :

(i) Freehold Property be valued at 13,80,000.
(ii) Investments be valued at $47,000; and stocks be valued at 34,000.
(iii) A provision of 5% be made for doubtfiil debts.
(iv) Trade Marks are valueless.
(v) An item of ? 12,000 included in creditors is not likely to be claimed.
(vi) Goodwill be valued at one year’s purchase of the average profit of the past
three years. Profits ending 3lst March were: 2016 21,20,000;
2017 $130,000 and 2018 $95,000.
Pass journal entries, give capital accounts and the balance sheet of the remaining
partners.

SOLUTION : 34 (A). JOURNAL ENTRIES

Date Particulars LF. Dr. (1’) Cr. (f)
2018 '
April 1 General Reserve A/c Dr. 60,000
To X‘ 5 Capital Ale 20,000
To 1” 5 Capital No 20,000
To Z’s Capital NC 20,000
(Transfer of General Reserve to Partner’s Capital Afcs
in their profit sharing ratio)
 Revaluation Me
To Investments Me 3,000
To Stock NC 6,000
To Provision for DoubtfiJI Debts NC 10,000
To Trade Marks No 20,000
(Decrease in the value of assets)
Freehold Property No Dr. 1,110,000
Creditors No Dr 12,000
To Revaluation A10 1,92,000
(Increase in the value of Freehold Property and decrease
in creditors)
Revaluation A/c Dr. 1,513,000
To X’s Capital No 51,000
To Y‘s Capital Afc 51,000
T0 25 Capital A/c 51,000
(Profit on revaluation transferred to partner’s Capital
Accounts)
X’s Capital Afc Dr. 11,000
Y‘s Capital Ale Dr. 11,000
Z‘s Capital Ale Dr 11,000
To Goodwill Afe 33,000
(Goodwill appealing in the books mitten off on Z’s
retirement)
X’s Capital NC Dr. 17,500
Y’s Capital Ale Dr. 17,500
To Z‘s Capital Afc 35,000
(Z’s share of Goodwill adjusted to the accounts of
continuing parttwrs in their gaining ratio 1'. 3., equally)
Z’s Capital Afc Dr. 2,95,000
To Z’s Loan Afc 2,95,000
(Balance of 2’s Capital Afc transferred to 2‘3 loan Afc)

Dr. REVALUATION ACCOUNT Cr.

Particulars ? Particulars ?
To Investments No 3,000 By Freehold Property Aft: 1 ,80,000
To Stock Afc 6,000 By Creditors Ne 12,000
To Provision for Doubtful
Debts Me 10,000
To Trade Marks Ale 20,000
To Profit transferred to
X’s Capital Aft: 51,000
Y’s Capital A/c 51,000
Z’s Capital A/c M 1,53,000
1,92,000
4.24 SOLUTIONS TO PRACTICAL QUESTIONS
_.._-—____ _____
-a—..______________________________

CAPITAL ACCOUNTS ct
Dr
Particulars X 1’ Z Particulars X Y Z

I 2 'x' 2 i f
To Goodwill Afc 11.000 11,000 11,000 By Balance bid 3,00,000 2,00,000 2,00,000
To Z‘s Capital Ale 12,500 12,500 — By General
2,95,000 Reserve No 20,000 20,000 20,000
To 25 Loan Ale
To Balance cfd 3,42,500 2,42,500 By Revaluation
Ne 51,000 51,000 51,000
By X’ 5 Capital
No 131,500
By Y’s Capital
No 1?,500

3.71.000 2,71,000 3,06,000 3,71,000 2,71,000 3,06,000

BALANCE SHEET OF THE FIRM (After Z’s Retirement)

as at Is! April, 2018
Liabilities T Assets ?

Creditors 97,000 Cash in hand and cash at Bank 86,000

Provident Fund 20,000 Debtors 2,00,000
Z’s Loan Account 2,95 ,000 Less : Provision for
Doubtful Debts 10,000 1,90,000
Capitals : Stock 94,000
X 3,42,500 Investments 47,000
1’ 2,42,500 5,35,000 Freehold Property 5,80,000
9,97,000 9,97,000

Working Note :
¥1,20,000 + €130,000 + 95,000
Goodwill = 3 = 11,05,000

Z’s Share 0100000111 = e1,0s,000 x :1; = 65,000

Q. 34 (B). The Balance Sheet ofA, B and C who were sharing profits in proportion to
their Capitals stood as follows as at Ist April, 2018 :

Liabilities 2’ Assets ?
Sundry Creditors 20,000 Bank Balance 16,000
Outstanding Expenses 2,000 Sundry Debtors 15,000
Profit 8!. Loss No 15,000 Less : Provision 1,000 14,000
Capitals : Stock 35,000
A 45,000 Investments 12,000
B 30,000 Fixed Assets 50,000
C 15,000
1,211,000 1,211,000
 C retires on the above date on the following conditions :
1. Fixed Assets be reduced by 10%.
11. Investments an: revalued at €10,000.
111. Debtors were ali good.
1V. Outstanding expenses be increased by ?600.
V. Interest accrued on Investments ? 1,800.
V1. Goodwill of the firm be valued at 19,000.
Prepare capital accounts and the revised balance sheet.
SOLUTION : 34 (B).
Dr. REVALUATION ACCOUNT Cf-
Particm'ars ? Particulars 1’
To Fixed Assets Ale 5,000 By Provision for Douhtfiil
To Investments A/c 2,000 Debts Ale 1,000
To Outstanding Exp. Me 600 By Accrued Interest Aft: 1,800
By Loss transferred to :
A’s Capital Ale 2,400
B’s Capital NC 1,600
C's Capital NC 800 4,800
16W W
Dr. CAPITAL ACCOUNTS Cr.

Pw-ticm’ars A B C Particulars A B C
? ? f 1' i i!
To Revaluation Ale 2,400 1,600 800 By Balance bid 45,000 30,000 15,000
To C’s Capital NC 900 600 By Profit & Loss A/c 7,500 5,000 2,500
To C’s Loan No 18,200 By A’s Capital No 900
To Balance 0111 49,200 32,800 By B’s Capital NC 600
52,500 35,000 19,000 M 35,000 2,000

BALANCE SHEET OF THE FIRM (After C’s Retirement)

as a! 1'0: April, 2018

Liabilities ? Assets 1'

20,000 Bank Balance 16,000
Sundry Creditors
2,600 Sundry Debtors 15,000
Outstanding Expenses
18,200 Stock 35,000
C’s Loan Account
Accrued Interest 1,800
Capitals :
49,200 Investments 10,000
A
m 82,000 Fixed Assets 45,000
B
1,22,800 _ 1,22,800

?1,500. It will be credited to C’s

Working Note : C’s share of Goodwill = 9,000 x % =
gaining ratio of 3 : 2.
Capital Ale and debited to A and B’s Capital Ales in their
4.26 SOLUTIONS T0 PRACTICAL QUESTIONS

0- 35. M11001. Naveen and Deepak were partners sharing profits and losses in the ratio
014 : 3 : 2.14520 1st April. 2018, their Balance Sheet was as follows:
Liabilities ? Assets f

Trade Creditors 7.000 Cash in hand 5,900

Capitals : Debtors 19,000
Munoj 50.000 Less : Provision m 17,600
Naveen 39.000 Stock 1 3,500
Deepak M 1,19,000 Plant and Machinery 18,000
Motor Car 20,000
Buildings 48,000
Goodwill 3,000
1,26,000 1,26,000

Deepak retired on the above date as per the following terms :

1. Goodwill of the firm was valued at {21,000.
2. Stock to be appreciated by 10%.
3. Provision for doubtful debts should be 5% on debtors.
4. Machinery is to be valued at 5% more than its book value.
5. Motor Car is revalued at 115,500. Retiring partner took over Motor Car at this
value.
6. Deepak he paid 0,000 in cash and balance be transferred to his loan account.
Show necessaryr journal entries. Prepare Revaluation Account, Capital Accounts and
Opening Balance Sheet of continuing partners.

SOLUTION : 35. JOURNAL

Date Particuiars LF. Dr. (1’) Cr. (0
2018
April 1 Manoj’s Capital Aft: Dr. 1,333
Naveen’s Capital Aft: Dr. 1,000
Deepak’s Capital Ale Dr. 667
To Goodwill No 3,000
(Goodwill appearing in the books written off on Deepak’s
retirement)
Manoj ’5 Capital Afc Dr. 2,667
Naveen‘s Capital NC Dr. 2,000
To Deepak’s Capital A/c 4,667
(Deepak’s share of goodwill adjusted to the accounts of
continuing partners in their gaining ratio 1.63., 4 : 3)
Stock No Dr. 1,3 50
Provision for Doubtful Debts Aft: Dr 450
Plant and Machineq Aft: Dr. 900
To Revaluation Afe 2,700
(Increase in the value of assets)
 “;____________________________________
Revaluation .471:
_____________4.-2z
Dr. 4500
Deepak 5 Capital Ne
Dr. 15 500
To Motor Car No
(Motor Car taken over by Deep ’ 20,000
ak at a reduced value of
£15,500)
Manoj‘s Capital Ale
Dr 800
Naveen‘s Capital Ale
Dr. 600
Deepak’s Capital Ale
Dr. 400
To Revaluation Ale
gramsfer of ioss on revaluati 1 300
on)
Deepak’s Capital Aft:
Dr. 18,100
To Cash Me
To Deepak’s Loan Ale 2 000
(Payment in cash and the transfer of 16,100
balance of
Deepak’s Capital to his loan account)
Dr. RBVALUATION ACCOUNT
Cr.
Particulars ? Pmiculars ?
To Motor Car NC 4,500 By Stock Afc
1,350
By Ptovision for Doubtful
Debts No 450
By P1ant8r. Machinery Me 900
By Loss transferred to :
Manoj’s Capital Ale 800
Naveen's Capital No 600
Deepak’s Capital Afe @ 1.300
4,500 4.500
Dr. CAPITAL ACCOUNTS Cr.
Particulars Manoj Naveen Deepak Particulars Manoj Naveen Deepak
- 1' ? ? T i i
To Goodwill A70 1,333 1,000 66? By Balance bid 50,000 39,000 30,000
To Deepak’s Capital By Manoj’s Capital
NC 2,667 2,000 — No
To Revaluation Afc 2,667
800 600 400 By Naveen’s Capital
To Motor Car No 15,500 NC
To Cash Ale 24100
2000
To Dee ’s Loan
M, Pak 16,100
To Balance c/d 45.200 35,400 —
50,000 39,000 34,667 50.000 39.000 34,667
BALANCE SHEET OF THE FIRM (Afier Deepak’s Retirement)
as at 15'1“ April, 2018
Liabilities ‘x’ Assets ?
Trade Creditors 7,000 Cash in hand 3,900
Deepak' 5 Loan A/c 16.100 Debtors 19.000
Less : Provision 932 18,050
Capitals :
Manoj 45,200 Stock 14,350
35,400 80,600 Plant and Machinery 18,900
Naveen
—_ Buildings 48,000
1,031,700 1,113,700

Q. 36. The following was the Balance Sheet of Ram and Shyam as at 315t Match,
2018:
Liabilities 'x’ Assam ?

Ram‘s Capital 30,000 Plant & Machinery 50,000

Shyam’s Capital 27,500 Patents 2,000
6,000 Stock in Trade 23,000
Reserve
Employees’ Provident Fund 500 Debtors 4.000
Creditors 10,000 Cash 1,000
6,000 _._.

£
Net Profits

W
Ram retired from the business on lst April, 2018. Goodwill is to be valued at $10,000.
The Patents were valueless, Plant and Machinery is to be depreciated by 10%. A provision
of 5% for Doubtful Debts15 to be created on Book Debts. Assuming that these adjustments
are duly carried out, show the Capital Accounts and Balance Sheet of Shyam after Ram has
been paid off. Shyam borrows money fi'om his bank on security of Plant and Machinery to
pay off Ram
SOLUTION : 36.
Dr. REVALUATION ACCOUNT Cr.

Particulars ? ‘ Particulars ?
To Patents Ale 2,000 By Loss transferred to :
To Plant & Machinery NC 5,000 Ram’s Capital No 3,600
To Provision for Doubtful Shyam's Capital Aft: 3,600 7,200
Debts A10 200
7,200 7,200

Dr. CAPITAL ACCOUNTS Cr.

Particulars Ram Shyam Particulars Ram Swan:

1’ 2 ? i
To Ram’s Capital No 5,000 By Balance bid 30,000 27,500
To Revaluation No 3,600 3,600 By Reserve Afc 3,000 3,000
To Cash No 1,000 By P 81: L Ale
To Bank No 36,400 (Net Profits) 3,000 3,000
To Balance c/d 24,900 By Shyam’s Capital Aft: 5,000
41,000 33,500 41,000 33,500
RETIREMENT on DEATH OF A PARTNER 4.29
BALANCE SHEET
as at 15! Aprir’. 2018
Liabt'h'tt'es ? Assets ?
Bank Loan {Secured by Plant and Debtors 4,000
Machinery) 36,400 Less : Provision 200 3,800
Creditors 10,000 Stock in Trade 23,000
Employee’s Provident Fund 500 P161081: Machinery 45.000
Shyam‘s Capital 24,900
71,8 71,800

Working Note :

Ram‘s share of Goodwill : 210,000 x % = 15,000.

It will be debited to Shyam’s Capital Ale and credited to Ram’s Capital Ale.
Q. 37. Sameer, Yasmin and Saloni were partners in a firm sharing profits and losses in
the ratio of4 : 3 :3. On 31.3.2016, their Balance Sheet was as follows:

BALANCE SHEET 0F SAMEER, YASMJN AND SALON]

as at 31.3.2016
Liabit‘irier ? Assets 1‘
Creditors 1,10,000 Cash 80,000
General Reserve 60,000 Debtors 90,000
Capitals : Less .' Provision 10,000 80,000
Sameer 3,00,000 Stock 1,010,000
Yasmin 2,50,000 Machinery , _ 3,00,000
Saloni 1,50,000 7,00,000 Building 2,00,000
Patents 60,000
Profit and Loss Account 50,000
8,70,000 8,70,000

On the above date, Sameer retired and it was agreed that :

(1') Debtors of 24,000 will be written off as bad debts and a provision of 5% on
debtors for bad and doubtful debts Will be maintained.
(1'1) An mirecorded creditor of 120,000 will be recorded.
(11'1”) Patents will be completely written off and 5% depreciation will be charged on
stock, machinery and building.
(iv) Yasmin and Saloni will share future profits in the ratio of 3 : 2.
(v) Goodwill ofthe firm on Sameer’s retirement was vlaued at 15,40,000.
Pass necessary jom‘nal entries for the above transactions in the books of the firm on
Sameer’s retirement. (C.B.S.E. 2017. Outside DeIht)
 ___ _________
____________

SOLUTION : 37. .1OURNAL

Particut'ars Dr. (1')
Date
2016
Dr. 60.000
March31 General Reserve Aft:
24,000
To Sameer‘s Capital A10
1 3,000
To Yasmin‘s Capital Ale
1 8,000
To Saloni‘s Capital A10
(General Reserve credited to all patmers in
4 : 3 :3)
March 31 Sameer‘s Capital Ne
20,000

9.9.9
Yasmin’s Capital A/c 15,000
Saloni’s Capital Afr: 15,000
50,000
To Profit 8:. Loss Afc
Accumulated loss debited to all partners in
4 : 3 : 3)
March 31 Yasmin’s Capital Ne (Note 1) Dr. 1,62,000
Saloni’ 5 Capital Ne Dr 54,000
To Sameer’s Capital A10 2, 16,000
(Adjustment for goodwill in the gaining ratio of
3 : l)
March 31 Provision for Bad Debts A10 Dr. 5,700
To Debtors Aft: 4,000
To Revaluation Ale (Note 2) 1 ,700
(Bad debts mitten off and excess provision
credited to Revaluation A/c)
March 31 Revaluation Afc Dr. 1, 10,000
To Creditors No 20,000
To Patents No 60,000
To Stock Aft: 5,000
To Machinery Afc 1 5,000
To Building No 1 0,000
(Decrease in assets and increase in creditors)
March 31 Sameer’s Capital Ale 43,320
9.9.9

Yasmin’s Capital Ale 32,490

Saloni’s Capital Ale 32,490
To Revaluation Aft: 1 ,08,300
(Transfer of loss on revaluation)
March 31 Sameer’s Capital Ale Dr. 4,76,680
To Sameer’s Loan Ale (Note 3) 4,761,680
(Balance of Sameer’s Capital Account transferred
to his Loan Account)

Working Notes :_
(l) Gaining Ratio :
Yasmin. 510
A 6—3
10 i
10
BFTIREM_E_I\I_T_QB1)_E_4
TH OF A PARTNER
4_.31
83.10111 2 Z — —3— : 1:2. : _.I_
5 10 10 10
Gaining Ratio = 3 : 1
(2) Net Debtors ?90,000 — Bad debts
?4,000 = 35,000
Provision @ 5% on 86,000
Less : Existing Provision e10,000-bad debts 44,000 = 4 300
Excess provision Credited to Revaluation = 6:000
A/c
1‘00
(3)
Dr- 314011513110 CAPITAL A/C ct,
Particu1ars ? Particu1ars ?
TO Profit & Loss A/c
20,000 By Balance bfd
T0 Revaluation A10 (Loss) 3,00,000
43,320 By General Reserve
To Sameer’s Loan A10 (Transfer) 24,000
4,76,680 By Yasmin’s Capital Ale
(Goodwill) 1,62,000
By Saloni’s Capital A/c
(Goodwill) 54,000
5,411,000
5,411,000
Q. 38. Following is the Balance Sheet of 11:
Y and Z as at 315’: March, 2018. They
shared profits in the ratio of 3 : 3 : 2.
Liabflit‘ies ? Assets 3
Sundry Creditors 2,50,000 Cash at Bank
General Reserve 50,000
80,000 Bills Receivable
Partners Loan Ales : 60,000
Debtors 80,000
X 50,000 Less : Provision for
Y 40,000 Bad debts 4,000 76,000
Capital A/cs : Stock 1,24,000
X 1,00,000 Fixed A$sets 3,00,000
1’ 60,000 Advertisement SuSpense No 16,000
Z 50,000 2,10,000 Profit and Loss A10 4,000
6,30,000 6,30,000

0n lst April, 2018 1’ decided to retire 00111 the firm on the following terms
:
(a) Stock to be depreciated by ?12,000.
(1;) Advertisement Suspense Account to be written off.
(c) Provision for Bad and Doubtful Debts to be increased to 16,000.
(a) Fixed Assets be appreciated by 10%.
(e) Goodwill of the firm be valued at ?80,000 and the amount due to the retiring
partner be adjusted in X’s and 2’s Capital Accounts.
Prepare the Revaluation Account, Partner’s Capital Accounts and the Balance Sheet to
give effect to the above.
4,32 _________________________________________
SOLUTION : 38.
REVALUATION ACCOUNT Cr-
Dr.
¥ Particulars ?
Particufars
12,000 By Fixed Assets Ale 30,000
To Stock A10
To Provision for Bad 3L Doubtful
Debts A10 2,000
To Profit on Revaluation
transferred to :
X‘s Capital NC 6,000
Y’s Capital A10 6,000
2’ 5 Capital A10 4% 16,000 __
W 30,000

Cr.
Dr. PARTNER’S CAPITAL ACCOUNTS
X 1’ Z Particulars -X Y Z
Particulars
? 2‘ ? f ‘x’ ’4’
By Balance bid 1,00,000 60,000 50,000
To Advertise-
merit Suspe- By Revaluation
6,000 6,000 4,000 Ale (Profit) 6,000 6,000 4,000
nse Ne
To Profit & By General
Loss Afc 1,500 1,500 1,000 Reserve 30,000 30,000 20,000
To Y’s Capital By X’s Capital
No 18,000 — 12,000 A/c —- 18,000 —
To Y’s Loan By Z’s Capital
— 1,18,500 -- A/c — 12,000 ——
Aft:
To Balance 016 1,10,500 — 57,000
1,36,000 1,26,000 74,000 1,36,000 1,26,000 74,000

BALANCE SHEET as at 1st April, 2018

Liabilities 1’ Assets ?
Sundry Creditors 2,50,000 Cash at Bank 50,000
X’s Loan A/c 50,000 Bills Receivable 60,000
Y’s Loan A16 (40,000 + 1,18,500) 1,53,500 Debtors 80,000
Capital A105 : Less : Provision for
X 1,10,500 Bad Debts 6,000 74,000
Z 57,000 1,67,500 Stock 1,12,000
Fixed Assets 3,30,000
6,26,000 6,26,000

Working Note :
1. Y’s share ofgoodwill = 380,000 x 3/8 = {30,000 which is to be contributed by
XandZintheirGainingRatio of3 : 211s under:
X= ?30,000 x 315 = ?18,000; Z= =130,000 x 215 = $12,000
X‘s Capital Alc Dr. 13,000
25 Capital No Dr. 12,000
To Y’s Capital A/c 30,000
BET'RFMENT of: 05410 01: 34 PARTNER 4.33
Q. 39 (A). X. Yand Zwere partners in a firm sharing profits in 5 :3 :2 ratio. On 3151
March, 2016 Z retired from the firm. 0n the date on‘s retirement the Balance Sheet
ofthe
firm was as follows :
BALANCE SHEET OF X. 1’ AND 2
as at 31.91 March, 2016
11911110125 ? Assets ?
Creditors 27,000 Bank 80,000
Bills Payable 13,000 Debtors 20,000
Outstanding Rent 22,500 Less : Provision for
Provision for Legal Claims 57,500 Doubtfill Debts 500 19,500
Capital Nos : Stock 21.000
X 1,27,000 Furniture 87,500
1’ 90,000 Land and Building 2,00,000
2 Mg 2,88,000
4,08,000 4,013,000
011 2’3 retirement it was agreed that :
(1) Land and Building will be appreciated by 5% and ftu'niture will be depreciated by
20%.
(:7) Provision for doubtful debts will be made at 5% on debtors and provision for legal
claims will be made ?60,000.
(171) Goodwill of the firm was valued at ?60,000.
(iv) ?70,000 from Z’s Capital Account will be transferréd to his loan account and the
balance will be paid to him by cheque.
Prepare Revaluation Account, Partners’ Capital Accounts and Balance Sheet ofX and
1’ after Z’s retirement.
SOLUTION : 39 (A).
Dr. REVALUATION ACCOUNT Cr.
Particulars ? Particulars ?
To Fumiture 17,500 By Land and Building 10,000
To Provision for Doubtful Debts 500 By Loss transferred to :
To Provision for Legal Claims 2,500 X’s Capital No 5,250
Y’s Capital A70 3,150
Z’s Capital No 2,100 10,500
20,500 20,500

Dr. PARTNER’S CAPITAL ACCOUNTS Cr.

Particufars X 1’ Z ParticuIars X Y Z
1’ 7 ? 1‘ 7 f
To Revaluation 5,250 3,150 2,100 By Balance b/d 1,27,000 90,000 71,000
To Z's Capital By X’s Capital
No Me
(Goodwill) 7,500 4,500 (Goodwill) 7,500
To Z’s Loan A10 70,000 By 1”5 Capital
4.34 SOLUTIONS TO PRACTICAL QUESTIONS

To Bank (Balan- NC
cing Figure) 10,900 (Goodwill) 4.500
To Balance cfd 1.14.250 82,350
1.27.000 90.000 83,000 1.27.000 90,000 83,000

BALANCE SHEET (after Z‘s Retirement) as at March 31, 2016

£1061117163 1 Assets 1
Creditors 27,000 Bank (80.000— 10,900) 69,100
Bills Payable 13,000 Debtors 20,000
Outstanding Rent 22,500 Less : Provision for
Prevision for Legal Claims 60,000 Doubtful Debts 1,000 19,000
Z’s Loan 70,000 Stock 21,000
Capital Ales : Fumitm'e 70,000
X 1.14,250 Land and Building 2,10,000
Y 82,350 1,96,600
3 89,100 3,89,100

Working Notes :
GainingRatioofXand Y=5:3
Z’s share in goodwill = 60,000 x 120 = 112,000, which is contributed by X and Yin the
13110 of 5 : 3.

