TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021

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Solutions for T.S. Grewal's Double Entry Book Keeping:
Accounting for Not for Profit Organizations and Partnership Firms (Vol.1)
Textbook for CBSE Class 12
TS Grewal Solutions Class 12 Accountancy
Chapter 6 Retirement of a Partner


Very Short Answer Type Questions
 
Question 1. What is meant by retirement of a partner?
Answer:
Retirement of a partner means that the partner ceases to be partner of the firm. It results in reconstitution of the firm by which old partnership comes to an end a new partnership among the continuing partners comes into existence.
 
Question 2. How can a partner retire from the firm?
Answer:
A partner can retire from the firm:-
1.) If there is an agreement to that effect.
2.) If all the partners agree to his retirement.
3.) If the partnership is at will, by giving a written notice to the remaining partners of his decision to retire.
 
Question 3. Is a retiring partner liable for firm' parts acts before his retirement?
Answer:
A retiring partner remains liable for all the acts of the firm up to the date of his retirement. However, a retiring partner may be discharged from his liability by an agreement between himself, third party and the continuing partners.
 
Question 4. Is a retiring partner liable for firm's acts after his retirement?
Answer:
A retiring partner also continues to be liable to third parties for the acts of the firm even after his retirement until a public notice of his retirement is given.
 
Question 5. On the retirement of a partner, how is the profit-sharing ratio of remaining partners decided?
Answer:
Profit-sharing ratio of the remaining partners is decided as per the mutual agreement among the remaining partners.
 
Question 6. Define gaining ratio.
Answer:
The ratio in which the continuing partners acquire the outgoing (retired or deceased)partner’s share is called the Gaining Ratio.
 
Question 7. Give any one distinction between sacrificing ratio and gaining ratio.
Answer:
 
TS Grewal Solution Class 12 Chapter 6 Retirement Death of a Partner 2019 2020
 
 
Question 8. State the ratio in which the partners at the time of retirement of a partner share the accumulated profit and losses.
Answer:
the partners at the time of retirement of a partner share the accumulated profit and losses in their old profit-sharing ratio.
 
Question 9. At the time of retirement, how will you deal with the goodwill when goodwill appears at its proper value.
Answer:
Goodwill appearing in the books of account is written off by debiting all the partners Capital Accounts including retiring or decreased partner in their old profit-sharing ratio. The Journal entry:-

Partner’s Capital A/c………………………….Dr.

   To Goodwill A/c

(Being the existing goodwill written off)

 

Question 10. Why the value of goodwill needs to be determined on retirement or death of a partner?

Answer:

At the time of retirement or death of a partner, adjustment is necessary for goodwill. When a partner retires of dies, his share in profit is taken by the continuing partners for which they should compensate the retiring or deceased partner.

 

Question 11. For which share of goodwill a partner is entitled at the time of retirement?

Answer:

The retiring or deceased partner is entitled to his share of goodwill at the time of retirement/death because goodwill has been earned by the firm at the time when he was a partner.

 

Question 12. Neetu, Meetu and Teetu were partners in a firm. On 1st January, 2018, Meetu retired. On Meetu’s retirement the goodwill of the firm was valued at Rs. 4,20,000.

Pass necessary Journal entry for the treatment of goodwill on Meetu's retirement.

Answer:

 TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021

 

Working Note:-
Goodwill of the Firm = Rs. 4,20,000
Meetu’s Share of Goodwill = Rs. 4,20,000 × 1/3 = 1,40,000
 

Question 13. Give two circumstances in which the gaining ratio may be applied.

Answer:

Calculation of Gaining Ratio under below circumstances:-

1.)   When a partner retires or dies.

2.)   When there is a change in the profit-sharing ratio.

 

Question 14. Why the revaluation of assets and reassessment of liabilities are required at the time of retirement or death of a partner?

Answer:

At the time of retirement or death of a partner, assets of the firm are revalued and liabilities are reassessed with a purpose that the retiring partner is not at an advantage of disadvantage because of the change in the value.

 

Question 15. Give the Journal entry to distribute ‘Workmen Compensation Reserve’ of Rs. 60,000 at the time of retirement of Sajjan, when there is no claim against it. The firm has three partners Rajat, Sajjan and Kavita.

Answer:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-

 

Working Note:-

1.)   Rajat’s Share in Workmen Compensation Reserve = 60,000 × 1/3   = 20,000 

2.)   Sajjan’s Share in Workmen Compensation Reserve = 60,000 × 1/3  = 20,000

3.)   Kavita’s Share in Workmen Compensation Reserve = 60,000 ×  1/3 = 20,000

 

Question 16. State any two deductions that may have to be made from the amount payable to a retiring partner.

Answer:

Deduction that may have to be made from the amount payable to a retiring partner:-

1.)   Loss on revaluation

2.)   Goodwill to be written off

 

Question 17. How is share in profit of outgoing partner calculated when he retires during the accounting year?

Answer:

Profit of outgoing partner calculated when he retires during the accounting year:-

1)    Change in the Profit-sharing ratio, i.e. determining New Profit-sharing Ratio and Gaining Ratio.

2)    Valuation and Adjustment of goodwill.

3)    Revaluation of Assets and Reassessment of liabilities.

4)    Reserves and Undistributed Profit.

 

Question 18. Jamuna, Ganga and Krishna are partners in a firm. Krishna retired from the firm. After making adjustments for Reserve and Revaluation of Assets and Liabilities the balance in krishna’s capital account was Rs. 1,20,000. Jamuna and Ganga paid Rs. 1,80,000 in full settlement to Krishna. Identify the item for which Jamuna and Ganga paid Rs. 60,000 more to Krishna.

Answer:

Rs. (1,80,000- 1,20,000) = Rs. 60,000

Krishna’s Share of Goodwill which is paid by Jamuna and Ganaga.

