DK Goel Solutions Class 12 Accountancy Chapter 5 Retirement or Death of a Partner

 Short Answer Questions

Question 1.  

Solution  1.         Goodwill earned by the firm is the result of the efforts of all the existing partners in the past. A part of the future profits will accruing because of the present goodwill and the retiring or deceased partner will not be share future profit. Thus the remaining partners should compensate the retiring or the deceased partner by entitling him/her a share of firm’s goodwill.

Question 2.   

Solution  2.       The treatment of goodwill at the time of retirement of a partner will made through partner’s capital account. The retiring or deceased partner’s capital account will be credited with his share of goodwill and continuing partner’s capital account will be debited in their gaining ratio.

                                                                  Journal Entry

Continuing Partner’s Capital A/c                                   Dr.         (in the gaining ratio)

      To Retiring/ Deceased Partner’s Capital A/c                        (with his share of goodwill)

(Retiring / deceased partner’s share of goodwill

Adjusted to continuing partners in the gaining ratio)

Question 3.  

Solution  3.       The following adjustments require on retirement of a partner from the firm:

i) Calculate new gaining ratio of all remaining partners.

ii) Calculate new ratio of the remaining partners.

iii) Calculation of goodwill of the firm and its accounting treatment.

iv) Revaluation of assets and liabilities.

v) Distribution of accumulated profit and losses and reserve among all the partners.

vi) Treatment of joint life policy.

vii) Settlement of the amount due to retiring partner.

viii) Adjustment of capital accounts of the remaining partners in their new profit sharing ratio.

Question 4.  

Solution  4.        Gaining ratio is the ratio in which the retiring partner’s share is acquired by continuing partners. It is computed by deducting old ratio from the new ratio.

It is calculated as : Gaining ratio = New ratio – Old ratio.

Question 5.

Solution 5

Question 6.  

Solution 6      The legal executive of the deceased partner is entitled for the balancing figure of deceased partner’s capital account.

In debit side the following items are posted in deceased partner’s capital account:

a) Credit balance of the deceased partner’s capital account or current account.

b) Deceased partner’s share of profit up to the date of his/her death.

c) Deceased partner’s share of goodwill.

d) Deceased partner’s share in accumulated reserves and profit account.

e) Deceased partner’s share in gain on revaluation of assets and liabilities.

f) Deceased partner’s share of joint life policy.

g) Interest on capital and salary or commission, if any, up to the date of the death. 

In credit side the following items are posted in deceased partner’s capital account:

a) Debit balance of the deceased partner’s capital account and current account.

b) Amount withdrawn in the form of drawings up to the date of death of the partner.

c) Interest on drawings, if any, up to the date of the death.

d) Deceased partner’s share of loss on revaluation of assets and liabilities.

e) Deceased partner’s share of loss up to the date of the death.

f) Deceased partner’s share in the accumulated losses of the firm.

Question 7. 

Solution 7        If the death of a partner occurs on any day during the year, the executors of the deceased partner will also be entitled to the share of profits earned by the firm from the beginning of the year till the date of his death. Such profit may be ascertained from any of the following methods:

(A) On Time Basis.

(B) On Turnover or Sale Basis.

Question 8.  

Solution 8        The items which are credited to the account of a deceased partner while calculating the amount due to his legal representatives:-

1.) His share of the increase in the value of Goodwill of the firm.

2.) The amount standing to the credit of his capital account.

3.) Interest on capital, if provided in the partnership deed.

4.) His share of profit on the revaluation of assets and liabilities.

5.) His share of the undistributed profit or reserves.  

Practical Questions

Question 1. (A)     

Solution  1 (A)            Old Ratio = 6 : 5 : 4.

New ratio of the remaining partners will be calculated by striking out the share of the retiring partner.

When A retires, the new ratio between B and C will be 5:4.

When B 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.

Question 1. (B)   

Solution 1  (B)          Old Ratio = 5:3:1:2.

B and C retire the new ratio between A and D will be 5:2.

Question 2. 

Solution 2

Question 3.   

Solution 3          

Old Ratio of L, M and O is 3:2:2.

M’s Share will be divided into L and O equally.

Question 4.   

Solution 4          

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

Question 5. (A) 

Solution 5 (A)   

Old Ratio of A, B and C = 4:3:1

Question 5. (B)   

Solution 5  (B) 

Question 6.