Q. 39 (B). A. B and C are partners sharing profits in the ratio of their Capitals. Their
Balance Sheet as at March 31, 2016 is as under :
Liabifities 1 Assets 1
Capitals : Bank 44,800
A 2,00,000 Sundry Debtors 1,72,000
B 2,00,000 Stock 3,00,000
C 1,00,000 5,00,000 Furniture and fittings 46,000
Reserve Fund 40,000
Sundry Creditors 20,000
Outstanding Expenses 2,800
5,62,800 5,62,800
A retired on this date.
Additional Information :
(1‘) Furniture and fittings were undervalued by 14,000.
(1'1) An amount of 112,000 due from Mr. Ann, a debtor, was doubtful
and a provision
for the same is required.
(1‘17) Stock be valued at 90%.
(iv) Goodwill of the firm be valued at 160,000.
(v) 11,00,000 be transferred to A’s loan account and balance be
paid through bank.
Bank overdraft be arranged, if required.
(1203 and Cwill share future profits in 5:3.
Prepare necessary ledger accounts and balance sheet of the firm after
A ’s retirement.
 B‘ETIREMENIQR DEATH OF A PARTNER
4.35
SOLUTION : 39 (B).
Dr. REVALUATION ACCOUNT Cr.
Particulars 1 Particulars 1
To Provision for Doubtful By Fumiture and Fittings 4,000
Debts .411: 12,000 By Loss Transferred to :
T0 Stock A10 30,000 A’s Capital No 15,200
B’s Capital A10 15,200
C’5 Capital NC 7,600 38,000
42,000 42,000
DJ”- CAPITAL ACCOUNTS Cr.
Parrfcw'ars A B C Particuhrs A B C
1 1 1 1 1 1
To Revaluaxion 15,200 15,200 7,600 By Balance b/d 2,00,000 2.00.000 1.00.000
To A’s Capital By Reserve
Alt: Fund 16,000 16,000 3,000
(Goodwill) 13,500 10,500 By B’s Capital
To A ’3 Loan A10
A10 1,00,000 (Goodwill) 1 3,500
To Bank A/c 1,24,800 By C’s Capital
To Balance cfd 1,87,300 89,900 No
(Goodwill) 10,500
2.40.000 2,16,000 1.08.000 2,40,000 2,16,000 1,08,000

BALANCE SHEET OF THE FIRM

as at March 31, 2016

Liabilities 1 Assets 1
Bank Overdraft 80,000 Sundry Debtors 1,72,000
Sundry Creditors 20,000 Less : Provision for
Outstanding Expenses 2,800 Doubtful Debts 12,000 1,60,000
A's Loan No 1,00,000 Stock 2,70,000
Capitals : Furniture & Fittings 50,000
B 1,87,300
C 89,900 2,77,200
4,80,000 4,80,000

Working Notes :
(1) Calculation of Gaining Ratio :
g _ g _ 25 — 16 = 1
s 5 ' 40 40
. g l _ 1540— s __-4oo
03—5
a r9.7
_

(2) A’s share ofGoodwi11= 60,000 X% = 5241000

9
B will be debited by 24,000 X E = 113,500
 __... .__—___.‘__
__-_____-___-____..,.._..
—-——————1-_______________

Cwill be debited by 24000 x % = 210,500

(3) Calculation of Bank Overdraft 1
Bank balance as per Balance Sheet 44.800
1,24,800
Amount required to pay offA
Bank Overdrafi 80.000
._.—

28th
Q. 40. A. B and C are in parmership sharing profits in the ratio of 3 : 2 : 1. On
s:
February. 2017 C retires from the firm. Their Balance Sheet on this date was as follow
Liabifin'es ? Assets ?
Sundry Creditors 1.20.000 Bank 25.000
10.000 Debtors 1,65,000
Outstanding Expenses
Profit 8: Loss Account 1,50,000 Stock 250300
Capital Accounts : Investments 3.00.000
A 5,00,000 Fixed Assets 5,40,000
B 3,00,000
C 2,00,000 10,00,000
12,30,000 12,80,000

The following was agreed upon :

(0 Goodwill ofthe firm is valued at 11,50,000. C sells his share ofgoodwill to A and
Bintheratioofll: 1.
(ii) Stock is revalued at 6.00.000 and debtors arc revalued at ?1,50,000.
(iii) OutStemding expenses be brought down to 03,000.
(iv) waestments are sold at a loss of 10%.
(v) C is paid off in full.
Prepare Revaluation Account, Capital Accounts and the Balance Sheet of the new
firm.
SOLUTION : 40.
REVALUATION ACCOUNT Cr.
Dr.
Particulars ¥ Pmiculars ?

To Provision for doubtful debts 15.000 By Stock 50,000

To Investments By Outstanding Expenses 7,000
(Loss on sale of investments) 30,000 -
To Profit n‘ansferred to :
A’s Capital No 6.000
B’s Capital NC 4,000
C’s Capital Ne m 12,000
M 57,000

CAPITAL ACCOUNTS Cr.

Dr.
A B C Parrimdars A B C
Particulars
i ? f 2‘ ? ¥
To C’s Capital By Balance bid 5,00,000 3,00,000 2,00,000
 FFT|B§M_E_I~J_T_9I3_QEAT_H OF A PARTNER _ _ _ _ 432
Ah: By Profit 82
(Goodwill) 20.000 5,000 Loss A/c 75,000 50,000 25,000
To Bank Ne 2.52.000 By Revalua-
To Balance cm 5.01.000 3.49.000 lion NC 0,000 4,000 2.000
By A '5 Capital
Ne
(Goodwill) 20,000
By B‘s Capital
Alc
(Goodwill) 5,000
5.81.000 3.54.000 2.52.000 5.81.000 3,54,000 2.52.000

BALANCE SHEET OF THE FIRM

as at 1‘s: March, 2017
Liabilities ? Assets 1‘
Sundry Creditors 1.20.000 Bank 43.000
Outstanding Expenses 3,000 Debtors 1.65.000
Capital Accounts : Less : Provision 15,000 1.50.000
A 5.61.000 Stock 3,00,000
B 3.49.000 9.10.000 Fixed Assets 5.40.000
10,33,000 10,33,000
Working Note :
Dr. BANK ACCOUNT Cr.
Particulars ? Partiadars ?
To Balance b/d 25,000 By C’s Capital Afc 2.52.000
To Investments 2.70.000 By Balance e/d 43.000

5 2.95.000 2.95.000
I.
i Q. 41. On 315: Marcl'l, 2018 the Balance Sheet {1st A, 0 and (2 sharing profits and
| losses in proportion to their fixed capitals stood as follows :
Liabilities ? Assets 1‘
Creditors 1.08.000 Cash at Bank 80,000
General Reserve 1.80.000 Debtors 1.00.000
Capital A/cs : Less : Provision 2.000 98,000
A 3.60.000 Stock 90,000
B 2.40.000 Machiner)r 2.40.000
C 1.20.000 7.20.000 Land and Buildings 5,00,000
10,08,000 10,08,000

On lst April, 2018, B wants to retire fi‘om the firm and the remaining partners decide
to carry on. The following re-adjustments of assets and liabilities have been agreed upon
before the ascertainment ofthe amount payable to B :
(1) that. out of the Fire Insurance Premium paid during 2017-18. ? 10.000 be carried
forward as unexpired.
4‘38 ??WT'RNFI‘?P_HPPFJ‘EAE 02515719“
00 that the land and buildings be appreciated by 10%.
rs.
(iii) that provision for doubtfii] debts be brought upto 5% on debto
(iv) that the machinery be depreciated by 5%.
of an outstanding bill for repairs.
(10 that a provision for 2‘15000 be made in respect
at ?1.80.000 and B’s share of the same
(vi) that the goodwill of the entire firm be
future profits in the proportion of 314th
adjusted in the Ales ofA and C who share
and 114th respectively; and
ce be transferred to his Loan No.
(vii) that B be paid €50,000 in cash and the balan
Accomts, Capital Ales and the Balance
Prepaie Revaluation Ale. Partner‘s Current
Sheet of the firm ofA and C.
SOLUTION : 41.
REVALUATION ACCOUNT Cr-
Dr.
z Particulars ?
Particulars
By Unexpired Insurance Afc 10.000
To Provision for Doubtfiil Debts
3.000 By Land and Buildings Afc 50.000
Ale
To Machinery No 12,000
To Outstanding Repairs No 15,000
To Profit transferred to :
A ’5 Current Ale 15.000
B‘s Current Ale 10.000
C’s Current Ale M 30,000

Cr.
Dr. CURRENT ACCOUNTS
Particulars A B C
Particulars A B C
¥ ? f
1‘ f ?

To B’s Cun'ent B}; General

Reserve 90,000 60,000 30,000
Ale
(Goodwill) 45.000 15.000 By Revaluation
15.000 10.000 5.000
Ale
To B’3 Capital
No 1.30.000 By A’s Current
60.000 20,000 Ale
To Bal. c/d 45.000
(Goodwill)
By C’s Current
A/c
(Goodwill) 15,000

1.05.000 1.30.000 3:010 1.05.000 1.30.000 35.000

I
-——'———‘
Cr.
Dr. CURRENT ACCOUNTS
A B C
A B C Paniculars
Particulars 1‘
2 2 f
’x’ f
1.20.000
50.000 By Balance bid 3.60.000 2.40.0001
To Bank Ale
By B’s Current
To B’s Loan 1.30.0001
3.20.0001 A/c
A/c '
RETIREMENT OR DEATH OF A PARTNER 4.39

T0 Balance 0111 3.60.000 1.20.000 ‘ .__.

3.00.000 "317—0000 1.20.000 {007010 3.70.000 1.20.000
BALANCE SHEET OF THE FIRM
(After B's Retirement) as at Is: April. 2018
Liabilities ? Assets ?
Creditors 1.08.000 Cash at Bank 30,000
Outstanding Repairs 15,000 Debtors 1.00.000
B‘s Loan 3.20.000 Less : Provision 5.000 95,000
Capitals : Stock 90,000
A 3.60.000 Unexpired Insurance 10,000
C 1.20.000 4.80.000 Machinery 2.28.000
Current Accounts : Land and Buildings 5.50.000
A 60.000
C 20,000 80,000
—— 10,03,000 10,03,000

Q. 42. A. B and C were in parhtership sharing profits and losses in the ratio of 3 : 2 : 1.
Their Balance Sheet as at 3 lst March. 2018 was as follows :
Liabilities ? Assets 2‘
Capital Accounts : Plant & Machinery 30,000
A 18,000 Fumiture 15.000
B 16.000 Trade Debtors 35.000
C 10.000 44,000 Less .' Provision 2.000 33.000
Trade Creditors 33,000 Cash in hand 1.000
Workmen’s Accident Profit 8:. Loss Ale 3,000
Compensation Reserve 5.000
W0 02,—6
C retired on lst April. 2018. It was agreed that :
(1) Plant and Machinery is to be revalued at (40,000;
the existing provision for bad
debts is to be increased by 50% and liability for work
men’s compensation was
decided at €2,000.
(1'1) Creditors are to be paid 8,000 more.
(2'10 C’s shale of goodwill was valued at $8,000.

You are required to prepare (1) revaluation acco

unt. (if) paralers' capital accounts. and
(11'1“) revised balance sheet after all adjustments
are carried out.
SOLUTION :42.
Dr. REVALUATION ACCOUNT
Particulars Cr.
? Particulars
To Provision for Doubtful f
By Plant 6’: Machinery Ale
Debts A10 10.000
1,000
4-40 €919???.....................
To Creditors NC 3,000
To Profit transfen'ed to :
A '3 Capital NC 3,000
B's Capital NC 2.000
1,000 6.000
("5 Capital NC 10.000
10,090

f Cr-
Dr. CAPITAL ACCOUNTS
A B C
A B C Particulars
Particulars f 1 ?
? i i
1.000 500 By Balance 0111 18.000 16,000 10,000
To Profit & Loss A/C 1,500
By Workmen’s
To C’s Capital Aft:
6,000 2,000 —- Accident Compen-
(Goodwill) e No 1,500 1.000 500
To Balance cld 15.000 16.000 19,000 sation Reserv 1,000
3,000 2,000
By Revaluation NC
By A‘s Capital A/c
6.000
(Goodwill)
By B’s Capital Ne
2.000
(Goodwill)
22.500 19,000 19,500
22.500 19.000 19.500
19.000 By Balance bid 15.000 16.000 19,000
To Cash Afc 11.875 7.125 —-—
26.875 23.125 By Cash No
To Balance eld
26.875 23.125 19.000
26.875 23.125 19.000

BALANCE SHEET
as at April 1', 2018 (afier C ’3' retirement)
? Assets ?
Liabilities
Cash in hand 1.000
Liability for Workmen’s
2.000 Trade Debtors 35.000
Accident Compensation
36,000 Less : Provision 3.000 32,000
Trade Creditors
Furniture 15,000
Capital Accounts ; 40,000
A 26.875 Plant & Machinery
B 23.125 50.000
88,000 88,000

Hints (1): 22.000 will be

‘Liability for Workmen's AccidentCompensation’ amountingto23.000
balance of will be
shown on the liabilities side of the new balanc e sheet and the
distributed among all the partners.
(2) Gaining Ratio for adjustment of goodwill =
5 15—12 i
cum

A 24 24
8
9—8 L
mlM
0:311...)

B 24 4
N
 You are required to give the 'oumal entri f ' . ..
booksofthe firm. I es °’ “3° ”de
(LS. C. Sam
Payment to Blhan 1n the
ple Question Paper 2035,)
SOLUTION : 43.
JOURNAL
Dare Particulars L.F. Dr. R) Cr. 6)
Vehicle No
Dr. 20 000
To Revaluation Ale
(Vehicle recorded in the books) 20 000

Revaluation Ale
Dr. 20,000
To Anand’s Capital NC
6,667
To Bihari’s Capital Ale
6,667
To Shivin's Capital Afc
6,666
(Transfer of profit on revaluation)
Bihari‘s Capital Afc
Dr. 46,667
To Vehicle NC
20,000
To Bank Ale
26,66?
(Payment made to retiring pafinel')

Adjustment of Capitals
Q. 44. The Balance Sheet of )1; Y and Z who were sharing profit in proportion
of
capitals is as follows :
Liabilities 1' Assets ?
Sundry Creditors 1,000 Cash at Bank 15,600
Capital A/cs : S. Debtors 5.000
X 25,000 Less : Provision i0 4,900
1’ 20,000 Stock 10,000
Z 15,000 Plant and Machinery 11,500
Land and Building 25,000
6?,000 61.000
Y retires and the following adjustments of the assets and liabilities have been made
before the ascertaimnent ofthe amount payable by the firm to Y :
(0 That the stock be depreciated by 5%.
(it) That the provision for doubtful debts be increased to 5% on debtors.
(iii) That the land and building be appreciated by 20%.
(iv) That a provision of ?750 be made in respect of outstanding legal charges.
(v) That the Goodwill ofthe entire firm be fixed at ? 16,200 and Y‘s share ofthe same
be adjusted into the Accounts ofX and 2'.
(w) ThatX and Z decide to share future profits of the firm in equal proportion.
(vii) That the entire capital of the new firm is fixed at ?48,000 between X and Z in
equal proportions. For the purpose, actual cash is to be brought in or pald off.
 SOLUTIONS T0 PRACTICAL QUESTIONS
Accounts,
You are required to prepare the Revaluation Account, Partner's Capital
the gaming
Bank account and revised balance sheet after 1” s retirement. Also indicate
ratio.

SOLUTION : 44.
REVALUATION ACCOUNT Cr.
Dr.
Particw'ars ? Particulars 1'
500 By Land and Building No 5,000
To Stock NC
To Provision for Doubtful Debts
NC 150
To Outstanding Legal Charges No 750
To Profit uansferred to :
X’s Capital Ale 1,500
Y‘s Capital Ale 1,200
25 Capital A/c fl 3,600
E6071 57360

Dr. CAPITAL ACCOUNTS Cf-

Parricufars X Y Z Particulars X Y Z

1‘ f i 1‘ 2' ?
1,350 4,050 By Balance b/d 25,000 20,000 15,000
T0 Y’s Capital NC
To Y’s Loan No 26,600 By Revaluation
To Balance cfd 25,150 11,850 No 1,500 1,200 900
By X’s Capital Afc
(Goodwill) l ,350
By Z’s Capital Ale
(Goodwill) 4,050
26,500 26,600 1 5,900 26,500 26,600 15,900

To Bank Ale 1,150 By Balance b/d 25,150 11,850

To Balance cfd 24,000 24,000 By Bank No 12,150
25,150 24,000 25,150 24,000

Dr. BANK ACCOUNT Cr.

Particulars 1‘ Particuiars ?
T0 Balance bfd 15,600 By X‘s Capital Ale 1,150
To Z’s Capital No 12,150 By Balance cfd 26,600
'@ 27,750
NEW BALANCE SHEET OF THE FIRM
as a! .....................................

Llhbflities ? Assets ?
slum Creditors 7,000 Cash at Bank 26,600“)
Outstanding legal charges 750 Sundry Debtors 5,000
Y’s Loan 26,600 Less : Provision 250 4,750
Capitals ; Stock _ 9,500
X 24,000 Plant and Machinery 11,500
 2 24,000 43,000 Land and Building 30 000
82,350 "

Calculation of Gaining Ratio on F5 retirement :

- _l._i_6_'2=_1_
XGW "212 12 12
— =,1__i=6_:l_i
ZGM’ 2 12 1 '1
Y‘s share ofGoodwill = 16,200 x 112 = 05,400
It will be credited to Y’ 5 Capital Ale and debited to X and 2’s Capital Ales in their
gaining ratio of 1 : 3.
Q. 45. On 3 Ist March, 201 5, the Balance Sheet of Saman, Harish and Meeta who
were
shating profits and losses in the ratio of 2 : 3 : 2, stood as follows :

BALANCE SHEET
as at 31.7: March, 2015
Liabilities ? Assets ?
Capitals : Saman 10,00,000 Land and Buildings 19,00,000
Harish 15,00,000 Machinery 5,00,000
Meeta 10,00,000 35,00,000 Fumiture 7,70,000
Workmen Compensation Reserve 8,40,000 Closing Stock 5,90,000
Sundry Creditors 5,10,000 Sundry Debtors 7,00,000
Cash 4,130,000
43,50,000 43,50,000

0n 3 lst March, 2015, Harish retired from the firm and the remaining partners
decided
to carry on the business. It was agreed to revalue the assets and liabilities as follows
:
(1‘) Land and buildings be appreciated by 20%.
(1'1”) Machinery be depreciated by 20%.
(1'11”) Closing stock be valued at ?4,50,000.
(iv) Provision for Doubtful Debts be made at 5% on Debtors.
(v) Sundiy creditors of ?65,000 be written off.
(vi) Goodwill ofthe firm be valued at 35,60,000 and Harish’s share ofthe goodwil
l be
adjusted in the accounts of 83111011 and Meeta who will share the filture profits and
losses in the ratio of 3 : 2.
(vii) The total capital of the newly constituted firm will be 85,00,000, which will be
adjusted by opening Current Accounts.
(viii) Amomtt due to Harish was settled by accepting a bill of exchange in his favom
payable after 4 months.
Prepate Revaluation Account, Partners’ Capital Accounts and Balance Sheet of the
new firm on Harish’s retirement. (0.3.3.13. 2016 Comptt. Delhi)
4.44 SOLUTIONS T0 PRACTICAL _OU_E_S:|'10NS

SOLUTION : 45.
REVALUATION ACCOUNT Cr.
Dr.
? Particulars ?
Particulars
1.00.000 By Land and Building Ale 3,80,000
T0 Machinery NC
T0 Stock Ne 50,000 By Sundry Creditors 65.000
To Provision for Doubtful
Debts No 35,000
To Profit transferred to 1
Saman‘s Capital A110 74,286
Harish‘ 5 Capital A/e 1,11,428
Meeta‘s Capital Afc 74,286 2 60,000
4,45,000 4,45,000

Dr. PARTNERS‘ CAPITAL ACCOUNTS C?"

Harish Meeta Particulars Saman Hamish Meeta

Particulars1 Samar:
? f f ? ? f
To Harish‘s By Balance
Capital bid 10,00,000 15,00,000 10,00,000
A162) 1,76,000 —— 64,000 By Re-
To Bills valuation
NC 74,236 1,11,428 74,286
Payable
Ale - 22,11,428 — By
To Balance Workmen
616(3) 21,00,000 — 14,00,000 Compen—
sation
Reherve
Afc 2,40,000 3,60,000 2,40,000
By Saman’s
Capital
NC
(Goodwill) — 1,76,000 #
By Meeta‘s
Capital
Afc
(Goodwill) — 64,000 —
By Saman’s
Current
Ale (B131.
Fig.) 51,61,714 —
By Meeta’s
Current
Ne (33].
Fig.) — — 1,49,714
22,76,000 22,11,428 14,64,000 22,76,000 22,11,428 14,64,000
BFTlfi‘EhtEhluigfittEfiTj-l 01: A PARTNER 4.45
BALANCE SHEET OF NEW FIRM
as at 3151‘ March, 201'5

______ Liabilities 1‘ Assets ?

Sundry Creditors Land and Building 22,80,000
65,10,000 — €65,000) 4,45,000 Machinery 4,00,000
Bills Payable 22,11,428 Furniture 7,70,000
Capitals : Saman 21,00,000 Closing Stock 4.50.000
Meeta 14,00,000 35,00,000 Sundry Debtors 7,00,000
Less .' Provision for
Doubtful Debts 35,000 6,65,000
Cash 4,80,000
Saman‘s Current Afc (Dr. Bal.) 9,61,?14
Meeta‘s Current NC (Dr. 301.) 1,49,714
61,56,428 61,56,428

Working Notes :
(1) Calculation of Gaining Ratio :
Gaining Ratio = New share — 01d share
,
Saman s Gain
. _§_2=21—10=11_
—5 7 35 35
, . "2 2:14—10:40
MeetasGatn —5—7 ““35 35

GainingRatio =‘1‘L'i01'11
35 '35
-4
' '

(2) Harish‘s Share of Goodwill ?5,60,000x3/7= ?2,40,000. It is adjusted between

Saman and Meetaintheir gainingratioofll:4asm1der:
Saman = 352,410,000 x11/15 = $1,715,000
Meeta = 42,40,000 x 4115 = 1' 64,000
(3) Total Capital of the 110w firm = 65,00,000
Saman’s Capital in the new firm = ?35,00,000 x 3/5 = {21,00,000
Meeta’s Capital in the new firm = {35,00,000 x 2/5 = ?14,00,000

Q. 46. Ajay, Vijay and Sanjay are partners in a firm sharing profits and losses in the
ratio of 5 : 4 : 3. Vijay retires. After making all adjustments relating to revaluation,
goodwill and accumulated profits, etc. the capital account of Ajay showed a credit balance
of 72,00,000 and that of Sanjay €100,000. It was decided to adjust the capitals ofAjay and
Sanjay in their profit sharing ratio. You are required to calculate the new capital of the
partner’s and record necessaiy entry for surplus/deficit.
SOLUTION : 46. '
Total Capital of Ajay and Sanjay
afler all adjustments = 12,00,000 + {1,00,000 = 8,00,000
This Capital should be in their profit sharing ratio tie. 5 : 3.
colt.» oo|m

Ajay’s Capital in the new firm should be = 3,00,000 x = $1,117,500

Sanjay’s Capital in the new firm should be = 3,00,000 x = 71,12,500

 0
00,000 — 71,87,500 : 712,50
Hence. Cash to be withdrawn by Ajay :- 72.
— 71,00,000 = 712,500
Cash to be bought in by Sanjay : 71, 12,500
JOURNAL
L.F. Dr. (7) Cr. (7)
Date Particulars
Dr. 12,500
Ajay's Capital A16 12,500
To Bank No
to profit
(Amount withdmwn by Ajay to bring his capital
sharing ratio)
Dr. 12,500
Bank Ale
12,500
To Sanjay’s Capital Aft:
to profit
(Amount brought in by Sanjay to raise his capital
sharing ratio)
il
fits in the ratio of 3 : 2 : 1. On Apr
Q. 41X. Yand Zare paralers ina firm sharing pro w firm shall be
Z agree that the capital of the ne
lst 2018, X retires from the firm, 1’ and
ital Accounts of Y and Z after all
fixed at 72,10,000 in the profit sharing ratio. The Cap
ances of 71,45,000 and 763,000
adjustments on the date of retirement showe d bal
brought in or to be paid to the partners.
respectively. State the amount of actual cash to b 0
SOLUTION : 47.
: 1
New ratio of Y and Z attenX’s retirement 2
7

x% 1,40,000
Y‘s Capital in the new firm should be : 2,10,000
1,45,000
Y’s existing Capital
5,000
Hence, Cash to be withdrawn by Y
7
70,000
Z‘s Capital in the new firm should be : 2,10,000 X %
Z‘ 5 existing Capital 63,000
7 000
Hence, Cash to be brought in by Z __J_.—

at Slst March
Q. 48. Following is the Balance Sheet of Kusum, Sneh and Usha as
r capitals.
2018, who have agreed to share profits and losses in proportion ofthei
Balance Sheet of Kusum, Sneh and Usha
m at 316': March, 2018
7 Assets 7
Liabilities
Land and Building 4,00,000
Capitals :
Kusuin 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 2,20,000
Employee’s Provident Fund 70,000 Less : Provision for
Workmen Compensation Doubtful debts 20,000 200,000
Reserve 30,000 Cash at Bank 2,00,000
Sundry Creditors 1,00,000
16,00,000 W
RETIREMENT OH DEATH OF A PARTNER 4.47

On 3 1 st March, 2018 Kusum desired to retire from the firm and the remaining partners
decided to carry on the business. It was agreed to revalue the assets and re-assess the
liabilities on that date. on the following basis :
(1') Land and Building be appreciated by 30%.
(11‘) Machinery be depreciated by 30%.
(111') There were Bad debts of 735,000.
(iv) The claim on account of Workmen Compensation Reserve was estimated at
715,000.
(V) Goodwill of the firm was valued at 72,80,000 and Kusum‘s share of goodwill was
341118th against the Capital Accounts of the continuing partners Sneh and Usha
who have decided to share fiiture profits in the ratio of3 : 4 respectively.
(01) Capital ofthe new film in total will be the same as before the retirement ofKusum
and will be in the new profit sharing ratio of the continuing partners.
(vii) Amount due to Kusum be settled by paying 71,00,000 in cash and balance by
transferring to her loan A/c which will be paid later on.
Prepare Revaluation Account, Capital Accounts Partners and Balance Sheet of the
new firm afier Kusum’s retirement.
SOLUTION : 48.
Dr. REVALUATION ACCOUNT Cr.
Particulars 7 Paflicufars 7
To Machinery Afc 1.80.000 By Land and Building No 1,20,000
To Bad Debts Ale (Note 1) 15,000 By Loss transferred to :
Kusum’s Capital Ale 21,429
Sneh’s Capital Ale 32,143
Usha‘s Capital A/c M 75,000
1.95.000 l .95 .000

Dr. PARTNER’S CAPITAL ACCOUNTS Cr.

