# 12th | Ts grewal 2021-2022 Question 46 to 50 | Retirement of a partner

Page No 6.67:

Question 46:  X, Y and Z were in partnership sharing profits in proportion to their capitals. Their Balance Sheet as on

31st March, 2018 was as follows:

 Liabilities ` Assets ` Sundry Creditors 16,600 Cash 15,000 Workmen's Compensation Fund 9,000 Debtors 21,000 General Reserve 6,000 Less: Provision for Doubtful Debts (1,400) 19,600 Capitals: Stock 19,000 X Y Z 90,000 60,000 30,000 1,80,000 Machinery Building 58,000 1,00,000 2,11,600 2,11,600

On the above date, Y retired owing to ill health. The following adjustments were agreed upon for calculation of amount due to Y:

(a) Provision for Doubtful Debts to be increased to 10% of Debtors.

(b) Goodwill of the firm be valued at 36,000 and be adjusted into the Capital Accounts of X and Z, who will share profits in future in the ratio of 3 :1.

(c)Included in the value of Sundry Creditors was `2,500 for an outstanding legal claim, which will not arise.

(d) X and Z also decided that the total capital of the new firm will be `1,20,000 in their profit-sharing ratio. Actual cash to be brought in or to be paid off as the case may be.

(e) Y to be paid `9,000 immediately and balance to be transferred to his Loan Account.

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

(CBSE Sample Paper 2019)

 Revaluation Account Dr. Cr. Particulars Amount ( `) Particulars Amount ( `) To provision for doubtful debts 700 By sundry creditors 2,500 To capital a/c – Profit transferred;  X=1800×3/6=900 y=1800×2/6=600 Z=1800×1/6=300 1,800 2,500 2,500

 Partners’ Capital Accounts Dr. Cr. Particulars X Y Z Particulars X Y Z To Y’s capital a/c 9,000 3,000 By Balance b/c 90,000 60,000 30,000 To Cash a/c 9,000 By X’s Capital a/c 9,000 To Y’s loan a/c 68,600 By Z’s Capital a/c 3,000 To  Balance C/d 89,400 29,800 By Workers’ compensation fund 4,500 3,000 1,500 By General reserve 3,000 2,000 1,000 By Revaluation a/c 900 600 300 98,400 77,600 32,800 98,400 77,600 32,800 To  Balance C/d 90,000 30,000 By Balance b/d 89,400 29,800 By Cash a/c 600 200 90,000 30,000 90,000 30,000

 Balance Sheet as on April 01, 2018 after Z’s retirement Liabilities Amount ( `) Assets Amount ( `) Sundry creditors 14,100 Cash a/c (15,000-9000+600+200) 6,800 Capital a/c Debtors                            21,000 Less; Prov. For D.D.        2,100 18,900 X= 90,000 Z= 30,000 1,20,000 Stock Machinery 19,000 58,000 Y’s loan a/c 68,600 Buildings 1,00,000 2,02,700 2,02,700

Working notes;

WN-1 Calculation of new and gaining ratio

Old ratio of X,Y and Z =90,0000:60,000:30,000=3:2:1

New ratio of X and Z= 3:1

Gaining ratio= New ratio- Old ratio

X’s gain = ¾- 3/6 =18-12/24=6/24

Z’s gain =1/4-1/6=6-4/24=2/24

Gaining ratio of A:C = 6:2=3:1

WN-2 treatment of Goodwill

Goodwill of the firm= 36,000

Y will be compensated for 36,000×2/6=12,000

X will compensate =12,000×3/4=9,000

Z will compensate =12,000×1/4=3,000

Condition for goodwill treatment: Remaining partner to retiring partner

 X’s capital     a/c Dr. 9,000 Z’s capital     a/c Dr. 3,000 To Y’s capital a/c 12,000