Solution 6          

Old Ratio = 2:2:1

Question 7.  

Solution 7           

Question 8. (A)     
Solution 8 (A)         

Old Ratio of A, B and C = 7:5:3

(i) When A retires the gaining ratio between B and C is 5:3. A retires the New ratio between B and C is 5:3. 

(ii) When B retires the gaining ratio between A and C is 7:3. B retires the New ratio between A and C is 7:3. 

(iii) When C retires the gaining ratio between A and B is 7:5. C retires the New ratio between A and B is 7:5.

Question 8. (B)   

Solution 8 (B)

(i) When X dies the gaining ratio between Y and Z is 3:2. X dies the new ratio between Y and Z is 3:2. 

(ii) When Y dies the gaining ratio between X and Z is 5:2. Y dies the new ratio between X and Z is 5:2. 

(iii) When Z dies the gaining ratio between X and Y is 3:2. Z dies the new ratio between X and Y is 5:3.

Question 8. (C) 

Solution 8 (C)         

Old Ratio of P, Q , R and S is 5:4:3:1

P and S retire:

Gaining Ratio between Q  and R is 4 : 3

New Ratio between Q and R is 4 : 3

Question 9. (A)  

Solution 9  (A)         

Gaining Ratio = New Ratio – Old Ratio

Question 9. (B)   

Solution 9   (B)         

Gaining Ratio = New Ratio – Old Ratio

Question 10. (A)     

Solution 10   (A)         

Gaining Ratio = New Ratio – Old Ratio

Question 10. (B)    

Solution 10   (B)         

Gaining Ratio = New Ratio – Old Ratio

Question 11. 

Solution 11   

Question 12. 

Solution 12        

Question 13. 

Solution 13        

Question 14.   

Solution 14        

Question 15.  

Solution 15        

X and Y = 5 : 4

New Ratio of Y and Z will also be 5 : 4

Gaining Ratio = New Ratio – Old Ratio

Question 16. (A)  

Solution 16 (A)         

Question 16. (B)  

Solution 16 (B)          

Question 17. 

Solution 17         

Question 18.(A)   

Solution 18(A)         

Question 18.(B) 

Solution 18 (B)  

Question 19.(A)

Solution 19 (A)         

Question 19.(B) 

Solution 19 (B)       

Question 20. 

Solution 20     

Question 21.

Solution 21         

Question 22 (A). 

Solution 22 (A)         

Question 22. (B) 

Solution 22   (B)        

Question 23  

Solution 23

Question .24 

Solution 24

C and D will be debited they have gained and A and B will be credited since they have sacrificed in ratio 2:9.

Question 25.  

Solution 25         

Question 26 (new). 

Solution 26 (new). 

Question .26  

Solution 26        

Question 27.  

Solution 27      

Question .28   

Solution 28        

Question 29. 

Solution 29         

Question 30. 

Solution 30        

Question 31. 

Solution 31         

Question 32.(A)     

Solution 32 (A)        

Question 32.(B)   

Solution 32 (B)        

Question 33.   

Solution 33         

Question 34. 

Solution 34

Question 35 (new). 

Solution 35 (new). 

Question 35. 

Solution 35.        

Question 36.

Solution 36.

Question 37. (A)   

Solution 37. (A)          

Question 37. (B)  

Solution 37. (B)         

3.) Calculation of Bank Overdraft:

Bank Overdraft = Bank Balance as per Balance Sheet  - Amount required to pay off

Bank Overdraft = Rs. 44,800 – Rs. 1,24,800

Bank Overdraft = Rs. 80,000

Question 38.   

Solution 38.      

Question  39.   

Solution 39.        

Question  40.  

Solution 40.        

Question  41.

Solution 41.        

Question  42.

Solution 42.

Question  43 (new). 

Solution 43 (new).

Working Note:-
1.) Calculation of Gaining Ratio:-
Saman’s Gain = 3/5-2/7=(21-10)/35=11/35
Meeta’s Gain = 2/5-2/7=(14-10)/35=4/35
Gaining Ratio = 11:4

2.) Harish’s Share of goodwill = Rs. 5,60,200 × 3/7 = Rs. 2,40,000
Saman’s Share = Rs. 2,40,000 × 11/15 = Rs. 1,76,000
Meeta’s Share = Rs. 2,40,000 × 4/15 = Rs. 64,000

3.) Total Capital new firm = Rs. 35,00,000
Saman’s Capital = Rs. 35,00,000 × 3/5 = Rs. 21,00,000
Meeta’s Capital = Rs. 35,00,000 × 2/5 = Rs. 14,00,000

Question  43. 

