12th | Ts grewal 2021-2022 Question 36 to 40 | Retirement of a partner

Page No 6.63:

Question 36:

X, Y and Z are partners sharing profits in the ratio of 4 : 3 : 2. Their Balance Sheet as at 31st March, 2021 stood as follows:
 

Liabilities

Amount

( `)

Assets

Amount

( `)

Creditors

24,140

Cash at Bank

3,300

Capital A/cs:

 

Sundry Debtors

3,045

 

 X

12,000

 

Less: Provision for Doubtful Debts

105

2,940

 Y

9,000

 

Stock

4,800

 Z

6,000

27,000

Plant and Machinery

5,100

 

 

 

Land and Building

15,000

 

 

 

Y's Loan

20,000

 

51,140

 

51,140

 

 

 

 

 
Y retired on 1st April, 2021 after giving due notice. Following adjustments in the books of the firm were agreed:
(a) Land and Building be appreciated by 10%.
(b) Provision for Doubtful Debts is no longer necessary since all the debtors are 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  ` 810, while X and Z were debited in excess of  ` 420 and  ` 390 respectively.
(e) Goodwill of the firm be valued at  ` 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 decide by X and Y to settle Y's account immediately on his retirement.
Prepare: (i) Revaluation Account; (ii) Partner's Capital Accounts and (iii) Balance Sheet of the firm after Y's retirement.

 

Answer:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

( `)

Particulars

Amount

( `)

Profit transferred to :

 

Land and Building

(15,000 × 10%)

1,500

X’s Capital A/c

1,140

 

Provision for Doubtful Debts

105

Y’s Capital A/c

855

 

Stock

(4,800 × 20%)

960

Z’s Capital A/c

570

2,565

 

 

 

2,565

 

2,565

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

X

Y

Z

Particulars

X

Y

Z

Y’s Capital A/c

1,200

 

600

Balance b/d

12,000

9,000

6,000

X’s Capital A/c (Rectification)

 

420

 

Revaluation A/c (Profit)

1,140

855

570

Z’s Capital A/c (Rectification)

 

390

 

X’s Capital A/c (Goodwill)

 

1,200

 

Y’s Loan A/c

 

10,845

 

Z’s Capital A/c (Goodwill)

 

600

 

Balanced c/d

12,360

 

6,360

Y’s Capital A/c (Rectification)

420

 

390

 

13,560

11,655

6,960

 

13,560

11,655

6,960

 

 

 

 

 

 

 

 

 

Balance Sheet

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

Liabilities

Amount

( `)

Assets

Amount

( `)

Creditors

24,140

Cash at Bank

3,300

 

 

Sundry debtors

3,045

 

 

Stock (4,800 + 960)

5,760

Capital A/cs:

 

Plant and Machinery

5,100

X

12,360

 

Land and Building

 

Z

6,360

18,720
 

 (15,000 + 1,500)
Y's Loan 
(W. N. 2)

16,500
9,155

 

42,860

 

42,860

 

 

 

 


Working Note:

1.Adjustment of Goodwill

Old Ratio (X, Y and Z) = 4 : 3 : 2

Y retires from the firm.

∴ Gaining Ratio = 4 : 2 or 2 : 1

Goodwill of the firm = ` 5,400

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

This share of goodwill is to be distributed between X and Z in their gaining ratio (i.e. 2 : 1).
X‘s share= 1,800×2/3=1,200

Z‘s share= 1,800×1/3=600


2. Computation of final settlement amount payable to/ receivable from Y after his retirement:

  Existing Loan against Y = 20,000
  Less: Amount payable   =  10,845
                                               9,155
Amount receivable from Y by the firm = `.9,155
                                             



Page No 6.63:

Question 37:

A, B and C are partners sharing profits and losses in the ratio of 4 : 3 : 3. Their Balance Sheet as at 31st March, 2021 is:

Liabilities

Amount

( `)

Assets

Amount

( `)

Creditors

7,000

Land and Building

36,000

Bills Payable

3,000

Plant and Machinery

28,000

Reserves

20,000

Computer Printer

8,000

Capital A/cs:

 

Stock

20,000

A

32,000

 

Sundry Debtors

14,000

 

B

24,000

 

Less: Provision for Doubtful Debts

2,000

12,000

C

20,000

76,000

Bank

2,000

 

 

 

 

 

 

1,06,000

 

1,06,000

 

 

 

 