X’s capital = 1,20,000×3/4=90,000

Z’s capital = 1,20,000×1/4=30,000

#### Question 47:

Amit, Balan and Chander were partners in a firm sharing profits in the proportion of 1/2, 1/3 and 1/6 respectively. Chander retired on 1st April, 2014. The Balance Sheet of the firm on the date of Chander's retirement was as follows:

 Liabilities Amount ( `) Assets Amount ( `) Sundry Creditors 12,600 Bank 4,100 Provident Fund 3,000 Debtors 30,000 General Reserve 9,000 Less: Provision 1,000 29,000 Capital A/cs: Amit 40,000 Stock 25,000 Balan 36,500 Investments 10,000 Chander 20,000 96,500 Patents 5,000 Machinery 48,000 1,21,100 1,21,100

It was agreed that:
(i)  Goodwill will  be valued at
` 27,000.
(ii) Depreciation of 10% was to be provided on Machinery.
(iii) Patents were to be reduced by 20%.
(iv) Liability on account of Provident Fund was estimated at  ` 2,400.
(v) Chander took over Investments for  ` 15,800.
(vi) Amit and Balan decided to adjust their capitals in proportion of their profit-sharing ratio by opening Current Accounts.
Prepare Revaluation Account and Partners' Capital Accounts on Chander's retirement.

 Revaluation Account Dr. Cr. Particulars Amount ` Particulars Amount ` Machinery 4,800 Investments A/c 5,800 Patents 1,000 Provident Fund A/c 600 Profit transferred to: Amit’s Capital A/c 300 Balan’s Capital A/c 200 Chander’s Capital A/c 100 600 6,400 6,400

 Partners’ Capital Account Dr. Cr. Particulars Amit Balan Chander Particulars Amit Balan Chander Investments A/c 15,800 Balance b/d 40,000 36,500 20,000 Chander’s Capital A/c 2,700 1,800 Revaluation A/c (Profit) 300 200 100 Loan A/c 10,300 General Reserve 4,500 3,000 1,500 Current A/c 5,900 Amit’s Capital A/c 2,700 Balance c/d 48,000 32,000 Balan’s Capital A/c 1,800 Current A/c 5,900 50,700 39,700 26,100 50,700 39,700 26,100

Working Notes:

Chander’s share of Goodwill =27,000 ×1/6=4,500

Amit wil pay=4,500×3/5=2,700

Balan wil pay=4,500×2/5=1,800

Adjusted Old Capital of Amit=44,800 (40,000+4,500+300)-2,700=
` 42,100

Adjusted Old Capital of Balan=39,700 (36,500+3,000+200)-1,800=` 37,900

New Profit Sharing Ratio=3:2

Amit's New Capital=80,000×3/5=` 48,000

Balan's New Capital=80,000×2/5=` 32,000

Note: Since, here no information is given regarding the share acquired by Amit and Balan, therefore, their gaining ratio is same as their new profit sharing ratio i.e. 3 : 2.

#### Question 48:

J, H and K were partners in a firm sharing profits in the ratio of 5 : 3 : 2. On 31st March, 2015, their Balance Sheet was as follows:

 Liabilities Amount ( `) Assets Amount ( `) Creditors 42,000 Land and Building 1,24,000 Investment Fluctuation Fund 20,000 Motor Vans 40,000 Profit and Loss Account 80,000 Investments 38,000 Capital A/cs: J 1,00,000 Machinery 24,000 H 80,000 Stock 30,000 K 40,000 2,20,000 Debtors 80,000 Less: Provision 6,000 74,000 Cash 32,000 3,62,000 3,62,000

On the above date, H retired and J and K agreed to continue the business on the following terms:
(i) Goodwill of the firm was valued at
` 1,02,000.
(ii) There was a claim of  ` 8,000 for workmen's compensation.
(iii) Provision for bad debts was to be reduced by  ` 2,000.
(iv) H will be paid
` 14,000 in cash and balance will be transferred in his Loan Account which will be paid in four equal yearly instalments together with interest @ 10% p.a.
(v) The new profit-sharing ratio between J and K will be 3 : 2 and their capitals will be in their new profit-sharing ratio. The capital adjustments will be done by opening Current Accounts.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the new firm.