 

Short Answer Type Questions


Question 1. Explain the Procedure of determining the amount payable to a retiring partner when he leaves the firm.

Answer:

Amount payable to a retiring partner when he leaves the firm:-

1.)   Change in the Profit-sharing ratio i.e. determining New Profit-sharing Ratio and Gaining ratio.

2.)   Valuation and Adjustment of Goodwill.

3.)   Revaluation of assets and Reassessment of Liabilities.

4.)   Reserves and Undistributed Profit (Accumulated Profit/losses)

5.)   Computation of retiring Partner’s Internet and Payments to the Retiring Partner.

6.)   Adjustment of Capital.

 

Question 2. Explain the accounting treatment of goodwill on retirement of a partner.

Answer:

For Accounting Treatment of Goodwill, guidelines of Accounting Standard-26 on Accounting for intangible Assets are followed.

When goodwill does not appear in the books:-

When Goodwill does not appear in the Balance Sheet, there are three ways in which the retiring or deceased partner can be given the credit for his share of goodwill as follows:


(a)  Goodwill Account is not Raised in the books of Account: Retiring or deceased partner’s share of the current value of Goodwill is credited to his Capital Account by debiting Gaining Partner’s Capital in their gaining ratio. 

Gaining Partners’ Capital A/c…………………..Dr.

To Retiring/Deceased Partner’s Capital A/c

(Being the share of goodwill credited to retiring/deceased partner debiting gaining partner’s Capital account in their gaining ratio)


(b)  Goodwill is Raised at its Full Value and Written off: Goodwill Account is debited with the current value of goodwill, crediting Capital Accounts of all the partners, including retiring or deceased partner in their old profit-sharing ratio. Goodwill account so debited is immediately written off by debiting continuing partners capital account, in their new profit-sharing ratio and crediting goodwill account with its current value.

Goodwill A/c…………………..Dr.

To All Partner’s Capital A/c

(Being the goodwill raised at its current value)

 

Continuing Partner’s Capital A/c…………………..Dr.

To Goodwill A/c

(Being the goodwill Account written off in new profit-sharing ratio)

 

When goodwill appears in the books:-

Goodwill appearing in the books of account means it is purchase goodwill because self-generated goodwill is not recorded in the books of account following AS-26, Intangible Assets. Goodwill appearing in the books of account is written off by debiting all the partners’ Capital Accounts including retiring or deceased partner in their old profit-sharing ratio. The journal entry passed is:

All Partners’ Capital A/c………………..Dr.

To Goodwill A/c

(Being the existing goodwill written off) 

 

Question 3. Why are assets and liabilities revalued on the retirement or death of a partner?

Answer:

At the time of retirement or death of a partner, assets of the firm are revalued and liabilities are reassessed with a purpose that the retiring partner is not at an advantage or disadvantage because of the change in the values. To give effect to the change in value, a Profit and Loss Adjustment Account and Revaluation Account is prepared in the same manner is prepared at the time if admission of a partner. To recapitulate:

1.)   Increase in the value of assets, unrecorded assets, decrease in amount of liabilities and excess provisions written back are credited to Revaluation Account.

2.)   Decrease in value of assets, increase in amount of liabilities, liabilities provided and unrecorded liabilities are debited to it.

3.)   Gain or loss from the revaluation is distributed among the partners in their old profit-sharing ratio. Gain on revaluation is credited to the Partners’ Capital Account or Partner’s Current Accounts.

4.)   After revaluation, assets and liabilities are shown at their revised value in new balance sheet of the firm.

 

Question 4. Distinguish between the sacrificing ratio and the gaining ratio among partners.

Answer:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-1


EXERCISE................


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

Answer  1:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-2

If c retires then the New Profit Sharing Ratio will be A:B = 5:4

 

Question 2:  From the following particulars, calculate new profit-sharing ratio of the partners:

(a) Shiv, Mohan and Hari were partners in a firm sharing profits in the ratio of 5:5:4. Mohan retired and his share was divided equally between Shiv and Hari.

(b) P, Q and R were partners sharing profits in the ratio of 5:4:1. P retires from the firm. 

Answer 2:

(a) Old Ratio of Shiv: Mohan: Hari = 5:5:4

 TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-3

(b) Old Ratio of P: Q: R = 5:4:1 

Therefore New Ratio of Q : R = 4:1

 

Question 3:   R, S and M are partners sharing profits in the ratio of 2/5,2/5 and 1/5. M decides to retire from the business and his share is taken by R and S in the ratio of 1:2. Calculate the new profit-sharing ratio. 

Answer  3: 

Old Ratio of R:S:M = 2:2:1

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-4

 

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

Answer  4:

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

New Ratio of B:C = 2:1

Gaining Ratio = New Ratio – Old Ratio

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-5

 

Question 5: X, Y and Z are partners sharing profits in the ratio of 1/2, 3/10, and 1/5. Calculate the gaining ratio of remaining partners when Y retires from the firm. 

Answer   5:

 TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-6

 

Question 6:

(a) W, X, Y and Z are partners sharing profits and losses in the ratio of 1/3, 1/6, 1/3 and 1/6 respectively. Y retires and W, X and Z decide to share the profits and losses equally in future. Calculate gaining ratio.

(b) A, B and C are partners sharing profits and losses in the ratio of 4:3:2. C retires from the business. A is acquiring 4/9 of C's share and balance is acquired by B. Calculate the new profit-sharing ratio and gaining ratio. 

Answer 6:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-7


Question 7:   Kumar, Lakshya, Manoj and Naresh are partners sharing profits in the ratio of 3:2:1:4. Kumar retires and his share is acquired by Lakshya and Manoj in the ratio of 3:2. Calculate new profit-sharing ratio and gaining ratio of the remaining partners. 

