12th | Ts grewal 2021-2022 Question 31 to 35 | Retirement of a partner

Page No 6.60:

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:

Liabilities		Amount ( `)	Assets	Amount ( `)
Trade creditors		53,000	Bank	60,000
Employees' Provident Fund		47,000	Debtors	60,000
Kanika's Capital		2,00,000	Stock	1,00,000
Disha's Capital		1,00,000	Fixed assets	2,40,000
Kabir's Capital		80,000	Profit and Loss A/c	20,000
		4,80,000		4,80,000

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  ` 1,00,000 and for 2014-15 were  ` 1,30,000.
(b) Fixed Assets were to be increased to  ` 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.  

(AI 2017 C)

 

Answer:

Revaluation Account
Dr.	Cr.
Particulars			Amount `	Particulars	Amount `
Revaluation Profit				Fixed Assets	60,000
Kanika’s Capital		40,000		Stock	20,000
Disha’s Capital		20,000
Kabir’s Capital		20,000	80,000
			80,000		80,000

 

Partners’ Capital Account
Dr.					Cr.
Particulars	Kanika	Disha	Kabir	Particulars		Kanika	Disha	Kabir
Profit & Loss A/c	10,000	5,000	5,000	Balance b/d		2,00,000	1,00,000	80,000
Kanika’s Capital A/c		35,000	35,000	Disha’s Capital A/c		35,000
Kanika’s Loan A/c	3,00,000			Kabir’s Capital A/c		35,000
Balance c/d		80,000	60,000	Revaluation		40,000	20,000	20,000
	3,10,000	1,20,000	1,00,000			3,10,000	1,20,000	1,00,000

 

Balance Sheet as on March 31, 2016
Liabilities		Amount ( `)	Assets	Amount ( `)
Employees’ Provident Fund		47,000	Bank	60,000
Trade Creditors		53,000	Sundry Debtors	60,000
Kanika’s Loan A/c		3,00,000	Stock	1,20,000
Capitals			Fixed Assets	3,00,000
Disha	80,000
Kabir	60,000	1,40,000
		5,40,000		5,40,000

Working Notes:
WN1: Calculation of Goodwill

Goodwill=Average Profits×Number of Years' Purchase

Average Profits=Total ProfitsNumber of Years=1,00,000+1,30,000−20,000/3=2,10,000/3=` 70,000

Goodwill=70,000×2=` 1,40,000

Kanika's share=1,40,000×2/4=70,000 (to be borne by gaining partners in gaining ratio)

Note: Since no information is given about the share of gain, it is assumed that the old partners are gaining in their old profit sharing ratio.

 

Page No 6.60:

Question 32:

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:

Liabilities		Amount ( `)	Assets		Amount ( `)
Creditors		1,65,000	Cash		1,20,000
General Reserve		90,000	Debtors	1,35,000
Capitals:			Less: Provision	15,000	1,20,000
N	2,25,000		Stock		1,50,000
S	3,75,000		Machinery		4,50,000
G	4,50,000	10,50,000	Patents		90,000
			Building		3,00,000
			Profit and Loss Account		75,000
		13,05,000			13,05,000

G retired on the above date and it was agreed that:
(a) Debtors of  ` 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  ` 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  ` 90,000.
Pass necessary Journal entries for the above transactions in the books of the firm on G's retirement.

(Foreign 2017)

 

Answer:

Journal
Date	Particulars		L.F.	Debit Amount ( `)	Credit Amount ( `)
	General Reserve A/c	Dr.		90,000
	To N’s Capital A/c				18,000
	To S’s Capital A/c				27,000
	To G’s Capital A/c				45,000
	(Balance in reserve distributed among all partners in old ratio)
	N’s Capital A/c	Dr.		15,000
	S’s Capital A/c	Dr.		22,500
	G’s Capital A/c	Dr.		37,500
	To Profit & Loss A/c				75,000
	(Debit balance P&L A/c written off among all partners in old ratio)
	N’s Capital A/c	Dr.		18,000
	S’s Capital A/c	Dr.		27,000
	To G’s Capital A/c				45,000
	(Goodwill adjusted in gaining ratio)
	Revaluation A/c	Dr.		1,65,000
	To Patent A/c				90,000
	To Stock A/c				7,500
	To Machinery  A/c				22,500
	To Building A/c				15,000
	To Creditors A/c				30,000
	(Decrease in assets and increase in liabilities debited to Revaluation A/c)
	Provision for Doubtful Debts A/c	Dr.		2,550
	To Revaluation A/c				2,550
	(Excess provision written back)
	N’s Capital A/c	Dr.		32,490
	S’s Capital A/c	Dr.		48,735
	G’s Capital A/c	Dr.		81,225
	To Revaluation A/c				1,62,450
	(Loss on revaluation debited to partners’ capital accounts in old ratio)
	G’s Capital A/c	Dr.		4,21,275
	To G’s Loan A/c				4,21,275
	(Amount due to G transferred to his loan A/c)

Working Notes:

WN1: Calculation of G’s Share of Goodwill

G's share=Firm's Goodwill×G's Profit Share

G's share=90,000×5/10=45,000 (to be borne by gaining partners in gaining ratio)

WN2: Calculation of Gaining Ratio
Gaining Ratio = New Ratio − Old Ratio
N's gain=2/5−2/10=2/10

S's gain=3/5−3/10=3/10Gaining Ratio=2:3

N's share=45,000×2/5=18,000

S's share=45,000×3/5=27,000

WN2: Calculation of Excess/Deficit Provision for Doubtful Debts

Required Provision @5%=1,35,000−6,000×5100=6,450

Existing Provision after writing bad-debts= 9,000

Excess Provision to be written back=2,550 9,000−6,450

WN3: Calculation of G’s Loan Balance
Amount due to G = Opening Capital + Credits – Debits

= 4,50,000 + (45,000 + 45,000) – (37,500 + 81,225)
= ` 4,21,275

 

Page No 6.61:

Question 33: Ashok, Bhaskar and Chaman are partners in a firm, sharing profits and losses as Ashok 1/3, Bhaskar 1/2, and Chaman 1/6 respectively. The Balance Sheet of the firm as at 31^st March, 2021 was

Liabilities		`	Assets		`
Capital A/cs:			Building		5,00,000
Ashok	3,00,000		Plant and Machinery		4,00,000
Bhaskar	4,00,000		Furniture		1,00,000
Chaman	2,50,000	9,50,000	Stock		2,50,000
General Reserve		2,20,000	Debtors	1,80,000
Sundry Creditors		2,50,000	Less: Provision for Doubtful Debts	5,000	1,75,000
Loan Payable		1,50,000	Cash in Hand		85,000
			Advertisement Suspense Account		60,000
		15,70,000			15,70,000

Chaman retired on 1st April, 2021 subject to the following adjustments:

(a) Goodwill of the firm be valued at `2,40,000. Chaman's share of goodwill be adjusted into the Capital Accounts of Ashok and Bhaskar who will share future profits in the ratio of 3:2.

(6) Plant and Machinery to be reduced by 10% and Furniture by 5%.

(c) Stock to be increased by 15% and Building by 10%.

(d) Provision for Doubtful Debts to be raised to `20,000.

Prepare Revaluation Account, Capital Account of Chaman and the Balance Sheet of the firm after Chaman's retirement.

 

Answer:

Profit and loss adjustment a/c
Dr.			Cr.
Particulars	`	Particulars	`
To  Plan and machinery To Furniture To Prov. for doubtful debts To capital a/c (profit transferred to) Ashok =27,500×2/6= 9,167 Bhaskar=27,500×3/6=13,750 Chaman =27,500×1/6=4,583	40,000 5,000 15,000         27,500	By stock By factory building	37,500 50,000
	87,500		87,500

1

Partners’ Capital Account
Dr.					Cr.
Particulars	Ashok	Bhaskar	Chaman	Particulars		Ashok	Bhaskar	Chaman
B’s Capital A/c	24,000			Balance b/d		3,00,000	4,00,000	2,50,000
C’s Capital A/c	40,000			A’s Capital A/c			24,000	40,000
Advertisement sus. a/c C’s loan a/c	20,000	30,000	10,000   3,21,250	Profit and loss adjustment a/c General reserve a/c		9,167   73,333	13,750   1,10,000	4,583   36,667
Balance c/d	2,98,500	5,17,750
	3,82,500	5,47,750	3,31,250			3,82,500	5,47,750	3,31,250

