CBSE Class 12 Accountancy Retirement or Death of a Partner Important Questions Set 01

Class 12 Accountancy Study Guide: CBSE Class 12 Accountancy Retirement or Death of a Partner Important Questions Set 01

Access comprehensive study materials and useful resources for Part 1 Chapter 03 Reconstitution of a Partnership Firm Retirement/Death of a Partner using the CBSE Class 12 Accountancy Retirement or Death of a Partner Important Questions Set 01. Designed to align with the 2026-27 CBSE academic guidelines, these advanced resources help Class 12 Accountancy students reinforce core concepts beyond standard textbooks.

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Very Short Answer Questions (1 Mark)

Question 1. State whether the following statement is True or False: In the event of death, the combined share of profit of the continuing partners will increase.
Answer:
True

Teacher's Note:
1. The deceased partner’s share is taken over by the continuing partners, so their combined share rises.

 

Question 2. State whether the following statement is True or False: In the event of death, profit or loss on Revaluation Account is transferred to the continuing partners in the new profit-sharing ratio.
Answer:
False

Teacher's Note:
1. Revaluation profit or loss is shared by all partners, including the deceased partner, in the old ratio.

 

Question 3. State whether the following statement is True or False: At the time of retirement and death, undistributed profits or losses and reserves are distributed among all the partners in their old profit-sharing ratio.
Answer:
True

Teacher's Note:
1. These were earned or suffered before the change, so the old ratio applies.

 

Question 4. State whether the following statement is True or False: The firm is under obligation to pay an agreed rate of interest for the unpaid balance to the retiring partner.
Answer:
True

Teacher's Note:
1. If no rate is agreed, Section 37 gives 6% p.a. or a share of profit.

 

Question 5. State whether the following statement is True or False: Gaining ratio is calculated at the time of retirement or death of a partner and change in profit-sharing ratio.
Answer:
True

Teacher's Note:
1. On a change in ratio, a partner whose share increases is a gaining partner and compensates the sacrificing partner.

 

Question 6. Fill in the blank: P, Q and R are partners sharing profits and losses in the ratio of 2/5, 2/5 and 1/5 respectively. R retires, P and Q decide to share future profits in the ratio of 2:1. P’s gain is ______.
Answer:
4/15
P’s gain = 2/3 − 2/5 = (10 − 6)/15 = 4/15.

Teacher's Note:
1. Gain = new share − old share; here Q actually sacrifices (1/3 < 2/5).

 

Question 7. Fill in the blank: ______ is the ratio in which the remaining partners acquire the share of retiring or deceased partner.
Answer:
Gaining Ratio

Teacher's Note:
1. Gaining ratio is used to adjust the retiring partner’s share of goodwill.

 

Question 8. Fill in the blank: Advance or loan taken by the partner from the firm is ______ to the deceased partner’s ______.
Answer:
debited; Capital Account

Teacher's Note:
1. Any amount the deceased partner owes the firm reduces the amount payable to his executors.

 

Question 9. Fill in the blank: Unless agreed otherwise, it is presumed that the continuing partners gain in their ______ and hence their ______ is same as their old profit-sharing ratio.
Answer:
old profit-sharing ratio; gaining ratio

Teacher's Note:
1. When no new ratio is given, gaining ratio = old ratio of the continuing partners.

 

Question 10. Fill in the blank: In case of retirement, when the firm pays an amount in excess of total amount due to the retiring partner, then excess amount is treated as ______.
Answer:
hidden goodwill

Teacher's Note:
1. Hidden goodwill is credited to the retiring partner and debited to the continuing partners in the gaining ratio.

 

Question 11. On the retirement of a partner, how is the profit-sharing ratio of remaining partners decided? [CBSE Delhi 2013(C)]
Answer:
Profit-sharing ratio of remaining partners is decided according to the mutual agreement among the remaining partners.

Teacher's Note:
1. If there is no agreement, the remaining partners continue in their old ratio.

 

Question 12. At the time of retirement of a partner, state the condition when there is no need to compute the gaining ratio. [CBSE Delhi 2013(C)]
Answer:
There is no need to compute the gaining ratio when the continuing partners decide to share profits in the same ratio that existed among them prior to retirement.

Teacher's Note:
1. In that case the gaining ratio is simply the old ratio of the continuing partners.

 

Question 13. Give any one distinction between sacrificing ratio and gaining ratio. [CBSE (AI) 2012]
Answer:
Basis of DifferenceSacrificing ratioGaining ratio
MeaningIt is the ratio in which the old partners surrenders a part of their profit-sharing in favour of new partner.It is the ratio in which the remaining partners acquire the outgoing (retired or deceased) partner’s share.

Teacher's Note:
1. Sacrificing ratio = Old share − New share; Gaining ratio = New share − Old share.

 

Question 14. Jamuna, Ganga and Krishna are partners in a firm. Krishna retired from the firm. After making adjustments for Reserves and Revaluation of Assets and Liabilities, the balance in Krishna’s capital account was ₹ 1,20,000. Jamuna and Ganga paid ₹ 1,80,000 in full settlement to Krishna. Identify the item for which Jamuna and Ganga paid ₹ 60,000 more to Krishna. [CBSE Delhi 2013(C)]
Answer:
Share of Goodwill.

Teacher's Note:
1. Any payment over the adjusted capital balance is the retiring partner’s share of (hidden) goodwill.

 

Question 15. Name the account which is opened to credit the share of profit of the deceased partner, till the time of his death to his Capital Account. [CBSE Delhi 2013]
Answer:
Profit and Loss Suspense Account.

Teacher's Note:
1. The suspense account is debited and the deceased partner’s capital account is credited.

 

Question 16. State the need for treatment of goodwill on retirement of a partner. [CBSE Delhi 2010]
Answer:
Since the retiring partner will not be sharing profit in future goodwill is given to compensate him for the same.

Teacher's Note:
1. The goodwill was built up partly by the retiring partner’s efforts, so the gaining partners compensate him.

 

Question 17. For which share of goodwill a partner is entitled at the time of his retirement? [CBSE Delhi 2012]
Answer:
A partner is entitled to his own share of goodwill at the time of his retirement.

Teacher's Note:
1. His share of goodwill is calculated in the old profit-sharing ratio.

 

Question 18. Why are retiring/heirs of deceased partner entitled to a share of goodwill of the firm? [CBSE Delhi 2014]
Answer:
The retiring partner or the heirs of deceased partner are entitled to his share of goodwill because the level of reputation enjoyed by the firm or goodwill earned by the firm is the result of efforts of all partners of firm in the past.

Teacher's Note:
1. Goodwill gives future profits that the outgoing partner will not share, hence the compensation.

 

Question 19. X, Y and Z are partners sharing profits in the ratio of \( \frac{1}{2} \), \( \frac{2}{5} \), \( \frac{1}{10} \). Find the new ratio of remaining partners if Z retires. [CBSE Delhi 2014]
Answer:
Old Ratio of X, Y and Z = \( \frac{1}{2} \) : \( \frac{2}{5} \) : \( \frac{1}{10} \) = 5 : 4 : 1
∴ If Z retires, the new ratio between X and Y will be 5 : 4.

Teacher's Note:
1. Convert fractions to a common denominator (10) before writing the ratio.

