12th | Ts grewal 2021-2022 Question 26 to 30 | Retirement of a partner

Page No 6.58:

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, 2021. On the date of Z's retirement, the following balances appeared in the books of the firm:
   General Reserve
 ` 1,80,000
   Profit and Loss Account (Dr.) 
` 30,000
   Workmen Compensation Reserve 
` 24,000 which was no more required
   Employees' Provident Fund 
` 20,000.
 Pass necessary Journal entries for the adjustment of these items on Z's retirement.

 

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

( `)

Credit

Amount

( `)

2021
Mar.31

 

General Reserve A/c


Dr.

 


1,80,000

 

 

Workmen Compensation Reserve A/c

Dr.

 

24,000

 

 

  To X’s Capital A/c

 

 

 

1,02,000

 

  To Y’s Capital A/c

 

 

 

68,000

 

  To Z’s Capital A/c

 

 

 

34,000

 

((Being Accumulated profits distributed among partners in old ratio)

 

 

 

 

 

 

 

 

 

 

 

X’s Capital A/c

Dr.

 

15,000

 

 

Y’s Capital A/c

Dr.

 

10,000

 

 

Z’s Capital A/c

Dr.

 

5,000

 

 

  To Profit and Loss A/c

 

 

 

30,000

 

((Being Debit balance in Profit and Loss A/c distributed among partners in old ratio)

 

 

 

 

 

 

 

 

 

 

Working Notes:

WN1: Calculation of Share in Credit Balance of Reserves

Total Credit Balance of Reserves

= General Reserve + WCF

= 1,80,000 + 24,000 = 2,04,000

X‘s share= 2,04,000××3/6 =1,02,000

Y‘s share= 2,04,000××2/6 =68,000

Z‘s share= 2,04,000××1/6 =34,000                       

 

WN2: Calculation of Share in Debit Balance of Profit and Loss A/c

X‘s share= 30,000××3/6 =15,000

Y‘s share= 30,000××2/6 =10,000

Z‘s share= 30,000××1/6 =5,000         

 

Note: Employees’ Provident Fund will not be distributed as it is a liability and not accumulated profit.

 



Page No 6.59:

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  ` 80,000 and General Reserve at  ` 40,000. Naveen decided to retire from the firm. On the date of his retirement, goodwill of the firm was valued at  ` 1,20,000. The new profit-sharing ratio decided among Asha and Shalini is 2 : 3.
Record necessary Journal entries on Naveen's retirement.

 

Answer:

Journal

Date

Particulars

L.F.

Debit
Amount
(
`)

Credit

Amount

(`)

 

 Asha’s Capital A/c

Dr.

 

40,000

 

 

 Naveen’s Capital A/c

Dr.

 

24,000

 

 

 Shalini’s Capital A/c

Dr.

 

16,000

 

 

            To Goodwill A/c

 

 

 

80,000

 

 (Being Existing goodwill written off amongst existing partners in old ratio)

 

 

 

 

 

 

 

 

 

 

 

 General Reserves A/c

Dr.

 

40,000

 

 

            To Asha’s Capital A/c

 

 

 

20,000

 

            To Naveen’s Capital A/c

 

 

 

12,000

 

            To Shalini’s Capital A/c

 

 

 

8,000

 

 (Being General Reserves distributed  among all partners in old ratio)

 

 

 

 

 

 

 

 

 

 

 

 Shalini’s Capital A/c

Dr.

 

 48,000

 

 

            To Asha’s Capital A/c

 

 

 

 12,000

 

            To Naveen’s Capital A/c

 

 

 

 36,000

 

 (Being Goodwill adjusted by debiting gaining partner and crediting sacrificing partner and retiring partner)

 

 

 

 

 

 

 

 

 



Calculation of Gaining Ratio:

Gain of a Partner=New Share - Old Shares

Asha's Gain (Sacrifice): 2/5-5/10=4-5/10=(-)1/10

Shalini's Gain (Sacrifice): 3/5-2/10=6-2/10=4/10

Therefore, Both Asha and Naveen would be compensated by Shalini in the ratio of 1:3

Asha's Sacrifice for 1/10th Share=1,20,000×1/10=12,000

Naveen's Sacrifice for 3/10th Share= 1,20,000×3/10=36,000

 



Page No 6.59:

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  ` 1,80,000. Laxman retires and at the time of his retirement, goodwill is valued at  ` 2,52,000. Ram and Bharat decided to share future profits in the ratio of 2 : 1. The Profit for the first year after Laxman's retirement amount to  ` 1,20,000. Give the necessary Journal entries to record goodwill  and to distribute the profit. Show your calculations clearly. 

 

Answer:

Journal

Date

Particulars

L.F.

Debit

Amount

(`)

Credit

Amount

(`)

 

 

 

 

 

 

 

Ram’s Capital A/c

Dr.

 

90,000

 

 

Laxman’s Capital A/c

Dr.

 

60,000

 

 

Bharat’s Capital A/c

Dr.

 

30,000

 

 

     To Goodwill A/c

 

 

 

1,80,000

 

((Being Goodwill written off)

 

 

 

 

 

 

Dr.

 

42,000

 

 

Ram’s Capital A/c

Dr.

 

42,000

 

 

Bharat’s Capital A/c

 

 

 

84,000

 

     To Laxman’s Capital A/c

 

 

 

 

 

((Being Adjustment of Laxman’s share of goodwill)

 

 

 

 

 

 

 

 

 

 

 

Profit & Loss Appropriation A/c

Dr.