 Revaluation Account Dr. Cr. Particulars Amount ` Particulars Amount ` Claim for Workmen Comp. 8,000 Provision for Doubtful Debts 2,000 Loss on Revaluation J’s Capital A/c 3,000 H’s Capital A/c 1,800 K’s Capital A/c 1,200 6,000 8,000 8,000

 Partners’ Capital Account Dr. Cr. Particulars J H K Particulars J H K Revaluation A/c 3,000 1,800 1,200 Balance b/d 1,00,000 80,000 40,000 H’s Capital A/c 10,200 20,400 IFF 10,000 6,000 4,000 Cash A/c 14,000 P&L A/c 40,000 24,000 16,000 H’s Loan A/c 1,24,800 J’s Capital 10,200 Balance c/d 1,36,800 38,400 K’s Capital 20,400 1,50,000 1,40,600 60,000 1,50,000 1,40,600 60,000 Current A/c 31,680 Balance b/d 1,36,800 38,400 Balance c/d 1,05,120 70,080 Current A/c 31,680 1,36,800 70,080 1,36,800 70,080

 Balance Sheet as on March 31, 2015 Liabilities Amount (`) Assets Amount (`) Creditors 42,000 Land and Building 1,24,000 Capitals: Motor Vans 40,000 J 1,05,120 Investments 38,000 K 70,080 1,75,200 Machinery 24,000 J’s Current A/c 31,680 Stock 30,000 Claim for Workmen Compensation 8,000 Debtors 80,000 H’s Loan A/c 1,24,800 Less: Provision 4,000 76,000 Cash (32,000 - 14,000) 18,000 K’s Current A/c 31,680 3,81,680 3,81,680

Working Notes:

WN1: Calculation of Gaining Ratio

Gaining ratio=New ratio –old ratio

 J’s =3/5-5/10 =1/10 k’s =2/5-2/10 =2/10

Gaining ratio=1:2

H’s share of Goodwill =1,02,000×3/10=30,600

30,600 will be debited to gaining partners J and K in 1:2 ratio

j‘s share= 30,600×1/3=10,200

K‘s share= 30,600×2/3=20,400

J‘s new capital = 1,75,200×3/5=1,05,120

K‘s new capital = 1,75,200×2/5=70,080

K‘s new capital > K‘s adjuted capital  ( k owes to firm `. 31,680)

J‘s new capital < J‘s adjusted capital( Firm owes to J ` 31,680)

WN4 Amount transferred to H’s Loan A/c

Amount to be transferred = (Credit side - Debit side) - Cash Paid

= (1,40,600 - 1,800) - 14,000 = ` 1,24,800

#### Question 49:

N, S and B are partners in a firm sharing profits and losses in the proportion of 1/2 : 1/6 : 1/3 respectively. The Balance Sheet of the firm as at On 31st March, 2017,was as follow:

 BALANCE SHEET OF N,S AND B as at 31st march, 2017 Liabilities Amount ( `) Assets Amount ( `) Bills Payable 12,000 Freehold Premises 40,000 Sundry Creditors 18,000 Machinery 30,000 General Reserve 12,000 Furniture 12,000 Capital A/cs: Stock 22,000 N 30,000 Sundry Debtors 20,000 S 30,000 Less: Provision for Doubtful Debts 1,000 19,000 B 28,000 88,000 Cash 7,000 1,30,000 1,30,000

B retired from the business on the above date and the partners agree to the following:
(a) Freehold Premises and Stock are to be appreciated by 20% and 15% respectively.
(b) Machinery and Furniture are to be reduced by 10% and 7% respectively.
(c) Provision for Doubtful Debts is to be increased to
` 1,500.
(d) Goodwill of the firm is valued at
` 21,000 on B's retirement.
(e) Continuing partners to adjust their capitals in their new profit-sharing ratio after retirement of B. Surplus/deficit, if any, in their Capital Accounts will be adjusted through Current Accounts.
Prepare necessary Ledger Accounts and draw the Balance Sheet of the reconstituted firm.