Answer 7:

Old Ratio of Kumar : Lakshya : Manoj : Naresh = 3:2:1:4

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-8

 

Question 8:  A, B, and C were partners in a firm sharing profits in 8:4:3. B retires and his share is taken up equally by A and C. Find the new profit-sharing ratio. 

Answer  8:

Old Ratio of A:B:C = 8:4:3

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-9

 

Question 9:  A, B, and C are partners sharing profits in the ratio of 5:3:2. C retires and his share is taken up by A. Calculate new profit-sharing ratio of A and B. 
Answer 9:

Old Ratio of A:B:C = 5:3:2
A’S New Share = 5/10 + 2/10 = (5+2)/10 = 7/10
B’s New Share = 3/10
New Ratio of A:B = 7:3

 

Question 10:  P, Q and R are partners sharing profits in the ratio of 7:5:3. P retires and it is decided that profit-sharing ratio between Q and R will be same as existing between P and Q. Calculate New profit-sharing ratio and Gaining Ratio.

Answer 10:

Old Ratio of P : Q : R = 7 : 5 : 3

New Ratio of Q : R = 7 : 5

Gaining Ratio = New Ratio – Old Ratio

Q’s Gain = New Share – Old Share = 7/12 - 5/15 = (35-20)/60 = 15/60

R’s Gain = New Share – Old Share = 5/12 - 3/15 = (25-12)/60 = 13/60

Gaining Ratio of Q : R = 15:13


Question 11:  Murli, Naveen and Omprakash are partners sharing profits in the ratio of 3/8, 1/2 and 1/8. Murli retires and surrenders 2/3rd of his share in favour of Naveen and remaining share in favour of Omprakash. Calculate new profit-sharing ratio and gaining ratio of the remaining partners. 

Answer  11:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-10

 

Question 12:  A, B and C are partners in a firm sharing profits and losses in the ratio of 4:3:2 . B decides to retire from the firm. Calculate new profit-sharing ratio of A and C in the following circumstances:

(a) If B gives his share to A and C in the original ratio of A and C .
(b) If B gives his share to A and C in equal proportion.
(c) If B gives his share to A and C in the ratio of 3:1.
(d) If B gives his share to A only.  

Answer 12:

(a) Old Ratio of A:B:C = 4:3:2
New Ratio of A:C = 4:2 = 2:1
 
(b) Old Ratio of A:B:C = 4:3:2
TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-11
 

Treatment of Goodwill


Question 13:  L, M and O are partners sharing profits and losses in the ratio of 4:3:2. M retires and the goodwill is valued at Rs. 72,000. Calculate M's share of goodwill and pass the necessary Journal entry for Goodwill. L and O decided to share the future profits and losses in the ratio of 5:3. 

Answer  13:

 TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-12

Points of Knowledge:

Old Ratio of L:M:O = 4:3:2
New Ratio of L:O = 5:3
Gaining Ratio = New Ratio – Old Ratio
L’s Gain = 5/8 - 4/9 = (45-32)/72 = 13/72
O’s Gain = 3/8 - 2/9 = (27-16)/72 = 11/72
Therefore, Gaining Ratio of L:O = 13:11
Goodwill of the firm = 72,000
M’s Share of goodwill = 72,000 × 3/9 = 24,000
L will transfer for goodwill to M = 24,000 × 13/24 = 13,000
O will transfer for goodwill to M = 24,000 × 11/24 = 11,000
Condition for goodwill treatment: Remaining Partners to Retiring Partner
 
 

Question 14:  P, Q, R and S were partners in a firm sharing profits in the ratio of 5 : 3 : 1 : 1. On 1st January, 2017, S retired from the firm. On S's retirement the goodwill of the firm was valued at Rs 4,20,000. The new profit-sharing ratio between P, Q and R will be 4 : 3 : 3. Showing your  working notes clearly, pass necessary journal entry for the treatment of goodwill in the books of the firm on S's retirement. 

Answer 14:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-13

Points of Knowledge:

 

Old Ratio of P:Q:R:S = 5:3:1:1 
New Ratio of P:Q:R = 4:3:3 
Gaining Ratio = New Ratio – Old Ratio 
P’s Gain = 4/10 - 5/10 = (4-5)/10 = - 1/10 (Sacrifice) 
Q’s Gain = 3/10 - 3/10 = (3-3)/10 =  0/10  
R’s Gain = 3/10 - 1/10 = (3-1)/10 =  2/10 
S’s Sacrifice = 1/10 
Therefore Sacrificing Ratio of P:S = 1:1 
Goodwill treatment: Gaining partner to Sacrificing partner 
Goodwill of the firm = 4,20,000 
R’s Capital Account debited for goodwill = 4,20,000 × 2/10 = 84,000 
P’s Capital Account credited for goodwill = 4,20,000 × 1/10 = 42,000 
S’s Capital Account credited for goodwill = 4,20,000 × 1/10 = 42,000
 
 

Question 15:   Aparna, Manisha and Sonia are partners sharing profits in the ratio of 3 : 2 : 1 . Manisha retires and goodwill of the firm is valued at Rs 1,80,000. Aparna and Sonia decided to share future profits in the ratio of 3 : 2 . Pass necessary journal entries. 