ParriCuiars Kusum Sneh Usha Particulars Kusum Sneh Usha
7 7 7 7 . 7 7
To Revaluation By Balance bid 4,00,000 6,00,000 4,00,000
No (Loss) 21,429 32,143 21,428 By Workmen
T0 Kusum’s compensation
Capital NC reserve 4,286 6,428 4,286
(Goodwill) —- —- 80,000 By Usha‘s
To Bank Ne 1.00.000 — — Capital Afc 80,000 — —
To Kusum‘s (Goodwill)
Loan A10 3.62.857 — —
T0 Balance Cid — 5.74.285 3.02.858
4,84,286 6.06.428 4,04,286 4.84.286 6.06.428 4.04.286

To Balance cfd 6.00.000 8.00.000 By Balance bid 5.74.285 3,02,858

By Bank A10
(301. Fig.) 25,715 4.97.142
6.00.000 8.00.000 6 00,000 8.00.000
4.40

——__——
_——__—
as at 3731 March, 2018
__

Liabilities 7 Assets 7
Capitals :
Land and Building
Sneh 5.20.000
6,00,000 Machinery
Usha 4,20,000
8.00.000 14,00,000 Closing Stock
Kusum‘s Loan No 2,00,000
3.62.857 Sundry Debtors
Employees Provident Fund 1.85.000
70,000 Cash at Bank (Note 4)
Workmen Compensation Claim 6.22.357
15,000
Sundry Creditors
1,00,000
19,47,857 19,47,857
Working Notes :
1. Entries for Bad Debts :
Bad Debts A70 7 '5'
Dr. 3 5,000
To Sundry Debtors
35,000
Provision for Doubtful Debts
Dr. 20.000
Revaluation Ne
Dr. - 15,000
To Bad Debts No
35.000
2. Kusum’s shale ofGoodwill = 22,30,000 x 747 = 700,00
0
Kusum’s share of Goodwill will be contribu
ted by Sneh and Usha in their gaining ratio.
Only Usha is a gaining pewter. so only she
will contribute towards Kusum’s share cfgoodwi
Gaining Ratio ll.
= New Ratio—Old Ratio
Sneh’sGain = 37—7.:ML
. am-
UshasG _— .‘
7 LL Z
?-?
3. Total Capital of the firm before the retireme
nt of Kusum
as per the Opening Balance Sheet = 74,00,000 + 76,00,000 + 74,00,000
= 714.00.000
Sneh’s Capital in the New Firm = {14,00,000 x %= 76,00,000
Usha’s Capital in the New Firm = z 14,00,000 x %= 78,00,000
4.
Dr. BANK ACCOUNT
Cr.
Particulars 7 PmieuIars 7
To Balance bid 2,00,000 By Kusum’s Capital Aft:
To Sneh’s Capital Me 1.00.000
25,715 By Balance c/d 6.22.857
To Usha’s Capital No 4,117,142
7.22.857
7.22.857
Retirement and Settlement of Loan
Q. 49. A, B and C are partners sharing profits in
4: 3 : 3. Their Balance Sheet as at 3101
March 2018 was as follows:
 A PARTNER ____________ 4.49
RE
__ TI
__ RE
__ ME
__ NT
__ on_DEATH OF——
__
____rr_____r __ ___7____
7 Assets
Liabilities 5.00.000
Sundry Creditors 1,20,000 Land and Building
2.40.000
40.000 Stock
General Reserve 1,50,000
Debtors
Capital Accounts :
4.00.000 Less .' Provision for
A
Doubtful
B 2,00,000
Debts _3_0_,_09_0 1,20,000
C 2,00,000 0.00.000 1.00.000
Cash at Bank
M
9.60.000
in the ratio of
reti res on lst Apri l, 201 8 and A and B decide to share future profits
C
6 : 4. It is agreed that :
000.
(1') Goodwill of the firm is valued at 780,
.
71, 00,000 and Stock is overvalued by 20%
(11‘) Land & Building is undervalued by
to be decreased to 710,000.
(1'11) Provision for Doubtful Debts is
ecorded in the books.
(iv) Computer valued 730,000 was unr
this computer and the balance in annual
It was decided to pay off C by giving him p.a.
h interest @ 10%
instalments 0f 71,00,000 together wit
You are required to prepate :
(a) Revaluation Account.
(6) CS Capital Account, and
closed.
(c) C’s Loan Account till it is finally

SOLUTION : 49.
Cr.
Dr. REVALUATION ACCOUNT
Particulars 7
Particulars 7
40,000 By LandandBuilding Ale 1.00.000
To Stock No
By Provision for Doubtfiil
To Profit on Revaluation 20.000
Debts Ale
transferred to :
44.000 By Office Equipments
A’s Capital Ale 30,000
33,000 (Computer)
B‘s Capital Afc
C’ 5 Capital Ale 33.000 1.10.000
1.50.000
1.50.000

Cr.
Dr. C’s CAPITAL ACCOUNT
Particulars 7
Particulars 7
By Balance bid 2,00,000
To Office Equipments 16,000
(Computer) A10 30.000 By A’s Capital Ale (Goodwill)
8,000
To C’ 3 Loan No 2.39.000 By B’s Capital Ale (Goodwill)
By Revaluation NC 33,000
By General Reserve A70 12,000
2.69.000
2.69.000
 (1) C's Sham OfGOOdWill = 30,000 x % : 224,000
It will be debited to A and B in their gaining ratio :
01dRatioofA,BandC = 4:3:3
New RatioofA andB = 6:4

A Gains = i
10
_i
10
= .2.
10
B Gains = i_i=i
10 10 10
Gaining Ratio = 2:1
Dr. C’S LOAN ACCOUNT Cr.
Dare Particulars 7 Date Particulars 7
2019 2018
Mar. 31 T0 Bank A/c April 1 By C’s Capital Ne 2.39.000
(1.00.000 + 23 .900) 1.23.900 2019
Mar. 31 To Balance 076 1.39.000 Mar. 31 By Interesth
(10% on 2.39.000) 23,900
2.62.900 2.62.900

2020 2019
Mar. 31 To Bank Ale April 1 By Balance bld 1,39,000
(1.00.000 + 13,900) 1.13.900 2020
Mar. 31 To Balance c/d 39.000 Mar. 31 By Interest Alc
(10% on 1.39.000) 13.900
1.529110 1.52.900

2021 2020 _ . / .
Mar. 31 To Bank Ah: 42,900 April] By Balance bid 39,000
2021 _ ' ' '
Mar. 31 By Interest No
(10% on 39,000) 3,900
42,900 ' 42.900

Q. 50. Lalit, Madhur and Neens werepartherfihapng profits as 50%. 30% and 20%
respectively. On 3 1st March, 2013, their Balance Sheet was as follows :
7 Assets 7
Liabilities
28,000 Cash - 34,000
Creditors
10,000 Debtors 47,000
Provident Fund
Investment Fluctuation Fund 10,000 Less : Provision for Bad
and Doubtfiil Debts m 44,000
Capital A/cs :
50,000 Stock 15.000
Lalit
Investment 40,000
Madhur . 40,000
1.15.000 6004111011 20,000
Neena 25,000
Profit and Loss Ale 10,000

1.63.000 ' 1.63.000

 On this date, Madhur retired and Lalit and Neena agree
d to continue on the following
terms :
(a) The goodwill of the fitm was valued at 751,000.
(b) There was a claim for Workmen's Compensation
to the extent of 76,000.
(c) Investment were brought down to 715,000.
(d) Provision for bad debts was reduced by 71.0
00.
(0) Madhur was paid 710,300 in cash and the balan
ce was transferred to his loan
account payable in two equal instalments together with interest
@12% p.70
Prepare Revaluation Account. Partners’ Capital Acco
unts and Madhur’s Loan
Account till the loan is finally paid off.
(0.3.5.5. 2015, Comptt.)
SOLUTION : 50.
Dr. REVALUATION ACCOUNT Cr.
Particulars 7 Particulars 7
To Workmen‘s Compensation By Provision for Bad and
Claim Ale 6,000 Doubtful Debts 14/0 1,000
To Investment Ale“) 15,000 By Loss transferred to :
Lalit’s Capital No 10,000
Madhur’s Capital No 6,000
Neena’s Capital Ale m 20,000
M00 W
Dr. PARTNERS' CAPITAL ACCOUNTS
Cr.
Particulars Lair? Madhur Neena Particulars Leif: Madhur Neena
7 7 7 7 7 7
To Revaluation By Balance bfd 50,000 40,000 25,000
Ale (Loss) 10,000 6,000 4.000 By Lalit’s Capital
To Profit and N012)
Loss Aft: 5,000 3.000 2.000 (Goodwill) — 10,929 —
To Goodwill Ale 10,000 6,000 4,000 By Neena’s
To Madhur’s Capital A7612)
Capital NC 10.929 — 4.371 (Goodwill) — 4,371 -—-
To Cash Afc — 10,300 —
To Madhur’s
Loan Ne
(Bal. Fig.) — 30.000 ——
T0 Balance cfd 14,071 — 10,629
50.000 55.300 25.000 50,000 55,300 25,000

Dr. MADHUR‘S LOAN ACCOUNT Cr.

Date Particulars 7 Date Particuiars 7
2013 2013
Mar. 31 To Balance c/d Mar. 31 By Madhur's Capital
30,000 Ale 30_.00_0
4.52 SOLUTIONS T0 PRACTICAL QUESTIONS

20 14 201 3
Mar. 31 To Cash Ne 18,600 April 1 By Balance bid 30,000
Mar. 31 T0 Balance cz’d 15.000 2014
Mar. 31 By Interest No 3.600
m 33,600

2015 2014
Mar. 31 To Cash Ne 16,800 April 1 By Balance bid 15,000
2015
Mar. 31 By Interest NC 1,800
m 16,800

Working Notes :
1. Investment Fluctuation Fund Ale Dr. 10.000
Revaluation Afc Dr. 15,000
To Investments Ne 25,000
2. Madhur’s share of Goodwill = 51,000 x 736 = 715,300, which is adjusted between
Lalit and Neena in their gaining ratio of 5 : 2.

Q. 51. R, S and Twere partners in a firm sharing profits in 2:2 : 1 ratio. 01114-2017
their Balance Sheet was as follows :
Liabilities 7 Assets 7
Bank Loan 12,800 Cash 51,300
Sundry Creditois 25,000 Bills Receivable 10.300
Capitals : Debtors 35,600
R 80,000 Stock 44,600
S 50,000 Furniture 7.000
T M 1.70.000 Plant and Machinery 19,500
Profit and Loss A10 9,000 Building 48,000
2.16.800 2.16.800

S retired from the firm on 1-4-2017 and his share was ascertained on the revaluation of
assets as follows :
Stock 740.000; aniture 76.000; Plant and Machinery 718,000; Building 740.000;
71,700 were to be provided for doubtful debts. The goodwill of the firm was valued
at
712,000.
S was to be paid 721.6 80 in cash on retirement and the balance in three equal
quarterly
instalments (starting from 30th June 2017) along with interest @12% 15.01.
Prepare Revaluation Account, Partner’s Capital Accounts, S’s Loan
Account and
Balance Sheet on 1-4-2017.
SOLUTION : 51.
Dr. REVALUATION ACCOUNT Cr.
Particulars 7 Particulars 7
To Stock 4,600 By Loss on Revaluation
BEItREMENT on DEATH OF A PARTNER 4.53
To Fumjttu-e 1,000 transferred to :
To Plant & Machinery Aft: 1,500 R's Capital Axe 6,720
To Building 8.000 S‘s Capital Aft: 6,720
To Provision for Doubtful Debts 1.700 T’s Capital No 3.360 16.800
16.800 16,800

Dr. PARTNER’S CAPITAL ACCOUNTS Cr-

Parriculars R S T Particulars R S T
7 7 7 7 7 7
T0 Revaluation By Balance b/d 80,000 50,000 40,000
No (Loss) 6,720 6.720 3.360 By Profit &
To S’s Capital Loss No 3.600 3,600 1.300
NC 3,200 -— 1.600 By R‘s Capital
To Cash Ne — 21,680 — A70 —- 3,200 —
To S’s Loan — 30,000 — By T’s Capital
T0 Balance cfd 73 .680 — 36,840 MC — 1.600 —
83,600 58,400 41,800 83,600 58,400 41,800

BALANCE SHEET
as at 01.04.2017
Liabilities 7 Assets 7
Bank Loan 12,800 Cash (51.300 — 21.680) 29.620
Sundry Creditors 25,000 Bills Receivable 10,800
S’s Loan 30,000 Debtors 35,600
Capitals : less : Provision 1,700 33,900
R 73,680 Stock 40,000
1" 36,840 1.10.520 Furniture 6.000
Plant & Machinery 18.000
Building 40,000
1.78.320 1.78.320

Dr. S’s LOAN ACCOUNT Cr.

Date Particulars 7 Date Particulars 7
2017 2017
June 30 T0 Bank Ne April 1 By 3' Capital No 30.000
(710,000 + 7900) 10,900 June 30 By Interest A70
Sept. 30 To Bank Ale - 12 32
(710,000 + 7600) 10,600 ( 30,000 -— 90
x 100 x1” -—
Dec. 31 T0 Bank Afe ' Sept. 30 By Interest No
(710,000+ 7300) 10.300 (20000x-10—20x-3—) 600

Dec. 31 By 11110168th2

(10.000 x——
12%
00x 300
31.800 31.800
4.54 SOLUTIONS T0 PRACTICAL QUESTIONS

Q. 52. Following is the Balance Sheet of G. K & W as at 3151 March, 2015 who share
profits in the ratio 013 : 2 : 1.
7 Assets 7
Liabilities
Goodwill 7.500
Capital Accounts :
G 22.000 Stock 12,500
K 13.000 Sundry Debtors 12.000
W 9.000 44.000 Land and Buildings 15,000
Sundry Creditors 10,000 Plant and Machinery 13.000
Bills Payable 4,000 Motor Vehicle 5,000
General Reserve 12,000
70.000 W

On lst April, 2015. G retired and the following arrangements were agreed upon :
(l) Goodwill of the firm is to be valued at 715,000.
(2) The assets and liabilities are to be valued as under : Stock 710,000; Sundly
Debtors 711.500; Land and Buildings 718,000; Plant and Machinery 716,500;
and Sundry Creditors 79,200.
(3) Liability for Workmen's Compensation amounting to 7500 is to be brought into
the books.
(4) The entire capital of the firm as newly constituted be fixed at 735,000 between K
and W in the proportion of 4 : 3 and the actual cash to be paid off or to be brought
in by continuing partners as the case may be.
(5) 713,150 were paid to G. The balance due to him was to be paid in three equal
instalments annually together with interest @ 12% per annum.
Give necessary ledger accounts. the Balance Sheet ofthe firm after G’s retirement and
G’s Loan Account till it is finally paid off.
SOLUTION : 52.
REVALUATION ACCOUNT Cr.
Dr.
Particulars 7 Pafiiculars 7
To Stock Ale 2,500 By Land and Buildings NC 3,000
To Provision for Doubtful By Creditors NC 800
Debts Aft: 500 By Loss transferred to :
To Plant and Machinery A10 1.500 G’s Capital N0 600
To Workmen’s Compensation No 500 K’s Capital A70 400
W’s Capital Afc @ 1,200
5,000 - 5,000

Dr. CAPITAL ACCOUNTS Cr.

Pafiicuiars G K W Particulars G K W
7 7 7 7 7 7
To Revaluation Afc 600 400 200 By Balance bid 22,000 13,000 9,000
To Goodwill Ale 3,750 2,500 1,250 By General Reserve 6,000 4,000 2,000
To G’s Capital Aft: — 5.000 2,500 By K‘s Capital No 5,000
To Balance c/d 31.150 9.100 7,050 By W’s Capital A10 2,500
35,500 17,000 11,000 35,500 17,000 11,000
RETIREMENT OR DEATH OF A PARTNER 4.55

T0 Bank No 13.150 By Balance bid 31,150 9,100 7,050

To G's Loan Ne 13.000 By Bank Ne 10.900 7,950
To Balance Cid 20.000 15.000 _ ____
371.7150 M m0 31.150 20,000 15,000
Note : 4 : 3 is not the new profit sharing ratio. Only the Capital ofthe new firm amounting
to 735.000 is to be adjusted in this ratio.
BALANCE SHEET
as at April 1. 2015 (afier G's retirement]
Liabilities 7 Assets 7
Workmen‘s Compensation 500 Bank Balance
Bills Payable 4,000 (10,900 + 7,950 — 13.150) 5.700
Sundry Creditors 9.200 Sundry Debtors 12,000
G’s Loan 18,000 Less .' Provision 500 11.500
Capital Accounts : Stock 10.000
K 20,000 Motor Vehicle 5.000
W 15,000 35,000 Plant and Machinery 16.500
Land and Buildings 18,000
66.700 66,700
Dr. G’S LOAN ACCOUNT Cr.
Dare Particulars 7 Date Particulars 7
2016 2015
Bist March T0 Bank Aft: lst April By G’s Capital No 18.000
(6.000 + 2.160) 8,160 2016
3lst March To Balance cr’d 12,000 3lst March By Interest on 718,000
@ 12% p.a. 2,160
20.1 20,160
2017 2016
3lst Match To Bank A70 1st April By Balance bid 12,000
(6,000 + 1,440) 7.440 2017
3151 March To Balance old 6,000 Slst March By Interest on 712,000
@ 12% p.a. 1,440
13,440 ' 13. 0
2018 2017
3lst March To Bank A70 6,720 lst April By Balance bid 6,000
2018
3lst March By Interest on 76,000
@ 12% p.a. 720
6.720 6_,72‘0
Q. 53 (A). The Balance Sheet ofX: Y and Z
who are sharing profits & losses in the
proportion of 1/2 : 1/3 : 1/6 respectively was as
follows as at March 31, 2015 :
Liabilities 7 ASSets f
Sundry Creditors 12,900 Cash at Bank
25,650
4.56 SOLUTIO_NS T0 p_a_Atc:_T_Iest 9115.5.qu0?
Bills Payable 6,000 Bills Receivable 5.400
1,500 Book Debts 17.800
Reserve Fund
Profit & Loss NC 3,000 Stock 22,300
Capitals ; Furniture 3,500
40,000 Buildings 24,000
X
Y 25,000 Machinery 9,750
Z 20,000
1 03.400 1.08.400

is to be
X retires from the business from lst April. 2015 and his share in the firm
ure 73,000;
ascertained on a revaluation of the assets as follows : Stock 720.000; Furnit
The
Machinery 79,000; Building 720,000; and 7850 are to be provided for doubtful debts.
on
goodwill of the firm is agreed to be valued at 76,000. X is to be paid 711,050 in cash
retirement and the balance in three equal annual instalments with interest at 5% p.a.
final
Show Revaluation Account, X’5 Capital Account and his Loan Account till
payment.

SOLUTION : 53 (A).
REVALUATION ACCOUNT Cr.
Dr.
Particulars 7 Particulars 7

To Stock Ne 2,300 By Loss transferred to :

To Furniture Ale 500 X’s Capital No 4,200
To Machinery Afc 750 PS Capital Ale 2,800
To Building No 4,000 Z‘s Capital No 1,400 8,400
To Provision for Doubtful
Debts A10 850
8.400 8,400

Dr. X’s CAPITAL ACCOUNT Cr.

Particulars 7 Particulars 7

To Revaluation Ale 4,200 By Balance b/d 40,000

To Bank Aft: 11,050 By Reserve Fund Ale 750
To X’s Loan A/c 30,000 By P 81 L No 1,500
(Balancing Figure) By Y’s Capital No 2,000
By Z’s Capital No 1.000
m m
Note :X‘s share of goodwill = 6,000 x % = 73,000. It will be adjusted to the Capital
Accounts of Y and Z in their gaining ratio of 2 : l.

Dr. X’s LOAN ACCOUNT Cr.

Date Particulars 7 Date Particulars 7

2016 ' 2015
March 31 To Bank A/c April 1 By X’s Capital No 30,000
(710,000 + 71,500) 11,500 2016
fiertnttxtetttjtesaEArH 07 A PARTNER 4.57

March 31 To Balance dd 20.000 March 31 By Interest Alt:

(5% on 730,000)
31.500

2017 2016
March 31 To Bank 41:: April 1 By Balance bid
(710,000 + 21,000) 2017
March 31 T0 Balance 010 March 31 By Interest Ale
(5% on 720.000)

2018 2017
March 31 T0 Bank Ne April 1 By Balance bid
2018
March 31 By Interest N0
(5% on 710,000)

Q. 53 (B). P. Q and R were partners sharing profits and losses in the ratio of 5 : 3 : 2
respectively. As at 3lst March, 2018 the Balance Sheet of the firm stood as follows :
Liabilities 7 Assets 7

Sundry Creditors 5,300 Fixed Assets 25,000

Expenses Outstanding 700 Stock 11,000
3,000 Book Debts 9,000
Reserve
Cash at Bank 2.000
Capitals :
P 20,000
Q 10.000 -
R M 38,000
m W
On this date Q decided to retire and for this purpose :
(a) Goodwill was valued at 719,000;
(6) Fixed assets were valued at 730.000;
(0) Stock was considered as worth 710,000.
a way as to make their
Q was to be paid through cash. brought in by P and R, in such
was to be P 3/5 and R 25.
capitals proportionate to their new pro fit sharing ratio which
resultant Balance Sheet.
Record these matters in the journal ofthe firm and prepare the

SOLUTION : 53 (B). JOURNAL ENTRIES

LF. Dr. (7) Cr. (7)
Date Particulars
2018
Dr. 3,000
March 31 Reserve A/c
1,500
To P’s Capital Aft:
900
To Q’s Capital NC
600
T0 R’s Capital Ale
(Transfer of reserve)
4'53 SOLUTIONS T0 PRACTICAL QUESTIONS
Fixed Assets A10 Dr. 5.000
T0 Revaluation Ne 5'000
(Increase in the value of fixed assets)
Revaluation A/c 01'. 1,000
To Stock No 1,000
(Decrease in the value of stock]
Revaluation Ale 131' 4,000
To P’s Capital Afc 2.000
To Q's Capital Afc 1,200
To R’s Capital A10 300
(Transfer of profit on revaluation)
P’s Capital A/c Dl'- 1.900
R’s Capital Afc Dr. 3,800
To Q’s Capital No 5,700
(Q’s share of goodwill debited to continuing parlners
in the gaining ratio of l :2)
Bank Afc Dr. 1?,800
To P’s Capital Ale 5,400
To R’s Capital Ne 12.400
(Amount brought in by P and R to raise their capitals
to profit sharing ratio)
Q’s Capital A/c Dr. 17,800
To Bank 17,800
(Payment made to Q)

Dr. CAPITAL ACCOUNTS Cr.