 Revaluation Account Dr. Cr. Particulars Amount ( `) Particulars Amount ( `) Machinery (30,000 × 10%) Furniture (12,000 × 7%) 3,000 840 Freehold Premises (40,000 × 20%) 8,000 Provision for Doubtful Debts 1,500 Stock (22,000 × 15%) 3,300 Profit transferred to: N’s Capital A/c 2,980 S’s Capital A/c 993 B’s Capital A/c 1,987 6,960 11,300 11,300

 Partner’s Capital Accounts Dr. Cr. Particulars N S B Particulars N S B B’s Capital A/c 5,250 1,750 Balance b/d 30,000 30,000 28,000 B’s Loan A/c 40,987 General Reserve 6,000 2,000 4,000 Balance c/d 33,730 31,243 40,987 N’s Capital A/c (Goodwill) 5,250 B’s Capital A/c (Goodwill) 1,750 Revaluation A/c (Profit) 2,980 993 1,987 38,980 32,993 40,987 38,980 32,993 40,987 Y’s Current A/c 7,500 Balance b/d 33,730 31,243 Balance c/d 48,730 16,243 X’s Current A/c 15,000 48,730 31,243 48,730 31,243

 Balance Sheet as on 1st April, 2017 Liabilities Amount ( `) Assets Amount ( `) Bills Payable 12,000 Freehold Premises (40,000 + 8,000) 48,000 Sundry Creditors 18,000 Machinery (30,000 – 3,000) 27,000 B’s Loan 40,987 Furniture (12,000 – 840) 11,160 Capital A/cs: Stock (22,000 + 3,300) 25,300 N 48,730 Sundry Debtors 20,000 S 16,243 64,973 Less: Provision for Doubtful Debts (2,500) 18,500 S’s Current A/c 15,000 Cash 7,000 N’s Current A/c 15,000 1,50,960 1,50,960

Working Notes

WN 1 Calculation of Profit Sharing Ratio

Old Ratio (N, S and B) = 3 : 1 : 2

B retires from the firm.

New Ratio (N and S) = 3 : 1 and

Gaining Ratio = 3 : 1

Goodwill of the firm =
` 21,000

B’s Share of Goodwill =
= 21,000×2/6=7,000

This share of goodwill is to be distributed between N and S in their gaining ratio (i.e. 3 : 1).

N‘s share
= 7,000×3/4=5,250

S‘s share= 7,000×1/4=1,750

Condition for goodwill treatment; gaining partner to retiring partner

N’s capital a/c            Dr.                5,250
S’s Capital a/c           Dr.                1,750

To B’s Capital a/c                                   7,000

WN 3 Adjustment of Partners’ Capital after B’s Retirement

Combined Capital of N and S after all adjustments = 33,730 + 31243 =
`. 64,973

New Ratio = 3 : 1

N‘s new capital
= 64,973×3/4=48,730

S‘s new capital = 64,973×1/4=16,243

#### Page No 6.69:

Question 50: Leena, Madan and Naresh were partners in a firm sharing profits and losses in the ratio of 2:2 :3. On 31st March, 2015, their Balance Sheet was as follows:

 BALANCE SHEET as at 31st March, 2015 Liabilities ` Assets ` Trade Creditors 1,60,000 Land and Building 10,00,000 Bank Overdraft 44,000 Machinery 5,00,000 Long-term Debts 4,00,000 Furniture 7,00,000 Employees' Provident Fund 76,000 Investments 2,00,000 Capitals: Closing Stock 8,00,000 Leena 12,50,000 Madan 8,00,000 Sundry Debtors 4,00,000 Naresh 10,50,000 31,00,000 Bank 80,000 Deferred Advertisement Expenditure 1,00,000 37,80,000 37,80,000

On 31st March, 2015, Madan retired from the firm and the remaining partners decided to carry on the

business. It was decided to revalue assets and liabilities as under:

(i) Land and Building be appreciated by `2,40,000 and Machinery be depreciated by 10%.