 

	Balance Sheet
	as on April 01, 2021 (after C’s Retirement)
	Liabilities			Amount ( `)	Assets				Amount ( `)
	Sundry Creditors			2,50,000	Factory building				5,50,000
	Loan Payable			1,50,000	Plant and machinery				3,60,000
	C’s Loan			3,21,250	Furniture				95,000
					Stock				2,87,500
	Capital A/c				Debtors     1,80,000
	Ashok		2,98,500		Less; prov.           20,000				1,60,000
	Bhaskar		5,17,750	3,54,000	Cash				85,000
				15,37,500					15,37,500
Journal
Date		Particulars					L.F.	Debit Amount ( `)		Credit Amount ( `)
		Ashok’s Capital A/c				Dr.		64,000
		To Bhaskar’s Capital A/c								24,000
		To Chaman’s Capital A/c								40,000
		(Being goodwill adjusted for compensating bhaskar, Chaman)
		Profit and loss adjustment a/c				Dr.		60,000
		To Plant and machinery A/c								40,000
		To  Furniture A/c								5,000
		To Prov. for doubtful debts  A/c								15,000
		(Decrease in assets and increase in liabilities debited to Revaluation A/c)
		N’s Capital A/c				Dr.		18,000
		S’s Capital A/c				Dr.		27,000
		To G’s Capital A/c								45,000
		(Goodwill adjusted in gaining ratio)
		Stock A/c				Dr.		37,500
		Factory building  A/c				Dr.		50,000
		To P&L adjustment  A/c								87,500
		(Decrease in assets debited to Revaluation A/c)

 

Working notes;

Old ratio of Ashok : Bhaskar : chaman=1/3:1/2:1/6

=1/3×2/2:1/2×3/3=1/6

=2/6:3/6:1/6

=2:3:1

New ratio of Ashok and Bhaskar= 3:2

Gaining ratio= New ratio – old ratio

Ashok = 3/5-2/6=18-10/30=8/30

Bhaskar= 2/5-3/6=12-15/30= -3/30

Goodwill of firm= 2,40,000

Bhaskar will get =2,40,000×3/30=24,000

Chaman’s share of goodwill = 2,40,000×1/6=40,000

Ashok will give Bhaskar and  chaman 24,000, 40,000 respectively.

 

Page No 6.62:

Question 34: Chintan, Ayush and Sudha were partners in a firm sharing profits and losses in the ratio of 5: 3:2. On 31st March, 2019, their Balance Sheet was as follows:

BALANCE SHEET OF CHINTAN, AYUSH AND SUDHA as at 31st March, 2019
Liabilities		`	Assets		`
Capitals:			Plant and Machinery		90,000
Chintan	90,000		Furniture		60,000
Ayush	60,000		Stock		30,000
Sudha	40,000	1,90,000	Debtors	60,000
Provident Fund		30,000	Less: Provision for Doubtful Debts	5,000	55,000
General Reserve		20,000	Cash at Bank		15,000
Creditors		10,000
		2,50,000			2,50,000

Chintan retired on the above date and it was agreed that:

(a) Debtors of `5,000 were to be written off as bad debts and a provision of 5% on debtors for bad and doubtful debts was to be created.

(b) Goodwill of the firm on Chintan's retirement was valued at `1,00,000 and Chintan's share of the same will be adjusted by debiting the Capital Accounts of Ayush and Sudha.

(c) Stock was revalued at `36,000.

(d) Furniture was undervalued by `9,000.

(e) Liability for Workmen's Compensation of `2,000 was to be created.

(f) Chintan was to be paid `20,000 by cheque and the balance was to be transferred to his loan account.

Pass the necessary Journal entries in the books of the firm on Chintan's retirement.