 

Question 20. Why does a firm revalue its assets and liabilities on retirement or death of a partner? [CBSE (F) 2014]
Answer:
On the retirement or death of a partner, the retiring partner or the representative of deceased partner must be given his share of profit/loss arising out of change in the revaluation of assets and reassessment of liabilities. That is why assets and liabilities are revalued on retirement or death of a partner.

Teacher's Note:
1. Revaluation profit or loss is shared by all partners in the old ratio.

 

Short Answer Questions (2 Marks)

Question 21. X, Y and Z are partners sharing profits in the ratio 1:2:3. Z retires on 1st April, 2018 and his capital after making all adjustments for reserves and profit on revaluation stands at ₹ 2,40,000. X and Y here agreed to pay him ₹ 3,00,000 in full settlement of his claim. Record necessary journal entry for the treatment of goodwill if the new profit-sharing ratio is decided as 1:3.
Answer:
DateParticularsL.F.Dr. (₹)Cr. (₹)
2018
Apr. 1		X’s Capital A/c   Dr.
Y’s Capital A/c   Dr.
    To Z’s Capital A/c
(Being Z’s share of goodwill adjusted in gaining ratio, i.e., 1:5)		10,000
50,000



60,000

Working Notes:
(1) Calculation of Hidden Goodwill:
Particulars₹
Amount agreed to be paid in full settlement to Z3,00,000
Less: Z’s Capital (after all adjustments)2,40,000
Hidden Goodwill60,000

(2) Calculation of Gaining Ratio:
New Ratio = 1:3 and Old Ratio = 1:2:3
X’s Gain = \( \frac{1}{4} \) − \( \frac{1}{6} \) = \( \frac{3 - 2}{12} \) = \( \frac{1}{12} \);   Y’s Gain = \( \frac{3}{4} \) − \( \frac{2}{6} \) = \( \frac{9 - 4}{12} \) = \( \frac{5}{12} \)
Gaining ratio of X and Y = 1:5.

Teacher's Note:
1. With a new ratio given, compute gain = new share − old share; do not use the new ratio 1 : 3 for goodwill.

 

Question 22. A, B and C are partners sharing profits and losses in the ratio of 2 : 3 : 1. B retires and sells his share of profit to A and C for ₹ 8,100, being purchased by A for ₹ 3,600 and by C for ₹ 4,500. The profit for the year after B’s retirement was ₹ 10,500.
You are required to give necessary journal entries to record the sale of B’s share to A and C and distribution of profit among partners.
Answer:
Journal
DateParticularsL.F.Dr. (₹)Cr. (₹)
A’s Capital A/c   Dr.
C’s Capital A/c   Dr.
    To B’s Capital A/c
(Being Partners’ Capital Accounts adjusted for the sale of B’s share to A and C)		3,600
4,500



8,100
Profit and Loss Appropriation A/c   Dr.
    To A’s Capital A/c
    To C’s Capital A/c
(Being profit distributed in new ratio, i.e., 5:4)		10,500



5,833
4,667

Working Note: B’s share = 3/6 is bought by A and C in the ratio 3,600 : 4,500 = 4 : 5. A gains 3/6 × 4/9 = 2/9; C gains 3/6 × 5/9 = 5/18. New share of A = 2/6 + 2/9 = 10/18; C = 1/6 + 5/18 = 8/18. New ratio = 5 : 4. Profit ₹10,500 × 5/9 = ₹5,833 (A) and ₹10,500 × 4/9 = ₹4,667 (C).

Teacher's Note:
1. The partners who buy a retiring partner's share in an agreed proportion gain in that proportion; add each gain to the old share to get the new ratio.
2. The sale itself is a private deal recorded through the capital accounts, with no cash passing through the firm.

 

Short Answer Questions (3 Marks)

Question 23. Arjun, Bhim and Nakul are partners sharing profits and losses in the ratio of 14 : 5 : 6 respectively. Bhim retires and surrenders his 5/25th share in favour of Arjun. The goodwill of the firm is valued at 2 years’ purchase of super profits based on average profits of last 3 years. The profits for the last 3 years are ₹ 50,000, ₹ 55,000 and ₹ 60,000 respectively. The normal profits for the similar firm are ₹ 30,000. Goodwill already appears in the firm’s books at ₹ 75,000. The profit for the first year after Bhim’s retirement was ₹ 1,00,000. Give the necessary Journal Entries to adjust Goodwill and distribute profits showing your workings. [CBSE Delhi 2012]
Answer:
Journal
DateParticularsL.F.Dr. (₹)Cr. (₹)
Arjun’s Capital A/c   Dr.
Bhim’s Capital A/c   Dr.
Nakul’s Capital A/c   Dr.
    To Goodwill A/c
(Being the amount of existing goodwill written off to the capital accounts of all partners)		42,000
15,000
18,000




75,000
Arjun’s Capital A/c   Dr.
    To Bhim’s Capital A/c
(Being the share of goodwill adjusted)		10,000


10,000
Profit and Loss A/c   Dr.
    To Arjun’s Capital A/c
    To Nakul’s Capital A/c
(Being profit transferred to Capital A/cs of Arjun and Nakul in their new profit-sharing ratio)		1,00,000



76,000
24,000

Working Notes:
1. Calculation of share in existing goodwill:
Arjun’s Share in Goodwill = ₹ 75,000 × \( \frac{14}{25} \) = ₹ 42,000
Bhim’s Share in Goodwill = ₹ 75,000 × \( \frac{5}{25} \) = ₹ 15,000
Nakul’s Share in Goodwill = ₹ 75,000 × \( \frac{6}{25} \) = ₹ 18,000
2. Valuation of goodwill:
Total Profit of last 3 years = ₹ 50,000 + ₹ 55,000 + ₹ 60,000 = ₹ 1,65,000
Average profit = \( \frac{1,65,000}{3} \) = ₹ 55,000
Super profit = ₹ 55,000 – ₹ 30,000 = ₹ 25,000
Goodwill = Super Profit × No. of years’ purchase = ₹ 25,000 × 2 = ₹ 50,000
Bhim’s share in Goodwill = ₹ 50,000 × \( \frac{5}{25} \) = ₹ 10,000
3. Calculation of New Profit-sharing Ratio:
Old Ratio of Arjun, Bhim and Nakul = 14 : 5 : 6
Bhim surrenders his share in favour of Arjun = 5/25
New Share of Arjun = \( \frac{14}{25} \) + \( \frac{5}{25} \) = \( \frac{19}{25} \)
New Share of Nakul = \( \frac{6}{25} \)
∴ New Ratio of Arjun and Nakul = \( \frac{19}{25} \) : \( \frac{6}{25} \) = 19 : 6.

Teacher's Note:
1. Goodwill already shown in the Balance Sheet is first written off in the old ratio; only Arjun pays for Bhim’s goodwill because only he gains.