Particulars P Q R Paniculars P Q R
7 7 7 7 7 7
To Q’s Capital By Balance bid 20,000 10,000 8,000
A/c By Reserve Ne 1,500 900 600
(Goodwill) 1,900 3,800 By Revaluation
To Balance cfd 21,600 1?,800 5,600 No 2,000 1,200 800
By P’s Capital
Ale
(Goodwill) 1,900
By R’s Capital
Afc
(Goodwill) 3,800

To Bank Afc 17,800 By Balance bid 21 ,600 17,800 5,600

To Balance cfd 21,000 18,000 By Bank No 5,400 12,400
@ W0 W W 17% 13,000
 BALANCE SHEET OF THE FIRM (After Q’s Retirement)
as a: 313! March. 2018

Liabilities 7 Assets 1‘
Sundry Creditors 5,300 Cash at Bank 2.000
Expenses Outstanding 700 Book Debts 9.000
Capitals : Stock 10,000
P 27,000 Fixed Assets 30.000
R 18,000 45,000
51,000 51, 0

Working Notes :
(1) Gaining Ratio = New Ratio ~ 01d Ratio
. 3 5 _6—5 =L
P 6mm 3 E ' 10 10
- _ 2 .3. _ .L-E _ 2
R Gm ' 5 ‘ 10 10 10
Thus, Gaining Ratio = l :2
(2) Total Capital of the new film = 721,600 + 71?,800 + 75,600 = 745,000

P’s Capital in the new firm = 745,000 x g = 727,000

R‘s Capital in the new firm = 745,000 x g = 718,000

Cash brought in by P = 727,000 - 721,600 = 7 5,400

Cash brought in by R = 718,000 — 7 5,600 = 712,400

Q. 54. P, QandRarepMers inafinn.R1-etiresfromthe firm. Onthe date of

retirement, 73,00,000 is due to him. It is agreed to pay him in instalments every year at the
end of the year. Prepare R’s Loan Account in the foliowing cases :
(0 Five yearly instalments plus interest @ 15% pa_
(ii) Instalments of 71,00,000 which already includes interest @ 15% p..a on the
outstanding balance for the first four years and the balance including interest in
the fifth year.
SOLUTION : 54. (1')
Dr. R’s LOAN NC Cr.
Date Particuiars 7 Date Pam'culars 7
lst year [st year
at the end To Bank Beginning By R‘s Capital Ale 3,00,000
(60,000 + 45,000) 1,05,000 at the end By Interest (on
at the end To Balance cfd 2,40,000 73,00,000 @ 15%) 45,000
3,45,000 3,45,000

IInd year [1nd year

at the end To Bank Beginning By Balance bid 2,40,000
(60,000 + 36,000) 96,000 at the end By Interest (on
4. 00______________________________________
1.80.000 72,40,000 @ 15%) 35.000
at the end To Balance cfd
gjfifimfi 2,76,000

lllrd year IIIrd year

at the end To Bank Beginning By Balance b“ 1 30,090
(60,000 + 23,000) 87,000 at the end By Interest (on
at the end To Balance c/d 1,20,000 21,00,000 @ 15%) 271000
2,071,000 2,07,000

IVth year Nth year

Beginning By Balance bfd 1,20,000
at the end To Bank
(60,000 + 18,000) 78,000 at the end By Interest (on
at the end To Balance cfd 60,000 71,20,000 @ 15%) 13,000
1,38,000 1,38,000

Vth year Vth year

69,000 Beginning By Balance bid 60,000
at the end To Bank
at the end By Interest (on
760,000 @ 15%) 9,000
69,000 6:9,0—fl
00 Cr.
Dr. R‘s LOAN A/C
Particufars 7 Date Particulars 7
Date
lst year [st year
at the end To Bank 1,00,000 Beginning By R’s Capital Ale 3,00,000
atthe end To Balance c/d 2,45,000 at the end By Interest (on
73,00,000 @ 15%) 45,000
3,45,000 3,45,000

11nd year [Ind year

attiie end To Bank 1,00,000 Beginning By Balance bid 2,45,000
at the end To Balance cld 1,81,?50 at the end By Interest (on
72,45,000 @ 15%) 36,750
2,81,?50 2,81,750

IIIrd year IIIrd year

at the end To Bank 1,00,000 Beginning By Balance bid 1,81,750
at the end To Balance cfd 1,09,013 at the end By Interest (on
71,81,150 @ 15%) 27,263
2,09,013 2,09,013

Nth year IVth year .

at the end To Bank 1,00,000 Beginning By Balance bid 1,09,013
at the end To Balance c/d 25,3 65 at the end By Interest (on
71,09,013 @ 15%) 16,352
1,25,365 1,25,365
“h 3’63! Vth year
at the end To Bank 29,100 Beginning By Balance bid 25,365
at the end By Interest (on
225,365 @ 15%) 3,805
W
—
W
_——
— _——

Q. SS.A, Band Carepartners in a firm sharingprofits inthe ratio of3 :2: 1. On 315t
March 2014 C retired. Following balances were disclosed by the Finn’s Balance Sheet on
this date :
(f) Capitals :A ?10,00,000; B ?6,00,000 and C ?4,40,000.
(ii) Profit & Loss (Dr. Balance) 315,000.
(in) Advertisement Expenditure ? 15,000.
Revaluation ofAssets and re-assessment of liabilities resulted in a loss of {60,000. 011
the retirement of C, goodwill is valued at ?1,80,000.
The amount payable to C is agreed to be paid in two yeariy instalments of ?2,00,000
each inciuding intrest @ 10% p.a. on the outstanding balance during the first two years and
the balance including interest in the third year. Books are closed on 3 lst March every year.
Prepare C‘s Loan Account till it is finally paid.
SOLUTION : 55.
Amount due to C : ?
C’s Capital 4,40,000
Share in Dr. Balance of P & L No : 45,000 x % (7,500)

Share in Advertisement Expenditure : 15,000 x% (2,500)

Shale in Revaluation Loss : 60,000 x % (10,000)

Share ofGoodwill : 1,30,000 ><% 30,000

4,50,000

C’s LOAN NC

Date Panfculars 5? Date Particulars 1'

2014 2014
March 31 To Balance cid 450,000 March 31 By C’s Capital Afc 4,511,000

2015 2014
March 31 To Bank 2,00,000 April 1 By Balance bid 4,50,000
March 31 To Balance cfd 2,95,000 2015
March 31 By Interest on
4,50,000 @1094: 45,000
4,95,000 4,95,000

2016 2015
March 31 To Bank 2,00,000 April 1 By Balance bid 2,95,000
563 ___________________________ SOLUTIONS T0
PRACTICAL QUESTIONS
March 31 To Balance cfd
1,24,500 2016
March 31 By Interest on
32,95,000 @10% 29,500
3,24,500
3,24,500
2017
2016
March 31 To Bank 1,36,950 April 1 By Balance bid 1,24,500
2017
March 31 By Interest on
1,24,500 @10% 12,450
1,36,950 1,36,950

Q. 56. Kushal, Kumar and Kavita were partners in a firm

sharing profits in the ratio of
3 : l : 1. 0n lst Apn'l, 2012 their Balance Shee
t was as follows :
Balance Sheet of Kushal, Kumar and Kavi
ta
as at 151‘ April. 2012
Liabilities ? Assets ?
Creditors 1,20,000 Cash
Bills Payable 20,000
1,80,000 Debtors 2,00,000
General Reserve 1,20,000 Less : Provision 10,000 1,90,000
Capitals :
Stock 2,20,000
Kushal 3,00,000 Furniture 1,211,000
Kumar 2,80,000 Building 3,00,000
Kavita 3,00,000 8,80,000 Land
4,00,000
13,00,000 13,00,000
On the above date Kavita retired and the following
was agreed :
(1") Goodwill of the firm was valued at =€40,000.
(ii) Land was to be appreciated by 30% and building
was to be depreciated by
?1,00,000.
(iii) Value of fumjture was to be reduced by $20,000.
(iv) Bad debts provision is to be increased to f 15,000.
(10) 10% of the amount payable to Kavita was paid
in cash and the balance was
n'ansferred to her Loan Account.
(10) Capitals of Kushal and Kumar will be in proportion
to their new profit sharing
ratio. The sm'plusfdeficit, if any in their Capital Accounts will
be adjusted through
Current Accounts.
Prepare Revaluation Account, Partner’s Capital Accounts
and Balance Sheet of
Kushal and Kumar after Kavita’s retirement.
(C.B.S.E. 2014)
SOLUTION : 56.
Dr. REVALUATION NC Cr.
Particulars 2‘ Pmficulars ?
To Building Afc 1,00,000 By Land Ne 1,20,000
To Furniture No 20,000 By Loss transferred to :
?.ET'FFNEJ“_T_9FRE§TH9'53“. 09010913 ____________________________4.‘29:
T0 Provision for Doubtfijl Kushal’s Capital NC 3,000
Debts Ale 5,000 Kumar's Capital A/c 1,000
Kavita‘s Capital NC 1,000 5.000
1,25,000 1,25,000

Dr. PARTNERS‘ CAPITAL A/CS Cr.

Particulars Kushal Kumar Kavira Particulars Kushai' Kumar Kama

f ? f ? f f
To Revaluation By Balance bid 3,00,000 2,80,000 3,00,000
NC 3,000 1,000 1,000 By General
To Kavita‘s Reserve Ale 72,000 24,000 24,000
Capital Me By Kushal’s
(Goodwill) 6,000 2,000 —- Capital No
To Cash Afc — — 33,100 (Goodwill) — — 6,000
To Kavita’s By Kumar’s
Loan Ale — — 2,971,900 Capital No
To Balance cfd 3,63,000 3,01,000 (Goodwill) 2,000
3,72,000 3,04,000 3,32,000 3,72,000 3,04,000 3,32,000

To Kumar’s By Balance bid 3,63,000 3,01,000

Current A/c 1,35,000 By Kushal's
To Balance cfd 4,98,000 1,66,000 Current A/c 1,35,000

4,98,000 3,01,000 4,98,000 3,01,000

BALANCE SHEET OF RECONSTITUTED FIRM

as at Isl April, 2012
Liabilities ? Assets 1‘
Creditors 1,20,000 Cash 36,900
13/? 1,130,000 Debtors 21,00,000
Kavita’s Loan No 2,97,900 Less: Provision 15,000 1,135,000
Capital Ales : Stock 2,20,000
Kushal 4,98,000 Fumiture 1,00,000
Kumar 1,645,000 6,64,000 Building 2,00,000
Kumar’s Current Afc 1,35,000 Land 5,20,000
Kushal’s Current Ne 1,35,000
13,96,900 13,96,900

Working Notes :
Adjustment of Capital :
Total Capital of Kushal and Kumar = 13,63,000 + 13,01,000 = ?6,64,000
Kushal’s Capital should be = 6,64,000 9% = 04,98,000

Kumar’s Capital should be = 6,154,000 x i4 = 11,06,000

 Kushal Kumar
2' 2
Capital required in the new firm 4,98,000 1,66,000
3,63,000 3,01,000
Less : Existing balance in Capital Accounts

1,35,000 (D11) 1,35,000 (Cr.)

Amount transferred to Current Accounts

Q. 57. A, B and C are paJ'IIIBI‘S sharing profits in the ratio of 50%, 30% and 20%. B
retires and after all adjustments relating to accumulated profits, goodwill and revaluation
etc. their capitals stood at ”€130,000; {1,50,000 and 280,000 reSpectively. It was decided
that entire sum payable to B is to be brought in by A and C in such a way so as to make their
capitals proportionate to their profit sharing ratio. Calculate the amount to be brought in by
A and C and pass entries for the same. Also pass entry relating to payment to B.
SOLUTION : 57.
Calculation of new capital : f
Balance in A ’5 Capital Account 1,90,000
Balance in C's Capital Account 80,000
Amount payable to B 1,50,000
Total Capital of new firm 43,20,000
NewRatioofA andC=5 :2
A’s new capital = 04,20,000 x g = 23,00,000
C‘s new capital = ?420,000 x g = ?1,20,000
Amount to be brought in by A and C :
A C
? 35
Capital required 3,00,000 1,20,000
Less : Existing Capital 1,90,000 80,000
Amount to be brought in 1,10,000 40,000
JOURNAL

Dare Particulars L.F. Dr. R) Cr. R)

Bank Ale Dr. 1,50,000
To A ’5 Capital A/c 1,10,000
To C’s Capital No 40,000
(Amount brought in by A and C)
B’s Capital Ale Dr. 1,50,000
To Bank Ale 1,50,000
(Amount paid offto B)

Q. 58.P, deRarempammhip sharingprofitsintheratioofl’; :2 : LRretires.

Following balances appeared in their books :
2' Q
Goodwill 12,000
Bank 10,000
Other Assets 70,000
 Creditors 1 4,000
Capitals: P 40,000
Q 20,000
R 1 8,000
92,000 92 000
Goodwill is agreed at {30,000. Sufiicient money is to be introduced so that R is paid
Off and leave 14,000 in cash at bank. P and Q are to provide such sum as will make their
Capitals proportionate to their share of profits.
Prepare necessaiy entries and the new balance sheet.
SOLUTION : 58. JOURNAL
D039 Particulars L.F. Dr. R) Cr. R)
P’s Capital Afc Dr. 6,000
Q‘s Capital Ne Dr. 4,000
R’s Capital NC Dr. 2,000
To Goodwill Ale 12,000
(Goodwill appearing in the books written off on R’s
retirement)
P’s Capital Aic Dr. 3,000
Q’s Capital Ne Dr. 2,000
To R's Capital No 5,000
(R’s share of goodwill debited to P and Q in gaining ratio
of 3 :2)
Bank Aft: Dr. 15,000
To P’s Capital Ale 5,000
To Q‘s Capital No 10,000
(Amount brought in by P and Q)
R's Capital Ale Dr. 21,000
To Bank Ale 21,000
(Amount paid off to R)

Dr. CAPITAL ACCOUNTS Cr.

Particulars P Q R Particulars P Q R
2‘ ? ? i ? ¥
To Goodwill Afc 6,000 4,000 2,000 By Balance bid 40,000 20,000 18,000
To R’s Capital Afc 3,000 2,000 By P’s CapitalAfc 3,000
To Balance c/d 31,000 14,000 21,000 By Q’s Capital No 2,000
40,000 20, 0 23,000 40,000 20,000 23,000

To Bank Alc 21 ,000 By Balance bald 31,000 14,000 21,000

To Balance cfd 36,000 24,000 By Bank Ale 5,000 10,000
36,000 24,000 21,000 36,000 24,000 21,000

OPENING BALANCE SHEET

as at........................

Liabilities f Assets ?
Creditors 14,000 Bank 4,000
4-66 SOLUTIONS TO PRACTICAL QUESTIONS

Capitals Other Assets 70,000

P 36,000
Q 24,000 60,000
74.000 74.000

Total Capital of the new firm after R's retirement should be : 3

Amount required to pay off R 21,000
Add .' Existing Capital of P 31,000
Add .' Existing Capital of Q 14,000
Add : Cash required as working capital 4.000
70,000
Less .1 Cash at Bank (existing in Balance Sheet) 10,000
Total Capital of the new firm 60,000
This Capital should be in the new profit sharing ratio ofP and Q

Therefore P’s new Capital should be = 60,000 x :- = 36,000

2
9’5 new Capital should be = 60,000 x ~5— = 24,000
Amount to be brought in P and Q :
P Q
2 ?
Capital required 36,000 24,000
Less : Existing Capital 31,000 14,000
Amount to be brought in 5,000 10,000

Q. 59. A, B and C were equal partners. Their Balance Sheet as at 3 let March, 2017 was
as under :
BALANCE SHEET
as at 31-03-2017
Liabilities ? Assets 2
Bi? 20,000 Bank 20,000
Creditors 40,000 Stock 20,000
General Reserve 30,000 Furniture 28,000
P/L 6,000 Debtors 45,000
Capitals : Less : RBDD 5,000 40,000
A 60,000 Land 8:: Building 1,20,000
3 40,000
C 32,000 1,32,000
2,28,000 2,28,000

B retired on [St April, 2017. A and C decided to continue the business sharing profits
in the ratio of 3 : 2. Following terms were agreed :
(a) Goodwill of the firm was valued at $57,600.
(b) Reserve for bad and doubtful debts to be maintained at 10% on debtors.
(a) Land and building to be increased to ?1,32,000.
(d) Furniture to be reduced by (8,000.
(9) Rent outstanding (not provided for as yet) was ? 1,500.
 FFT'BFMENT 9505401 9!“ ‘5 PARTNER ________________4_":32
Remaining partners decided to bring sufficient cash in the business to pay 011'B and to
maintain a bank balance of 324,800. They also decided to readjust their capitals as per their
new profit sharing ratio.
Prepare necessary Ledger Accounts and Balance Sheet.
SOLUTION : 59.
Dr. REVALUATION ACCOUNT Cr.
Particulars ’x’ Particulars 7
To Fumiture 8,000 By Provision for Bad 8: Doubtful
T0 Outstanding Rent 1,500 Debts 500
To Profit on revaluation : By Land & Building 12,000
A ‘5 Capital NC 1,000
B’s Capital A/c 1,000
C’5 Capital .470 1,000 3,000
12,500 12,500

Dr. CAPITAL ACCOUNTS Cr.

Particulars A B C Panicw'ars A B C
? 2 ' 4‘ ? f f
To B’s Capital _ By Balance bid 60,000 40,000 32,000
Ale By General
(Goodwill) 15,360 3,840 Reserve A70 10,000 10,000 10,000
To Bal. cfd 57,640 72,200 41,160 By P &. L No 2,000 2,000 2,000
By Revaluation 1,000 1,000 1,000
By A ’3 Capital
A/c
(Goodwill) 15,360
By C’s Capital
A/e
(Goodwill) 3,840
73,000 72,200 45,000 73,000 72,200 45,000
To Bank Afc 72,200 By Balance bid 57,640 72,200 41,160
To Balance cfd 1,05,480 70,320 By Bank Ale 47,840 29,160
1,05,480 72,200 70,320 . 1,05,480 72,200 70,320

BALANCE SHEET (After B’s Retirement)

as at 1st Aprfl, 2017
Liabifftfes ? Assets ‘1‘
BfP 20,000 Bank 24,800
Creditors 40,000 Stock 20,000
Outstanding Rent 1,500 Furniture 20,000
Capitals : Debtors 45,000
A 1,05,480 Less : Provision 4,500 40,500
C 70,320 1,75,800 Land& Building 1,32,000
2,37,300 2,37,300
 400 99: a_qesfiqns
4:08___________________ SOLUTIONS T0 P11
Working Notes :
(1) Calculation of Gaining Ratio:
Gaining Ratio = New Ratio — Old Ratio
_ 2 i _ 2:221
A " 5'3 15 IS

= 3_l - 9.12:1.
C 5 3 ' 15 15

GainingRatio=4:l

(2) Adjustment for Goodwill:

B‘sshare in Goodwill = 57,600 x; = 119,200, which is to be can
tributed by

A and C in their gaining ratio of4: l as under:

A = 19,200 x5} = ?15,360

C = 19,200 x-;- = 2 3,340

tal :
(3) Calculation of Proportionate Capi
rement should be : 7
Total Capital of the new firm after B’s reti 72,200
Amount required to pay 003 57,640
Add : Existing balance in A’s Capital Account 41.160
Add : Existing balance in CS Capital Account 24,800
Add : Required Cash balance 1,95,800
20,000
t)
Less : Bank balance (Existing in Balance Shee 1,75,800
Total Capital ofthe new firm
sharing ratio ofA and C 1
This Capital should be in the new profit
x ?S- = =41,05,480
Hence, A’s new Capital should be 1,75,800

C’s new Capital should be 1,75,800 x % = 2 70,320

A c
e 2*
1,05,480 70,320
Capital required in the new firm 57,640 41,160
ount
Less : Existing Balance in Capital Acc 47,840 29;! 60
Amount to be brought in
this
fits in the ratio of 4 : 2 : 3. Yretires. On
Q. 60. X, 1’ and Z are partners sharing pro 22,00,000.
ts for reserves and revaluation exists at
date his Capital after making adjustmen of his account Record necessary
000 in fiill settlement
X and Z agreed to pay him ?2,40, profits
for the tre atm ent of goodwill if X and Z decided to share future
journal entry
equally.
0
SOLUTION :60. 23,40,000
settlement
Amount agreed to be paid in full 2,00,000
ments)
Less : 1” 5 Capital (after all adjust 40,000
Hidden Goodwill
 RETIREMENT OR DEATH OF A PARTNER
—________________-____________,_________
__,__________... ____________
4.69
JOURNAL
Date Particulars LF. Dr. ((2 Cr. (5')
X‘s Capital Afc Dr. 10,000
2' ’3 Capital Aft: Dr. 30,000
To Y’s Capital No 40,000
(Y’s share of goodwill adjusted to the capital accounts
ofX and Z in their gaining ratio 1 : 3)
Calculation of Gaining Ratio :
- _ l $_ifl_L
X631” ‘ 279‘ 10 ‘13
mm, = 13,221,:
Thus,GainingRatio=Tl-8-:%orl :3

Death of a Partner
Q. 61. A, B and C were partners in a firm. B died on 31st August, 2018.
B’s share of
profit from the closure ofthe last accounting year till the date of death was to
be calculated
on the basis of the average of three completed years of profits before death.
Profits for the
years ending 3 lst March 2016, 2017 and 2018 were ?40,000; 250,0
00 and €72,000
respectively. The firm closes its books on 3 lst March every year.
Calculate B’s share of profit till the date of her death and pass the
necessary journal
entry for the same assuming :
(1) there is no change in the profit sharing ratio ofA and C;
(1'1) there is change in the profit sharing ratio ofA and C and the new
ratio is 7 : S.

SOLUTION: 61.
Average Profit: 340,000 + 50,000
3 + 72,000 _— 754,000.

Five month’s profit, i.e,from lst April, 2018 to 3lst August, 2018
= 754,000 x %

= ?22,500.
Share off? 1111 his death = 222,500 x 4: 27,500.
Case (1) When there is no change in the profit sharing ratio :

JOURNAL ENTRY
Date Particul'ars LF. Dr. R) Cr. R)
2018 '
Aug. 31 Profit and Loss Suspense Ale Dr. 7,500
To B’s Capital Ale
7,500
(B’s share ofprofit till the date ofhis death)
Case (11‘) When there is change in the profit sharing ratio ofA and C
and the new ratio is
7 : 5.
 Gaining Ratio :
. 7 l __i
AGains: 12—3 = —1—2—- 12

5 31 =1
12—
.L
CGams: 12

LF. Dr. (3) Cr. R)

Date Particulars
2013 Dr. 5,625
Aug. 31 A‘s Capital A70 (374 of 7,500) Dr . 1,375 F! 500
C's Capital Aft: (114 of7,500) .
To B’s Capital Ale
C in their gaining
(B‘5 share of profit debited to A and
ratio OH: 1)
o.
an and Soh an were partne rs in a firm sharing profits in 2 : 2 : 1 rati
Q. 62. Bari, Moh 7. 011
ses its boo ks on 3ls t Mar ch eve ry year. Mohan died on 248201
The firm clo
was valued at 375,000. The par tnership deed
Mohan‘s death the goodwill of the firm re in the profits of the firm in the year of his
ed that on the death of a partner his sha
provid
cul ate d on the basis of last yea r’s pro fit. The profit of the firm for the year
death will be cal s share ofprofit till the time ofhis death
ate Mohan’
ended 31-3-2017 was 72,00,000. Calcul re of profit.
pas s the nec ess ary jou rna l entr ies for the treatment of goodwill and his sha
and
SOLUTION : 62.
Working Notes :
the
211% = $30,000. It will be debited to
(7) Mohan‘s share of Goodwill = 775,000
gaining ratio, Le. 2 : 1.
Capital accounts of Hari and Sohan in their
= 146
(7'7) Number of days from March 31 to August 24
Mohan‘s share ofProfit = 2,00,000 x 42—: x % = 132,000.
JOURNAL
LF. Dr. (7') Cr. R)
Date Particulars
24.8.17
Dr. 20,000
(1‘) Hari’s Capital Ale
Dr. 10,000
Sohan’s Capital Afc
30,000
To Mohan’s Capital No
(Mohan’s share of goodwill adjusted into the Capital
Nos of Hari and Sohan in their gaining ratio, tie.
2 : l) .
Dr. 32,000
(ii) Profit and Loss Suspense A/c
32,000
To Mohan’s Capital Afc
(Mohan's share of profit upto 24th August 2017)
December,
Q. 63. A, B and C are sharing profits in the ratio of 4 : 3 : 2. A dies on Slst
3 lst March,
2017. Accounts are closed on 3 1 st March every year. Sales for the year ending
 RETIREMENT on DEATH OF A PARTNER 4.71
2017 amounted to 7400000. Sales of 73,30,000 amounted between the period from lst
April. 2017 to 3lst December, 2017. The profit for the year ending 3151 March, 2017
amounted to 760.000.
Calculate the deceased partner’s share in the current year‘s profits of the firm.
SOLUTION : 63.
Profit from lst April 2017 to 3 lst December, 2017 on the basis of sales :
11‘sales are 74,00,000. profit is 760,000
60’000
If 53165 are 73.30.0110 profit will be : 4.00.000 = r49 500
x 3’30'000 ’
A '3 share will be = 749,500 X 3: 722,000.
Q. 64. The Balance Sheet of Sindhu, Rahul and Kamlesh, who were sharing profits in
the ratio of 3 : 3 : 4 respectively, as at 3lst March, 2012 was as follows :
Liabilities 7 Assets 7
General Reserve 10,000 Cash 32,000
Bills Payable 20,000 Stock 88.000
Loan 24,000 Investments 94,000
Capitals : Land & Building 1,20,000
Sindhu : 1,20,000 Sindhu’s loan 20,000
Rahul : 1,00,000
Kamlesh : 80,000 3,00,000
3,54,000 3,54,0C 1

Sindhu died on 3 lst July 2012. The paintership deed provided for the folim. 111g
on the death of a partner :
(a) Goodwill of the firm be valued at two years’ purchase of average profits for
the last three years which were 780,000.
(b) Sindhu’s share of profit till the date of his death was to be calculated on the
basis of sales. Sales for the year ended 3 lst March, 2012 amounted to
78,00,000 and that from lst April to 31st July 2012 73,00,000. The profit for
the year ended 3 lst March, 2012 was 72,00,000.
(c) Interest on capital was to be provided @ 6% pa.
Prepare Sindhu’s Capital Account to be rendered to his executor.
(CBSE 2013, Ozdside Delhi)
SOLUTION : 64.
Dr. SINDHU’ S CAPITAL ACCOUNT ' Cr.
Particulars 7 Particulars 7
To Sindhu‘s Loan Ale 20,000 By Balance bid 1,20,000
To Sindhu’s Executor’s A/c 1,75,900 By General Reserve 3,000
By Rahul’s Capital A/c (Note 1) 20,571
By Kamlesh’s Capital A/e (Note 1) 27,429
By Profit & Loss Suspense Ale
(Note 2) 22,500
By Interest on Capital 2,400
4.22 sownohsto 13011512111951: 900330030
Working Notes :
1. Calculation of Goodwill :
Goodwill = 2 year's purchase of average profit of the last three years
= 2 x 230.000 = 71,60,000
Sindhu’s Share ofGoodwill = 71,60,000 x % = 748,000
sh in their gaining
Sindhu‘s Share of Goodwill will be debited to Rahul & Kamle
ratio tie. 3 :4

Rahul‘s centribution = 48,000 x g = 20,571

Kamlesh‘s contribution= 48,000 x g = 22,429
2. Sindhu’s Share of Profit :

,AProfit on Sales = Profit g 22,00,000 x 100

: 25,,o
Sales x 100 78,00,000
2
Profit from lst April to Slst July = 73,00,000 x -—1050 = 775,000

Sindhu‘s Share of profit to the date of death = 775,000 x 13—0 = 722,500

lst
Q.65.A,Band Carepartners inafinnshafingprofitsintheratioofS :3 :2. On
April, 2016 the capitals of the partners were 1 75,00,000; 73,00,000 and 72,00,000
respectively. The firm closes its books on 31 st March every year. C diw on 5th April, 2016.
On that date :
(a) GoodMII of the finn was valued at 730,000; and
(h) Gain on Revaluation was calculated at 78,000.
(c) Advertisement Suspense Account appearing in the books was 710,000.
(d) C’s 511316 ofprofit till the date of his death was calculated as 7200.
Prepare C‘s Capital NC to be rendered to his executors.
SOLUTION : 65.
Dr. C’S CAPITAL ACCOUNT Cr.

