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

#### 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.

#### 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

#### 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)

#### 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

#### 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)

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## Chapter-6: Retirement of a partner| 2021-2022

#### From Question 1 to 5From Question 6 to 10From Question 11 to 15From Question 16 to 20From Question 21 to 25From Question 26 to 30From Question 31 to 35From Question 36 to 40From Question 41 to 45From Question 46 to 50From Question 51 to 53From Question 54 to 56

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