 

1,20,000

 

 

           To Ram’s Capital A/c

 

 

 

80,000

 

           To Bharat’s Capital A/c

 

 

 

40,000

 

((Being Profit on revaluation transferred to Partners’ Capital A/c)

 

 

 

 

Working Notes:

WN1:Calculation of Gaining Ratio

Ram :Laxman :Bharat=3:2:1(Old ratio)

Ram :Bharat = 2:1(New ratio)

Gaining Ratio = New Ratio - Old Ratio

Ram's Gain =2/3−3/6=4−3/6=1/6

Bharat's Gain =1/3−1/6=2−1/6=1/6

Ram:Bharat=1:1

WN2: Calculation of Retiring Partner’s Share of Goodwill

Laxman's share of goodwill=2,52,000×2/6=` 84,000

Laxman's share of goodwill will be brought by Ram and Bharat in their gaining ratio1:1

Therefore, Ram's Capital A/c will be debited with 84,000×1/2=` 42,000

And, Bharat's Capital A/c will be debited with 84,000×1/2=` 42,000

Note: The entry for distributing profit as given in the book is wrong. The profit will be distributed between Ram & Bharat and not Ram and Laxman (since Laxman has retired)

 



Page No 6.59:

Question 29:

Partnership Deed of C and D, who are equal partners, has a clause that any partner may retire from the firm on the following terms by giving a six-month notice in writing:
The retiring partner shall be paid−
(a) the amount standing to the credit of his Capital Account and Current Account.
(b) his share of profit to the date of retirement, calculated on the basis of the average profit of the three preceding completed years.
(c) half the amount of the goodwill of the firm calculated at 11/2 times the average profit of the three preceding completed years.
gave a notice on 31st March, 2020 to retire on 30th September, 2020, when the balance of his Capital Account was 
` 6,000 and his Current Account (Dr.)  ` 500. Profits for the three preceding completed years ended 31st March, were: 2018   ` 2,800; 2019 −  ` 2,200 and 2020 −  ` 1,600. What amount is due to as per the partnership agreement? 

 

Answer:

C’s Capital Account

Dr.

 

Cr.

Particulars

Amount

`

Particulars

Amount

`

C’s Loan A/c

7,700

Balance b/d

6,000

 

 

C’s Current A/c

1,700

 

7,700

 

7,700

 

 

 

 

 

C’s Current Account

Dr.

 

Cr.

Particulars

Amount

`

Particulars

Amount

`

Balance b/d

500

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

550

C’s Capital A/c (balancing figure)

1,700

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

1,650

 

2,200

 

2,200

 

 

 

 


Working Notes:

WN 1 Calculation of Profit (from April 01, 2020 to Sept. 30, 2020)

Average profit = total profit of past given years/number of years

Average profit =2,800+2,200+1,600/3=2,200

C’s  share of profit (for last 6 month)=Average profit×C’s share×6/12

=2,200×1/2×6/12=550

 

WN 2 Calculation of Goodwill 

Goodwill = Average Profit × 1.5
= 2,200 × 1.5 =
` 3,300
C’s Share of Goodwill =3,300×1/2=1650

 



Page No 6.59:

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, 2021 was:

 

 

Liabilities

Amount
(
`)

Assets

Amount
 ( `)

Creditors

49,000

Cash

8,000

Reserve

18,500

Debtors                   

19,000

Capital A/cs:   X

82,000

 

Stock

42,000

Y

60,000

 

Building

2,07,000

Z

75,500

2,17,500

Patents

9,000

 

2,85,000

 

2,85,000

 

 

 

 

 

    
Y retired on 1st April, 2021 on the following terms:
(a) Goodwill of the firm was valued at 
` 70,000 and was not to appear in the books.
(b) Bad Debts amounted to 
` 2,000 were to be written off.
(c) Patents were considered as valueless.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of X and Z after Y's retirement.

 

Answer:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

( `)

Particulars

Amount

( `)

Bad Debts

2,000

Loss transferred to:

 

Patents

9,000

X’s Capital A/c

4,400

 

 

 

Y’s Capital A/c

4,400

 

 

 

Z’s Capital A/c

2,200

11,000

 

11,000

 

11,000

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

X

Y

Z

Particulars

X

Y

Z

Revaluation A/c (Loss)

4,400

4,400

2,200

Balance b/d

82,000

60,000

75,500

Y’s Capital A/c (Goodwill)

18,667

9,333

Reserve

(Old Ratio)

7,400

7,400

3,700

Y’s Loan A/c

91,000

X’s Capital A/c  (Goodwill)

18,667

Balance c/d

66,333

67,667

Z’s Capital A/c

(Goodwill)

9,333

 

89,400

95,400

79,200

 

89,400

95,400

79,200

 

 

 

 

 

 

 

 

 

Balance Sheet

as on March 31, 2021 (after Y’s Retirement)

Liabilities

Amount

( `)

Assets

Amount

( `)

Creditors

49,000

Cash

8,000

Y’s Loan

91,000

Debtors (19000-2000)

17,000

Capital A/cs:

 

Stock

42,000

X

66,333

 

Building

2,07,000

Z

67,667

1,34,000

 

 

 

2,74,000

 

2,74,000

 

 

 

 

 

Working Notes:

 

WN 1 Calculation of Gaining Ratio

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

Y retires from the firm.

Gaining Ratio = 2 : 1

 

WN 2 Adjustment of Goodwill

Goodwill of the firm = ` 70,000

Y’s Share of Goodwill = 70,000×2/5=28,000

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

X‘s share= 28,000×2/3=18,667

Z‘s share= 28,000×1/3=9,333

 

Journal

Date

Particulars

L.F.

Debit

Amount

( `)

Credit

Amount

( `)

2021
April 1


X’s Capital A/c


Dr.

 


18,667

 

 

Z’s Capital A/c

Dr.

 

9,333

 

 

To Y’s Capital A/c

 

 

28,000

 

(Adjustment of goodwill made on Y’s retirement)