 

Question 24. Nandan, John and Rosa are partners sharing profits in the ratio of 4:3:2. On 1st April, 2012, John gave a notice to retire from the firm. Nandan and Rosa decided to share future profits in the ratio of 1:1. The capital accounts of Nandan and Rosa after all adjustments showed a balance of ₹ 43,000 and ₹ 80,500 respectively. The total amount to be paid to John was ₹ 95,500. This amount was to be paid by Nandan and Rosa in such a way that their capitals become proportionate to their new profit-sharing ratio. Pass necessary Journal entries in the firm’s books for the above transactions. Show your working clearly. [CBSE (AI) 2013]
Answer:
Journal
DateParticularsL.F.Dr. (₹)Cr. (₹)
Bank A/c   Dr.
    To Nandan’s Capital A/c
    To Rosa’s Capital A/c
(Being amount paid by Nandan and Rosa to bring their capital into their new profit-sharing ratio, i.e., 1:1)		95,500



66,500
29,000
John’s Capital A/c   Dr.
    To Bank A/c
(Being amount paid to John on his retirement)		95,500


95,500

Working Notes:
(a) Total Adjusted Capital of the Firm:
Particulars₹
Nandan’s Capital43,000
Rosa’s Capital80,500
John’s Capital95,500
Total2,19,000

(b) Nandan and Rosa will contribute to the firm’s capital in 1:1 ratio.
Nandan’s New Capital = ₹ 1,09,500
Rosa’s New Capital = ₹ 1,09,500
Amount to be brought in by Nandan = New Capital – Old Capital = ₹ 1,09,500 – ₹ 43,000 = ₹ 66,500
Amount to be brought in by Rosa = New Capital – Old Capital = ₹ 1,09,500 – ₹ 80,500 = ₹ 29,000.

Teacher's Note:
1. The new firm’s total capital includes John’s balance because the remaining partners bring in cash to pay him.

 

Question 25. Vikas, Vishal and Vaibhav were partners in a firm sharing profits in the ratio of 2 : 2 : 1. The firm closes its books on 31st March every year. On 31st December, 2015 Vaibhav died. On that date his capital account showed a credit balance of ₹ 3,80,000 and goodwill of the firm was valued at ₹ 1,20,000. There was a debit balance of ₹ 50,000 in the Profit and Loss Account. Vaibhav’s share of profit in the year of his death was to be calculated on the basis of the average profit of last five years. The average profit of last five years was ₹ 75,000. Pass necessary journal entries in the firm’s books on Vaibhav’s death. [CBSE Delhi 2016]
Answer:
Journal of Vikas, Vishal and Vaibhav
DateParticularsL.F.Dr. (₹)Cr. (₹)
2015
Dec. 31		Vikas’s Capital A/c   Dr.
Vishal’s Capital A/c   Dr.
    To Vaibhav’s Capital A/c
(Being Vaibhav share of goodwill adjusted in the capital accounts of the existing partners in their gaining ratio, i.e., 1 : 1)		12,000
12,000



24,000
Vaibhav’s Capital A/c   Dr.
    To Profit and Loss A/c
(Being Vaibhav’s share in debit balance of profit and loss account transferred)		10,000


10,000

OR
DateParticularsL.F.Dr. (₹)Cr. (₹)
Vikas’s Capital A/c   Dr.
Vishal’s Capital A/c   Dr.
Vaibhav’s Capital A/c   Dr.
    To Profit and Loss A/c
(Being Vaibhav’s share in debit balance of profit and loss account transferred)		20,000
20,000
10,000




50,000

DateParticularsL.F.Dr. (₹)Cr. (₹)
Profit and Loss Suspense A/c   Dr.
    To Vaibhav’s Capital A/c
(Being Vaibhav’s share of profit upto the date of death transferred to his capital account)		11,250


11,250
Vaibhav’s Capital A/c   Dr.
    To Vaibhav’s Executors’ A/c
(Being amount due to Vaibhav transferred to his executors’ account)		4,05,250


4,05,250

Working Note: Vaibhav’s share of profit of current year = 75,000 × \( \frac{9}{12} \) × \( \frac{1}{5} \) = 11,250
Amount due to executors = 3,80,000 + 24,000 − 10,000 + 11,250 = ₹ 4,05,250

Teacher's Note:
1. Count months from 1st April to 31st December (9 months) for the share of profit; goodwill is borne by Vikas and Vishal in their gaining ratio 1 : 1.

 

Question 26. Vikas, Gagan and Momita were partners in a firm sharing profits in the ratio of 2 : 2 : 1. The firm closes its books on 31st March every year. On 30th September, 2014 Momita died. According to the provisions of partnership deed, the legal representatives of a deceased partner are entitled for the following in the event of his/her death:
(i) Capital as per the last Balance Sheet.
(ii) Interest on capital at 6% p.a. till the date of her death.
(iii) Her share of profit to the date of death calculated on the basis of average profits of last four years.
(iv) Her share of goodwill to be determined on the basis of three years’ purchase of the average profits of last four years. The profits of last four years were:
YearProfit (₹)
2010-201130,000
2011-201250,000
2012-201340,000
2013-201460,000
The balance in Momita’s capital account on 31-3-2014 was ₹ 60,000 and she had withdrawn ₹ 10,000 till the date of her death. Interest on her drawings were ₹ 300.
Prepare Momita’s capital account to be presented to her executors. [CBSE Delhi 2015]
Answer:
Momita’s Capital Account
Dr.Cr.
Particulars₹Particulars₹
To Drawings A/c10,000By Balance b/d60,000
To Interest on Drawings A/c300By Profit and Loss Suspense A/c4,500
To Momita’s Executor’s A/c83,000By Interest on Capital1,800
By Vikas’s Capital A/c13,500
By Gagan’s Capital A/c13,500
93,30093,300

Working Notes:
(i) Calculation of Interest on Capital = 60,000 × \( \frac{6}{100} \) × \( \frac{6}{12} \) = ₹ 1,800
(ii) Average profit = (30,000 + 50,000 + 40,000 + 60,000)/4 = 45,000; Calculation of Momita’s Share of Profit = 45,000 × \( \frac{1}{5} \) × \( \frac{6}{12} \) = ₹ 4,500
(iii) Share in Goodwill = 45,000 × 3 × \( \frac{1}{5} \) = ₹ 27,000, borne by Vikas and Gagan in their gaining ratio 2 : 2, i.e. ₹ 13,500 each.

Teacher's Note:
1. Interest on capital and share of profit are both for 6 months only (1st April to 30th September).

 

Question 27. Banwari, Girdhari and Murari are partners in a firm sharing profits and losses in the ratio of 4:5:6. On 31st March, 2014, Girdhari retired. On that date the capitals of Banwari, Girdhari and Murari before the necessary adjustments stood at ₹ 2,00,000, ₹ 1,00,000 and ₹ 50,000 respectively. On Girdhari’s retirement, goodwill of the firm was valued at ₹ 1,14,000. Revaluation of assets and reassessment of liabilities resulted in a profit of ₹ 6,000. General Reserve stood in the firm’s books at ₹ 30,000.
The amount payable to Girdhari was transferred to his loan account. Banwari and Murari agreed to pay Girdhari two yearly instalments of ₹ 75,000 each including interest @10% p.a. on the outstanding balance during the first two years and the balance including interest in the third year. The firm closes its books on 31st March every year.
Prepare Girdhari’s loan account till it is finally paid showing the working notes clearly. [CBSE 2018]
Answer:
Girdhari’s Loan Account
Dr.Cr.
DateParticulars₹DateParticulars₹
2015
Mar. 31		To Bank A/c75,0002014
April 1		By Girdhari’s Capital A/c1,50,000
Mar. 31To Balance c/d90,0002015
Mar. 31		By Interest A/c15,000
1,65,0001,65,000
2016
Mar. 31		To Bank A/c75,0002015
April 1		By Balance b/d90,000
Mar. 31To Balance c/d24,0002016
Mar. 31		By Interest A/c9,000
99,00099,000
2017
Mar. 31		To Bank A/c26,4002016
April 1		By Balance b/d24,000
2017
Mar. 31		By Interest A/c2,400
26,40026,400