Solution 43.

Question  44. 

Solution 44.       

New ratio of Y and Z after X’s retirement 2:1

Y’s Capital in the new firm should be = Rs. 2,10,000 × ²/₃ = Rs. 1,40,000

Cash withdrawn by Y = Y’s New  Capital – Y’s existing Capital

Cash withdrawn by Y = Rs. 1,40,000 – Rs. 1,45,000

Cash withdrawn by Y = Rs. 5,000

Z’s Capital in the new firm should be = Rs. 2,10,000 × ¹/₃ = Rs. 70,000

Cash withdrawn by Y = Y’s New  Capital – Y’s existing Capital

Cash withdrawn by Y = Rs. 70,000 – Rs. 63,000

Cash withdrawn by Y = Rs. 7,000

Question  45.  

Solution 45.

Question  46.  

Solution 46.

Question  47.    

Solution 47.   

Question  48.  

Solution 48.

Question  49. 

Solution 49.      

Question  50 A (new).

Solution 50  A (new).   

Working Note:-
G’s share in Goodwill = Rs. 15,000 × 3/6 = Rs. 7,500

Question  50. (A)  

Solution 50 (A)          

Question  50. (B) 

Solution 50 (B)  

Question  51.  

Solution 51.        

Question  52.   

Solution 52.

Question  53. 

Solution 53.        

Question  54.  

Solution 54.       

Question  55.

Solution 55.       

Question  56.   

Solution 56.     

Question  57. 

Solution 57.        

Question  58.  

Solution 58.    

Question  59. 

Solution 59.

Question  60 (new). 

Solution 60 (new).  Profit from 1st April 2019 to 31st December, 2019 on the basis of sales If sales are Rs. 4,00,000, profit is Rs. 60,000
If sales are Rs. 3,30,000 profit will be 60,000/(4,00,000 ) × 3,30,000= Rs. 49,500
A’s share will be = Rs. 49,500 × 4/(9 ) = Rs. 22,000

Question  60.   

Solution 60.

Question  61.  P, R and S are in the partnership sharing profit in the ratio of 2:1:1 respectively. R died on 1^st Feb.2018 and it is decided that profit sharing ratio between P and S in future will be 2:3. Pass the necessary journal entries. 

Solution 61.

Question  62 (new).

Solution 62 (new). 

Working Note:-
Calculation of Goodwill:-
Total goodwill of firm = Rs. 80,000 × 1.5 year
Total goodwill of firm = Rs. 1,20,000
B’s share in goodwill = Rs. 1,20,000 × 2/5 = 48,000

Calculation of Profit:-
Profit of the firm = Rs. 80,000
B’s Profit = Rs. 80,000 × 2/5 ×6/12 = Rs. 16,000

Question  62.  

Solution 62.

Question  63 (new). 

Solution 63 (new).  Working Note:
1. Calculation of Goodwill:
Goodwill = 2 year’s purchase of average profit of the last three years
Goodwill = 2 × Rs. 80,000
Goodwill = Rs. 1,60,000
Sindhu’s Share of Goodwill = Rs. 1,60,000 × 3/10 = Rs. 48,000
Gaining ratio = 3 : 4 
Rahul’s Contribution = Rs. 48,000 × 3/7 = Rs. 20,571
Kamlesh’s Contribution = Rs. 48,000 × 4/7 = Rs. 27,429

Question  63.  

Solution 63.        

Question  64.   

Solution 64.     

Question  65.   

Solution 65.     

Question  66 (new).   

Solution (new). 

Question  66.  

Solution 66.        

Question  67 A (new). 

Solution 67 A (new). 