Answer  15:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-14

Points of Knowledge:

Old Ratio of Aparna : Manisha : Sonia = 3:2:1
New Ratio of Aparna : Sonia = 3:2
Gaining Ratio = New Ratio – Old Ratio
Aparna’s Gain = 3/5 - 3/6 = (18-15)/30 = 3/30
Sonia’s Gain = 2/5 - 1/6 = (12-5)/30 = 7/30
Therefore Gaining Ratio of Aparna : Sonia = 3:7
Goodwill of the firm = 1,80,000
Aparna’s Capital Account debited for Goodwill = 1,80,000 × 3/30 = 18,000
Sonia’s Capital Account debited for Goodwill = 1,80,000 × 7/30 = 42,000
Manisha’s Capital Account credited for Goodwill = 1,80,000 × 2/6 = 60,000
Condition for goodwill treatment: Remaining Partners to Retiring Partner 

 

Question 16:  A, B and C are partners sharing profits in the ratio of 3 : 2 : 1 . B retired and the new profit-sharing ratio between A and C was 2 : 1 . On B's retirement, the goodwill of the firm was valued at Rs. 90,000. Pass necessary journal entry for the treatment of goodwill on B's retirement. 

Answer  16:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-15


Question 17:  Hanny, Pammy and Sunny are partners sharing profits in the ratio of 3 : 2 : 1 . Goodwill is appearing in the books at a value of Rs 60,000. Pammy retires and at the time of Pammy's retirement, goodwill is valued at Rs 84,000. Hanny and Sunny decided to share future profits in the ratio of 2 : 1 . Record the necessary journal entries.  

Answer  17:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-16

Points of Knowledge:

Old Ratio of Hanny : Pammy : Sunny = 3:2:1
New Ratio of Hanny:Sunny = 2:1
Gaining Ratio = New Ratio – Old Ratio
Hanny’s Gain = 2/3 - 3/6 = (4-3)/6 = 1/6
Sunny’s Gain = 1/3 - 1/6 = (2-1)/6 = 1/6
Therefore Gaining Ratio of Hanny:Sunny = 1:1
Goodwill of the firm revalued at Rs 84,000
Hanny’s Capital Account debited for Goodwill = 84,000 × 1/6 = 14,000
Sunny’s Capital Account debited for Goodwill = 84,000 × 1/6 = 14,000
Pammy’s Capital Account credited for Goodwill = 84,000 × 2/6 = 28,000
Condition for goodwill treatment: Sacrificing Partners to Gaining Partners


Question 18:  X, Y and Z are partners sharing profits in the ratio of 3 : 2 : 1 . Goodwill is appearing in the books at a value of Rs 60,000. Y retires and at the time of Y's retirement, goodwill is valued at Rs 84,000. X and Z decide to share future profits in the ratio of 2 : 1 .Pass the necessary journal entries through Goodwill Account . 

Answer 18:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-17

Points of Knowledge:

Old Ratio of X : Y : Z = 3 : 2 : 1
New Ratio of X : Z = 2 : 1
Gaining Ratio = New Ratio – Old Ratio
X’s Gain = New Share – Old Share = 2/3 - 3/6 = (4-3)/6 = 1/6
Z’s Gain = New Share – Old Share = 1/3 - 1/6 = (2-1)/6 = 1/6
Goodwill appearing in the books at 60,000
Goodwill is revalued at Rs 84,000
X’s Capital Account will be debited for Goodwill = 84,000 × 1/6 = 14,000
Z’s Capital Account will be debited for Goodwill = 84,000 × 1/6 = 14,000
Y’s Capital Account will be credited for goodwill = 84,000 × 2/6 = 28,000 


Question 19:  A, B and C are partners sharing profits in the ratio of 4/9 : 3/9 : 2/9. B retires and his capital after making adjustments for reserves and gain (profit) on revaluation stands at Rs 1,39,200. A and C agreed to pay him Rs 1,50,000 in full settlement of his claim. Record necessary journal entry for adjustment of goodwill if the new profit-sharing ratio is decided at 5 : 3. 

Answer  19:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-18

 

When One/Some (not all) of the Remaining Partner(s) Gain

 

Question 20:  M, N and O are partners in a firm sharing profits in the ratio of 3 : 2 : 1 . Goodwill has been valued at Rs 60,000. On N's retirement, M and O agree to share profits equally. Pass the necessary journal entry for treatment of N's share of goodwill. 

Answer 20:

 TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-19

Points of Knowledge:
 
Old Ratio of M : N : O = 3 : 2 : 1
New Ratio of M:O = 1:1
Gaining Ratio = New Ratio – Old Ratio
M’s Gain = New Share – Old Share = 1/2 - 3/6 = (3-3)/6 = 0/6
O’s Gain = New Share – Old Share = 1/2 - 1/6 = (3-1)/6 = 2/6
Goodwill is valued at Rs 60,000
M’s Capital Account will be debited for goodwill = 60,000 × 0/6 = 0
O’s Capital Account will be debited for goodwill = 60,000 × 2/6 = 20,000
N’s Capital Account will be credited for goodwill = 60,000 × 2/6 = 20,000 

 

Question 21:  A, B, C and D are partners in a firm sharing profits in the ratio of 2 : 1 : 2 : 1 . On the retirement of C, Goodwill was valued Rs 1,80,000. A, B and D decide to share future profits equally. Pass the necessary journal entry for the treatment of goodwill. 

Answer 21:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-20

Points of Knowledge:

Old Ratio of A:B:C:D = 2:1:2:1
New Ratio of A:B:D = 1:1:1
Gaining Ratio = New Ratio – Old Ratio
A’s Gain = New Share – Old Share = 1/3 - 2/6 = (2-2)/6 = 0/6
B’s Gain = New Share – Old Share = 1/3 - 1/6 = (2-1)/6 = 1/6
D’s Gain = New Share – Old Share = 1/3 - 1/6 = (2-1)/6 = 1/6
Goodwill is valued at Rs 1,80,000
A’s Capital Account will be debited for goodwill = 1,80,000 × 0/6 = 0
B’s Capital Account will be debited for goodwill = 1,80,000 × 1/6 = 30,000
D’s Capital Account will be debited for goodwill = 1,80,000 × 1/6 = 30,000
C’s Capital Account will be credited for goodwill = 1,80,000 × 2/6 = 60,000
When One/Some of the Remaining Partner(s) also Sacrifice
 

Question 22:  A, B and C were partners in a firm sharing profits in the ratio of 6 : 5 : 4 . Their capitals were A—Rs 1,00,000; B—Rs 80,000 and C—Rs 60,000 respectively. On 1st April, 2009, A retired from the firm and the new profit sharing ratio between B and C was decided as 1 : 4 . On A's retirement, the goodwill of the firm was valued at Rs 1,80,000. Showing your calculations clearly, pass the necessary journal entry for the treatment of goodwill on A's retirement. 