Working Note:
Girdhari’s Capital Account
Dr.Cr.
Particulars₹Particulars₹
To Girdhari’s Loan A/c1,50,000By Balance b/d1,00,000
By Profit on Revaluation2,000
By Banwari’s Capital A/c15,200
By Murari’s Capital A/c22,800
By General Reserve A/c10,000
1,50,0001,50,000

Total goodwill = ₹ 1,14,000
Girdhari’s share = 1,14,000 × 5/15 = ₹ 38,000
Banwari’s gain = 38,000 × 4/10 = ₹ 15,200
Murari’s gain = 38,000 × 6/10 = ₹ 22,800
Girdhari’s share in general reserve = 30,000 × 5/15 = ₹ 10,000
Girdhari’s share in revaluation profit = 6,000 × 5/15 = ₹ 2,000

Teacher's Note:
1. Interest each year is on the opening balance of the loan; the last instalment is the balance plus that year’s interest (24,000 + 2,400).

 

Question 28. Shirish, Harit and Asha were partners sharing profits in the ratio of 5 : 4 : 1. Shirish died on 30th June, 2018. On this date their Balance Sheet was as follows:
Balance Sheet of Shirish, Harit and Asha as at 31st March, 2018
Liabilities₹Assets₹
Capitals:Plant and Machinery5,60,000
Shirish 1,00,000Stock90,000
Harit 2,00,000Debtors10,000
Asha 3,00,0006,00,000Cash40,000
Profits for the year 2017 – 1880,000
Bills Payable20,000
7,00,0007,00,000
According to the partnership deed, in addition to deceased partner’s capital, his executor is entitled to:
(i) Share in profits in the year of death on the basis of average of last two years’ profit. Profit for the year 2016–17 was ₹ 60,000.
(ii) Goodwill of the firm was to be valued at 2 years’ purchase of average of last two years’ profits.
Prepare Shirish’s Capital Account to be presented to his executor. [CBSE 2019 (67/3/1)]
Answer:
Shirish’s Capital Account
Dr.Cr.
Particulars₹Particulars₹
To Shirish’s Executor’s A/c2,18,750By Balance b/d1,00,000
By Profit and Loss A/c40,000
By Profit and Loss Suspense A/c8,750
By Harit’s Capital A/c56,000
By Asha’s Capital A/c14,000
2,18,7502,18,750

Working Notes:
1. Share in profits for 2017–18 (undistributed) = 80,000 × 5/10 = ₹ 40,000
2. Average profit of last two years = (60,000 + 80,000)/2 = ₹ 70,000; Share of profit till death = 70,000 × \( \frac{3}{12} \) × \( \frac{5}{10} \) = ₹ 8,750
3. Goodwill = 70,000 × 2 = ₹ 1,40,000; Shirish’s share = 1,40,000 × 5/10 = ₹ 70,000, borne by Harit and Asha in gaining ratio 4 : 1, i.e. ₹ 56,000 and ₹ 14,000.

Teacher's Note:
1. The 2017–18 profit on the Balance Sheet is still undistributed, so Shirish gets his 5/10 share of it besides his share of profit for April–June 2018.

 

Question 29. A, B and C were partners in a firm. A died on 31.3.2018 and the Balance Sheet of the firm on that date was as under:
Balance Sheet of A, B and C as at 31.3.2018
Liabilities₹Assets₹
Creditors7,000Cash at Bank12,000
General Reserve9,000Debtors32,000
Workmen’s Compensation Fund10,000Furniture30,000
Profit and Loss Account6,000Plant40,000
Capital: A 40,000; B 30,000; C 20,00090,000Patents8,000
1,22,0001,22,000
On A’s death it was found that patents were valueless, furniture was to be brought down to ₹ 24,000, plant was to be reduced by ₹ 10,000 and there was a liability of ₹ 7,000 on account of workmen’s compensation.
Pass the necessary journal entries for the above at the time of A’s death. [CBSE 2019 (67/5/1)]
Answer:
Journal
DateParticularsL.F.Dr. (₹)Cr. (₹)
Revaluation A/c   Dr.
    To Patents A/c
    To Furniture A/c
    To Plant A/c
(Being assets revalued)		24,000




8,000
6,000
10,000
Workmen’s Compensation Fund A/c   Dr.
    To Claim for Workmen’s Compensation
    To A’s Capital A/c
    To B’s Capital A/c
    To C’s Capital A/c
(Being compensation fund transferred to claim and balance distributed)		10,000





7,000
1,000
1,000
1,000
A’s Capital A/c   Dr.
B’s Capital A/c   Dr.
C’s Capital A/c   Dr.
    To Revaluation A/c
(Being loss on revaluation distributed among partners)		8,000
8,000
8,000




24,000
General Reserve A/c   Dr.
Profit and Loss A/c   Dr.
    To A’s Capital A/c
    To B’s Capital A/c
    To C’s Capital A/c
(Being general reserve and profit and loss account distributed among partners in their profit sharing ratio)		9,000
6,000





5,000
5,000
5,000

Or
DateParticularsL.F.Dr. (₹)Cr. (₹)
General Reserve A/c   Dr.
    To A’s Capital A/c
    To B’s Capital A/c
    To C’s Capital A/c
(Being general reserve distributed)		9,000




3,000
3,000
3,000
Profit and Loss A/c   Dr.
    To A’s Capital A/c
    To B’s Capital A/c
    To C’s Capital A/c
(Being profit and loss distributed among partners)		6,000




2,000
2,000
2,000

DateParticularsL.F.Dr. (₹)Cr. (₹)
A’s Capital A/c   Dr.
    To A’s Executor’s A/c
(Being capital account transferred to A’s executors account)		38,000


38,000

Working Note: A’s Capital = 40,000 + 1,000 − 8,000 + 5,000 = ₹ 38,000 (partners share equally as no ratio is given).

Teacher's Note:
1. Only the surplus of the Workmen’s Compensation Fund over the actual liability (10,000 − 7,000) is distributed; A died on the closing date, so no share of current-year profit is needed.