Particulars 7 Particulars 7

T0 Advertisement Suspense Ale 2,000 By Balance bid 2,00,000

T0 C’s Executor’s Ale By A’s Capital No 3,750
(Balancing figure) 2,05,800 By B’s Capital No 2,250
By Revaluation No 1,600
By P & L Suspense A10 200
2,07,300 2,07,800

Working Notes :
C’s share of goodwill = 230,000 x 12—0 = 76,000
Entry for Goodwill :

A’s Capital A/c (6,000 x 3) Dr. 3,750

B’s Capital NC (6,000 x g ) Dr. 2,250
To C’s Capital A/c 6,000
RETIREMENT 0n DEATH OF A PARTNER 4.73
Q. 66. A. B and Cwere partners in a firm sharing profits in the ratio ofS : 3 :2. The
Balance Sheet as at 313.2018 was as follows :
Liabilities 7 Assets 7
Creditors 12,000 Building 20,000
Reserves 6,000 Plant and Machinery 16,000
A's Capital 24.000 Stock 5.100
8‘5 Capital 12,000 Debtors 6.000
C’5 Capital 8,000 Cash at Bank 6,900
Advertisement Suspense 8,000
62,000 m

A died on 30.9.2018 and B and C decide to share fitture profits in the ratio of 7 1 3.
Under the partnership agreement the executors of a deceased partner were entitled to :
(0) Amount standing to the credit of partner’s capital account.
(0) Interest on capital at 12% per annum.
(0) Share of goodwill on the basis of four years purchase of last three years average
profit.
(60 Share ofprofit from the closing of the last financial year to the date ofdeath on the
basis of last year’s profit. Profits for the year 2016, 2017 and 2018 were 78,000;
712,000 and 77,000 respectively.
Prepare A ’5 Capital account to be rendered to his executors.
SOLUTION : 66.
(1') Calculation of Gaining Ratio :
B=l_i=i
10 10 10
3 2
_—
1
C=E‘10 10
Thus GainingRatio=4 :1

(:7) Valuation of Goodwill :

Total Profit = 8,000 + 12,000 + 7,000 = 727,000
Average Profit = 27,000 + 3 = 79,000
Hence, Goodwill at four year’s purchase = 9,000 x 4 = 736,000
A’s share ofGoodwill = 36,000 X % = 718,000
It will be adjusted into the Capital accounts ofB and C in the gaining ratio of 4 : 1.
(iii) Share of Profit payable to A (Upto the date of death) :
6 5 _
7,000 x E x 70 — 71,750
It will be debited to B and C in their gaining ratio of 4 : 1. it should not be debited
to Profit & Loss Suspense Ale because profit sharing ratio between B and C has
changedfrom3 :2t07:3.
Dr. A’S CAPITAL ACCOUNT Cr.
Particulars 7 Particulars 7
T0 Advertisement Suspense A/c By Balance b/d 24,000
 {8.000 x 15—0) 4‘000 By Reserves (6,000 x l% 3.000
T0 A's Executor‘s Ne 44,190 By Interest on Capital
(24,000 X 121’ 100 X 61/12) 1.440
By B's Capital A/c (Goodwill)
(13,000 x 1}) 14.400
By C’s Capital A/c (Goodwill)

(10,000 x g) 3,600
By B’s Capital Ale
(Share of Profit) (11,250 x 3‘51) 1,400
By C’s Capital A/e
(Share of Profit) (1,250 x §) 350
m 26706
Q. 67. Ram, Ghanshyam and Vrinda were partners in a firm sharing profits in the ratio
of 4 : 3 : 1. The firm closes its books on 3lst March every year. 011 lst February, 2015
Ghanshyam died and it was decided that the new profit—sharing ratio between Ram and
Vrinda will be equal. The Partnership Deed provided for the following on the death of a
paItIIer :
(61) His share of goodwill be calculated on the basis of half of the profits credited to
his account during the previous four completed yeals :
The firm’s profit for the last four years were.
2010-11 — 71,20,000, 2011—12 — 780,000, 2012-13 — 740,000, and 2013-14
— 780,000.
(12) His share of profit in the year of his death was to be computed on the basis of
average profits ofpast two years.
Pass necessary Journal entries relating to goodwill and profit to he transferred to
Ghanshyam’s Capital Account. Also show your workings clearly.
(C.B.S.E. 20.16 Compti‘. Delhi)
SOLUTION :67. JOURNAL
Date Particulars LF. Dr. (7) Cr. (7)
2015
Feb. 1 Vrinda’s Capital A10 Dr. 60,000
To Ghanshyam’s Capital A/c 60,000
(Ghanshyam’s share of goodwill adjusted by debiting
gaining partner)
Vrinda’s Capital Aft: Dr. 18,750
To Ghanshyam’s Capital Afc 18,750
(Ghanshyam’s share of profit adjusted by dehiting
gaining parhter)
 Worlting Notes.'
l- Calculation of Ghanshyam‘ 5 Share of Goodwill:
Total profit of last tour yeam 71,20,000 + 7 80,000+ 740,000
+ 730,000 = 73,20,000
Ghanshyam's share in last four years” profit 73,20,000 x 3/8 = 71,20,000
Ghanshyam‘s share ofGoodwill 71,20,000 x 112 = 760,000

2- Calculation of gaining ratio :

Gaining Ratio= New share — 01d share
Ram Gains = %— = Nil
- - _1
Vrmda Gains — 2 8 8
Hence, Vrinda is the only gaining partner.
3- Glianshyam‘s share of profit to the date of death :
780,000
Average profit of past two years = W = 760.000
Profit for 10 months
(fi‘om lst April, 2014 to lst February, 2015) = 760,000 x 10/12= 750,000
Ghanshyam‘s share ofprofit = 750,000 x 378 = 718,750
Because of change in the profit sharing ratio of continuing partners, Ghanshyam’s share of
profit will be adjusted through Vrinda’s Capital Account (gaining partner) not through Profit
and Loss Suspense Ale.

Q. 68. Manav, Nath and Narayan were partners in a firm sharing profits in the ratio of
l : 2 : 1. The firm closes its books on 3lst March every year. On 30th September, 2015
Nath died. On that date his capital account showed a debit balance of 75,000. There was a
debit balance of 730,000 in the Profit and Loss Account. The goodwill of the firm was
valued at 73,80,000. Nath’s share ofprofit in the year of his death was to be calculated on
the basis of average profit of 5 years, which was 790,000.
Pass necessary Journal entries in the books of the firm on Nath’s death.
(CREE. 2016, All India)
SOLUTION : 68. JOURNAL ENTRIES IN THE BOOKS OF THE FIRM
Dare Particulars L.F. Dr. Cr.
Amount Amount
2015 7 7
Sept. 30 Manav’s Capital A/c Dr. 95,000
Narayan’s Capital A/c Dr. 95,000
To Nath’s Capital Afc (73,80,000 x 2.14) 1,911,000
(Nath’s share of goodwill adjusted in the capital
accounts of the existing pattiers in their gaining
ratio, i.e., l : 1)

Sept 30 11011006161161 Alc (730,000x214) Dr. 15,000

To Profit 6’: Loss A/c 15,000
(Nath’s shave in debit balance of P 86 L Ale
transferred)
4.76 ___________________ 301000145 T0 P05011051 002330013
Sept. 30 Pro 111 & Loss Suspense Ne
(290.000 x 6112 x 214) Dr. 22.500
T0 Nath‘s Capital A10 22,500
(Nath's share of profit upto the date of his death
transferred)
Dr. 1,92,500
Sept. 30 Nath’s Capital AJ'C
1.92.500
To Nath‘s Executors’ Ne“)
(Amount due to Nath transferred to his Executor’s
Account)

Working Note : (1)

NATH‘ 3 CAPITAL ACCOUNT Cr.
Dr.
Amount Particulars Amount
Particuiars
2 7
5,000 By Manav’s Capital Afc 95,000
To Balance bid
15,000 By Narayan’s Capital Afc 95,000
To Profit & Loss Afc
To Nath’s Executors‘ Ale By Profit 8: Loss Suspense Aft:
1,92,500 (Share of Profit) 22,500
(Balancing figure)
2,12,500 2,12,500

: 3 :2 : 2. B died on
Q. 69. A, B, CandD were partners sharing profits inthe ratio of5 to
,000. A, C and D decided
lst March, 2018. Goodwill of the firm was valued at 76,00
share future profits equally. Give necessary journal entry.
SOLUTION : 69. JOURNAL
Particulars L.F. Dr. (7) Cr. (7)
Dare
2018
Mm“ 1 CS Capital NC (12—2 Of 26,00,000) Dr. 1,00,000
D’s Capital A10 0122 612600000) Dr. 100,000
To A‘s Capital No (11—2 of 26,00,000) 50,000

To B’s Capital A12: (13—2 of 26,00,000) 1,50,000

(Sacrificing parmers goodwill home by gaining
partners C and D)

Working Notes :
Calculation of Gaining Ratio :
A B _ C D
1 _ l 1
New Ratio
3 3 3
01d Ratio _5_ i 2 A
12 12 12 12
New Ratio 1 . 3 . 2 . 2 .
(—1 010 Ratio 12 (Sacrifice) 1—2— (Sacnfice) E (Gain) E (Gain)
 ___.._.__..____
Q. 70 (A). Brown and Smith are
.__
_..-_-_-_____

partners. The partnership deed pro

vides :
(1') That the Accounts be balanc
ed on 31st December each year.
(ii) That the profits be divide
d as follows : Brown 10; Smi
Reserve account 1/6. th 113 and carried to a
(111‘) That in the event of the death
of a partner, his executors be ent
out - itled to be paid
(a) The Capital to his credit at the
date ofdeath.
(1:) His proportion of Reserve at the
date of last Balance Sheet.
(c) His proportion of profit to dat
e of death based on the average profits
the last three completed years. of
(d) By way of goodwill his propor
tion of the total profits for the three
preceding years.
On 3lst December, 2017, the ledger bal
ances were :
7 7
Brown’s Capital
Smith’s Capital 9,000
Reserve 6,000
Creditors 3,000
Bills Receivable 3,000
2,000
Investments
5,000
Cash
14,000
21,000 21,000
The profits for three years were :
2015 74,200; 2016 73,900; 2017 74,500. Smit
h died on lst May, 2018. Show the
accounts as betw een the firm and Smith’s executors as on May
lst, 2018.
SOLUTION : 70 (A).
Profit Sharing Ratio of Brown and Smith =
Ml:—
Lul—

or3:2
(1) Share in profits (upto the date of death) :

Average Profit = 74,200 + 73,9 3

00 + 74,500
: 74, 2 00
.
Share 1n profits = 4,200- x 12—
4 2_
x 3.,- — 7560
(1'1”) Share in Goodwill :
Goodwill = 4,200 + 3,900 + 4,500 = 12,600
Share in goodwill = 12,600 x g = 25,040
Dr. SMITH’S CAPITAL NC Cr.
Particulars 7 Paniculars 7
To Smith’s Executor’s A/c- By Balance b/d 6,000
balance transferred 12,800 By Reserve 1,200
By P & L Suspense A10 560
By Brown’s Capital Ale
(Goodwill) 5,040
12,800 12,800
 0025210140
setunohs 1991234011051
4-78 of 2 '. 1. Following is their
Balance Sheet
d pr ofi ts in th e rat io
Q. ‘10 (B).Yand19hare
as at 3151 March, 2018:
BALANCE SHEET
7
7 Assets
Liabihties 10.800
016611615 6.200 Bank 10,000
serve 18,000 Debtors
Workmen Compensation Re 61E 9,400
X 50,000 Less : Provision 2,000
Capitals:
1’ 27.000 BKR 9,000
Goodwill
70,000
Fixed Assets
1 01,200
1,111,200

201 8. Bes ide s his capital and reserves, his legal representatives
1’ died on 30111 Jun e,
are entitled to :
rs average profits
sha re of goo dwi ll based on 2 years purchase of the last 3 yea
1. His ,000 and 716,000.
fits were 79,000; 720
less 10%. Last three years pro ul
ets are revalued at 776 ,00 0. There is no need of provision for doubtf
11. Fixed Ass
debts. as the debtors are all good.
pa, upto the date of death.
111. He is to be allowed interest at 12%
l repres entatives.
Prepare Y’s A10 to be rendered to his lega

SOLUTION : 70 (B).
(1‘) Goodwill ;
9,000 + 20,000 + 16,000 = “5,000
Average Profit = 3

x2 = 727,000
Total Goodwill of the firm = 15,000 x 12%

Y's share = 22,000 x % = 29,000.

_ Cr.
Dr. Y’s CAPITAL NC
Pmicuiars 7
Particuiars 7
By Balance bid 22,000
To Goodwill A10 (113 x 9,000) 6,000
(Goodwill appearing in the By Workmen Comp. Reserve
Balance Sheet 79,000 By X’s Capital NC
3,000 (Goodwill : 27,000 x 113) 9.000
written oh)
’s NC _
T0 Y’s Executorsfer B Revaluation ( l3 of 6 ’ 600) 2’200
red 42,010 y
balance tran
By Interest on Capital
(From lst April to 30th June) 810

2
(2171' A, B and C are partners in a firm sharing profits in the ratio of 5 : 3 :
respectively. Their Balance Sheet as at 3131 March, 2018 was as follows :
 4.79
0151050901 9'? P_EATH 9? 3°: 1'09??? ...............................
BALANCE SHEET
as at 3131‘ March, 2018

Liabilities 7 Assets 7
Creditors 12,000 Cash 13.000
Reserves 4,000 Debtors 8,009
Workmen Compensation Reserve 6,000 Stock 10.000
Capitals : Machinery 30,000
A 30,000 Buildings 20,000
3 20,000 Patents 6,000
C 15,000
M 37,000
On lst October, 2018, due to illness B died.
(1) Goodwill is to be valued at two years’ purchase of the average profits of previous
five years, which were : 2014 — 710,000; 2015 — 713,000; 2016 —— 712,000;
2017 — 715,000 and 2018 — 720,000.
(ii) Patents were valued at 78,000; Machinery at 728,000 and Buildings at 730,000.
(iii) B’s share ofprofit till the date of his death will be calculated on the basis of profit
of the year 2018.
(iv) Interest on capital will be provided at 10% p.a.
(9) Amount due to B’s executors will be transferred to Charity account.
Prepare B's capital account to be presented to his eseeutors.
SOLUTION : '11.
Dr. B’s CAPITAL AfC Cr.
Particulars 7 Particulars 7
To B’s Executor’s Afc 38,400 By Balance bfd 20,000

By Reserve (4,000 x 13—0 1,200

By Workmen Compensation

Reserve (6,000 x 13—0 1,300

By A’s Capital Arc“) (Goodwill)
(3,400 x %) 6,000
By C’s Capital A10 (Goodwill)

(8.400 23,-) 2,400

By Profit 8'2. Suspense A100} 3,000
By Interest on Capital 1,000
By Revaluation .416 (14611013) 3,000
W W
4.80 ___________________________ 89EUTIP_NS_T0 PRA_CTIC{1L QUESTIONS
Working Notes :
(l) Finn's Goodwill = 10,000 + 13,000 + 12,200 + 15,000 + 20,000 x2

= 14,000 x 2 = 728,000

B's Share 6106660411 223,000 x 13—0 = 23,400 which is contributed by A

and C in their gaining 13601.25 :2.

(2) 3‘5 Share of Profit till the date ofdeath = 20,000 )1 £- x 13—0 = 73,090
12

(3)
Dr. REVALUATION ACCOUNT CV-
Particulars 7 Particulars 7
To Machinery 2,000 By Patents 2000
To Profit on Revaluation By Building 10.000
transferred to :
A‘s Capital NC 5,000
B’s Capital NC 3,000
C‘s Capital A/c $003 10,000

Q. 72.21. B and C are in partnership, sharing profits in the proportion of two—thirds,

one-sixth and one—sixth respectively.
A died on the 30th June, 2018, three months after the annual accounts had been
to the
prepared and in accordance with the partnership agreement, his share of the profits
to
date of death was estimated on the basis of the profit for the preceding year. In addition
balance
this, the agreement provided for interest on capital at 5 per cent per annum on the
and also
standing to the credit of the capital account at the date of the last Balance Sheet,
for goodwill, which was to be brought into account at two years’ purchase of the average
profits for the last three years.
from then to the
A ’s capital on 3lst March, 2018 stood at 71,20,000, and his drawings
date of death amounted to 79,000.
to 733,500;
The net profits of the business for the three preceding years amounted
741,500 and 740,500, respectively.
for a
You are required to prepare A’s Capital Account as at the date of death,
settlement with his executors.
SOLUTION : 72.
(2') Goodwill : 33,500 + 413500 + 40,500 X 2 = {77,000

A’s share=77,000 x %= 751,333

gaining ratio
It will be credited to A and will be debited to B and C in their
. 1.1
1.22., 6 . 6 or equally
 (ii) Share of Profit :
A's Share = 40,500 x 13—2 x %= ?6350.
Dr, A‘S CAPITAL NC Cr.
Parn’cufars ? Particulars ?
To Drawings 9,000 By Balance bid 1,20,000
To A‘s Executor‘s Nc— By Interest on Capital ( 3 months) 1,500
balance transferred 1,70,583 By B‘s Capital A/c (Goodwill) 25,667
By C'5 Capital Ne (Goodwill) 25,666
By P & L Suspense NC 6,250
1,751,583 1,719,583

Q. 73. You are given the Balance Sheet ofA, B and C who are partners sharing profits
in the ratio of2 :2 : l as at March 31, 2017.
Liabilities ? Assets ?
Creditors 40,000 Goodwill 30,000
Reserve Fund 25,000 Fixed Assets 60,000
Capitals : Stock 10,000
A 30,000 Sundry Debtors 20,000
B 25,000 Cash at Bank 15,000
C M 10,000
1,35,000 1,35,000

B died on June 15, 2017. According to the Deed,hislega1 representatives are entitled
to :
(a) Balance in Capital Account;
(17) Share of goodwill valued on the basis of thrice the average of the past 4 years“
profits;
(c) Share in profits up to the date of death on the basis of average profits for the past
4 years;
(d) Interest on capital account @ 12% 13.3.
Profits for the years ending on March 31 of 2014, 2015, 2016, 2017 respectively were
¥15,000, ?17,000, 119,000 and ?13,000.
B’s legal representatives were to be paid the amount due. A and C continued as
partners by taking over B’s share equally. Work out the amount payable to B‘s legal
representatives.
SOLUTION : 73.
Dr. B‘s CAPITAL ACCOUNT Cr.
Date Particulars ? Dare Particulars ?
2017 2017
June 15 To Goodwill (written Apr. 1 By Balance bid 25,000
011M215 of 30,000) 12,000 June 15 By Reserve Fund 10,000
June 15 T0 B’s Executor’s Ale June 15 By A’s Capital
(Balance transferred) 44,158 (Goodwill) 9,600
 4.82 SOLUTIONS T0 PRACTICAL QUESTIONS

June 15 By C's Capital

(Goodwill) 9.600
June 15 By A’s Capital 11/60}
(Profit) 66?
June 15 By C's Capital A/c
(Profit) 666
June 15 By Interest on Capital 525
56,153 56,158

Working Notes :
1. Valuation OfGOOdWiH = Total Profit 15,000 + 17,000 + 19,000 + 13,000 = 64,000
Average Profit = flffl = 16,000
Goodwill of the Firm = 3 x Average Profit
= 3 x 16,000 = {48,000
B’s Share = 43,000 x %= z19,200
19200
Since A and C have gained equally, they will be debited by“2 =?9,600 each

2. Profit and Loss (Suspense)

(Shane 01' Profit from the date of last Balance Sheet to the date ofdeath) 2% months.

=,f6__4
000 2 2_5
—-><5x41—2=?1,333

Note : This amount of ?1,333 will be credited to B and debited to A and C in their gaining
ratio is. equally. It should not be debited to Profit 8.: Loss Suspense Ale because
profit sharing ratio of continuing partners does not remain the same.
12 X2_.5
3. Interest on Capitai = ?25,000 X“
100x 1—2 =?625
Q. 74. Akhil, Nikhil and 30111] were partners sharing profits and losses equally.
Following was their Balance Sheet as at 3 lst March, 2018.
Liabilities 1‘ Assets ?
Trade Creditors 40,000 Buildings 2,00,000
General Reserve 45,000 Plant & Machinery 80,000
Capitals : Stock 35,000
Akhi] 1 35,000 Debtors 80,000
Nikhil 1,20,000 Cash at Bank 85,000
811nd 80,000 3,95,000
4,80,000 4,80,000

Sunil died on lst August, 2018. The partnership deed provided that the executor of a
deceased partner was entitled to :
(1') Balance of partner’s capital account and his share of the accumulated reserves.
(10') Share of goodwill calculated on the basis of three times the average profits of the
last four years.
 (1'11") Share of profit from the closure of the last accounting year till the date ofdeath on
the basis of the profit of the preceding completed year before death.
(iv) Interest on deceased‘s capital @ 6% per annum.
?50000 to be paid to deceased‘s executor immediately and the balance to be kept in
his loan account.
Profits and losses for the preceding years ending 3 lst March were :
2015 —— f 80,000 profit
2016 — ”€100,000 loss
2017 — ?l,20,000 profit
2018 — ?l,80,000 profit
Pass the necessary journal entries and prepare Sunil's Capital Account and Sunil’s
EXecutor’s Account.
SOLUTION : 74. JOURNAL ENTRIES
Date Particulars LE Dr. (1’) 0- R)
2018
Aug. 1 General Reserve Afe Dr. 1 5,000
T0 Sunil’s Capital Afc 15,000
(Sunil’s share of General Reserve harmferred to his
account)
Akhil’s Capital Ate Dr. 35,000
Nikhjl‘s Capital A/c Dr. 35,000
T0 Sunil's Capital Ale 70,000
(Adjustment for Sunil’s share of Goodwill :
2 80 000
80,000 — 1,00,000 + 1,20,000 + 1,80,000 = -‘—:;—-- x3
= 2,10,000. Sunil’s share = 2,10,000 + 3 = 70,000)
P & L Suspense Afc Dr. 20,000
To Sunil’s Capital Afc 20,000
(Sunil's shale ofprofit upto the date of death :
l
1,80,000 X 12 x 5 — 00,000)
4 _

Interest on Capital Ale Dr. 1 ,600

To Sunil’s Capital NC 1,600
(Interest on capital for four months)
Sunil’s Capital Ale Dr. 1,86,600
T0 Sunil’s Executor’s NC 1 36,600
(Amount due to Sunil transferred to his Executor’s A/c)
Sunil’s Executor’s Ale Dr. 1 ,86,600
To Bank Me 50,000
To Sunil’s Executor’s Loan A/c 1,36,600
(Amount paid to Sunil’s Executors and the balance
transferred to Loan No)

Dr. SUNIL’S CAPITAL A/C Cr.