On 1st April, 2021, B retired from the firm on the following terms:
(a) Goodwill of the firm is to be valued at  ` 14,000.
(b) Stock, Land and Building are to be appreciated by 10%.
(c) Plant and Machinery and Computer Printer are to be reduced by 10%.
(d) Sundry Debtors are considered to be good.
(e) There is a liability of  ` 2,000 for the payment of outstanding salary to the employees of the firm. This liability was not provided in the 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:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

( `)

Particulars

Amount

( `)

Plant and Machinery
(28,000 × 10%)

2,800

Stock
(20,000 × 10%)

2,000

Electronic Typewriter
(8,000 × 10%)

800

Land and Building
(36,000 × 10%)

3,600

Outstanding Salary

2,000

Provision for Doubtful Debts

2,000

Profit transferred to:

 

 

 

A’s Capital A/c

800

 

 

 

B’s Capital A/c

600

 

 

 

C’s Capital A/c

600

2,000

 

 

 

 

 

 

 

7,600

 

7,600

 

 

 

 

 

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

A

B

C

Particulars

A

B

C

B’s Capital A/c

2,400

 

1,800

Balance b/d

32,000

24,000

20,000

B’s Loan A/c

 

34,800

 

Reserves

8,000

6,000

6,000

Balance c/d

38,400

 

24,800

Revaluation A/c

800

600

600

 

 

 

 

A’s Capital A/c

 

2,400

 

C’s Capital A/c

 

1,800

 

 

40,800

34,800

26,600

 

40,800

34,800

26,600

 

 

 

 

 

 

 

 

 

Balance Sheet

an on April 01, 2021 (after B’s Retirement)

Liabilities

Amount

( `)

Assets

Amount

( `)

Creditors

7,000

Land and Building

(36,000 + 3,600)

39,600

Bills Payable

3,000

Plant and Machinery

(28,000 – 2,800)

25,200

B’s Loan

34,800

Electronic Typewriter

8000 – 800)

7,200

Capital A/c:

 

Stock (20,000 + 2,000)

22,000

A

38,400

Sundry Debtors

14,000

C

24,800

Bank

2000

Outstanding Salary

2,000

 

 

 

1,10,000

 

1,10,000

 

 

 

 


Working Note:

Adjustment of Goodwill

Old Ratio (A, B and C) = 4 : 3 : 3

B retires from the firm.

∴ Gaining Ratio = 4 : 3

Goodwill of the firm = ` 14,000

B’s Share of Goodwill = 14,000×3/10=42,000

This share of goodwill is to be distributed between A and C in their gaining ratio (i.e. 4 : 3).

A‘s share= 4,200×4/7=2,400

C‘s share= 4,200×3/7=1,800

 



Page No 6.64:

Question 38:

Following is the Balance Sheet of X, Y and Z as at 31st March, 2021. They shared profits in the ratio of 3 : 3 : 2:
 

Liabilities

Amount

( `)

Assets

Amount

( `)

Sundry Creditors

2,50,000

Cash at Bank

50,000

General Reserve

80,000

Bills Receivable

60,000

Partners' Loan A/cs:

 

Debtors

80,000

 

X

50,000

Less: Provision for Doubtful Debts

4,000

76,000

Y

40,000

Stock

 

1,24,000

Capital A/cs:

 

Fixed Assets

 

3,00,000

X

1,00,000

 

Advertisement Suspense A/c

16,000

Y

60,000

 

Profit and Loss A/c

4,000

Z

50,000

2,10,000

 

 

 

 

 

 

 

 

6,30,000

 

6,30,000

 

 

 

 

 
 On 1st April, 2021, Y decided to retire from the firm on the following terms:
(a) Stock to be reduced by  ` 12,000.
(b) Advertisement Suspense Account to be written off. 
(c) Provision for Doubtful Debts to be increased to  ` 6,000.
(d) Fixed Assets be appreciated by 10%.
(e) Goodwill of the firm, valued at  ` 80,000 and the amount due to the retiring partners 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:

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

( `)

Particulars

Amount

( `)

Stock

12,000

Fixed Assets (3,00,000 × 10%)

30,000

Provision for Doubtful Debts (6,000 – 4,000)

2,000

 

 

Profit transferred to:

 

 

 

X’s Capital A/c

6,000

 

 

 

Y’s Capital A/c

6,000

 

 

 

Z’s Capital A/c

4,000

16,000

 

 

 

30,000

 

30,000

 

 

 

 

 

Partners’ Capital Account

Dr.

 

Cr.