Answer 22:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-21

Points of Knowledge:
 
Old Ratio of A:B:C = 6:5:4 
New Ratio of B:C = 1:4
Gaining Ratio = New Ratio – Old Ratio
B’s Gain = New Share – Old Share = 1/5 - 5/15 = (3-5)/15 = - 2/15 (Sacrifice)
C’s Gain = New Share – Old Share = 4/5 - 4/15 = (12-4)/15 = 8/15 (Gain)
Goodwill is valued at Rs 1,80,000
B’s Capital Account will be credited for goodwill = 1,80,000 × 2/15 = 24,000
C’s Capital Account will be debited for goodwill = 1,80,000 × 8/15 = 96,000
A’s Capital Account will be credited for goodwill = 1,80,000 × 6/15 = 72,000
 
 

Revaluation Account


Question 23:  X, Y and Z are partners sharing profits and losses in the ratio of 5 : 3 : 2 . Z retires and on the date of his retirement, the following adjustments were agreed upon:

(a) The value of Furniture is to be increased by Rs 12,000.

(b) The value of stock to be decreased by Rs 10,000.

(c) Machinery of the book value of Rs 50,000 is to be depreciated by 10%.

(d) A Provision for Doubtful Debts @ 5% is to be created on debtors of book value of Rs 40,000.

(e) Unrecorded Investment worth Rs 10,000.

(f) An item of Rs 1,000 included in bills payable is not likely to be claimed, hence should be written back.

Pass necessary journal entries. 

Answer 23:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-22

 

Question 24:   A, B and C were partners, sharing profits and losses in the ratio of 2 : 2 : 1 . B decides to retire on 31st March, 2018. On the date of his retirement , some of the assets and liabilities appeared in the books as follows: Creditors Rs 70,000; Building Rs 1,00,000; Plant and Machinery Rs 40,000; Stock of Raw Material;s Rs 20,000; Stock of Finished Goods Rs 30,000 and Debtors  Rs 20,000.

The following was agreed among the partners on B's retirement:

(a) Building to be appreciated by 20%.

(b) Plant and Machinery to be depreciated by 10%.

(c) A Provision of 5% on Debtors to be created for Doubtful Debts.

(d) Stock of Raw Materials to be valued at Rs 18,000 and Finished Goods at Rs 35,000.

(e) An Old Computer previously written off was sold for Rs 2,000 as scrap.

(f) Firm had to pay Rs 5,000 to an injured employee.

Pass necessary journal entries to record the above adjustments and prepare the Revaluation Account. 

Answer 24:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-23

 

Question 25:  Ramesh wants to retire from the firm. The gain (profit) on revaluation on that date was Rs 12,000. Mohan and Rahul want to share this in their new profit-sharing ratio of 3 : 2 . Ramesh wants this to be shared equally. How is the profit to be shared? Give reasons. 

Answer 25:

Profit on Revaluation on the date of retirement will be shared among all the partners and in the absence of Partnership Deed it will be shared equally.

Ramesh’s share in revaluation profit = 12,000 × 1/3 = 4,000

Mohan’s share in revaluation profit = 12,000 × 1/3 = 4,000

Rahul’s share in revaluation profit = 12,000 × 1/3 = 4,000 

 

Treatment of Reserves and Accumulated Profit/Losses


Question 26:  X, Y and Z are partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1 . Z retires from the firm on 31st March, 2018. On the date of Z's retirement, the following balances appeared in the books of the firm:

   General Reserve Rs 1,80,000

   Profit and Loss Account (Dr.) Rs 30,000

   Workmen Compensation Reserve Rs 24,000 which was no more required

   Employees' Provident Fund Rs 20,000.

Pass necessary journal entries for the adjustment of these items on Z's retirement. 

Answer 26:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-24

 

Question 27:  Asha, Naveen and Shalini were partners in a firm sharing profits in the ratio of 5 : 3 : 2 . Goodwill appeared in their books at a value of Rs 80,000 and General Reserve at Rs 40,000. Naveen decided to retire from the firm. On the date of his retirement, goodwill of the firm was valued at Rs 1,20,000. The new profit ratio decided among Asha and Shalini is 2 : 3.

Record necessary journal entries on Naveen's retirement.  

Answer 27:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-25

Points of Knowledge:

Old Ratio of Asha : Naveen : Shalini = 5 : 3 : 2
New Ratio of Asha : Shalini = 2 : 3
Gaining Ratio = New Ratio – Old Ratio
Asha’s Gain = 2/3 - 5/10 = (4-5)/10 = -  1/10  (Sacrifice)
Shalini’s Gain = 3/5 - 2/10 = (6-2)/10 = 4/10 (Gain)
Naveen’s Share of goodwill = 1,20,000 × 3/10 = 36,000
Shalini will transfer for goodwill to Naveen and Asha = 1,20,000 × 4/10 = 48,000
Asha will get for goodwill from Shalini = 1,20,000 × 1/10 = 12,000
Condition for goodwill treatment: Gaining to Sacrificing 

 

Question 28:  Ram, Laxman and Bharat are partners sharing profits in the ratio of 3 : 2 ; 1 . Goodwill is appearing in the books at a value of Rs 1,80,000. Laxman retires and at the time of his retirement, goodwill is valued at Rs 2,52,000. Ram and Bharat decided to share future profits in the ratio of 2 : 1 . The Profit for the first year after Laxman's retirement amount to Rs 1,20,000. Give the necessary journal entries to record goodwill and to distribute the profit. Show your calculations clearly.  