Particulars Q‘ ,- Particulars
T0 Sunil’s Executor’s Nc— By Balance bid 80,000
9'34 §QE9TPNSIO _P_“3“_9T_‘90E 9115??1903
1,86,600 By General Reserve No 15,000
balance transferred
By Akhil‘s Capital A/c 35,000
By Nikhil's Capital Afc 35,000
By P 8: L Suspense Ne 20.000
By Interest on Capital NC 1,600
1 36,600 1 .36,600

Dr. SUNiL EXECUTOR'S NC Cr.

Particulars ? Particulars ?
T0 Bank Aft: 50,000 By Sunil's Capital A/c 1,86,600
To Sunil‘s Executor’s Loan NC 1,36,600
1,86,600 1,86,600

: 2 : 1. As at Blst March,
Q. 75. X, Yand Zwere paxtners sharing profits in the ratio of3
2018, their Balance Sheet stood as under :
? Assets ?
Liabilities
44,000 Cash at Bank 22.000
Sundry Creditors
90,000 Stock 1120.000
Reserve
Debtors 64,000
Capitals :
Investments 2,50,000
X 2,00,000
1,511,000 Fixed ASSBts 1,28,000
1’
Z 1,00,000 41,50,000
5,84,000 5,84,000

ors of the
Y died on 3lst July, 2018. The partnership deed provides that the execut
deceased partner are entitled to :
(i) The Capital to his credit at the time of his death;
(1'1) His share of reserves;
of the last
(iii) His share of profits to the date of death based on the average profits
three completed years,1ess 10%, and
preceding
(iv) Goodwill according to his proportion of the total profits for the three
years, which were ?80,000; ?1,30,000 and ?1,50,000 respectively.
The Investments were sold at par and 1” s executor’s were paid off.
e Sheet of the
Prepare Partner’s Capital Accounts, Y‘s Executor’s Account and Balanc
surviving partnersX and Z.
SOLUTION : 75.
PARTNER‘S CAPITAL ACCOUNTS Cr.
Dr.
Y Z Particulars X 1’ Z
Particulars X
? 1 i ? §
?
To Y’ 3 Capital By Balance
Ajc bid 2,00,000 1,50,000 1,00,000
By Reserve 45,000 30,000 15,000
(Share of
Goodwill) 90,000 30,000 By P & L Sus-
 T0 Y's Dense NC
Executor‘s (See
3,12,000 Note 1) 12,000
Me
To Balance cfd 1,55,000 85 .000 By £5 Capital
c
(Share of
(166611411) 90,000
By Z’s Capital
A/c
(Share of
Goodwili) 30,000
2,45,000 3,12,000 1,15,000 2,45,000 3,12,000 1,15,000

Dr. Y’S EXECUTOR’S ACCOUNT Cr.

Particulars ? Particulars ?

To Bank Afc 3,12,000 By Y’s Capital A/c 3,12,000

BALANCE SHEET OF X AND Z

as at 131‘ August. 2018
Liabilities f Assets 2'
Sundry Creditors 44,000 Stock 11201000
Bank 1.0311(3) 40,000 Debtors 64,000
Capitals : X 1,55,000 Fixed Assets 128,000
Z 85,000 2,40,000 Profit & Loss Suspense A/c 12,000
3,24,000 3,24,000

Working Nates :
(I) Aseenahtment of Y’s share ofprofit :
Total Profits for last three years = 80,000 + 1,30,000 + 1,50,000 = 33,60,000

Average Profits = m = :{1,220,000.

Profit from lst April 16 3lst July, 2013 = 1,20,000 x % = 440,000.

Y’s share Ofpl‘ofit = 40,000 x % = 1 13,333
Less: 10% 0f13,333 1,333
12,000
(2) PS share of Goodwill =
Total Profits of last three years = 8,60,000
Y’s share in profit (Goodwill) = 3,60,000 x % = 11,20,000
It will we contributed by X and Z in the ratio of 3 : l.

(3)
Dr. BANK ACCOUNT Cr.
Particulars ? Particulars i
T0 Balance b/d 22,000 By Y’s Executor’s Aft: 3,12,000
“$8.6, _ SOLUTIONS TO PRACTICAL QUESTIONS
T0 Investments NC 250.000
0 Bank L03n1Balaneing figure)
40.000
112,000 3,12,000

Q- 76- L. M and N were partners sharing profits and losses in the ratio of 5 : 3 : 2. Their
33'3““? Sheet as at 142015 was as under :
Liabilities ? 2433813 ?

Sundry Creditors 20,000 Cash 3,000

Reserves 9,000 Debtors 22,000
Capitals 1 Stock 20,000
L 50,000 Machinery 63,000
M 30,000 Investments 12,000
N 20,000 1,00,000
_ 1,29,000 1,29,000
h‘“——-————__

N died on 5th November, 2015 and according to the partnership

deed hi5 executors
Were entitled to be paid as under :
(a) The capital 16 his credit at the time Of his death and interest thereon @ 3% per
annum.

(5) His share of Reserves.

(‘3) His share of profits for the intervening period will be based on the sales during
that period, which were calculated as €240,000. The rate of profit during past 4
years had been 15% on sales.
(00 Goodwill according to his share of profit to be calculated by taking thrice the
amount of the average profit of the last four years less 25%. The profits of the
previous years were :
2012 ? 10,500
2013 ?12,000
2014 ?12,500
2015 € 13,000
The investments were sold at par and his executors were paid out. Pass the necessary
journal entries and write the account ofthe executors ofN.
SOLUTION : 76. JOURNAL
Date Particulate L.F. Dr. R) Cr. R)
2015
Nov. 5 Interest on Capital A200) Dr. 960
T0 N3 Capital A20 960
(Interest credited to N3 Capital Account)
Nov. 5 Reserves Ale Dr. 1,800
To N’s Capital A/c 1,800
(Transfer ofN’3 share of Reserves to N’ s Capital
Account)
New. 5 P & L Suspense A/c Dr. ~11,200
To N’s Capital NC 7,200
(Transfer of 21’ 1 01h share of profit
tie. $240,000 x 151100 x 2110)
9011312011201 on 03410 91:30 3400433 ____________________________4.0?
Nov. 5 L's Capital A/c D7 3'37:
M‘ 5 Capital NC 2 91' 2102 5 400
To N's Capital Mel ) _ .
(Adjustment of N‘s share of goodwill into the Capital
Accounts of L and M in their gaining ratio 1'.e., 5 : 3)
Nov. 5 Bank Ne Dr. 12,000
To investments Aft: 12,000
(Sale of investments)
Nov. 5 N’s Capital Ajc Dl'. 35,360
T0 N5 Executor‘s NC 35,360
(Amount due to N transfen'ed to his Executor‘s
Account)
Nov. 5 N’s Executor’s Ne Dr. 35,360
To Bank Afc 35,360
(Amount paid to N’s Executors)
DP. N‘S CAPITAL ACCOUNT Cr.
Date Particulars 0‘ Date Particulars ¥
2015 2015
Nov. 5 T0 N5 Executor's NC 35,360 April 1 By Balance bid 20,000
Nov. 5 By Interest on Capital 960
Nov. 5 By Reserves 1,800
Nov. 5 By P 8.: L Suspense 7,200
Nov. 5 By L’s Capital Afc 3,375
Nov. 5 By Ms Capital NC 2,025
35,360 35,360

Dr. N’ S EXECUTOR’S ACCOUNT Cr.

Date Particulars ? Date Particulars ?
2015 2015
Nov. 5 To Bank NC 35,360 Nov. 5 By N’s Capital Afc 35,360

We rking Nates :
(1) Calculation of Interest on Capital :
Number of days from April 1, 2015 to November 5, 2015 = 219
. 219 8
I nterest on Capital = 20,000 x —-
365 x —--
100 = ?960
(2) Calculation of Goodwill :
Averege Profit 10,500 + 12,000 112,500 + 13,000 = 12,000

Less : 25% of 12,000 = 3,000

9,000
Goodwill = 9,000 X3 = $27,000 _—_
N‘s share of Goodwill = 27,000 x % = ? 5,400
It will be credited to the Capital Account of N and will
be debited to the Capital Accounts
ofL and Min their gaining ratio 1.19., 5 : 3.
4,33____________________________ SOL
UTIONS TO PRACTICAL QUESTIONS
""""""""""""""
Q'7T'P-QandRWer8pamel-sinafi unsharingprofits
31-3-2016, their Balance Shee intheratioofs :6 : 9.011
t was as follows :
Liabilities 1‘ Assets 1 —_—
Ct’editors
30,000 Cash
Bills Payable 10.000
40,000 Bank
General Reserve 80,000
60,000 Stock
Capttals : 40,000
Debtors 70,000
P 1,30,000 Building
Q 2,00,000
2.00.000
Land 31,00,000
R 4,00,000 7,30,000 Profit and Loss A/c
1.60.000
8,60,000
8,60,000
R died on 30th April, 2016. The partnership
deed provided for the following on the
death of a partner :
(1') Goodwill of the firm was to be valued at 3 year
’s purchase of the avcrage profits
of the last 5 years. The profits for the year
s ending 31-3-2015, 31-3-2014,
31-3—2013 and 31—3-2012 were 280,000; $80,
000; ¥l,10,000 and $220,000
respectively.
(1‘1) R‘s share ofprofit or loss till the date ofhis deat
h was to be calculated on the basis
of the profit or loss for the year ending 31-3-201
6.
You are required to calculate the following :
(r) Goodwill of the firm and R’s share of goodwill
at the time of his death.
(1'1) R’s share in the profit or loss of the firm till the
date of his death.
Prepare R’s Capital Account also at the time of his
death to he presented to his
executors.

SOLUTION : 7'7.
Working Notes :
(1) Valuation of Finn’s Goodwill :
Average Profit = ?2,20,000 + 11,10,000 + 283,000 + I{80,000 — ?l,60,
000

= ?66,000
Value of Firm’s Goodwill = Average Profit >< Number of Years’ Purchase
Finn’s Goodwill = ?66,000 x 3 = 31,98,000
R’s Share ofGoodwill = 31,93,000 x % = 339,100

(2) R’s Share of ProfitJ'Loss till the date ofhis death :

R’s sham ofProfit/Loss will be calculated on the basis of the profit or loss for the
year ending 31-3—2016. In this year firm incurred a loss of ?l,60,000.
Hence, R’s Share ofLoss = ¥1,60,000 x % x % = $6,000
Dr. R’S CAPITAL AfC Cr.
Dare Particulars ? Date Particulars ?
2016 2016
April 30 To P & L Suspense A/c April 30 By Balance bid 4,00,000
._.._
FFT'FFMENTQFPEATH, 9F)”: ?‘?E‘T'Z‘EE‘ __________________- __________4:5?
(Share ofLoss)m 6,000 April 30 By General Reserve
April 30 To Profit & Loss No (60,000 x 9120) 23.000
(?1,60.000 x 9120) 72,000 April 30 By P’s Capital Ne
April 30 To R's Executor's Aft: 4,38,100 (Goodwill)
(89,100 x 51111) 40,500
April 30 By Q’ Capital A/c
(Goodwill)
(89,100 x 6.111) 43,600

5,16,100 5,16,100

Q. 78. G. E and F were painters in a firm sharing profits in the ratio of 7 : 2 : 1. The
Balance Sheet of the firm as at 3 lst March, 2018 was as follows :
BALANCE SHEET OF G. E AND F
as at 31‘s! March, 2018

Liabilities '1’ Assets ?

Capitals : Goodwill 40.000
G 70,000 Land & Buildings 60,000
E 20,000 Machinery 40,000
F 10,000 1,00,000 Stock 7,000
General Reserve 20,000 Debtors 12,000
Loan fi-om E 30,000 Cash 5,000
Creditors 14,000
' 1,64,000 1 ,64,000

E died on 24th August 2018. Partnership deed provides for the settlement of claims on
the death of a partner in addition to his capital as under :
(1') The share of profit of deceased partner to be computed upto the date of death on
the basis of average profits of the past three years Which was ?80,000.
(1'1') His share in profit/loss on revaluation of assets and re-assessment of liabilities
which were as follows :
Land and Buildings were revalued at ?94,000, Machinery at $38,000 and Stock
at 35,000. A provision of 2.5% was to be created on debtors for bad and doubtful
debts.
(1'11) The net amount payable to E’s executors was transferred to his Loan Account, to
be paid later on.
Prepare Revaluation Account, Partner’s Capital Accounts and E’s Executor Ale. G
and F decided to continue the business keeping their capital balances in their new profit
sharing ratio. Any surplus or deficit to be hansferred to current accounts of the partners.
SOLUTION : 78.
Dr. REVALUATION ACCOUNT Cr.
Particulars ? Particulars ?
To Machinery A/c 2,000 By Land & Building Ale 34,000
To Stock A/c 2,000
To Provision for Doubtful Debts 300
 __
590______________
To Profit transferred to :
G’s Capital A10 20.790
E‘s Capital NC 5.940
2,970 29,700
F" 5 Capital NC
371,000 34,000
1:1.
01- PARTNERS’ CAPITAL ACCOUNTS
E F
G E F Particulars
Particulars ?
1‘ f i
? 1‘
By Balance
To Goodwill 70,000 20,000 10,000
28,000 8,000 4,000 b/d
No
By General
To E’s Exe- 4,000 2,000
28,340 — Reserve 14.000
cutor’s Ne —-
To Balance By Revalua-
tion Ale 20,790 5,940 2,970
cfd (Note 2) 76,790 — 10,970
By Profit &
Loss Sus—
pense A/c
— 6,400 ——
(Note I)
1,04,790 36,340 14,970
1,04,790 36,340 14,970
Cr.
Dr. E’S EXECUTO ‘8 ACCOUNT
Particulars ?
Particulars ?
28,340
To E's Executor’s Loan Ale 59,060 By E’s Capital Ale
By E’s Loan Ale 30,000
720
By Interest on E’s Loan
59,060
59,060

Working Notes :
days :
(1) Calculation ofE’s Share in profit for 146
_ 146 2 _
— {80,000 X 365 x10 — €6,400
l4_6 x _.6_ = 720
(2) Interest on E 3 Loan = 30,000 x 365 100
F:
(3) Calculation of adjusted Capitals of G and
G’s Capita1(Adjusted) = 776,790
F’s Capital (Adjusted) = $10,970
= $7,760

New profit sharing ratio ofG and F= 7 : 1

6’3 Capital = 787,760 x—;- = 776,790

F’s Capital = $87,760 ><% = 310,970

n by their Capital Accounts. Hence,
Adjusted Capitals of partners are the same as show
r Curre nt Accounts.
there is no need of transferring any amount to thei
20 Q. 79. The tbllowing is the Balance Sheet ofRam, Mohan and Sohan as at 3 lst March.
17 :
____ Liabilities ’1' Assets 7
Sundry Creditors 10,000 Tools 3.000
Reserve Fund 7,500 Furniture 13.000
Capitals : Stock 16.000
Ram 20,000 Debtors 12,000
Mohan 10,000 Cash at Bank 8,000
Sohan 10,000 Cash in hand 500
57W} m0?
Ram, Mohan and Sohan shared profits and losses in the ratio of2 : 2 : l. Sohan died on
30th June 2017. Under the partnership agreement the executor of Sohan was entitled to :
(0) Amount standing to the credit of his Capital Account.
(6) Interest on Capital which amounted to ? 150.
(1:) His share of goodwill =6,000.
(d) His share of profit from the closing of the last financial year to the date of death
which amounted to 7750.
Sohan’s executor was paid $1,400 on lst July 2017 and the balance in four equal
yearly instalments starting from 30th June 2018 with interest @ 6% pa.
Pass necessary Joumal entries and draw up Sohan‘s Account to be rendered to his
executor and Sohan’s Executor‘s Account till it is finally paid.
SOLUTION : 79. JOURNAL
Date Particulars LF. Dr. (7) Cr. (1’)
2017
June 30 Reserve Fund Afc Dr. 1,500
To Sohan’s Capital Ne 1,500
(Transfer of Sohan’s share ofreserve fimd to his
Capital Ale)
June 30 Interest on Capital Afc Dr. 150
To Sohan’s Capital No 150
(Interest credited to his Capital Ne)
June 30 Ram's Capital Afc Dr. 2,500
Mohan’s Capital A/c Dr. 2,500
To Sohan’s Capital Ale 5,000
(Sohan’s share of goodwill adjusted to the
continuing partners Capital Accounts in their
gaining ratio 1211., equally)
June 30 P & L Suspense No Dr. 750
To Sohan’s Capital Nc- 750
(Transfer ofprofit till his death)
June 30 Sohan’s Capital Ale Dr. 17,400
To Sohan’s Executor’s Ale 1 7,400
(Amount due to Sohan transfened to his Executor’s
A/c)
 SOLUTIONS TO PRACTICAL QUESTIONS

Jul}r l Sohan‘s Executor‘s Ale Dr. 1,400 1 400

To Bank Ne '
(Amount paid to Sohan's Executors)
Dr. 301114143 CAPITAL NC Cr-
Date Particulars ? Dare Particulars 1'
2017 2017
June 30 To Sohan‘s Executor’s 17,400 April 1 By Balance bid 10,000
MC (Balance June 30 By Reserve Fund 1,500
transferred) June 30 By Interest on Capital 150
June 30 By Ram‘s Capital NC 2,500
June 30 By Mohan‘s Capital
1,7,, 2,300
June 30 By P 86 L Suspense 750
m 17,400

Dr- SOHAN‘S EXECUTOR’S NC Ct“-

Dafe Particufars ? Dare Particulars ?
2017 2017
July 1 To Bank NC 1,400 June 30 By Sohan’s Capital Afc 17,400
2018 2018
March 31 To Balance c/d 16,720 March 31 By Interest Ale
(17,400 4 1,400)
6 9
x 100 x 12 720

m m
2018 2018
June 30 To Bank (Mt th of April 1 By Balance bid 16,720
1 16,000 4,000 June 30 By Interest A/c
Add : Interest 6 3
(720 + 240) E 4,960 16’0“) x 100 x 12 240
2019 2019
March 31 To Balance 0111 12,540 March 31 By Interest Me
6 9
12,000x 100 x 12 540
17,500 77%
2019 2019
June 30 To Bank (V: th of April 1 By Balance bid 12,540
716,000 4,000 June 30 By Interest Aft:
Add : Interest 6 3
(5404'130) E 4,720 12,000 me E 180
2020 2020
March 31 To Balance 0711 8,360 March 31 By Interest Ale
6 9
8,000x100 XE 350

13.030 13,030
 2020 2020
June 30 T0 Bank (‘4 :11 of April 1 By Balance bid 8,360
116,000 4,000 11111830 By Interest MB
Add .' Interest
3
(360+120) 1311 4,430 BWOXWXE '20
2021 2021
March 31 To Balance cfd 4,180 March 31 By Interest NC
9
4,000 X 1—30- X 12— 130

8, 0 8,660
2021 2021
June 30 T0 Bank NC 4,240 April 1 By Balance bid 4.180
June 30 By Interest No
6 3
4,000 x 100 x160

4,240 4,240
Note : (l) The date of closing the accounts is 3151 March and the date of payment of instal-
ments is 30111 June.

ADDITIONAL QUESTIONS
Calculation of New Profit—Sharing Ratio
Q. 80. A, B, C. andDareparh1ers sharingprofits intheratioof4 : 3 :2 : LA and C
retire from the firm. Calculate the new profit sharing ratio ofB and D.

SOLUTION : 80.
Old Ratio ofA, B, CandD=4 :3 :2 : l.
WhenA and Cretire, the newratio betweenB andDwill b03 : 1.

Q. 81. A, B and C axe parmers shan'ng profits in the ratio of 112 : 3/8 : 1/8. Calculate
the new ratio if C retires.
SOLUTION :81.
-
OldRatloofA,BandC 4.2.}.
_2'8‘8

. . 4:3:1
mscanbevmttenas 3 or4:3 1

Thus, when C retires, the new ratio between A and B will be 4 : 3.

Q. 81A, Band Cwere panners ina firm sharingprofits inthe ratio 018 : 4 :3. B retires
and his share is taken up equally by A and C. Find the new profit sharing ratio.
SOLUTION : 82
3’3 share will be divided between A and C in the ratio of 1 : l.

Awillgainzofl-i- = %
39.2 _. _ ____ . _______
Hence. .4 ' s new Share = 18? + '2—5 = 1J5:

C will gain 110% = {g

Hence, ("5 new Share = 1% + 41% = "1%

NewRatio = A-i-g-tCl—SS- 0r2:l

ng profits in the ratio

Q. 83. Shiv. Mohan and Hari were partners in a fum shari
n Shiv and Hari.
of 5 : 5 : 4. Mohan retired and his share was divided equally betwee
Calculate the new profit sharing ratio of Shiv and Hari.
SOLUTION : 83.
.
- ,MohanandI-Ian--iss ..5 .401'14
OldRati- o0fSh1v . 14 3.
1.1. . 14

Mohan‘s share will be divided between Shiv and Hari equally.

. . . 1 5 __5_
Shiv W111 gamzof 14 _28

. . . 1 5 #1
Han 111rlllg3111120f14 F28

. , __ _5_ _10+5 _ 1_5_

Shivsnewshare~14+28 - 28 _ 28

., =1 .2. =8+5 _ Q
—8 _ 8
Hansnewshare 14+28

Thus, New Ratio between Shiv and Hari is %1%0r15 : 13.

Q. 84. A, B and C were parhners sharing profits in the ratio of 1/5, 113 and 7115
respectively. C retires and his shame was taken up by A and B in the ratio of 3 : 2. Calculate
the new ratio.
SOLUTION:84.
- _l.l.l
OlthatioofA,BandC—5.3.15

C’s share will be divided betweenA andBinthe ratio of 3:2

. .3 7_fl
Amllga1n50f15—75
. .2 7_fl
Bmllgam50f15—7S

, =1 21_ 15+21 _fi
Asnewshare 5+3,5 _—~—75 -75

,
Bsnewshare—3+7S—
_l fl_£+_l4_fi
75 —75

. _36 39
Thus,newrat10 betweenA andB—— '—or 36 : 39 or 12 : 13
75'75
 Q. 85. .11'. 1’ and 2 were partners sharing profitsIn the ratio of 419. 3f9'. 219. X retires
and his share was taken up by Y and Z in the ratio of 2 : 1. Find out 1he new ratio.
SOLUTION : 35.

OldRatioofX, YandZ=—3—- %_ %
X’s share will be divided between 1’ and Z in the ratio of 2 ; 1

Ywill gain 3 ofi: 2%

2110111 gam ; 0119‘— 7:47

_%
Y’snewshare=%+% = % =

Z’snewshare=%+24—7 = % = g}
Thus, new ratio between YandZ: %I%or 17 . 10.