Particulars

X

Y

Z

Particulars

X

Y

Z

Profit and Loss A/c

1,500

1,500

1,000

Balance b/d

1,00,000

60,000

50,000

Advertise Suspense A/c

6,000

6,000

4,000

General Reserve

30,000

30,000

20,000

Y’s Capital A/c

18,000

 

12,000

Revaluation A/c

6,000

6,000

4,000

Y’s Loan A/c

 

1,58,500

 

X’s Capital A/c

 

18,000

 

Balance c/d

1,10,500

 

57,000

Z’s Capital A/c

 

12,000

 

 

 

 

 

 

1,36,000

1,26,000

74,000

 

1,36,000

1,26,000

74,000

 

 

 

 

 

 

 

 

 

Balance Sheet

as on April 01, 2021 (after Y’s Retirement)

Liabilities

Amount

( `)

Assets

Amount

( `)

Sundry Creditors

2,50,000

Cash at Bank

50,000

X’s Loan

50,000

Bills Receivable

60,000

Y’s Loan

1,58,500

Debtors

80,000

 

Capital A/c :

 

Less: Prov. For D.D.

(6,000)

74,000

 X

1,10,500

 

Stock (1,24,000 – 12,000)

1,12,000

 Z

57,000

1,67,500

Fixed Assets

3,30,000

 

 

(3,00,000 + 30,000)

 

 

6,26,000

 

6,26,000

 

 

 

 

                    

Y’s Loan Account

Dr.

 

Cr.

Particulars

Amount

( `)

Particulars

Amount

( `)

 

 

Balance b/d

40,000

Balance c/d

1,58,500

Y’s Capital A/c

1,18,500

 

1,58,500

 

1,58,500

 

 

 

 


Working Notes:

WN 1 Adjustment of Goodwill

 

X

 

Y

 

Z

Old ratio=

3      

:

3

:

2

Gaining ratio=

3     

 

:

 

2


Y’s share of Goodwill =80,000 ×3/8=30,000

X's Gain of Goodwill =30,000 ×3/5=18,000

Z's Gain of Goodwill ==30,000 ×2/5=12,000



WN 2 Distribution of General Reserve

X‘s share= 80,000×3/8=30,000

Y‘s share= 80,000×3/8=30,000

Z‘s share= 80,000×2/8=20,000



WN3 Writing-off Advisement Suspense

X‘s share= 16,000×3/8=6,000

Y‘s share= 16,000×3/8=6,000

Z‘s share= 16,000×2/8=4,000



WN4 Writing-off Profit and Loss (Loss)

X‘s share= 4,000×3/8=1,500

Y‘s share= 4,000×3/8=1,500

Z‘s share= 4,000×2/8=1,000

 



Page No 6.64:

Question 39:

X, Y and Z are partners sharing profits and losses in the ratio of 3 : 2 : 1. Balance Sheet of the firm as at 31st March, 2021 was as follows:
 

Liabilities

Amount

( `)

Assets

Amount

( `)

Creditors

21,000

Cash at Bank

5,750

Workmen Compensation Reserve

12,000

Debtors

40,000

 

Investments Fluctuation Reserve

6,000

Less: Provision for Doubtful Debts

2,000

38,000

Capital A/cs:

 

Stock

 

30,000

X

68,000

 

Investment (Market Value  ` 17,600)

15,000

Y

32,000

 

Patents

10,000

Z

21,000

1,21,000

Machinery

50,000

 

 

Goodwill

6,000

 

 

Advertisement Expenditure

5,250

 

 

 

 

 

 

1,60,000

 

1,60,000

 

 

 

 

 
Z retired on 1st April, 2021 on the following terms:
(a) Goodwill of the firm is to be valued at  ` 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  ` 750 is to be created.
(f) A liability of  ` 4,000 included in creditors is not to be paid.
(g) Amount due to Z to be paid as follows:  ` 5,067 immediately, 50% of the balance within one year and the balance by a draft for 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:

Journal

Date
 

Particulars

L.F.

Debit

Amount

( `)

Credit

Amount

( `)

2021

 

 

 

 

 

April 01

X’s Capital A/c

Dr.

 

3,000

 

 

Y’s Capital A/c

Dr.

 

2,000

 

 

Z’s Capital A/c

Dr.

 

1,000

 

 

            To Goodwill A/c

 

 

 

6,000

 

(Existing goodwill written off)

 

 

 

 

 

 

 

 

 

 

April 01

X’s Capital A/c

Dr.

 

3,480

 

 

Y’s Capital A/c

Dr.