 

Long Answer Questions (5 Marks)

Question 30. Leena, Madan and Naresh were partners in a firm sharing profits and losses in the ratio of 2:2:3. On 31st March, 2015, their Balance Sheet was as follows:
Balance Sheet as at 31st March, 2015
Liabilities₹Assets₹
Trade Creditors1,60,000Land and Building10,00,000
Bank overdraft44,000Machinery5,00,000
Long-term Debts4,00,000Furniture7,00,000
Employees’ Provident Fund76,000Investments2,00,000
Capitals:Closing Stock8,00,000
Leena 12,50,000Sundry Debtors4,00,000
Madan 8,00,000Bank80,000
Naresh 10,50,00031,00,000Deferred Advertisement Expenditure1,00,000
37,80,00037,80,000
On 31st March, 2015, Madan retired from the firm and the remaining partners decided to carry on the business. It was decided to revalue assets and liabilities as under:
(i) Land and Building be appreciated by ₹ 2,40,000 and Machinery be depreciated by 10%.
(ii) 50% of Investments were taken over by the retiring partner at book value.
(iii) An old customer, Mohit whose account was written off as bad debt had promised to pay 7,000 in settlement of his full debt of ₹ 10,000.
(iv) Provision for Doubtful Debts was to be made at 5% on debtors.
(v) Closing Stock will be valued at market price which is ₹ 1,00,000 less than the book value.
(vi) Goodwill of the firm be valued at ₹ 5,60,000 and Madan’s share of goodwill be adjusted in the accounts of Leena and Naresh. Leena and Naresh decided to share future profits and losses in the ratio of 3 : 2.
(vii) The total capital of the new firm will be ₹ 32,00,000 which will be in the proportion of the profit-sharing ratio of Leena and Naresh.
(viii) Amount due to Madan was settled by accepting a Bill of Exchange in his favour payable after 4 months.
Prepare Revaluation Account, Partners’ Capital Accounts and Balance Sheet of the firm after Madan’s retirement. [CBSE (AI) 2016 (C)]
Answer:
Revaluation Account
Dr.Cr.
Particulars₹Particulars₹
To Machinery A/c50,000By Land and Building A/c2,40,000
To Closing Stock A/c1,00,000
To Provision for Doubtful Debts A/c20,000
To Profit transferred to:
Leena’s Capital A/c 20,000
Madan’s Capital A/c 20,000
Naresh’s Capital A/c 30,000		70,000
2,40,0002,40,000

Partners’ Capital Accounts
Dr.Cr.
ParticularsLeena ₹Madan ₹Naresh ₹ParticularsLeena ₹Madan ₹Naresh ₹
To Deferred Advertisement Expenses A/c28,57128,57142,858By Balance b/d12,50,0008,00,00010,50,000
To Madan’s Capital A/c1,60,000——By Revaluation A/c (Gain)20,00020,00030,000
To Naresh’s Capital A/c16,000——By Leena’s Capital A/c (WN 1 and 2)—1,60,00016,000
To Investments A/c—1,00,000—By Bank A/c (Balancing Figure)8,54,571—2,26,858
To Bills Payable A/c—8,51,429—
To Balance c/d (WN3)19,20,000—12,80,000
21,24,5719,80,00013,22,85821,24,5719,80,00013,22,858

Balance Sheet as at 1st April, 2015
Liabilities₹Assets₹
Trade Creditors1,60,000Land and Building12,40,000
Bank Overdraft44,000Machinery4,50,000
Bills Payable8,51,429Furniture7,00,000
Long-term Debts4,00,000Closing Stock7,00,000
Employees’ Provident Fund76,000Investments1,00,000
Capital: Leena 19,20,000; Naresh 12,80,00032,00,000Debtors 4,00,000 Less: Provision for Doubtful Debts 20,0003,80,000
Bank (WN4)11,61,429
47,31,42947,31,429

Working Notes:
1. Calculation of Gain of each Partner:
Gain of a Partner = New Share – Old Share
Leena’s Gain = 3/5 – 2/7 = 11/35; Naresh’s Gain = 2/5 – 3/7 = –1/35
Negative result shows that Naresh has sacrificed because Leena is the only gaining partner and she will compensate not only the retiring partner (Madan) but also the sacrificing partner (Naresh).
2. Naresh’s Share of Goodwill = ₹ 5,60,000 × 1/35 = ₹ 16,000.
Madan’s Share of Goodwill = ₹ 5,60,000 × 2/7 = ₹ 1,60,000.
3. Capital of the partners in the New Firm:
Leena’s Capital = ₹ 32,00,000 × 3/5 = ₹ 19,20,000; Naresh’s Capital = ₹ 32,00,000 × 2/5 = ₹ 12,80,000
4. Bank Account
Dr.Cr.
Particulars₹Particulars₹
To Balance b/d80,000By Balance c/d11,61,429
To Leena’s Capital A/c8,54,571
To Naresh’s Capital A/c2,26,858
11,61,42911,61,429

5. In adjustment No. (iii) an old customer Mohit whose account was written off as bad debt has promised to pay ₹ 7,000, is not treated as debtors because it is merely a promise to pay, if this promise is given in writing, then it could be treated as bad debts recovered and revaluation profit would have increased by ₹ 7,000.

Teacher's Note:
1. When one continuing partner’s new share is less than his old share, he is a sacrificing partner and the gaining partner compensates him too (here Leena pays Naresh 16,000).
2. Deferred Advertisement Expenditure is a fictitious asset: write it off to all partners in the old ratio 2 : 2 : 3, not through Revaluation Account.

 

Question 31. X, Y and Z were partners in a firm sharing profits in the ratio of 5 : 3 : 2. On 31st March, 2015 their Balance Sheet was as follows:Balance Sheet of X, Y and Z as at 31st March, 2015
Liabilities₹Assets₹
Creditors21,000Land and Building62,000
Investment Fluctuation Fund10,000Motor Vans20,000
Profit and Loss A/c40,000Investments19,000
Capitals:
    X 50,000
    Y 40,000
    Z 20,000		1,10,000Machinery12,000
Stock15,000
Debtors 40,000
Less: Provision 3,000		37,000
Cash16,000
1,81,0001,81,000
On the above date, Y retired and X and Z agreed to continue the business on the following terms:
(i) Goodwill of the firm was valued at ₹51,000.
(ii) There was a claim of ₹4,000 for Workmen's Compensation.
(iii) Provision for bad debts was to be reduced by ₹1,000.
(iv) Y will be paid ₹8,200 in cash and the balance will be transferred in his loan account which will be paid in four equal yearly instalments together with interest @ 10% p.a.
(v) The new profit sharing ratio between X and Z will be 3 : 2 and their capitals will be in their new profit sharing ratio. The capital adjustments will be done by opening current accounts.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of the reconstituted firm. [CBSE Delhi 2016]
Answer:
Revaluation Account
Dr.Cr.
Particulars₹Particulars₹
To Claim for Workmen Compensation A/c4,000By Provision for Bad Debts A/c1,000
By Partners' Capital A/cs (transfer of loss):
    X 1,500
    Y 900
    Z 600		3,000
4,0004,000

Partners' Capital Accounts
Dr.Cr.
ParticularsX ₹Y ₹Z ₹ParticularsX ₹Y ₹Z ₹
To Revaluation A/c1,500900600By Balance b/d50,00040,00020,000
To Y's Capital A/c5,100—10,200By Investment Fluctuation Fund5,0003,0002,000
To Cash A/c—8,200—By Profit and Loss A/c20,00012,0008,000
To Y's Loan A/c—61,200—By X's Capital A/c—5,100—
To X's Current A/c15,840——By Z's Capital A/c—10,200—
To Balance c/d52,560—35,040By Z's Current A/c——15,840
75,00070,30045,84075,00070,30045,840

Balance Sheet of X and Z as at 31st March, 2015
Liabilities₹Assets₹
Partners' Capital:
    X 52,560
    Z 35,040		87,600Land and Building62,000
X's Current A/c15,840Motor Van20,000
Y's Loan61,200Investments19,000
Creditors21,000Machinery12,000
Claim for Workmen Compensation4,000Stock15,000
Debtors 40,000
Less: Provision 2,000		38,000
Cash7,800
Z's Current A/c15,840
1,89,6401,89,640