Q. 86. A. B and C were partiers sharing profits in the ratio of 4 : 3 : 2. B retires from
the firm. Calculate the new ratio, if
(0 B’s share was taken up by A and C in the ratio of 2 : 1.
(1'1”) 3’3 share was taken up by A and C equally.
(iii) B’s share was taken up by A only.
SOLUTION :86.
xcl-e-
\OIU)

5' film

Old Ratio ofA, Bde: 4. 3. 2 or

(1‘) When B’s share is taken up by A and C the ratio 0f2: l

Aw1ll ga1n§0f6= %

CMIlgam;0f%_ %
Asnewshare: g... %=g

C’snewshare=%+%=%

l
Thus,newratiobetweenAandC=-g-;%or6:3NZ:

(ii) WhenB’SShmiStakenupbyA‘andCeqmlly
Awillgainlot‘g: %
Cwillgain%of%_ %
Asnewshare= 3+ %=%=%

C’snewshare= %+%=%=%
4.96 SOLUT10NS T0 PRACTICAL QUESTIONS

ThusmewratiobetweenA and C=%:118-0r11 :7

(iii) When B’s share is taken up by A alone

A'snewshare=4+l=7
9 6'
C’s new share = elm ~DI

Thus,newratiobetweenAandC=%:%-or7:2

Q. 87. H, P and S were panners in a firm sharing profits inthe ratio 0f42313.0n
August 1, 2017, P died. His 20% share was acquired by H and remaining by S. Calculate
the new profit sharing ratio. (GB. 8.5. Sample Paper, 2018)

SOLUTION : 87.
Ratio OfH, PandSis4 :3 :3

H‘sGain- _1 33-2.
—10x100_50

Hsnewshare
4 3 20+3 23
—E+§_—-———50 -33

3 am- __3_ 0-12.

"10x100"50
SSG
S’snewshare :_.3_+1_2=15+12=2
10 50 50 50
New Profit sharing Ratio ofH and S is 23 : 27

Calculation of Gaining Ratio

Q. 88. Kangli, Mangli and Sanvali are three partners sharing profits in the ratio of
4 : 3 : 2. Kangli retires. Assuming Mangli and Sanvali will share profits in fiiture in the ratio
of 5 : 3, determine the gaining ratio.
SOLUTION : 88.
Gaining Ratio = New Ratio — Old Ratio
.. . ._§_3_ 45—24=§
Gammg Ratio of Ivi.':11'1,°,11w 8 9 — 72 72
.. . ._3_2_27—l6__1_1
(1311111113RatioefSanvallr8 9 — 72 —72

Thus, Gaining Ratio between Manin and Sanvali = 21 : 11

Q. 89. A, B and C are partners sharing profits and losses equally. B dies. A and C agree
to share mture profits in the ratio of 7 : 5. Calculate the gaining ratio.

SOLUTION : 89.
Gaining Ratio = New Ratio 4 01d Ratio
. . . _ l _ l __ 7 —4 z i
GamingRatueuefA—1 3 — —1 12
 -- Rat - f 5
=___ 5- l
I =_=_
Gamln
3 10°C 12 3 12 12
Thus. Gaining Ratio betweenA and C =3:1

Q. 90. A. B and C are partners with capitals of 21,00,000; 175,000 and {50,000
tespectively. They share profits and losses in the ratio of their capital. C retires, His share
18 sequired by A and B in the ratio of 2 : 1. Calculate the new profit sharing ratio and
gammg ratio.

SOLUTION:90.
OldRatioofA.BandC=l,00,000:75,000:50,0000r4:3:2

0.1.2.2.
9'9’9
C’s share willbedividedbetweenAandBintheratioof2:l
. .2 2_i
A Wlii gain 3 of5— 2?

. .1 2_i
Bwfllgamsofg—z?

, _i i_12+4_fl
Hence, Asnewshare~9+27— 27 —27

. -2 ____=_ 2 9+2 1]
Bsnewshare—9+27— 27 27

Thus, NewRatiobetweenA andB =16:11

GainingRatiobetweenAandB =2:l

Q. 91. A, B and C are partners with capitais of ”(1,00,000; $75,000 and 60,000
respectively. On C’s retirement, his share is acquired by A and B in the ratio of 6 : 4.
Aseertain new profit sharing ratio and gaining ratio.
SOLUTION : 91.

OldRatioofA,BandC:—%;%;—;»
C’s share will be divided betweenA andBin theratio of6 :4 01-3 :2
. .3 1_i
Awfllgamsofj—15
. .2 1__2_
13’w111galn-gof3—15

,
Hence, Asnewshare—3+15—
_l i__.5+3=_3_
15 15

. *1 __-_.
Bsnewshare—3+15- 1 15

Thus, New Ratio betweenA and B =8:7

Gaining Ratio between A and B —3:2

 __ _ _ _____ _ q _ _ _ ‘ _ _ _ _ SQLthIQNsTo P_RafltCTlgfiL p_U_E_STjQI§I§
Treatment of Goodwill
Q. 92. Alia, Karan and Shilpa were parmersi
na firm sharing profits in the ratio of
5 : 3 : 2. Goodwill appeared in their books at
a value of 160,000 and General Reserve at
?20,000. Km decided to retire from the
firm. On the date of his retirement, goodwill
the firm was valued at ?2,40.000. The new 0f
profit-sharing ratio decided among Alia and
Shilpa was 2 :3.
Record necessary Journal entries on Karan‘s
retirement. (C.B..S'.E. 2015 Camp“)
SOLUTION : 92.
———___ JOURNAL
Dare
Particulars LF. Dr. R) Cr. (?J
Alia‘s Capital Ne
Dr. 30,000
Karan‘s Capital Arc
Dr. 18,000
Shilpa’s Capital Ale
Dr. 12,000
To Goodwill Ne
(Existing goodwill written off among the 60,000
existing part ners
in their old ratio)
General Reserve Afc
Dr. 20,000
To Alia‘s Capital A/c
To Karan‘s Capital No 10,000
To Shilpa’s Capital A/c 6,000
(General Reserve distributed among all the part 4,000
ners in
their old ratio)

Shilpa‘s Capital A/c (2,40,000 x %)

Dr. 96,000

To Alia’s Capital Axe (2,40,000 x % )

24,000
' Te Karan’s Capital Ale (2,40,000 x 130—)
22,000
(Goodwill adjusted on Karen’s retireme
nt)
Working Notes :
1. Calculation of Gaining Ratio : Gain of a
Partner = New Share — Old Share
- _ E5—11-
0 — 22
10 -;
Alla — — 10 (Sacr - ifice)-
. _ 3 1-5-2_i .
Siulpa ‘ 5‘10‘ 10 '10(G‘““)
Q.93.114,NandOwhoarep artnersinafirmshareprofitsintherati
Goodwill has been valued at ?60,000. oof3:2 : 1.
On N’s retirement, M and 0 agree to
equally. share profits

Pass necessary journal entry for treatment

ofN’3 share of goodwill.
SOLUTION : 93. JOURNAL
Date Particulars LF. Dr. (?J Cr. R)
0’3 Capital A/c
Dr. 20,000
To N’s Capital Afc
(0’s Capital account debited as he alone has 20,000
gained on
N’s retirement)
 BFTIBEMENT 0R DEATH OF A PARTngF} __________________
4.99
Gaining Ratio = New Ratio - Old Ratio

Mgam1 s —1 62:51: 0
_2—

Ogam' s _2*6_
~—l
6 6
l—v—_3—l=2

Only 0 gains on N‘s retirement. Hence, he will be debited by the entire amount ofgood
will
Payable to N.

Q. 94. Ravi, Mukesh, Naresh and Yogesh are partners in a firm sharing profits
in the
ratio of 2 : 2 : l : 1. 0n Mukesh’s retirement the goodwill 0fthe firm is valued
at ”0,000.
Ravi, Naresh and Yogesh decided to share future profits equally. Pass the necessary
journal
entry for the treatment of goodwill.

SOLUTION : 94. JOURNAL

Date Particulars L.F. Dr. (W C31 f?)
Naresh Capital A/c (% of ?90000) Dr. 15,000
Yogesh Capital A/c (% of £90,000) Dr. 15,000
To Mukesh Capital Afc (% of r90,000) 30,000
(Retiring partner’s share ofgoodwill debited to the
accounts ofcontinuing parmers in their gaining ratio rte. ’

equally)

Gaining Ratio = New Ratio - 01d Ratio

H

Ravi Gains l-2 =2_

3 6 0 =0
. I 1 _2-1_l
NareshGams 3_6 ———6 _6

. l 1 _2—1=_1_
YogeshGams 3-6 —-—6 6
Thus, Gaining Ratio between Ravi, Naresh and Yogesh = 0 : I : 1.

Q. 95. L, M; N and 0 are partners in a firm sharing profits and losses in the ratio
of
2 : 2 : 1 : 1. M and 0 decided to retire from the firm. The goodwill of the firm was
valued
at 13,60,000. L and N decided to share future profits equally.
Find out Gaining Ratio and Pass necessary journal entry for the treatment ofgood
will.
SOLUTION : 95.
Calculation of Gaining Ratio :

LGams.
' -
6‘2
.2...
l =
6
_2—321
6

NGams. . . L}.
6 2 = 14:2.6
As such, Gaining Ratio betweenL andN=l :2
E190 _____________________________________
JOURNAL
L. F. DT. R) Cr. (f)
Date Particulars
Dr. 60,000
L‘s Capital Ne (1,80,000 @111
Dr. 1.20.000
N’s Capital Ale (1.80.000 x %)
1,20,000
To M’s Capital Aft:
60,000
To 0‘s Capital No
(M and 0’s share of goodwill debited to gaining partners
in their gaining ratio of l : 2)
?
Working Note : (1)
M’s Share of Goodwill = =«3250.000 x % 1.20.000
0’s Share ofgoodwill = {3,150,000 x é— 60,000
1,80,000

in the ratio 0f5 :3 :2.

Q- 96. (0)21, B andCarepartners ina firm sharing profits profit sharing ratio and
A retires and his share is taken up by B and C equally. Find the new
the gaining ratio.
will account appears in
(0) The goodwill of the firm is valued at #200,000. No good
in the above mentioned
the books. Pass necessary journal entry for recording the goodwill
case.
SOLUTION:96.
(a) A’sShare is takenup byB andCequally.
. .l 5,1 , =_3_ i=6+5=£
—-—-20 20
Hence,Bsnewshare 10+20
B’wrtllggynn20f10»20

. .1 5 5 . -1 i=__4+5=.9_
Hence,Csnewshare—~10+:0 0 20
Cwfllgamzo 10—20

20 2.
- fB andC--0 .
. 20 or 11 .9
NewRatloo
gaining ratio
Gaining Ratio : Since B and C have aequiredA’s share equally, the
will be 1 :1.
(s) A’s share ofGoodwill = 12,00,000 x 15—0 = =(1,00,000
.
JOURNAL
Pmieulars LP. Dr. R) Cr. R)
Date
Dr. 50,000
B’s Capital Ale
Dr. 50,000
C’s Capital Ale
1,00,000
To A’s Capital A/c
(Retiring partner’s share of goodwill debited to'B and C
in their gaining ratio of l : ]]
and
Q. 91L, Mand 0 were partners in a firm sharing profits i111 : 3 :2 ratio. I. retired
the goodwill of
the new profit sharing ratio between M and 0 was 1 : 2. 0n L’s retirement
 __________EATH OF A PARTNER
the firm was valued at ?l --- ------------------
20 000 Pas _ ________________
4.101
___
goodmll
.
on L‘s retirement. I 9 . S necessaly onmal n f
J e I or the treatment 0f
SO TION .- 97.
JE
JOURNAL

LF.
0’s Capital Afc (é of 1,20,000 Dr.(?) CER)
)
—___

Dr. 40000
To L‘s Capital Ale ( g of 120000)
20000
To Me Capital A/c ( 1'5— of 1,120,000)
20,000
(0 gains % share of profit wherea
s L losses % share of
profit and M also losses
1:- share ofprofit. O comp
ensates
L and M for the loss in sh
-——.___ are of profit)

Working Notes : 0 Gains

ash.» aslm

m[— ale
H

II

M Sacrifices =
f

If

Thus 0 gai. ns 3
2 . .
Wthh mcludes é- sacn. fic
od by M in favour of 0.
compensate M for such sac Hence, 0 is required to
rifice.

Q. 98. X Yand Zare in par

mership sharing profits in the
is no goodwill No in the book proportion of3 :2: 1. There
s of the firm.
As from Ist April, 2018, it
was agreed that X should giv
business and that in consequen e only part of time, to the
ce he should receive in fixture
share, the remaining halfbeing only one half of his pnevious
divided equally between 1’and
for this purpose, at “€40,000. Z. The goodwill to be valued
Show the new share of parmem
and pass necessary journal entry.
SOLUTION : 98.
JOURNAL
Dare Particulars
LF. Dr. R) Cr. R)
2018
April 1 Y’s Capital A/c
Dr. 5,000
Z’s Capital A/c
Dr. 5,000
To X’s Capital Ale
(X’s share ofgoodwill debited to the accounts of 10,000
continuing pattiers in their gaining ratio 129., equa
lly)
Calculation of New Profit Sharing Ratios :

In future X will get only % ofhis previous share.

1 3
Hence X’s new share =§ofg 1
=E-

Balance iwill be divided between 1’ and Z equally.

 Hence, Ywill gain— of £113.

Zwillgain%ofi_=%

Y‘snewshaxe=%+% = ?:fi,

Z’snewshare=%+% ___ :42i43152

Thus,NewShareofX, Yandz=%,%:2_74,:6:;;7=6: 11 :7
Q._99. Kavya, Manya and Navita were partmrs sharing profits as 50%, 30% and 20%
respectively. On 31—3-2016, their Balance Sheet was as under :
Liabilities ? Assets ?
Creditors 1,40,000 Fixed Assets 8,90,000
General Reserve 1,00,000 Investments 2,00,000
Capitals : Stock 1,30,000
Kavya 6,00,000 Debtors 4,00,000
Manya 5,00,000 Less : Provision for
Navita 4,00,000 15,00,000 bad debts M 3,110,000
Bank 1,50,000
17,40,000I 17,40,000

On the above date, Kavya retired and Manya and Navita agreed to continue the
business on the following terms :
(a) Finn’s goodwill was valued at ?60,000 and it was decided to adjust Kavya’s share
of goodwill in the capital accounts of continuing parkiers.
(b) There was a claim for workmen’s compensation to the extent of €4,000.
(c) Investments were revalued at ¥2,13,000.
(d) Fixed Assets were to be depreciated by 10%.
(e) Kavya was to be paid ?20,000 through a bank draft and the balance was
transferred to her loan account which will be paid in two equal annual instalments
together with interest @10% p.a.
Prepare Revaluation Ale, Partner’s Capital accounts and Kavya’s Loan Account till it
is finally paid. (C.B.S.E. 2018, Comptt.)
SOLUTION : 99.
Dr. REVALUATION ACCOUNT Cr.
Particulars ? Particulars ?
To Workmen Compensation By Investments A10 13,000
Claim Ne 4,000 .3)! Loss transferred to :
To Fixed Assets No 89,000 Kavya’s Capital Ale 40,000
Manya’s Capital Ale 24,000
Navita’s Capital Ale 16,000 80,000
93 ,000
11 8
Li.)
M:
1::
Dr. PARTNERS‘ CAPITAL ACCOUNTS Cr.
Particulars Kmya Mama Navira Particulars Km Marya Navita
? 1 ¥ ? f f
To Revaluation By Balance 131d 15,00,000 5,00,000 4,00,000
No (Loss) 40,000 24,000 16,000 By Genera]
To Kavya‘s Reserve No 50,000 30,000 20,000
Capital No 18,000 12,000 By Manya’s
To Bank Aft: 20,000 Capital No 18,000
To Kavya’s By Navita‘s
Loan Afc 6,20,000 Capital NC 12,000
To Balance cr’d 4,88,000 3,92,000
15,80,000 5,311,000 4,20,000 15,80,000 5,30,000 4,20,000

Dr. KAVYA’S LOAN ACCOUNT Cr

Date Particulars ? Date Paniculars 1'
2016 2016
March 31 To Balance cfd 6,20,000 March 31 By Kavya’s Capital 6,20,000
A/c
6,20,000 15,20,000

20171 2016
March 31 To Bank Afc April 1 By Balance bfd 15,20,000
(13,10,000 201?
+ {62,000} 3,72,000 March 31 By Interest on
,, To Balance cfd 3,10,000 Loan Ale 62,000
6,82,000 6,82,000
2018 201?
March 31 To Bank Afc 3,41,000 April 1 By Balance bid 3,10,000
2018
March 31 By Interest on Loan No 31,000
3,41,000 3,41,000

Note : In case an examinee has prepared Kavya’s Loan No starting 00111 April 1, 2016 as
‘By Kavya’s Capital A/c’ with ?6,20,000, fill] credit must be given.

Q. 100. Kanika, Disha and Kabir were partners sharing profits in the ratio 2 : l : 1. On
31-3—2016, their Balance Sheet was as under :
Liabilities ? Assets ?
Trade creditors 53,000 Bank 60,000
Employees Provident Fund 47,000 Debtors 60,000
Kanika’s Capital 2,013,000 Stock 1,00,000
Disha's Capital 1,00,000 Fixed Assets 2,40,000
Kabir’s Capital 80,000 Profit & Loss No 20,000
4,510,000 . 4,80,000
 _s_Tion_is
SOLUTIONS T0 Pnaq'rjoat _o_u_E
_________________
4.104 reed
thi s pur pos e, the fo ll ow ing adjustments were ag
For
Kanika retired on [-4-2016.
ts of thm:
upon :
wa s va lu ed at 2 yea rs‘ purchase of average profi
(a) Goodwill of the firm of ret irement. The profits for the
year 1
pr ec ed in g the dat e
completed years 1,3 0,000.
and for 2014—15 were ?
2013-14 were 11,00,000
increased to 13,00,000.
(1)} Fixed assets were to be
120%.
(c) Stock was to be valued at
to her loan account.
(d) The amount pay able to Kanika was trans ferred
and the Balance Sheet
Prepare Revaluation Account, Capita
l Accounts of the partners
(CBSE. 2017 Compn.)
of the reconstitute d firm .

SOLUTION : 100. Cr.

REVALUATION A/C
Dr’ Particulars 2'
Particulars ?
By Fixed Assets NC 50,000
To Profit transferred to : 20,000
Kanika’s Capital No 40,000 By Stock No
Disha’s Capital No 20,000
Kabir’s Capital Aft: 20,000
W @
Cr.
Dr. PARTNERS’ CAPITAL ACCOUNTS
Disha Kabir
Panfcufars Kanika Disha Kabir Particulars Kartika
2‘ ¥ 1'
f f 7
By Balance
To Kamika’s 80,000
—— 35,000 35,000 bid 2,00,000 1,00,000
Capital Afc
By Revalu-
To Profit & 20,000 20,000
5,000 5,000 ation Ale 40,000
Loss No 10,000
By Disha's
To Kanika‘ 5 — —
— — Capital Ale 35,000
Loan Afc 3,00,000
To Balance By Kabir’s
60,000 Capital No 35,000 — —
c/d -— 80,000
1,00,000 3,10,000 1,20,000 1,00,000
3,10,000 1,20,000

TED FIRM
BALANCE SHEET OF THE RECONSTITU
As a: Is! Aprfl 2016
? Assets 1"
Liabilities
53,000 Bank 60,000
Trade Creditors
47,000 Debtors 60,000
Employees’ Provident Fund
3,00,000 Stock 1,20,000
Katika’s Loan
80,000 Fixed Assets 3,00,000
Disha’s Capital
Kabir’s Capital 60,000
5,40,000 5,40,000

Working Note : {-
Valuation of Goodwill :
Profit for 2013-14 1 00 000
 Prom tor 2014-15 1,30,000
Loss for 2015-16 (Given in the Balance Sheet} 21213.33?

Average Profit = z—loéfl = €70,000

Goodwill at 2 year’s purchase = 70.000 x 2 = ?1,40.000

2
Kanika‘s share of Goodwill = 1,140,000 x 4 = ? 70,000
It will be contributed by Disha and Kabir in the ratio of 1 : 1.

Q. 101. K, L and Mwete partners in 3.111111 sharing profits in the ratio of5 :3 i 2. On
31.3.2016 the Balance Sheet of the firm was as follows :

Liabilities f Assets 8
Creditors 30,000 Bank 20,000
K‘s Capital 40,000 Debtors 16,000
L‘s Capital 36,000 Less .' Provision for
M's Capital 32,000 Bad Debts M 14,000
Building 1,00,400
Profit and Loss Account 3,600
1,311,000 1,38,000

L retired 00111 the firm on the following terms :

(1) The new profit sharing ratio bemeen K and M will be 2 : 1.
(it) Goodwill of the firm is valued at 772,000.
(iii) Provision for bad debts is to be made at the rate of 10% on debtors.
(iv) Creditors of $4,000 will not be claimed.
Prepare RevaIuation Account, Partners’ Capital Accounts and Balance Sheet ofK and
Mafter L ’s retirement.
SOLUTION : 101.
Dr. REVALUATION ACCOUNT Cr.
Parficulw's ? Particulars 1'
To Profit transferred to : By Provision for bad debts
K’s Capital NC 2,200 62,000 — 10% of 16,000) 400
L’s Capital Afc 1,320 By Creditors 4,000
M’s Capital Afc fl 4,400
@ 4,400

Dr. CAPITAL ACCOUNTS Cr.

Particulars K M Particulars K L M
f i“ 1' ? f f
To Profit and By Balance b/d 40,000 36,000 32,000
Loss NC 1,800 1,080 720 By Revaluation
To L’s Capital A/c 2,200 1,3 20 880
Ali: By K’s Capital
(GoodwiIl) 12,000 9,600 Aft;
 (Goodwil1) 12,000
To L's Loan
57,340 By Ms Capital
No
28,400 22,560 No
To Balance cfd 9,600
(Goodwill)
42,200 58,920 32,880
2,00 53,920 32,330

1
1
1
BALANCE SHEET 01" K AND M
as at 3151 March, 2016
? Assets
Liabilities
26,000 Bank 20,000
Creditors
57,840 Debtors 16.000
L‘sLoan
Capitals : Less : Provision for
bad debts 1,600 14,400
K 28,400
1,00,400
M 22,560 50,960 Building
1,34,800
1,34,800

Working Notes :
L‘s share in Goodwill = 72,000 x % = 21,600
This share is debitedtoK andM in gaining ratio
Gaining Ratio=New Ratio—Old Ratio
.. .fg 1:20—1
3
5=_5_
30
K’sGaunngRan—3— 0
p.-

.. . _1 2 10—6 3.
Ms"31““1"3R5‘t“"3‘10 30 30
GainingRatio=5:4
Entry for Goodwill adjustment will be :
K‘s Capital Afc (21,000 x %) Dr. 12,000
M’s CapitalA/c (21,600 xg) Dr. 9,600
To L’s Capital Ale 21,600
1
Q. 102. X, Y and z'were partners in a firm sharing profits in the ratio 01% :
ml...

C _

6
respectively. The Balance Sheet of the firm as at 3lst March, 2018 stood as follows :
Liabilities ? Assets ?

Creditors 9,500 Cash at Bank 1,250

Bills Payable 2,500 Debtors 8,000
Reserve Fund 6,000 Less :Provision for
Capitals : Doubtful Debts fl 7,750
X 20,000 Stock 12,500
1’ 15,000 Motor Vans 4,000
Z M 47,500 Machinery 17,500
Buildings 22,500
763,570 65,500
 3151105111011 9110514111 131: A PAHTNEs _______________________ 4.103
1’ retired from the firm on 151 April, 2018 subject to the following conditions :
(a) Goodwill of the firm be valued at ?9,000.
(1!) Machinery would be depreciated by 10% and motor vans by 15%.
(0) Stock would be appreciated by 20% and Buildings by 10%.
(d) The provision for doubtful debts would be increased by {975.
(e) Liability for workmen’s compensation to the extent of ?825 would be created.
It was agreed thatX and Z would share profits in future in the ratio of3 : 2 respectively.
You are required to prepare the Revaluation Account, Capital Accounts ofthe partners
and the Balance Sheet of the firm afier the retirement of 1’.
SOLUTION : 102.
DI”- REVALUATION ACCOUNT Cr.
Particuiars f Particulars ?
T0 Machinery 1,750 By Stock 2,500
To Motor Vans 600 By Bui1dings 2,250
To Provision for doubtful debts 975 '
To Workmen's compensation 825
To Profit transfen'ed to :
X‘s Capital 300
1’" 5 Capital 200
25 Capital E 600
4,750 4.75

Dr. CAPITAL ACCOUNTS Cr.