(CBSE 2020)

Answer:

Date	Particulars		L.F.	Dr. (`)	Cr. (`)
	Stock A/c Furniture A/c Provision A/c   To Revolution  A/c (Being Decrease in the Value of Liabilities and increase in the value of Assets)	Dr. Dr. Dr.		6,000 9,000 2,250	17,250
	Revaluation A/c   To Bad debts A/c   To Liabilities for Worker compensation A/c (Being Decrease in the Value of Assets and increase in the value of Liabilities)	Dr.		7,000	5,000 2,000
	Revaluation A/c   To Chintan’s Capital A/c   To Ayush’s Capital A/c   To Sudha’s Capital A/c (being gain of revaluation Account transferred to Capital accounts)	Dr.		10,250	5,125 3,075 2,050
	General Reserve A/c   To Chintan’s Capital A/c   To Ayush’s Capital A/c   To Sudha’s Capital A/c (being gain of General Reserves transferred to Capital accounts)	Dr.		20,000	10,000 6,000 4,000
	Ayush’s Capital A/c Sudha’s Capital A/c   To Chintan’s Capital A/c (Being Retiring Partner compensated)	Dr. Dr.		30,000 20,000	50,000
	Chintan’s Capital A/c   To Bank A/c (Being Chintan was paid `20,000 through cheque)	Dr.		20,000	20,000
	Chintan’s Capital A/c   To  Chintan’s  Loan A/c (Being balance of Capital transferred to His loan Account)	Dr.		1,35,125	1,35,125

 

Page No 6.62:

Question 35:

Pankaj, Naresh and Saurabh are partners sharing profits in the ratio of 3 : 2 : 1. On 1st April, 2021, Naresh retired on that date, Balance Sheet of the firm was as follows:
 

Liabilities		Amount ( `)	Assets		Amount ( `)
General Reserve		12,000	Bank		7,600
Sundry Creditors		15,000	Debtors	6,000
Bills Payable		12,000	Less: Provision for Doubtful Debts	400	5,600
Outstanding Salary		2,200	Stock		9,000
Provision for Legal Damages		6,000	Furniture		41,000
Capital A/cs:			Premises		80,000
Pankaj	46,000
Naresh	30,000
Saurabh	20,000	96,000
		1,43,200			1,43,200

 
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  ` 1,200 and furniture to be brought up to  ` 45,000. 
(b) Goodwill of the firm be valued at  ` 42,000.
(c)  ` 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:

Revaluation Account
Dr.	Cr.
Particulars			Amount ( `)	Particulars	Amount ( `)
Stock			900	Premises	16,000
Provision for Legal Damages			1,200	Provision for Doubtful Debts	100
Revaluation Profit				Furniture	4,000
Pankaj’s Capital A/c		9,000
Naresh’s Capital A/c		6,000
Saurabh’s Capital A/c		3,000	18,000
			20,100		20,100

 

Partners’ Capital Accounts
Dr.					Cr.
Particulars	Pankaj	Naresh	Saurabh	Particulars		Pankaj	Naresh	Saurabh
Naresh’s Capital A/c	14,000			Balance b/d		46,000	30,000	20,000
Naresh’s Loan A/c		26,000		General Reserve		6,000	4,000	2,000
Bank		28,000		Revaluation (Profit)		9,000	6,000	3,000
Balance c/d	47,000		25,000	Pankaj’s Capital A/c			14,000
	61,000	54,000	25,000			61,000	54,000	25,000

 

Bank Account
Dr.				Cr.
Particulars	Amount ( `)	Particulars	Amount ( `)
Balance b/d	7,600	Naresh’s Capital A/c	28,000
Bank Loan (Balancing Figure)	20,400
	28,000		28,000

 

Balance Sheet as on March 31, 2021
Liabilities		Amount ( `)	Assets		Amount ( `)
Sundry Creditors		15,000	Debtors	6,000
Bills Payable		12,000	Less: Provision for Doubtful Debts	300	5,700
Bank Loan		20,400	Stock		8,100
Outstanding Salaries		2,200	Furniture		45,000
Provision for Legal Damages		7,200	Premises		96,000
Naresh’s Loan		26,000
Capitals:
Pankaj	47,000
Saurabh	25,000	72,000
		1,54,800			1,54,800

 

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

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