(ii) 50% of Investments were taken over by the retiring partner at book value.

(iii) An old customer Mohit whose account was written off as bad debt had promised to pay `7,000 in settlement of his full debt of `10,000.

(iv) Provision for Doubtful Debts was to be made at 5% on debtors.

(v) Closing Stock will be valued at market price which is `1,00,000 less than the book value.

(vi) Goodwill of the firm be valued at `5,60,000 and Madan's share of goodwill be adjusted in the accounts of Leena and Naresh. Leena and Naresh decided to share future profits and losses in the ratio of 3:2.

(vii) The total capital of the new firm will be `32,00,000 which will be in the proportion of the profit sharing ratio of Leena and Naresh.

(vii) Amount due to Madan was settled by accepting a Bill of Exchange in his favour payable after 4 months.

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

(AI 2016 C)

 Revaluation Account Dr. Cr. Particulars Amount ( `) Particulars Amount ( `) Machinery Provision for D.D. Capital – profit transferred to; Leena = 70,000×2/7=20,000 Madan = 70,000×2/7=20,000 Naresh = 70,000×3/7=30,000 50,000 1,00,000       70,000 Land and building 2,40,000 2,40,000 2,40,000

 Partner’s Capital Accounts Dr. Cr. Particulars Leena Madan Naresh Particulars Leena Madan Naresh To Madan’s capital a/c To Naresh’s capital a/c To Def. Adv. exp. A/c 1,60,000 16,000 28,571 28,571 42,858 By Balance b/d By Leena’s capital a/c By Revaluation a/c 12,50,000   20,000 8,00,000 160,000 20,000 10,50,000 16,000 30,000 To Investment a/c 1,00,000 To bills payables a/c 8,51,429 To Balance C/d 10,65,429 10,53,142 12,70,000 9,80,000 10,96,000 12,70,000 9,80,000 10,96,000 To Balance C/d 19,20,000 12,80,000 By Balance b/d By Cash a/c 10,65,429 8,54,571 10,53,142 2,26,858 19,20,000 12,80,000 19,20,000 12,80,000

 Balance Sheet as on 1st April, 2015 Liabilities Amount ( `) Assets Amount ( `) Trade creditors Bank overdraft Long-term Debts Employees provident fund 160,000 44,000 4,00,000 76,000 Land and building Machinery Furniture Investment Closing Stock 12,40,000 4,50,000 7,00,000 1,00,000 7,00,000 Capital Leena = 1920,000 Naresh= 12,80,000 32,00,000 Debtors                                  4,00,000 Less; prov. For D.D.                20,000 Cash (80,000+8,54,571+2,26,858) 3,80,000 11,61,429 Bills payables 8,51,429 47,31,429 47,31,429

Working Notes

WN 1 Calculation of Profit Sharing Ratio

Old Ratio (Leena , Madan and Naresh) = 2 : 2 : 3
New Ratio (Leena and Naresh) = 3 : 2 and

Gaining ratio= new ratio- old ratio

Leena’s = 3/5-2/7=21-10/35=11/35 (gain)
Naresh’s =2/5- 3/7=14-15/35= -1/35 (Sacrifice)

Goodwill of the firm =
` 5,60,000

Naresh will be compensated =5,60,000×1/35=16,000

Leena will compensate =5,60,000×11/35=1,76,000

Condition for goodwill treatment; gaining partner to retiring partner

Leena’s capital a/c            Dr.                176,000

To Naresh’s Capital a/c                                      16,000

leena’s capital= 32,00,000×3/5=19,20,000

Naresh’s capital= 32,00,000×2/5=12,80,000

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