Particulars X Y Z Paniculars X I’ Z
? 1‘ f f 2' ?
To Y’s Capital By Balance b/cl 20,000 15,000 12,500
Me By Reserve Fund 3,000 2,000 1,000
(Goodwill) 900 — 2,100 By Revaluation
To 1” 5 Loan Ale — 20,200 — A/c (Profit) 300 200 100
To Balance c/d 22,400 — 11,500 By X’s Capital
' (Goodwill) ~— 900 —
By Z’s Capital
(Goodwill) — 2,100 —
23,300 20,200 13,600 23,300 20,200 13,600

BALANCE SHEET 0F X AND Z

as at Is! April, 2018
Liabilities ? Assets ?
Creditors 9,500 Cash at Bank 1,250
Bills Payable 2,500 Debtors 8,000
Workmen’s Compensation 825 Less : Provision for
F5 Loan 20,200 Doubtfiil Debts 1% 6,775
Capitals : Stock 15,000
 ____________ ___________
4:108________________
Motor Vans 3.400
22,400
X
11,500 33,900 Machinery 15,750
2 24,750
Buildings
66,925
66,925

Working Notes :
1. Calculation of Gaining Ratio :
- -2_1,_6-5 ,1
XGa mS '5 2 10 10
. 2 1_ 1245= 1
20““ 5'6‘ 3 30
1 1
Thus, Gainmg Ratio ofXand Z= 10 : 30 0r3 : 7

2. Y’s share ofGoodwi11= 19,000 x g; = 13,000

as under
Which is to be contributed by X and Z in their gaining ratio of 3 : 7
X : 23,000 x 130 = 2900
z; r3000 x 110 = r2100
nthe ratio 012 : 3 :5. 0n
Q.103.P. QandR werepartners inafirmsharingprofitsi
31—3-2016 their Balance Sheet was as follows :
? Assets ?
Liabilities
70,000 Bank 45,000
Creditors
Debtors 40,000
Capital Accounts :
P 80,000 Less :Provision for
doubtful debts 5,000 35,000
Q 70,000
2,10,000 Stock 50,000
R 60,000
Building 1,40,000
Profit and Loss No 10,000

2,80,000 2,80,000

on the following terms :

0n the above date R retired from the firm due to his illness
(1') Building was to be depreciated by 140,000.
on debtors.
(ii) Provision for doubtful debts was to be maintained at 20%
$1,000 will not be
(iii) Salary outstanding 25,000 was to be recorded and creditors
claimed.
(iv) Goodwill of the firm was valued at 272,000.
balance was to be
(v) R was to be paid €15,000 in cash, through bank and the
transferred to his loan account.
the Balance Sheet of P
. Prepare Revaluation Account, Farmers’ Capital Accounts and
and Q after R’s retirement.
 Dr. REVALUATION ACCOUNT
Cr.
Particulars ? Particulars 3'
To Building 40,000 By Creditors
To Provision for doubtful debts 4.000
3,000 By Loss on Revaluation
T0 Outstanding Salaiy 5,000 transferred to :
P’s Capital No 8,800
Q’s Capital Ale 13,200
R's Capital Ale 22,000 44,000
48,000 48,000
Dl'- CAPITAL ACCOUNTS OF PARTNERS Cr.
Particulars P Q R Particulars P Q R
? 1' 2 2 f 2‘
T0 Revaluation By Balance cfd 80,000 20,000 60,000
A10 (Loss) 8,800 13,200 22,000 By P's Capital
To P 82 L Afc 2,000 3,000 5,000 Afc
To R’s Capital (Goodwill) — — 14,400
Me By Q’s Capital
(Goodwill) 14,400 21,600 —- Me
To Bank Aft: — —— 15,000 (Goodwill) —- — 21,600
To R‘s Loan
Ale — —— 54,000
To Balance dd 54,800 32,200 —-
80,000 70,000 96,000 80,000 70,000 96,000

BALANCE SHEET OF P AND Q

as at 315'! March, 2016
Liabilities ? Assets ?
Creditors 66,000 Bank 30,000
Outstanding Salary 5,000 Debtors 40,000
R's Loan No 54,000 Less : Provision for
Capital Accounts : doubtful debts 8,000 32,000
P 54,800 Stock 50,000
Q 32,200 87,000 Building 1,00,000
2,12,000 2,12,000

Working Note : R’s share of Goodwill = 72,000 x 153 = 236,000

It will be contributed by P and Q in their gaining ratio, 1.8. 2 : 3
P’s Capital Afc will be debited by = 36,000 5% = 214,400
Q’s Capital A/c will be debited by = 36,000 5% = 221,600
0. 104. A, B and C were in partnership sharing profits in proportion
to their capitals.
Their Balance Sheet as at 31-3-2018 was as follows :
4" ‘0 SOLUTIONS TO PRACTICAL ouasnoss
11001111101 2 Assets fl
Creditors 15,600 Cash ‘
Reserve 6,000 Debtors 20,000
A‘ ital 90,000 Less: Provision for
11*: 0:211:11 00.000 110001101 Debts J99 :33ng
C’sCapital 30,000 Stock 48000
Machinery 1
Buildings M
2,01,600 2,111,600

On the above date 3 retired owing to ill health and the following adjustments were
agreed upon :
(0) Buildings be appreciated by 10%.
(1;) Provision for bad and doubtful debts be increased to 5% on debtors.
(c) Machinery be depreciated by 15%.
(d) Goodwill of the firm be valued at 236,000 and be adjusted into the Capital
Accounts of A and C who will share profits in future in the ratio of 3 : 1.
(e) A provision be made for outstanding repairs bill of 23,000.
(f) Included in the value of creditors is 21,800 for an outstanding legal claim, which
is not likely to arise.
{3) Out of the insurance premium paid 22,000 is for the next year. The amount was
debited to P & L Ala.
(11) The partners decide to fix the capital of the new firm as 21,20,000 in the profit
sharing ratio.
(1') B to be paid 29,000 in cash and the balance to be transferred to his Loan Account.
Prepate the Revaluation Account, Partner’s Capital Accounts and the Balance Sheet of
the new firm after B’s retirement.
SOLUTION : 104.
Dr. REVALUATION ACCOUNT Cr.
Particuiars 2 Particulars 2
To Provision for Doubtful Debts 600 By Building 10,000
To Machinery 7,200 By Creditors 1,800
To Provision for Repairs 3,000 By Prepaid Insurance 2,000
To Profit Transferred to :
A’s Capital A11: 1,500
B’s Capital A10 1,000
C’s Capital A/c ' 500 3,000
13,800 13,800

Dr. CAPITAL ACCOUNTS Cr.

Particulars A B C Particulars A B C
2 2 2 2 2 2
To B’s Capital By Bal. bid 90,000 60,000 30,000
Ale By Reserve 3,000 2,000 - 1,000
RETIREMENT on DEATH OF A PARTNER 4.111
{Goodwill} 9,000 3,000 By Revaluation 1,500 1,000 500
To Cash Afc 9,000 By A‘s Capital
T0 B‘s loan Ale 66,000 MC (Good-
To 331. cfd 85,500 28,500 will : 314 of
12,000) 9,000
By C's Capital
No (Good-
will : 11'4 of
12,000) 3,000
94,500 75,000 31,500 94,500 75,000 31,500
1
To Be]. c/d 90,000 30,000 By Ba]. cfd 85,500 28,500
By Cash Afc
(Bal. figure) 4,500 1,500
—— . ___ —._.
90,000 30,000 90,000 30,000

BALANCE SHEET as at 31st March, 2018

Liabilities 2 Assets 2
Creditors 13,300 Cashm 13,000
Provision for Repairs 3,000 Debtors 20,000
B‘s Loan 66,000 Less : Provision for
Capitals : Doubtfifl Debts 1,000 19,000
A 90,000 Stock 18,000
C 30M 1,20,000 Machinery 40,800
Buildings 1,10,000
Prepaid Insurance 2,000
2,02,800 2,02,800

Working Notes :
(1) Since the old ratio and new ratio betweenA and C are the same 1'. e. 3 : 1, the gaining
ratio will also be 3: 1.
(2) Adjustment of Capitals : A C
2 2
Capital in new firm (21,20,000 in 3 : 1) 90,000 30,000
Less : Existing Capitals 85,500 28,500
Deficit brought in 4,500 1,500

(3) Cash Balance = Opening Balance + Cash brought in by A and C — Cash paid to B
= 16,000 + 4,500 + 1,500 4 9,000 = 213,000.
Q. 105. Raja, Nawah and Badshah were partners sharing profits and losses in the ratio
of 5 : 3 : 2. Their Balance Sheet as at 1-4-2018 was as under :
Liabilities 2 Assets 2
Sundry Creditors 16,000 Cash 2,000
Reserves 4,000 Debtors 5,000
Capitals : Stock 1 1,000
Raja 20,000 Machinery 39,000
4.112 50100001310_P_3_A_c_T_I(_:at 00500113
15,000 Investments 3.000
Nawab
Badshah 10.000
65 .000 65 ,0 00

on
Nawab retired on that date and it was decided that Raja and Badshah would now
Machinery at
share the profit in the ratio of 3 : 2. Goodwill was valued at 210,000;
245,000; Investments at 27,000; Stock at 210,000 and bad debts amounting to 2500 be
written 011".
It was decided to fix the capital of the new firm at 240,000 and capital accounts of
Raja and Badshah be adjusted accordingly and any difference be either paidfbrought in
cash.
Prepare Revaluation Account, Capital Accounts and the Balance Sheet of new firm
assuming that one-third of the amount due to Nawab was paid in cash and balance was
carried to Loan Ale.
SOLUTION : 105.
Dr. REVALUATION ACCOUNT Cr.
Particw'ars 2 Particuiars 2

To Investments A70 1,000 By Machinery No 6.000

To Stock A10 1,000
To Debtors No 500
To Profit transferred to :
Raja’s Capital A11: 1,750
Nawab‘s Capital Nc 1,050
Badshah’s Capital .4110 700 3,500

W 302
Dr. CAPITAL ACCOUNTS Cr.
Particulars Rafa Nawab Badrhah Particulars Raja Nawab Badshah
2 2 2 2 2 2
To Nawab’s By Balance b/d 20,000 15,000 10,000
Capital A11: By Reserve NC 2,000 1,200 800
(Goodwill) 1,000 2,000 By Revaluation
T0 Cash A/c 6,750 Ale 1,750 1,050 700
To Nawab’s By Raja’s
Loan Aft; 13,500 Capital Ale -
To Balance cfd 22,750 9,500 (Goodwill) 1,000
By Badshah‘s
Capital A/c
(Goodwill) 2,000
23,750 20,250 I 11,500 23,750 20,250 11,500

To Balance cfd 24,000 16,000 By Balance bid 22,750 9,500

By Cash NC 1,250 6,500
24,000 16,000 24,000 16,000
RETIREMENT OF! DEATH OF A PARTNER 4.113
BALANCE SHEET OF THE FIRM
as a! Is! April, 2028

Liabilities 2 Assets 2
Sundry Creditors 16,000 Cash 3.000
Nawab‘s Loan 13,500 Debtors 4,500
Capitals : Stock 10.000
Raja 24,000 Investments 7,000
Badshal'l 16,000 40,000 Machinery 45,000
69,500 69,500

Working Notes :
Dr. CASH ACCOUNT Cr.
Particulars 2 Panfculars 2
To Balance bid 2,000 By Nawab Capital Ale 6.750
To Raja Capital Aft: 1,250 By Balance old 3,000
To Badshah Capital Ale 6,500
9,750 ,750

Working Notes :
Gaining Ratio = New Ratio — Old Ratio
. . _ g _ i = 6 —— 5 = L
Raj“ Gm ‘ 5 10 10 10
-
Badshah Gams _- 3,2.
5 10 = fl
10 = i
10
. . . . 1 _A
ThusGatmngRatto Is“. 10 0:1.2
_
3
Nawab’s Share of Goodwill = 10,000 x E = 23,000
It will be debited to Raja and Badshah in their gaining ratio of 1 : 2.
Q. 106. The Balance Sheet of Messrs A, B and C showed as follows :
Liabilities 2 Assets 2
Trade Creditors 7,000 Freehold Property 49,000
Capital Accounts : Plant 15,000
A 22,575 Stock 5,500
B 30,000 Sundry Debtors 6,250
C 18,500 71,075 Less .- Bad Debt Provision 100 6,150
Cash at Bank 2,425
78,075 78,075

B agrees to take over the business, A and C retiring 0n the following terms 1
(a) That the goodwill of the firm be valued at 215,000
(b) That plant and stock be reduced by 10%.
(c) That freehold property be appreciated by 21,000.
(d) That Provision for doubtful debts be brought up to 2250.
_4._1_1_4_ SOLUTIONS TO P_aA_c_T_tt;g.E [210257101115
(t’) B has to bring in sufficient cash to pay olTA and C. The partners used to share
profits in the proportion 01'275. 275 and 1/5.
Show the necessary Journal entries, Partner's Capital Accounts and Balance Sheet of
3 afier the retirement of A and (I
SOLUTION : 106. JOURNAL ENTRIES

Dare Particuiars L. F. Dr. (2) CK {U

Revaluation Afc Dr. 2,200
To Plant Ale L500
To Stock NC 550
To Provision for Doubtful Debts NC 150
(Decrease in the value of assets)
Freehold Property Afc Dr. 1,000
To Revaluation A/c L000
(Increase in the value of fieehold property)
A's Capital A/c Dr. 480
3'5 Capital A/c Dr. 480
(3’3 Capital Ne Dr. 240
To Revaluation Aft: 1,200
(Transfer of loss on revaluation)
B’3 Capital Ale Dr. 9,000
To A ‘3 Capital Ne 6,000
To C’5 Capital NC 3,000
(A and Cs share of goodwill debited to 3'3 Capital
Account)
Bank Ale Dr. 46,930
To B’s Capital NC 46,930
(Amount brought in by B)
A’s Capital Afc Dr. 23,095
C’s Capital A/c Dr. 21,260
To Bank Ne 49,355
(Amount paid off to A and C)

Dr. CAPITAL ACCOUNTS Cr.

Particulars A B C Particuiars A B C
' 2 2 2 2 2 2
To Revaltta- By Balance b/d 22,575 30,000 18,500
tion NC 480 480 240 By Bis Capital
To A ‘5 Capital Ale 6,000 3,000
No 6,000 By Bank Ne 46,930
To C’s Capital
Aft: 3,000
To Bank Aft: 28,095 21,260
To Balance c/d 67,450
28,575 76,930 21,500 28,575 76,930 21,500
 RETIREMENT on DEATH OF A PARTNER 4-115
BALANCE SHEET OF B
{15' U! .......................

Liabt‘h'rt'es 2 Assets 2
Trade Creditors 7.000 Sundry Debtors 5,250
3‘5 Capital 55,450 Less : Provision A 6,000
Stock 4,950
Plant 13,500
Freehold Property 50,000
74,450 74.450
Working Note :
2
Amount required to pay offA 28,095
Amount required to pay off C 21,260
49,355
Amount available 2,425
Amount required to be brought in by B 46.930
Q. 107. A, B and C are patmers sharing profits and losses in the ratio of 376 : 2/6 : U6.
Following is their Balance Sheet as at 3 lst March, 2018 :
Liabilities 2 Assets 2
Creditors 52,000 Plant 2,50,000
Outstanding Expenses 10,000 Stock 1,50,000
Capitals : Debtors 80,000
A 2,00,000 Bank 70,000
3 1,150,000 Profit 8; Loss Afc 12,000
C 1,40,000 5,00,000
5,62,000 5,62,000

B retires on lst April, 2018 and the following terms were agreed :
(0 The Goodwill of the firm has been valued at 21,50,000.
(if) Plant and Machinery has been revalued at 23,00,000 and stock revalued at
21,20,000.
(fit) A sum of 230,000 out of debtors was agreed to be bad and was to be written off.
(iv) Liability for workmen’s compensatidn to the extent of 28,000 is to be brought
into the books.
(v) A and C will continue to carry on the business and shall share profits and losses
equally in future.
(vi) Amount payable to B shall remain in the business as loan carrying interest at
18% p.a.
You are required to :
(a) give journal entries to give effect to the above, and
(b) prepare the opening balance sheet ofA and B at lst April, 2018.
4.116 _ _ __ sownopts T0 Pnhcyegtt p_u_E_s_TIo~s
SOLUTION : I07. JOU RNAL ENTRIES
.._._._.—-

_ 13"!" __ Particulars 1 LI". Dr: (2) Cr. (2)

2013 ' " "*h'L _
April, 1 A ‘5 Capital Ne Dr. 6,000
3'8 Capital Ne Dr. 4.000
(“s Capital Ne Dr. 2,000
To Profit & Loss Ne 12,000
(Transfer of loss appearing in the Balance Sheet)
C'3 Capital Ne Dr. 50.000
To B‘s Capital Ne 50.000
{B‘s share of goodwill debited to C, as he alone has
gained)
Plant and Machinery Ne Dr. 50.000
To Revaluation NC 50.000
(Increase in the value of Plant and Machinery)
Dr. 68,000
Revaluation Ne
30,000
To Stock Ne
30,000
To Debtors A/c
To Workmen’s Compensation Ale 3.000
(Decrease in the value of assets and provision made for
Workmen‘s Compensation)
A‘s Capital Ne Dr. 9,000
B‘s Capital Afc Dr. 6,000
C’s Capital Ale Dr. 3,000
To Revaluation No 18,000
(Transfer of loss on revaluation)
B‘s Capital Aft: Dr. 2,00,000
To B’s Loan NC 2,00,000

(Transfer efB‘s Capital to his Loan Account)

CAPITAL ACCOUNTS Cr.
Dr.
A B C Paniculars A B C
Panicuiars
2 2 2 2 2 2

To Profit & By Balance bl'd 2,00,000 1,60,000 1,40,000

Loss Ale 6,000 4,000 2,000 By C’s Capital
No 50,000
Te B’s Capital
No 50,000
To Revalua-
tion Aft: 9,000 6,000 3,000
To B’s Loan
NC 2,00,000
To Balance c/d 1,85,000 85,000
2,00,000 2,10,000 1,40,000 2,00,000 2,10,000 1,40,000
 RETIREMENT on DEATH 05A PARTNEB ___________________________4_.313
|

'
BALANCE SHEET OF A AND C'
as at [st April, 2018
1 Liabilities 2 Assets 2
‘ Creditors 52,000 Bank 70.000
‘ Outstanding Expenses 10,000 Debtors 50.000
Workmen's Compensation 8,000 Stock 1,20,000
B’s Loan (at 18% p.a.) 2,00,000 Plant and Machinery 3,00,000
Capitals :
A 1,85,000
C 35,000 2,70,000
5,40,000 5,40,000

_1 3_3-—3_
A'z‘s 6 0
_1 1_3—1=2
C'z‘s‘ 6 6
. 2
Only C gains gth share.

Q. 108. A, B and C were pattiers sharing profits in the ratio of 4 : 3 : 2. Their Balance
Sheet as at 3 lst March, 2018 was as follows :
Liabilities 2 Assets 2
Sundry Creditors 20,000 Cash 6,400
Expenses Owing 5,000 Debtors 20,000
Reserve Fund 18,000 Less .- Provision 400 19,600
Capitals : Stock 30,000
A 60,000 Patents 8,000
B 50,000 Machinery 1,20,000
C 40,000 1,50,000 Goodwill 9,000
1 33,000 1 33,000

B retired on the above date upon the following terms :

(i) Goodwill of the firm be valued at 263,000.
(ii) Machinery be written down by 10% and the patents written up by 25%.

(iii) Provision for doubtful debts be brought upto 5% on debtors and a provision of 2%%
on creditors be made for discount.
(iv) Expenses owing are to be brought down to 23,900.
(v) B is to be paid 230,000 immediately, which is to be contributed by A and C in
their new profit sharing ratio which is 3 : 2.
i. A and C decided not to keep any account in the hooks in reapect of goodwill Give
3'? journal entries to record the above and the Balance Sheet ofthe firm after B’s retirement.
 _——--——_—n_n-Il-—-_---_ _

SOLUTION : 108. JOURNAL ENTRIES

Particulars Dr. (2)
Dale

2018
1 8,000
March 31 Reserve Fund Ale
8,000
To A’s Capital Afc
6,000
To B‘s Capital Me
4,000
To C’5 Capital Ne
(Transfer of Reserve Fund)
Revaluation No 1 2,600
12,000
To Machinery Ale
To Provision for Doubtful Debts Ale 600
(Decrease in the value of Assets)
Patents A/c 2,000

99.9
Provision for Discount on Creditors A/c 500
Expenses Owing No 1,100
3,600
To Revaluation Ale
(Increase in the value of patents and decrease in
liabilities)
4,000
9.9.9
A’s Capital Ale
B‘s Capital No 3,000
C’ 5 Capital Afc 2,000
9,000
To Revaluation A/c
(Transfer of loss on revaluation)
A’s Capital Afc 4,000
B’s Capital Aft: Dr. 3,000
C’s Capital Ale 2,000
To Goodwill Ale 9,000
(Goodwill existing in the hooks written off in old
ratio)
A ’3 Capital A/c Dr. 9,800
C’s Capital No Dr 11,200
21,000
To B’s Capital Ale
(B’s share of goodwill debited to the Capital
Accounts ofA and C in their gaining ratio of 7 : 8)
Cash No Dr. 30,000
18,000
To A’s Capital No
12,000
To C’s Capital NC
(Cash brought in)
B‘s Capital Ale 7 1 ,000
T0 Cash Ale
30,000
To B’ 3 Loan Ale 41,000
(Cash paid to B and the balance transferred to his
Loan Account)
 —.._______'_____‘______,‘____.._-_-_______,__..__--______._____-

Dr PA RTNER’S CAPITAL ACCOUNTS Cr.

Particuiars A B C Particulars A B C
2 2 2 2 2 2
T0 Revalua— By Balance b/d 60,000 50,000 40,000
tion Ne 4,000 3,000 2,000 By Reserve
To Goodwill Fund No 8,000 6,000 4,000
Me By A ‘3 Capital
(Written NC
011) 4,000 3,000 2,000 (Goodwill) 9.800
To B’s Capital By C’s Capital
Ale A/c
(Goodwill) 9,800 11,200 (Goodwill) 11,200
To Cash Afc 30,000 By Cash Ne 18,000 12,000
To B‘s Loan
Ale 41,000
To Balance cfd 68,200 40,800
86,000 77,000 56,000 86,000 77,000 56,000

NEW BALANCE SHEET

as at 3150 March, 2018

Liabilities 2 Assets 2
31111111)! Creditors 20.000 Cash 6400
Less : Provision for Debtors 20,000
Discount 500 19,500 Less : Provision 1,000 19,000
Expenses Owing 3,900 Stock 30,000
B’s Loan 41,000 Patents 10,000
Capitals : Machinery 1,08,000
A 68,200
C 40,800 1,09,000
1,73 ,400 1 ,73,400

Working Note :
Calculation of Gaining Ratio :

' — 3.3. i = l

A Gams '” 5 ‘9 45
-
C Gains _— 25 - E9 _— .32.
45

Gaining Ratio = 7:8

Q. 109. X, Y and Z are partners in a firm sharing profits in proportion of 1/2, 1/6 and
1.0 respectively. The Balance Sheet as on April 1, 2014 was as follows :
Liabilities 2 Assets 2
Employee’s Provident Fund 12,000 Freehold Premises 40,000
Sundry Creditors 18,000 Machinery 30,000
General Reserve 12,000 Furniture 12,000
4.120 SOLUTIONS T0 PRACTICAL QUESTIONS

Capitals : Stock 22,000

X 30,000 Debtors 20,000
Y 30,000 Less : Provision for
2 28,000 Doubtful Debts 1,000 19,000
Cash 7,000
1,30,000 1,30,000

Z retires from the business and the partners agree that :

(0) Machinery is to be depreciated by 10%.
(6) Provision for bad debts is to be increased to 21,500.
(0) Furniture was taken over by Z for 214,000.
(d) Goodwill is valued at 221,000 on Z’s retirement.
(e) The continuing partner’s have decided to adjust their capitals in their new prefit
sharing ratio after retirement of Z. Surplus or deficit if any, in their capital
accounts will be adjusted through their current accounts.
Prepare Revaluation Ne and Partners’ Capital Afcs. (C.B.S.E. Sample Paper, 201'5)
SOLUTION : 109.
Dr. REVALUATION ACCOUNT Cr.
Particulars Particulars
To Machinery NC 3,000 By Furniture No 2,000
To Provision for Doubtful By Loss transferred to :
Debts No 500 X s Capital No (316) 750
PS Capital NO (U6) 250
2’5 Capital No [276) 500 1 500
J.»
u-
t:
G

,3:
2::
c:
m

Dr. CAPITAL ACCOUNTS Cr.

Particulars X Y Z Particulars X Y Z
2 2 2 2 2 2
To Revaluation By 331.0116 30,000 30,000 28,000
(Loss) 750 250 500 By Gen.Rese1-ve Ale 6,000 2,000 4,000
To Furniture 14,000 By X’s Capital No
To Z’s Capital Ale (Goodwill) —- — 5,250
(Goodwill) 5,250 1,750 By Y’s Capital No
To Z’s Loan Ale 24,500 (Goodwill) -— — 1,750
To Bal. cfd 30,000 30,000 —
36,000 32,000 39,000
36,000 32,000 39,000
To Y’s Current Afc —~ 15,000 — By Balance b/d 30,000 30,000 ——
To Bal. cfd 45,000 15,000 — By X’s Current No 15,000 — ——
45,000 30,000 —— 45,000 30,000 __