Working Notes:-
(1) Calculation of Goodwill:-
Average Profit = (1,00,000 + 1,50,000 + 2,00,000)/3
Average Profit = Rs. 1,50,000

Goodwill of the firm = Average Profits of the last three years × Number of Years’ Purchase
Goodwill of the firm = Rs. 1,50,000 × 2
Goodwill of the firm = Rs. 3,00,000

Tripti’s share of goodwill = Rs. 3,00,000 × 2/5
Tripti’s share of goodwill = Rs. 1,20,000

(2) Calculation of Tripti’s Share of Profit
Last Year’s profit = Rs. 2,00,000

Profit till the date of death = Rs. 2,00,000 × 3/12 = Rs. 50,000
Tripti’s Share of Profits = Rs. 50,000 × 2/5 = Rs. 20,000

Question  67. (A) 

Solution 67. (A)

Question  67. (B)    

Solution 67. (B)

Question  68.  

Solution 68.        

Question  69.   

Solution 69.        

Question  70.  

Solution 70.

Question  71.  

Solution 71.

Question  72. 

Solution 72.

R died on 30th April, 2016. The partnership deed provided for the following on the death of a partner :
(i) Goodwill of the firm was to be valued at 3 year’s purchase of the average profits of the last 5 years. The profits for the years ending 31-3-2020, 31-3-2019, 31-3—2018 and 31—3-2017 were Rs. 80,000; Rs. 80,000; Rs. 1,10,000 and Rs. 2,20,000 respectively.
(ii) R‘s share of profit or loss till the date of his death was to be calculated on the basis of the profit or loss for the year ending 31-3-2021.
You are required to calculate the following :
(i) Goodwill of the firm and R’s share of goodwill at the time of his death.
(ii) 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.

Question  73 (new). 

Question  73 (new). 

Working Notes:
(1) Valuation of Firm’s Goodwill:
Average Profit = (Rs. 2,20,000 + Rs. 1,10,000 + Rs. 80,000 - Rs. 1,60,000 )/5 = Rs. 66,000
Values of Firm’s Goodwill = Average Profit X Number Of Years’ Purchase
Firm’s Goodwill = Rs. 66,000 × 3 = Rs. 1,98,000
R’s Share of Goodwill = Rs. 1,98,000 × 9/(20 ) = Rs. 89,100

(2) R’s Share of Profit/ Loss till the date of his death:
R’s Share of Profit /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 Rs. 1,60,000
Hence, R’s Share of Loss = Rs. 1,60,000 × 1/12 × 9/(20 ) = Rs. 6,000

Question  73.  

Solution 73.

Question  74.   

Solution 74.

Question  75.    

Solution 75.

Question  76. 

Solution  76.       

Old Ratio of A, B, C and D=4 :3 :2 : 1.

When A and C retire, the new ratio between B and D 3 : 1.

Question  77. 

Solution  77

Question  78. 

Solution  78.       

B’s share will be divided between A and C in the ratio of 1 : 1

Question  79. 

Solution 79.       

Old Ratio of Shiv, Mohan and Hari = 5 : 5 : 4

Mohan’s share will be divided between Shiv and Hari in the ratio of 1 : 1

Question  80. 

Solution  80.

Question  81.    

Solution 81.

Question  82.  

Solution 82.

Question  83.   

Solution  83

Question  84. 

Solution 84.       

Gaining Ratio = New Ratio — Old Ratio

Question  85.   

Solution 85.       

Gaining Ratio = New Ratio — Old Ratio

Question  86.  

Solution   86.

Question  87. 

Solution  87.

Question  88.  

Solution 88.

Question  89.  

Solution 89.

Question  90.  

Solution 90.

Question  91.    

Solution 91.    

Question  92.  

Solution 92.        (a) 

Question  93.

Solution 93.        

Question  94. 

Solution 94

Question  95.   

Solution 95.      

Question  96.  

Solution 96.        

Question  97 (new).

Solution 97 (new). 

Question  97.   

Solution 97.

Question  98.  

Solution 98.      

Question  99 (new). 

Solution 99 (new). 

Working Note:-
1.) R’s Share of goodwill = Rs. 72,000 × 5/10 = Rs. 36,000
P = Rs. 36,000 × 2/5 = Rs. 14,400
Q = Rs. 36,000 × 3/5 = Rs. 21,600

Question  99.  

Solution 99.     

Question  100.  

Solution 100       

Question  101.  

Solution 101.    

Question  102. 

Solution 102   

Question  103.  

Solution 103.     

Question  104 (new). 

Solution 104 (new). 

Prepare Revaluation Account, Partners’ Capital Accounts and the Balance Sheet of the reconstituted firm.