Working Notes:
1. Calculation of Gaining ratio: New share − Old share
X = \( \frac{3}{5}-\frac{5}{10}=\frac{1}{10} \), Z = \( \frac{2}{5}-\frac{2}{10}=\frac{2}{10} \)
Gaining ratio = 1 : 2
2. Y's share of goodwill = 51,000 × \( \frac{3}{10} \) = ₹15,300
X's gain = 15,300 × \( \frac{1}{3} \) = 5,100, Z's gain = 15,300 × \( \frac{2}{3} \) = 10,200
3. Adjustment of Capital in Profit-sharing Ratio: Total capital of X and Z after adjustments = ₹68,400 + ₹19,200 = ₹87,600
X's Capital = 87,600 × \( \frac{3}{5} \) = ₹52,560, Z's Capital = 87,600 × \( \frac{2}{5} \) = ₹35,040
Amount transferred to X's Current A/c = 68,400 − 52,560 = 15,840
Amount transferred from Z's Current A/c = 35,040 − 19,200 = 15,840

Teacher's Note:
1. Y's share of goodwill is borne by X and Z only in their gaining ratio (1 : 2), not in the new ratio 3 : 2.
2. Reducing the provision for bad debts is a gain, so it is credited to the Revaluation Account.

 

Question 32. X, Y and Z were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. On 31.3.2016 their Balance Sheet was as follows:Balance Sheet as at 31.3.2016
Liabilities₹Assets₹
Capital Accounts:
    X 75,000
    Y 62,500
    Z 37,500		1,75,000Building50,000
Creditors42,500Patents15,000
Machinery75,000
Stock37,500
Debtors20,000
Cash at Bank20,000
2,17,5002,17,500
Z died on 31st July, 2016. It was agreed that:
(a) Goodwill be valued at 2\( \frac{1}{2} \) year's purchase of the average profits of the last four years, which were as follows:
YearsProfits (₹)
2012-201332,500
2013-201430,000
2014-201540,000
2015-201637,500
(b) Machinery be valued at ₹70,000; Patents at ₹20,000 and Building at ₹62,500.
(c) For the purpose of calculating Z's share of profits in the year of his death the profits in 2016-2017 should be taken to have been accrued on the same scale as in 2015-2016.
(d) A sum of ₹17,500 was paid immediately to the executors of Z and the balance was paid in four half yearly instalments together with interest at 12% p.a. starting from 31.1.2017.
Give necessary journal entries to record the above transactions and Z's executors' account till the payment of instalment due on 31.1.2017. [CBSE (AI) 2011]
Answer:
Journal
DateParticularsL.F.Dr. (₹)Cr. (₹)
2016 July 31X's Capital A/c   Dr.10,938
Y's Capital A/c   Dr.6,562
    To Z's Capital A/c17,500
(Being Z's share of goodwill compensated by the existing partners)
Profit and Loss Suspense A/c   Dr.2,500
    To Z's Capital A/c2,500
(Being Z's share of profit till the date of death)
Revaluation A/c   Dr.5,000
    To Machinery A/c5,000
(Being decrease in the value of machinery recorded)
Patents A/c   Dr.5,000
Building A/c   Dr.12,500
    To Revaluation A/c17,500
(Being assets revalued)
Revaluation A/c   Dr.12,500
    To X's Capital A/c6,250
    To Y's Capital A/c3,750
    To Z's Capital A/c2,500
(Being Profit transferred to Partner's Capital Accounts)
Z's Capital A/c   Dr.60,000
    To Z's Executors' A/c60,000
(Being net amount due to Z transferred to his Executors' A/c)
Z's Executors' A/c   Dr.17,500
    To Bank A/c17,500
(Being partly cash paid to executors)

Z's Executors' Account
Dr.Cr.
Particulars₹Particulars₹
2016 July 31: To Bank A/c17,5002016 July 31: By Z's Capital A/c60,000
2017 Jan. 31: To Bank A/c (10,625 + 2,550)13,1752017 Jan. 31: By Interest on loan (for 6 months)2,550
To Balance c/d31,875
62,55062,550

Working Notes:
1. Calculation of goodwill: Goodwill = Average profit × No. of years' purchase
Average profit = \( \frac{32,500+30,000+40,000+37,500}{4}=\frac{1,40,000}{4} \) = ₹35,000
Goodwill = ₹35,000 × 2.5 = ₹87,500; Z's share in goodwill = 87,500 × \( \frac{2}{10} \) = ₹17,500
X's gain = 17,500 × \( \frac{5}{8} \) = 10,937.5 or ₹10,938, Y's gain = 17,500 × \( \frac{3}{8} \) = ₹6,562
2. Calculation of Profit: Z's share of profit (2016-17) = 37,500 × \( \frac{4}{12}\times\frac{2}{10} \) = ₹2,500
3. Z's Capital Account
Dr.Cr.
Particulars₹Particulars₹
2016 July 31: To Z's Executor's A/c60,000By Balance b/d37,500
By Profit and Loss Suspense A/c2,500
By Revaluation A/c2,500
By X's Capital A/c10,938
By Y's Capital A/c6,562
60,00060,000

Teacher's Note:
1. Interest on the executor's balance is for 6 months (31 July to 31 January) on ₹42,500: 42,500 × 12% × 6/12 = ₹2,550.
2. The continuing partners X and Y bear Z's goodwill in their gaining ratio, which equals their old ratio 5 : 3 here.

 

Question 33. 'G', 'E' and 'F' were partners in a firm sharing profits in the ratio of 7 : 2 : 1. The Balance Sheet of the firm as on 31st March, 2017 was as follows:Balance Sheet of 'G', 'E' and 'F' as at 31st March, 2017
Liabilities₹Assets₹
Capitals:
    G 70,000
    E 20,000
    F 10,000		1,00,000Goodwill40,000
General Reserve20,000Land and Buildings60,000
Loan from 'E'30,000Machinery40,000
Creditors14,000Stock7,000
Debtors12,000
Cash5,000
1,64,0001,64,000
'E' died on 24th August, 2017. Partnership deed provides for the settlement of claims on the death of a partner in addition to his capital as under:
(i) 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 were ₹80,000.
(ii) His share in profit/loss on revaluation of assets and reassessment of liabilities which were as follows: Land and Buildings were revalued at ₹94,000, Machinery at ₹38,000 and Stock at ₹5,000. A provision of 2\( \frac{1}{2} \)% was to be created on debtors for doubtful debts.
(iii) The net amount payable to E's executor was transferred to his Loan Account, to be paid later on.
Prepare Revaluation Account, Partners' Capital Accounts, E's Executor A/c, and Balance Sheet of 'G' and 'F' who decided to continue the business keeping their capital balances in their new profit-sharing ratio. Any surplus or deficit to be transferred to current accounts of the partners. [CBSE Delhi 2012]
Answer:
Revaluation Account
Dr.Cr.
Particulars₹Particulars₹
To Machinery A/c2,000By Land and Buildings A/c34,000
To Stock A/c2,000
To Provision for Bad and Doubtful Debts A/c300
To Profit transferred to Partners' Capital A/cs:
    G 20,790
    E 5,940
    F 2,970		29,700
34,00034,000

Partners' Capital Accounts
Dr.Cr.
ParticularsG ₹E ₹F ₹ParticularsG ₹E ₹F ₹
To Goodwill A/c28,0008,0004,000By Balance b/d70,00020,00010,000
To E's Executor's Loan A/c—28,340—By General Reserve A/c14,0004,0002,000
To Balance c/d76,790—10,970By Revaluation A/c20,7905,9402,970
By P and L Suspense A/c (80,000 × \( \frac{2}{10}\times\frac{146}{365} \))—6,400—
1,04,79036,34014,9701,04,79036,34014,970