Answer 28:

 TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-26

Points of Knowledge:

 

Old Ratio of Ram : Laxman : Bharat = 3:2:1 
New Ratio of Ram : Bharat = 2:1 
Gaining Ratio = New Ratio – Old Ratio 
Ram’s Gain = New Share – Old Share = 2/3 - 3/6 = (4-3)/6 = 1/6 
Ram’s Gain = New Share – Old Share = 1/3 - 1/6 = (2-1)/6 = 1/6 
Goodwill appearing in the books at Rs 1,80,000 
Goodwill is valued at Rs 2,52,000 
Ram’s Capital Account will be debited for goodwill = 2,52,000 × 1/6 = 42,000 
Bharat’s Capital Account will be debited for goodwill = 2,52,000 × 1/6 = 42,000 
Laxman’s Capital Account will be credited for goodwill = 2,52,000 × 2/6 = 84,000

 

Preparation of the Capital Account and Balance Sheet

 

Question 29:  The Partnership Deed of C and D, who are equal partners has a clause that any partner may retire from the firm on the following terms by giving a six-month notice in writing: 

The retiring partner shall be paid—— 

(a) the amount standing to the credit of his Capital Account and Current Account. 

(b) His share of profits to the date of retirement, calculated on the basis of the average profit of the three preceding completed years. 

(c) half the amount of the goodwill of the firm calculated at 112/112 times the average profit of the three preceding completed years. 

C gave a notice on 31st March, 2017 to retire on 30th September, 2017, when the balance of his Capital Account was Rs 6,000 and his Current Account (DR.) Rs 500. The profits for the three preceding completed years were; year ended 31st March, 2015 Rs 2,800; year ended 31st March, 2016 Rs 2,200 and year ended 31st March, 2017 Rs 1,600. What amount is due to C in accordance with the partnership agreement?   

Answer 29:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-28

 

Question 30:  X, Y and Z were partners in a firm sharing profits in the ratio of  2 : 2 : 1. Their Balance Sheet as at 31st March, 2018 was:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-29

Y retired on 1st April, 2018 on the following terms:
(a) Goodwill of the firm was valued at Rs 70,000 and was not to appear in the books.
(b) Bad Debts amounted to Rs 2,000 were to be written off.
(c) Patents were considered as valueless.

Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of X and Z after Y's retirement. 

Answer 30:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-30

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-31

Points of Knowledge:

Old Ratio of X : Y : Z = 2 : 2 : 1
New Ratio of X : Z = 2 : 1
Gaining Ratio = New Ratio – Old Ratio
X’s Gain = 2/3 - 2/5 = (10-6)/15 = 4/15
Z’s Gain = 1/3 - 1/5 = (5-3)/15 = 2/15
Therefore Gaining Ratio of X:Z = 4:2 = 2:1
Goodwill of the firm = 70,000
Y’s share of goodwill = 70,000 × 2/5 = 28,000
X will transfer for goodwill to Y = 28,000 × 2/3 = 18,667
Z will transfer for goodwill to Y = 28,000 × 1/3 = 9,333
Condition for goodwill treatment: Gaining to Sacrificing
 

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

 TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-32

Kanika retired on 1st April, 2016. For this purpose, the following adjustments were agreed upon:
(a) Goodwill of the firm was valued at 2 years' purchase of average profits of three completed years preceding the date of retirement. The profits for the year:
      2013-14 were Rs 1,00,000 and for  2014-15 were Rs  1,30,000.
(b) Fixed Assets were to be increased to Rs  3,00,000.
(c) Stock was to be valued at 120%.
(d) The amount payable to Kanika was transferred to her Loan Account .
Prepare Revaluation Account, Capital Accounts of the partners and the Balance Sheet of the reconstituted firm.  

Answer 31:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-33

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-34

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-35

 

Question 32:   The Balance Sheet of X, Y and Z who were sharing profits in proportion to their capitals stood as follows at 31st March, 2018:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-36

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

Answer 32:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-37

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-38

Points of Knowledge:


Old Ratio of X : Y : Z = 45,000: 30,000: 15,000 = 3:2:1

New Ratio of X : Z = 3 : 1

Gaining Ratio = New Ratio – Old Ratio

X’s Gain = 3/4 - 3/6 = (18-12)/24 = 6/24

Z’s Gain = 1/4 - 1/6 = (6-4)/24 = 2/24

Therefore Gaining Ratio of X:Z = 6:2 = 3:1

Goodwill of the firm = 21,600

Y’s share of Goodwill = 21,600 × 2/6 = 7,200

X will transfer for goodwill to Y = 7,200 × ¾ = 5,400

Z will transfer for goodwill to Y = 7,200 × ¼ = 1,800

Condition for goodwill treatment :Remaining to Retiring


TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-39

 

Question 33:  N, S and G were partners in a firm sharing profits and losses in the ratio of 2 : 3 : 5 . On 31st March,2016 their Balance Sheet was as under:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-40

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

Answer 33:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-41

Points of knowledge:

Old Ratio of N:S:G = 2:3:5
New Ratio of N:S = 2:3
Gaining Ratio = New Ratio – Old Ratio
N’s Gain = 2/5 - 2/10 = (4-2)/10 = 2/10
S’s Gain = 3/5 - 3/10 = (6-3)/10 = 3/10
Therefore, Gaining Ratio of N:S = 2:3
Goodwill of the firm = 90,000
G’s Capital Account will be credited for Goodwill = 90,000 × 5/10 = 45,000
N’s Capital Account will be debited for Goodwill = 90,000 × 2/10 = 18,000
S’s Capital Account will be debited for Goodwill = 90,000 × 3/10 = 27,000
Condition for goodwill treatment :Gaining Partners to Sacrificing Partner
 

Question 34:  A, B and C are partners in a firm, sharing profits and losses as A 1/3, B 1/2 and C 1/6 respectively. The Balance Sheet of the firm as at 31st March, 2018 was:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-42

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

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

Answer 34:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-43

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-44

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-46


Question 35:  X, Y and Z were in partnership sharing profits and losses in the proportions of 3 : 2 : 1 . On 1st April, 2018 Y retires from the firm. On that date, their Balance Sheet was:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-45

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

Answer 35:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-47

Points of Knowledge:
 
Old Ratio of X : Y : Z =  3 : 2 : 1
New Ratio of X : Z = 3 : 1
Gaining Ratio = New Ratio – Old Ratio 
X’s Gain = 3/4 - 3/6 = (18-12)/24 = 6/24
Z’s Gain = 1/4 - 1/6 = (6-4)/24 = 2/24
Therefore Gaining Ratio of X : Z = 6:2 = 3:1
Goodwill of the firm = 13,500
Y’s share of Goodwill = 13,500 × 2/6 = 4,500
X will transfer for goodwill to Y = 4,500 × ¾ = 3,375
Z will transfer for goodwill to Y = 4,500 × ¼ = 1,125
Condition for goodwill treatment : Gaining to Sacrificing Partner

 

Question 36:  Pankaj, Naresh and Saurabh are partners sharing profits in the ratio of 3 : 2 : 1. On 31st March, 2019, Naresh and on that date, Balance Sheet of the firm was as follows:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-48

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

Answer 36:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-49

Points of Knowledge:

Old Ratio of Pankaj : Naresh : Saurabh = 2 : 2 : 1
New Ratio of Pankaj : Saurabh = 5 : 1
Gaining Ratio = New Ratio – Old RATIO 
Pankaj’s Gain = 5/6 - 3/6 = (5-3)/6 = 2/6
Saurabh’s Gain = 1/6 - 1/6 = (1-1)/6 = 0/6
Therefore Gaining Ratio of Pankaj : Saurabh = 2 : 0
Goodwill of the firm = 42,000
Naresh’s Capital Account will be credited for his share of Goodwill 
= 42,000 × 2/6 = 14,000
Pankaj’s Capital Account will be debited for his share of Goodwill
= 42,000 × 2/6 = 14,000
Saurabh’s Capital Account will be debited for his share of Goodwill
= 42,000 × 0/6 = 0
Condition for goodwill treatment – Gaining to Sacrificing Partner


Question 37:  X, Y and Z are partners sharing profits in the ratio of 4 : 3 : 2 . Their Balance Sheet as at 31st March, 2019 stood as follows: 

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-50

Y retired on 1st April, 2019 after giving due notice. Following adjustments in the books of the firm were agreed upon:

(a) Land and Building be appreciated by 10%.

(b) Provision for Doubtful Debts is no longer necessary since all the debtors are considered good.

(c) Stock be appreciated by 20%.

(d) Adjustment be made in the accounts to rectify a mistake previously committed whereby Y was credited in excess by Rs 810, while X and Z were debited in excess of Rs 420 and Rs 390 respectively.

(e) Goodwill of the firm be fixed at Rs 5,400 and Y's share of the same be adjusted to that of X and Z who were going to share in the ratio of 2 : 1.

(f) It was decided by X and Y to settle Y's account immediately on his retirement. 

You are required to show:

(i)      Revaluation Account

(ii)     Partner's Capital Accounts and

(iii)    Balance Sheet of the firm after Y's retirement. 

Answer 37:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-51

Points of Knowledge:  


Note 1: Calculation of Gaining Ratio:

Old Ratio of X : Y : Z = 4:3:2

New Ratio of X : Z = 2:1

Gaining Ratio = New Ratio – Old Ratio

X’s Gain = 2/3 - 4/9 = (6-4)/9 = 2/9

Z’s Gain = 1/3 - 2/9 = (3-2)/9 = 1/9

Therefore Gaining Ratio of X : Z = 2:1

Note 2:

Goodwill of the firm = 5,400

Y’s share of Goodwill = 5,400 × 3/9 = 1,800

X will transfer for goodwill to Y = 1,800 × 2/3 = 1,200

Z will transfer for goodwill to Y = 1,800 × 1/3 = 600

Condition for goodwill treatment: Remaining Partner to Retiring partner

Note 3: 

The adjustment be made in the accounts to rectify a mistake previously committed whereby Y was credited in excess by 810, while X and Z were debited in excess of 420 and 390 respectively.

The journal entry to rectify the above mistake is:

Y’s Capital Account                    Dr.  810

      To X’s Capital Account                             420

      To Z’s Capital Account                             390 

 
 

Question 38:  A, B and C are partners sharing profits and losses in the ratio of 4 : 3 : 3 respectively. Their Balance Sheet as at 31st March, 2019 is: 

 TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-52

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

Answer 38:

 TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-53

Points of Knowledge:
 
Old Ratio of A : B : C = 4 : 3 : 3 
New Ratio of A:C = 4:3 
Gaining Ratio = New Ratio – Old Ratio 
A’s Gain = 4/7 - 4/10 = (40-28)/70 = 12/70 
C’s Gain = 3/7 - 3/10 = (30-21)/70 = 9/70 
Therefore, Gaining Ratio of A:C = 12:9 = 4:3 
Goodwill of the firm = 14,000 
B will be compensated for goodwill = 14,000 × 3/10 = 4,200 
A will transfer for goodwill to B = 4,200 × 4/7 = 2,400 
C will transfer for goodwill to B = 4,200 × 3/7 = 1,800 
Condition for goodwill treatment : Remaining partner to Retiring partner 

 

Question 39:  Following is the Balance Sheet of X, Y and Z   as at 31st March, 2019. They shared profits in the ratio of 3 : 3 : 2. 

 TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-54

On 1st April, 2019, Y decided to retire from the firm on the following terms: 

(a) Stock to be depreciated by Rs 12,000. 

(b) Advertisements Suspense Account to be written off.  

(c)  Provision for Doubtful Debts to be increased to Rs 6,000.  

(d) Fixed Assets be appreciated by 10%. 

(e) Goodwill of the firm, valued at Rs 80,000 and the amount due to the retiring partners to be adjusted in X's and Z's Capital Accounts. 

Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet to give effect to the above.  

Answer 39:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-55

Points of Knowledge:

Note 1: Calculation of Gaining Ratio
Old Ratio of X : Y : Z = 3:3:2
New Ratio of X : Z = 3:2
Gaining Ratio = New Ratio – Old Ratio
X’s Gain = 3/5 - 3/8 = (24-15)/40 = 9/40
Z’s Gain = 2/5 - 2/8 = (16-10)/40 = 6/40
Therefore Gaining Ratio of X:Z = 9:6 = 3:2
Note 2:  
Goodwill of the firm = 80,000
Y’s share of Goodwill = 80,000 × 3/8 = 30,000
X will transfer for goodwill to Y = 30,000 × 3/5 = 18,000
Z will transfer for goodwill to Y = 30,000 × 2/5 = 12,000
Condition for goodwill treatment: Remaining Partners to Retiring Partner
Here Gaining Partners to Sacrificing Partner
 
 

Question 40:  X, Y and Z are partners sharing profits and losses in the ratio of 3 : 2 : 1 . The Balance Sheet of the firm as at 31st March, 2018 stood as follows:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-56

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

Answer 40:

TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-57

 TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021-58 

Points of Knowledge:

Note 1: Calculation of Sacrificing Ratio
Old Ratio of X : Y : Z = 3 : 2 : 1
New Ratio of X : Y = 3 : 2
Gaining Ratio = New Ratio – Old Ratio
X’s Gain = 3/5 - 3/6 = (18-15)/30 = 3/30
Y’s Gain = 2/5 - 2/6 = (12-10)/30 = 2/30
Therefore Gaining Ratio of X : Y = 3 : 2
 
Note 2:
Goodwill of the firm = 34,800
Z’s share of goodwill = 34,800 × 1/6 = 5,800
X will transfer for goodwill to Z = 5,800 × 3/5 = 3,480
Y will transfer for goodwill to Z = 5,800 × 2/5 = 2,320
Condition for goodwill treatment: Remaining Partners to Retiring Partner
 
 
 
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TS Grewal Accountancy Class 12 Solutions Volume 1
TS Grewal Solution Class 12 Chapter 1 Accounting for Partnership Firms Fundamentals
TS Grewal Solution Class 12 Chapter 1 Financial Statement of Not for Profit Organisations 2020 2021
TS Grewal Solution Class 12 Chapter 2 Accounting for Partnership Firms Fundamentals (2019-2020)
TS Grewal Solution Class 12 Chapter 2 Accounting for Partnership Firms Fundamentals 2020 2021
TS Grewal Solution Class 12 Chapter 2 Goodwill Nature and Valuation 2018 2019
TS Grewal Solution Class 12 Chapter 2 Goodwill Nature and Valuation (2018 2019)
TS Grewal Solution Class 12 Chapter 3 Change in Profit Sharing Ratio 2018 2019
TS Grewal Solution Class 12 Chapter 3 Change in Profit Sharing Ratio (2018 2019)
TS Grewal Solution Class 12 Chapter 3 Goodwill Nature and Valuation (2019 2020)
TS Grewal Solution Class 12 Chapter 3 Goodwill Nature and Valuation 2020 2021
TS Grewal Solution Class 12 Chapter 4 Change in Profit Sharing Ratio Among the Existing Partners (2019-2020)
TS Grewal Solution Class 12 Chapter 4 Change in Profit Sharing Ratio Among the Existing Partners 2020 2021
TS Grewal Solution Class 12 Chapter 5 Admission of a Partner
TS Grewal Solution Class 12 Chapter 6 Retirement of a Partner 2020 2021
TS Grewal Solution Class 12 Chapter 6 Retirement Death of a Partner 2019 2020
TS Grewal Solution Class 12 Chapter 7 Death of a Partner 2020 2021
TS Grewal Solution Class 12 Chapter 8 Dissolution of a Partnership Firm 2020 2021
TS Grewal Accountancy Class 12 Solutions Volume 2
TS Grewal Solution Class 12 Chapter 8 Company Accounts Accounting for Share Capital 2020 2021
TS Grewal Solution Class 12 Chapter 9 Company Accounts Issue of Debentures 2020 2021
TS Grewal Solution Class 12 Chapter 10 Company Accounts Redemption of Debentures 2020 2021
TS Grewal's Analysis of Financial Statements
TS Grewal Solution Class 12 Chapter 1 Financial Statement of a Company 2020 2021
TS Grewal Solution Class 12 Chapter 2 Financial Statement Analysis 2020 2021
TS Grewal Solution Class 12 Chapter 3 Tools of Financial Statement Analysis 2020 2021
TS Grewal Solution Class 12 Chapter 4 Accounting Ratios 2020 2021
TS Grewal Solution Class 12 Chapter 5 Cash Flow Statement 2020 2021

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