 

2,320

 

 

            To Z’s Capital A/c

 

 

 

5,800

 

(Z’s share of goodwill credited to him and gaining partners debited in gaining ratio)

 

 

 

 

 

 

 

 

 

 

 

 

Revaluation Account

Dr.

 

Cr.

Particulars

Amount

( `)

Particulars

Amount

( `)

Patents

2,000

Investments

(17,600 – 15,000)

2,600

Machinery

5,000

Creditors

4,000

Prov. for Doubtful Debts

400

Loss on Revaluation transferred

 

 

 

X’s Capital A/c

400

 

 

 

Y’s Capital A/c

267

 

 

 

Z’s Capital A/c

133

800

 

 

 

 

 

7,400

 

7,400

 

 

 

 

 

 

 

 

 

 

 

  

Partners’ Capital Accounts

Dr.

 

Cr.

Particulars

X

Y

Z

Particulars

X

Y

Z

Goodwill A/c

3,000

2,000

1,000

Balance b/d

68,000

32,000

21,000

Revaluation A/c

400

267

133

X’s Capital A/c

 

 

3,480

Z’s Capital A/c

3,480

2,320

 

Y’s Capital A/c

 

 

2,320

Advertisement Expenditure A/c

2,625

1,750

875

Workmen Compensation Reserve A/c*

5,625

3,750

1,875

Investments A/c

 

 

17,600

Investment Fluctuation Reserve A/c*

3,000

2,000

1,000

Bank A/c

 

 

5,067

 

 

 

 

Z’s Loan A/c

 

 

2,500

 

 

 

 

Bills Payable A/c

 

 

2,500

 

 

 

 

Balance c/d

67,120

31,413

 

 

 

 

 

 

76,625

37,750

29,625

 

76,625

37,750

29,625

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet

as on April 01, 2021 after Z’s retirement

Liabilities

Amount

( `)

Assets

Amount

( `)

Creditors

17,000

Cash at Bank (5,750 – 5,067)

683

Workmen Compensation Claim

750

Stock

30,000

Bills Payable

2,500

Patents

8,000

Capital A/c’s:

 

 

Debtors A/c

40,000

 

X

67,120

 

Less: Prov. for D/ful Debts

2,400

37,600

Y

31,413

98,533

Machinery

45,000

Z’s Loan

2,500

 

 

 

1,21,283

 

1,21,283

 

 


Note: Amount due to Z = (21,000+3,480+2,320+1,875+1,000) - (1,000+133+875+17,600) =10,067Amout paid on Retirement immediately: ` 5,067

Amount paid within one year: 50% of 5,000 = ` 2,500 Amount payable by Bills of Exchange: ` 2,500 (balance 50%)

 



Page No 6.65:

Question 40:

Ashok, Bhaskar and Chaman were in partnership sharing profits and losses equally. ‘Chaman' retires from the firm. After adjustments, his Capital Account shows a credit balance of  ` 3,00,000 as on 1st April, 2018. Balance due to 'Chaman' is to be paid in three equal annual instalments along with interest @ 10% p.a. Prepare Chaman's Loan Account until he is paid the amount due to him. The firm closes its books on 31st March every year.

 

Answer:

Dr.

Chaman’s Loan A/c

Cr.

Date

Particulars

Amount

( `)

Date

Particulars

Amount

( `)

2019

 

 

2018

 

 

March 31

To Bank A/c (1,00,000 + 30,000)

1,30,000

April 01

By Chaman’s Capital A/c

3,00,000

March 31

To balance c/d

2,00,000

2019

 

 

 

 

 

March 31

By Interest on Loan A/c

30,000

 

 

 

 

(3,00,000 × 10/100)

 

 

 

3,30,000

 

 

3,30,000

2020

 

 

2019

 

 

March 31

To Bank A/c (1,00,000 + 20,000)

1,20,000

April 01

By balance b/d

2,00,000

March 31

To balance c/d

1,00,000

2020

 

 

 

 

 

March 31

By Interest on Loan A/c

20,000

 

 

 

 

(2,00,000 × 10/100)

 

 

 

2,20,000

 

 

2,20,000

2021

 

 

2020

 

 

March 31

To Bank A/c (1,00,000 + 10,000)

1,10,000

April 01

By balance b/d

1,00,000

 

 

 

2021

 

 

 

 

 

March 31

By Interest on Loan A/c              

10,000

 

 

 

 

(1,00,000 × 10/100)

 

 

 

1,10,000

 

 

1,10,000

 

 

 

 

 

 

Working Notes:   Amount payable per Installment =  ` (3,00,000/3) =  ` 1,00,000