Balance Sheet of G and F as at 24th August, 2017
Liabilities₹Assets₹
Capital A/cs:
    G 76,790
    F 10,970		87,760Land and Buildings94,000
E's Executor's Loan A/c58,340Machinery38,000
Creditors14,000Stock5,000
Debtors 12,000
Less: Provision for doubtful debts 300		11,700
Cash5,000
Profit and Loss Suspense A/c6,400
1,60,1001,60,100

E's Executor's Loan Account
Dr.Cr.
Particulars₹Particulars₹
To Balance c/d58,340By E's Capital A/c28,340
By E's Loan A/c30,000
58,34058,340

Working Note: Adjustment of Capital:
Total Capital of G and F = ₹76,790 + ₹10,970 = ₹87,760
Capital of G should be = 87,760 × \( \frac{7}{8} \) = ₹76,790
Capital of F should be = 87,760 × \( \frac{1}{8} \) = ₹10,970.
As the capitals are already in the new ratio 7 : 1, no current accounts are needed.

Teacher's Note:
1. Goodwill appearing in the old Balance Sheet is written off to all partners in the old ratio 7 : 2 : 1.
2. Count the days carefully: 1 April to 24 August = 30 + 31 + 30 + 31 + 24 = 146 days.

 

Question 34. N, S and B were partners in a firm sharing profits and losses in proportion of 1/2, 1/6 and 1/3 respectively. The Balance Sheet on 31st March, 2017 was as follows:Balance Sheet as at 31st March, 2017
Liabilities₹Assets₹
Capital Accounts:
    N 30,000
    S 30,000
    B 28,000		88,000Freehold Premises40,000
Bills Payable12,000Machinery30,000
General Reserve12,000Furniture12,000
Sundry Creditors18,000Stock22,000
Sundry Debtors 20,000
Less: Provision for Doubtful Debts 1,000		19,000
Cash7,000
1,30,0001,30,000
B retired from the business on the above date and the partners agreed to the following:
(a) Freehold premises and stock were to be appreciated by 20% and 15% respectively.
(b) Machinery and furniture were to be depreciated by 10% and 7% respectively.
(c) Provision for Doubtful debts was to be increased by ₹1,500.
(d) On B's retirement, Goodwill of the firm was valued at ₹21,000.
(e) The continuing partners decided to adjust their capitals in their new profit-sharing ratio after retirement of B. Surplus/deficit, if any, in their capital accounts was to be adjusted through their current accounts.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of the reconstituted firm. [CBSE 2019 (67/5/2)]
Answer:
Revaluation Account
Dr.Cr.
Particulars₹Particulars₹
To Machinery A/c3,000By Freehold Premises A/c8,000
To Furniture A/c840By Stock A/c3,300
To Provision for doubtful Debts1,500
To Partner's Capital A/c:
    N 2,980
    S 993
    B 1,987		5,960
11,30011,300

Partners' Capital Accounts
Dr.Cr.
ParticularsN ₹S ₹B ₹ParticularsN ₹S ₹B ₹
To B's Capital A/c5,2501,750—By Balance b/d30,00030,00028,000
To B's Loan A/c——40,987By N's Capital A/c——5,250
To Balance c/d33,73031,243—By S's Capital A/c——1,750
By General Reserve6,0002,0004,000
By Revaluation A/c2,9809931,987
38,98032,99340,98738,98032,99340,987

Partners' Capital Accounts (adjustment of capitals)
Dr.Cr.
ParticularsN ₹S ₹B ₹ParticularsN ₹S ₹B ₹
To S's Current A/c—15,000—By Balance b/d33,73031,243—
To Balance c/d48,73016,243—By N's Current A/c15,000——
48,73031,243048,73031,2430

Balance Sheet of N & S as at 31st March, 2017
Liabilities₹Assets₹
Capital A/cs:
    N 48,730
    S 16,243		64,973Freehold Premises48,000
Bills Payable12,000Machinery27,000
Sundry Creditors18,000Furniture11,160
S's Current A/c15,000Stock25,300
B's Loan A/c40,987Sundry Debtors 20,000
Less: Provision for doubtful debts 2,500		17,500
Cash7,000
N's Current A/c15,000
1,50,9601,50,960

Working Notes:
(i) Profit-sharing Ratio = \( \frac{1}{2}:\frac{1}{6}:\frac{1}{3}=\frac{3:1:2}{6} \) = 3 : 1 : 2.
(ii) Goodwill of the firm = ₹21,000; B's share of Goodwill = 21,000 × \( \frac{2}{6} \) = ₹7,000.
N's gain = 7,000 × \( \frac{3}{4} \) = 5,250, S's gain = 7,000 × \( \frac{1}{4} \) = 1,750
(iii) Capital adjustment: Total capital of N and S after all adjustments: N's Capital = ₹33,730; S's Capital = ₹31,243; Total Capital = ₹64,973
New profit-sharing ratio, i.e., 3 : 1
N's Capital = 64,973 × \( \frac{3}{4} \) = ₹48,730; S's Capital = 64,973 × \( \frac{1}{4} \) = ₹16,243.
(iv) In the absence of any agreement, new profit-sharing ratio as well as gaining ratio will be the old ratio of the remaining partners.

Teacher's Note:
1. A partner who is short of his new capital brings it through his Current A/c (debit balance, an asset); a partner with excess capital has a credit Current A/c (a liability).
2. Convert fractional ratios 1/2 : 1/6 : 1/3 to whole numbers (3 : 1 : 2) before sharing goodwill and revaluation profit.

 

Question 35. Sameer, Yasmin and Saloni were partners in a firm sharing profits and losses in the ratio of 4 : 3 : 3. On 31st March, 2016, their Balance Sheet was as follows:Balance Sheet of Sameer, Yasmin and Saloni as at 31st March, 2016
Liabilities₹Assets₹
Creditors1,10,000Cash80,000
General Reserve60,000Debtors 90,000
Less: Provision 10,000		80,000
Capitals:
    Sameer 3,00,000
    Yasmin 2,50,000
    Saloni 1,50,000		7,00,000Stock1,00,000
Machinery3,00,000
Building2,00,000
Patents60,000
Profit and Loss Account50,000
8,70,0008,70,000
On the above date, Sameer retired and it was agreed that:
(i) Debtors of ₹4,000 will be written off as bad debts and a provision of 5% on debtors for bad and doubtful debts will be maintained.
(ii) An unrecorded creditor of ₹20,000 will be recorded.
(iii) 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 of the firm on Sameer's retirement was valued at ₹5,40,000.
Pass necessary journal entries for the above transactions in the books of the firm on Sameer's retirement. [CBSE (AI) 2017]
Answer:
Journal (Books of the firm)
DateParticularsL.F.Dr. (₹)Cr. (₹)
2016 Mar. 31 (i)General Reserve A/c   Dr.60,000
    To Sameer's Capital A/c24,000
    To Yasmin's Capital A/c18,000
    To Saloni's Capital A/c18,000
(Being General Reserve distributed among partners)
(ii)Sameer's Capital A/c   Dr.20,000
Yasmin's Capital A/c   Dr.15,000
Saloni's Capital A/c   Dr.15,000
    To Profit and Loss A/c50,000
(Being accumulated losses divided among partners)
(iii)Bad Debts A/c   Dr.4,000
    To Debtors A/c4,000
(Being debtors of ₹4,000 written off)
(iv)Provision for Bad and Doubtful Debts A/c   Dr.4,000
    To Bad Debts A/c4,000
(Being provision utilised for writing off bad debts)
(v)Provision for Bad and Doubtful Debts A/c   Dr.1,700
    To Revaluation A/c1,700
(Being excess provision transferred to Revaluation A/c)
(vi)Revaluation A/c   Dr.20,000
    To Creditors A/c20,000
(Being increase in creditors recorded)
(vii)Revaluation A/c   Dr.90,000
    To Patents A/c60,000
    To Stock A/c5,000
    To Machinery A/c15,000
    To Building A/c10,000
(Being decrease in assets recorded)
(viii)Sameer's Capital A/c   Dr.43,320
Yasmin's Capital A/c   Dr.32,490
Saloni's Capital A/c   Dr.32,490
    To Revaluation A/c1,08,300
(Being loss on revaluation transferred to Partners' Capital A/cs)
(ix)Yasmin's Capital A/c   Dr.1,62,000
Saloni's Capital A/c   Dr.54,000
    To Sameer's Capital A/c2,16,000
(Being Goodwill adjusted to Partners' Capital A/cs on Sameer's retirement in gaining ratio 3 : 1)
(x)Sameer's Capital A/c   Dr.4,76,680
    To Sameer's Loan A/c4,76,680
(Being balance of Sameer's capital account transferred to Sameer's Loan A/c)

Working Note: Amount payable to Sameer = ₹3,00,000 − ₹43,320 + ₹24,000 − ₹20,000 + ₹2,16,000 = ₹4,76,680

Teacher's Note:
1. Bad debts are first met from the existing provision; only the excess provision (₹6,000 − ₹4,300 = ₹1,700) goes to the Revaluation Account.
2. Gaining ratio: Yasmin 3/5 − 3/10 = 3/10, Saloni 2/5 − 3/10 = 1/10, so 3 : 1.

 

Question 36. Sushma, Gautam and Kanika were partners in a firm sharing profits in the ratio of 5 : 3 : 2. On 31st March, 2018, their Balance Sheet was as follows:Balance Sheet of Sushma, Gautam and Kanika as at 31st March, 2018
Liabilities₹Assets₹
Creditors60,000Cash at Bank1,40,000
Employees' Provident Fund40,000Sundry Debtors1,60,000
Profit and Loss Account1,00,000Stock2,40,000
Capitals:
    Sushma 3,00,000
    Gautam 2,50,000
    Kanika 3,50,000		9,00,000Investments2,00,000
Fixed Assets3,60,000
11,00,00011,00,000
On the above date, Sushma retired and it was agreed that:
(i) Fixed Assets will be reduced to ₹2,90,000.
(ii) A provision of 5% on debtors for bad and doubtful debts will be created.
(iii) Stock was to be valued at ₹2,18,000. Sushma took over the stock at this value.
(iv) Goodwill of the firm on Sushma's retirement was valued at ₹8,00,000. Sushma's share of goodwill was treated by debiting Gautam and Kanika's Capital Accounts.
(v) Sushma was paid cash brought by Gautam and Kanika in such a way that their capitals became in profit sharing ratio and a balance of ₹58,000 was left in the bank.
(vi) Gautam and Kanika will share the future profits in the ratio of 2 : 3.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of the reconstituted firm. [CBSE 2019 (67/3/1)]
Answer:
Revaluation Account
Dr.Cr.
Particulars₹Particulars₹
To Fixed Assets A/c70,000By Loss on Revaluation transferred to:
    Sushma's Capital A/c 50,000
    Gautam's Capital A/c 30,000
    Kanika's Capital A/c 20,000		1,00,000
To Provision for Doubtful Debts A/c8,000
To Stock A/c22,000
1,00,0001,00,000

Partners' Capital Accounts
Dr.Cr.
ParticularsSushma ₹Gautam ₹Kanika ₹ParticularsSushma ₹Gautam ₹Kanika ₹
To Revaluation A/c50,00030,00020,000By Balance b/d3,00,0002,50,0003,50,000
To Sushma's Capital A/c—80,0003,20,000By Profit and Loss A/c50,00030,00020,000
To Stock A/c2,18,000——By Gautam's Capital A/c80,000——
To Bank A/c4,82,000——By Kanika's Capital A/c3,20,000——
To Balance c/d—2,40,0003,60,000By Bank A/c—70,0003,30,000
7,50,0003,50,0007,00,0007,50,0003,50,0007,00,000

Balance Sheet of Gautam and Kanika as at 31st March, 2018
Liabilities₹Assets₹
Creditors60,000Bank58,000
Employees Provident Fund40,000Sundry Debtors 1,60,000
Less: Provision 8,000		1,52,000
Capital A/cs:
    Gautam 2,40,000
    Kanika 3,60,000		6,00,000Investments2,00,000
Fixed Assets2,90,000
7,00,0007,00,000

Working Notes:
1. Calculation of Gaining Ratio: Gaining Ratio = New Ratio − Old Ratio
Gautam = \( \frac{2}{5}-\frac{3}{10}=\frac{1}{10} \); Kanika = \( \frac{3}{5}-\frac{2}{10}=\frac{4}{10} \)
Gaining Ratio = 1 : 4.
2. Adjustment of Goodwill: Sushma's Share in Goodwill = ₹8,00,000 × 5/10 = ₹4,00,000, which is to be contributed by Gautam and Kanika in their gaining ratio as under:
Gautam: ₹4,00,000 × 1/5 = ₹80,000, Kanika: ₹4,00,000 × 4/5 = ₹3,20,000.
3. Calculation of Proportionate Capitals:
(i) Existing Capitals of Gautam and Kanika:
Gautam ₹[2,50,000 + 30,000 − 30,000 − 80,000] = ₹1,70,000
Kanika ₹[3,50,000 + 20,000 − 20,000 − 3,20,000] = ₹30,000
Total = ₹2,00,000
Add: Shortage of Cash/Bank to be brought in by Gautam and Kanika in order to make payment to Sushma = ₹4,00,000
Total Capital of the New Firm = ₹6,00,000
Shortage of Cash or Bank balance = Amount paid to Sushma − Existing bank balance + Bank balance required = ₹4,82,000 − ₹1,40,000 + ₹58,000 = ₹4,00,000
(ii) Proportionate Capital of partners in the ratio of 2 : 3: Gautam = ₹6,00,000 × 2/5 = ₹2,40,000; Kanika = ₹6,00,000 × 3/5 = ₹3,60,000
PartnersExisting Capital (₹)Proposed Capital (₹)Surplus/Deficiency (₹)
Gautam1,70,0002,40,000Deficiency = ₹70,000
Kanika30,0003,60,000Deficiency = ₹3,30,000

Gautam and Kanika will bring ₹70,000 and ₹3,30,000.

Teacher's Note:
1. Stock taken over by the retiring partner is debited to her Capital A/c at the agreed value, after the stock has been revalued.
2. Total new capital = adjusted capitals + cash shortage to be met; then divide it in the new ratio 2 : 3.

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